Mills v. Bonin

Annotate this Case

80 S.E.2d 365 (1954)

239 N.C. 498


No. 737.

Supreme Court of North Carolina.

February 24, 1954.

*367 Eugene H. Phillips, Winston Salem, for plaintiff, appellee.

Dallace McLennan and John R. Surratt, Winston Salem, for defendant, appellant.

PARKER, Justice.

This is an action between the payee and the maker of the five notes. No rights of third parties are involved. The defendant has pleaded total failure of consideration as a defense. The rule prohibiting the introduction of parol evidence to vary, modify or contradict the terms of a written instrument was not violated by the introduction of evidence by the defendant tending to show a total failure of consideration. Swift & Co. v. Aydlett, 192 N.C. 330, 135 S.E. 141; American Agricultural Chemical Co. v. Griffin, 202 N.C. 812, 164 S.E. 577; Galloway v. Thrash, 207 N.C. 165, 176 S.E. 303; Royster v. Hancock, 235 N.C. 110, 69 S.E.2d 29.

The notes sued upon are under seal, which purports a consideration, but such presumption is rebuttable. Patterson v. Fuller, 203 N.C. 788, 167 S.E. 74; Lentz v. K. B. Johnson & Sons, Inc., 207 N.C. 614, 178 S.E. 226; Royster v. Hancock, supra.

G.S. § 25-33 provides that absence or failure of consideration is matter of defense to a negotiable instrument as "against any person not a holder in due course * * *."

It is the general rule in this jurisdiction, and elsewhere, that a total failure of the consideration for a note under seal renders it unenforceable in the hands of any person other than a holder in due course. Continental Jewelry Co. v. Stanfield, 183 N.C. 10, 110 S.E. 585; Swift & Co. v. Etheridge, 190 N.C. 162, 129 S.E. 453; Patterson v. Fuller, supra; Perry v. First Citizens Nat. Bank & Trust Co., 226 N.C. 667, 40 S.E.2d 116; Royster v. Hancock, supra; 10 C.J.S., Bills and Notes, § 152, p. 626.

As a general rule the term consideration, as affecting the enforceability of contracts, consists of some benefit or advantage to the promisor, or of some loss or detriment to the promisee. Cherokee County v. Meroney, 173 N.C. 653, 92 S.E. 616; Exum v. Lynch, 188 N.C. 392, 125 S.E. 15; Stonestreet v. Southern Oil Co., 226 N.C. 261, 37 S.E.2d 676.

The defense of absence or failure of consideration may be made to an action on notes given for the purchase price of property. 7 Am.Jur., Bills and Notes, p. 950, where numerous cases are cited.

We said in Fair v. Shelton, 128 N.C. 105, 38 S.E. 290: "To render a promise void upon an entire failure of consideration, it must appear that the consideration upon which it was supposed to be based did not in fact exist, and its nonexistence was unknown to the parties. For instance, where the grantor sells and conveys land to which he has no title (both parties assuming that he has), the grantee gets nothing; there is a failure of consideration; but otherwise should the grantee purchase such right, title, and interest as grantor might have, for here the maxim of caveat emptor applies. Foy v. Haughton, 85 N.C. 168." (This is a case of quitclaim deedparenthesis ours.) "Likewise if a vendee gets that which he buys, though worthless (in the absence of deceit), for he buys upon his own judgment, and at his own risk, in not requiring a warranty. So, also, in the absence of fraud, the buyer is *368 liable for the price agreed to be paid for worthless stock in a corporation, where he receives that for which he contracted, though it was known by the seller to be worthless." See also Johnson v. Smith, 86 N.C. 498.

"While some decisions appear to have reached a contrary conclusion, it is often held that a sale or transfer of property does not constitute consideration for an undertaking on a bill or note if the seller or transferor completely lacks title to the thing sold or transferred, except where the sale is intended to be merely of such title as the seller has, if any." (For instance a quitclaim deed, 8 C.J., p. 227). 10 C.J.S., Bills and Notes, § 151, p. 614. See also Williston on Contracts Rev.Ed. Secs. 1570 et seq.; Anno. 1 A.L.R.2d p. 37, Sec. 16, p. 52, Sec. 19.

In the case under consideration the defendant's evidence tended to show that the defendant agreed to buy the plaintiff's interest in the partnership for a sum equal to the value of the net worth of the plaintiff's interest; that the plaintiff managed the business entirely; that the defendant was not familiar with the condition of the business, relying completely upon what the plaintiff told him of its condition; that it was mutually agreed between the parties that an auditor should be employed to show what the net worth of the plaintiff's interest was; that this audit by mistake showed the net worth of plaintiff's interest was $7,000 or $9,000 and that the parties by negotiation reduced the amount to $6,800. That the defendant then paid to plaintiff $800 in cash, and executed and delivered to him $6,000 in promissory notes, and the plaintiff executed to the defendant a bill of sale for his interest in the business. The defendant's evidence further tended to show that about 15 days after the execution of the notes and bill of sale the defendant's attention was called to the mistake in the first audit, and that he had another audit made which disclosed that the liabilities of the business exceeded its assets, and that the plaintiff had no net worth in the business, that he had nothing to convey; that the supposed consideration for the $800 in cash and the six promissory notes did not in fact exist. That before the defendant learned this he had paid the plaintiff one promissory note for $1,000.

The plaintiff contends that the evidence tends to show there was no total failure of consideration.

We are of the opinion that the defendant's defense of a total failure of consideration should have been submitted to the jury upon proper instructions, and that the peremptory charge of the court was error. Continental Jewelry Co. v. Stanfield, supra; Perry v. First Citizens Nat. Bank & Trust Co., supra; Home Finance Co. v. O'Daniel, 237 N.C. 286, 74 S.E.2d 717.

If, upon a new trial, the jury should find there was a total failure of consideration, the defendant will be entitled to recover from the plaintiff the $1,800 he paid him upon the plain principle of justice that the defendant through ignorance of the facts paid the plaintiff $1,800 for nothing. Anderson v. Hawkins, 10 N.C. 568; Page v. Einstein, 52 N.C. 147; 48 C. J., Payment, p. 768 (where numerous cases are cited); 70 C.J.S., Payment, § 158; 40 Am.Jur., Payment, Sec. 214. In stating this conclusion we must not be understood as expressing any opinion as to the weight or conclusiveness of the evidence for that is the province of the jury. G.S. § 1-180.

The defendant's assignment of error to the lower court's dismissing his claim for the recovery of the $1,800 he paid the plaintiff is sustained.

The defendant is entitled to a New Trial, and it is so ordered.

New trial.

BOBBITT, J., took no part in the consideration or decision of this case.