Miller v. Howell, 184 N.C. 119 (1922)

Sept. 27, 1922 · Supreme Court of North Carolina

184 N.C. 119

G. L. MILLER v. W. H. HOWELL.

(Filed 27 September, 1922.)

1. Contracts — Fraud — Stipulations — Parol Evidence — Principal and Agent — Bills and Notes — Negotiable Instraments.

Stipulations in a written contract made by an agent in bebalf of bis principal that exclude all evidence of agreements made by tbe agent that are not contained in tbe written contract are maintainable when tbe contract itself is valid and enforceable; but where tbe verbal representations of tbe agent are fraudulent, and affect the existence of tbe contract, they are admissible to set it aside in its entirety.

2. Contracts — Statutes—Public Policy — Fraud.

Where a note is given in consideration of a contract concerning a transaction that is forbidden and made criminal by tbe public laws of the State, it is not enforceable between tbe parties; and it is not required that tbe statute expressly declare tbe contract void. OTier v. Katmenstein, 160 N. C., 439, cited and distinguished.

3. Same — Foodstuffs—Commissioner of Agriculture.

Where a note is given in consideration of tbe sale of a foodstuff or “conditioner” coming within tbe provisions of C. S., 4742, requiring tbe seller to file with tbe Commissioner of Agriculture a statement of bis purpose, a duly verified certificate as to its qualities, for registration, with a labeled package, section 4743 requiring a fee for registration, section 4744 making a noncompliance a misdemeanor, and section 4749 declaring tbe legislation designed .to protect the public from deception and fraud, and these requirements have not been complied with by tbe seller, tbe note is uncollectible against tbe purchaser or maker.-

4. Contracts — Public Policy — Statutes—Fraud—Bills and Notes — Negotiable Instruments — Holder With Notice.

Where it is properly established by tbe verdict of tbe jury that a note, rendered void for fraud or under tbe provisions of a statute, bad been acquired by one not a bolder for value, without notice, etc., tbe claim is affected with tbe infirmities that would invalidate it in tbe bands of tbe original holder.

Appeal by plaintiff from Calvert, J., at tbe Fall Term, 1922, of NORTHAMPTON.

Tbe action is on a promissory note for $843.78, given by defendant to tbe Guarantee Food Company of New York, vendor, dated 3 December, 1917, payable sixty days after date. Plaintiff put on evidence tbe note endorsed to bimself, and also a contemporaneous written contract of purchase containing tbe stipulation tbat defendant agreed to adhere strictly and be bound by the terms and conditions specified in tbe order, and release tbe Guarantee Food Company of New York from any verbal agreements or conditions of sale not mentioned on tbe face of tbe order, etc., etc.

Plaintiff further alleged, and offered evidence tending to show, that he was the endorsee and bona fide holder for value of said note, and same was due and unpaid.

Defendant denied that plaintiff was a purchaser for value and holder in due course of the note in question, and alleged, and offered evidence tending to show, that this note sued on was -given to the Guarantee Pood Company for stock or poultry conditioner, a food, and at time of contract, and as an inducement thereto, said company, through its agent, represented to defendant, a local merchant, that same was a duly registered article under the laws of this State, a license to sell same having been duly obtained by the vendor company, and made other representations as to the value of his said goods which were false and fraudulent, .and made with the design and purpose to cheat and mislead the defendant. That said attempted sale was made by said company and, to plaintiff’s knowledge, in direct violation of the laws of the State, in that the article had not been registered nor the tax paid nor license procured, as required by the statute, and the said company and its agent were therefore without lawful authority to make any such sale. That defendant signed at the time of the bargain and before shipment, doing this at the request of the company’s agent, who said he didn’t care to come back that way for the mere purpose of taking the notes. That before the receipt of goods defendant had become aware that the company’s agent had made the false and fraudulent representations, as stated, and that the goods had never been registered under the law, nor had vendor company nor any other ever acquired any right to sell the same in this State, and thereupon defendant had refused the goods and never taken any of them from the railroad warehouse.

It appeared further that plaintiff G. L. Miller was the manager of a company in Ohio, who had made and shipped the goods at the instance of and for vendor company under its pretended contract. The cause was submitted to the jury, and verdict rendered on the following issues:

“1. Is the plaintiff the owner of the notes sued on? Answer: ‘Yes.’

“2. Was the defendant induced by fraud to execute and deliver the notes sued on? Answer: ‘Yes.’

“3. If so, did plaintiff purchase same before maturity? Answer: ‘No.’

“4. If so, did plaintiff purchase same for value? Answer: ‘No.’

“5. Did plaintiff purchase said note without notice of any infirmity or defect? Answer: ‘No.’”

Judgment on the verdict for - defendant, and plaintiff excepted and appealed, assigning errors.

Stanley Winborne for plaintiff.

W. H. S. Burgwyn, D. G. Barnes, and, G. B. Mictyette for defendant.

Hoee, J.

There are various exceptions noted by the appellant, more •especially as to the determination of the second issue, that as to the procurement of the contract by fraud, the objections being chiefly to the admission and consideration of evidence in contravention of the written stipulations of the contract that defendant “would adhere and be strictly bound by its-terms, and releasing the vendor from any verbal agreements or conditions not mentioned on the face of the order.”

As pointed out in some of our decisions on the subject, restrictions of this character may be made effective where they appear in a written agreement which abides as the contract of the parties and is controlling in the controversy between them, but they are not allowed to prevail on an issue of fraud involving the validity of the contract itself, and the statements of the agent are offered as tending to show false and fraudulent representations inducing the contract and pertinent to such an issue. Machine Co. v. Bullock, 161 N. C., 1; Machine Co. v. Feezer, 152 N. C., 516.

The matter is not further pursued, however, for in our opinion, and regardless of any finding on the second issue, no recovery can be had on this note for the reason that same grows out of and is dependent on a transaction forbidden and made criminal by the Public Laws of the State. In 1909, ch. 556, C. S., 4742, it is provided that this foodstuff, or conditioner, the subject-matter of the contract, shall not be sold or offered for sale in this State until the appellant shall file with Commissioner of Agriculture a statement of his purpose, and also for registration a duly verified certificate as to its qualities, and also file with said commissioner a labeled 'package of each brand, etc.

In section 4743, a registration fee of $20 is required. Section 4744 provides that any person, corporation, or agent who shall offer fo.r sale any of these articles without having complied with the statutory requirements appertaining thereto shall be guilty of a misdemeanor, etc. And section 4749 closes with the provision that this legislation is designed to protect the public from deception and fraud in the sale of these specified products.

It clearly appears in this record, and was practically admitted on the argument, that, in regard to this stock and poultry conditioner, the subject-matter of this contract, and for which the note was given, there was an entire failure to comply with these statutory provisions, and, under our decisions applicable, we must hold that the note is not enforceable, assuredly so as between the parties, or as to persons who take without value or with notice of the infirmity. Courtney v. Parker, 173 N. C., 479, citing Lloyd v. R. R., 151 N. C., 536-540; Edwards v. Goldsboro, 141 N. C., 60, and other cases.

It is insisted for tbe appellant that, tbe statute not having avoided tbe contract in express terms, tbe statutory provision by indictment is alone available, to be prosecuted by tbe State, and that- tbe Court in' effect bas so beld in Ober v. Kaizenstein, 160 N. C., 439. In tbe case cited, tbe statute, now O. S., 1181, requires a foreign corporation, before doing business in tbis State, to file its charter, etc., witb our Secretary of State, witb an attested statement showing tbe amount of stock authorized, and issued, its principal place of business, tbe name of its agent in charge, names and postoifice address of its officers and directors, etc., and in case of failure to comply, imposes a penalty of $500 to be recovered by a suit to be prosecuted by tbe Attorney-General. And it was beld that from tbe character of tbe act and its evident purpose tbe contracts of a foreign corporation doing business in tbe State without compliance were not avoided, but that tbe penalty alone was enforceable, and by action as tbe statute prescribed, but in tbe instant case the sales of tbe kind presented are directly prohibited,,are made.a criminal offense, and it is in terms declared that tbe statute is enacted for tbe purpose of protecting tbe public from “deception and fraud.”

In our view, tbe law appertaining to these facts and the distinction between tbis and tbe case of Ober v. Katzenstein, supra, are correctly given in Courtney’s case, supra, as follows: “It is well established that no recovery can be bad on a contract forbidden by tbe positive law of tbe State, and tbe principle prevails as a- general rule whether it is forbidden in express terms or by implication arising from tbe fact that the transaction in question bas been made an indictable offense or subjected to tbe imposition of a penalty. Lloyd v. R. R., 151 N. C., 536-540; Edwards v. Goldsboro, 141 N. C., 60; Puckett v. Alexander, 102 N. C., 95; Warden v. Plummer, 49 N. C., 524; Sharp v. Farmer, 20 N. C., 255. In reference to an avoidance of a contract by reason of an implied prohibition, it is tbe rule very generally enforced that recovery is denied to tbe offending party when tbe transaction in question is in violation of a statute establishing a general police regulation to “safeguard tbe public health or morals, or to protect tbe general public from fraud or imposition.” Tbis was beld in a recent case of tbe Supreme Court of Michigan, on a statute very similar to ours, in Cashin v. Pliter, 168 Mich., 386, and tbe position is approved by many well considered decisions of other courts. Levinson v. Boas, 150 Cal., 185; McConnel v. Kitchens, 20 S. C., 430; Taliaferro v. Moffitt, 54 Ga., 150; Pinney v. Natl. Bank, 68 Kansas, 223; Woods v. Armstrong, 54 Ala., 150; Deaton v. Lawson, 40 Wash., 486.

In Pinney’s case, supra, it was beld that, “Where a statute expressly provides that a violation thereof shall be a misdemeanor, a contract made in direct violation of tbe same is illegal, and there can be no recovery thereon, though the statute does not in express terms prohibit the contract and pronounce it void.”

And in Lloyd’s caso, supra, the position is stated as follows: “It is very generally held, universally so far as we are aware, that an action never lies when a plaintiff must have his claim, in whole or in part, on a violation by himself of the criminal or penal laws of the state.”

True, there are many cases.which hold that the imposition of a-penalty, without more, will not always have the effect of avoiding the contract, but that when the agreement is not immoral or criminal itself, the courts, on perusal of the entire statute, its language, purpose, etc., may determine whether it was the meaning and intent of the Legislature to restrict the operation of the law to the penalty as expressed and specified therein or give it the further effect of avoiding the contract. To this principle may be referred the decisions as to the effect of penalties under the usury statutes and those in enforcement of the collection' of taxes, etc., and, generally, the cases of Ober v. Katzenstein, 160 N. C., 439, in our own Court; Harris v. Runnels, 53 U. S. (12 Howard), 79; Bowditch v. New England Life Ins. Co., 141 Mass., 474; Neimeyer v. Wright, 75 Va., 239; Pangborn v. Westlake, 36 Iowa, 546; Lester v. Bank, 33 Md., 558; Dunlop v. Mercer, 156 Fed., 545, are in illustration of the position.

On this record we are not called on to determine whether payment of the note could be enforced by a bona fide endorsee for value and before maturity, for the jury have found, and with no valid exception noted, that plaintiff is neither a holder for value nor without notice, nor even before maturity; and, therefore, his claim is affected’ with any of the infirmities available as between the original parties.

There is no reversible error in the record, and the judgment on the verdict is affirmed.

No error.