In an action by the payee of a negotiable promissory note
against the maker, evidence is admissible to show a parol agreement
between the parties, made at the time of the making of the note,
that it should not become operative as a note until the maker could
examine the property for which it was to be given and determine
whether he would purchase it.
This action was brought by the testator of the appellees upon a
writing purporting to be the promissory note of the appellant for
$4,308.80, dated Salt Lake City, Utah, August 10, 1883, and payable
one year after date, for value received at the bank of Wells, Fargo
& Co. in that city, with interest at the rate of six percent
per annum from date until paid.
Page 153 U. S. 229
The defendant, Burke, denied his liability upon the note, and at
the trial below was sworn as a witness on his own behalf. In
support of his defense as set forth in the answer filed by him, he
stated the circumstances under which the note was given. He
said:
"Mr. Dulaney bought this group of mines -- the Live Yankee and
the Mary Ellen. He came to the Walker House in Salt Lake and wanted
me to run them for him. I said I would not do it unless I got a
show to get some interest in the property. He says, 'I will carry
an interest for you, and you can take it if you want it, and, if
not, you can give it back to me after you see the property.'"
To this testimony the plaintiff objected, and the defendant
admitting that the agreement referred to by him was oral, the
objection was sustained. To this ruling he excepted.
Being asked what he did after giving the note in suit, he
answered:
"I gave the note. I worked on the property, which was done
sometime in September. Worked the property until March. Settled up
all of its debts, paid them. Notified Dulaney I wanted nothing more
to do with the property; that I was going to Idaho Territory, to
Coeur d'Alene mines, and as I was ready to give him a deed at any
time he would send me my note. That is all."
Objection being made by the plaintiffs to this testimony, the
defendant offered to prove
"that at the time of the giving of the note and prior thereto,
Dulaney, the payee of the note, agreed with Mr. Burke, the maker of
the note, that the note should be given to represent the price of
the interest that Mr. Burke was to have, conditioned upon his
demanding it after an inspection of the mining property
mentioned."
He offered also to prove that after inspecting the property and
testing it, the defendant notified testator that he did not want
the interest; that he was prepared to make a deed for the interest
to the latter, and demanded the delivery of his note. All this
evidence was excluded by the court upon motion of the plaintiffs,
to which ruling the defendant excepted.
The defendant having stated that the conversation with the
testator, above referred to, and which was excluded by the court,
took place prior to the execution of the note, he
Page 153 U. S. 230
offered to prove that at the time the note was made, the same
agreement was made orally between him and the testator. This
testimony was also excluded, and he excepted.
The following question was propounded to him at the trial:
"State whether or not, prior to your making the note, the
plaintiff agreed with you that you could explore, work, and develop
the mining claims mentioned in the answer, and, if at any time
before the maturity of the said note you should desire so to do,
that he would relinquish said option of purchase, that you could
relinquish your said option of purchase, and that he, plaintiff,
would cancel the note, and accept the deed in full discharge of the
note and the cancellation thereof."
The defendant having admitted that the agreement referred to in
the question was oral, the court excluded the evidence, and he
excepted. The court also refused to allow him to state whether he
examined, worked, and developed the mining claims mentioned in his
answer, and whether he had refused to take such claim under the
agreement with the plaintiff.
At the trial, the defendant offered in evidence a deed executed
by him to the plaintiff conveying to the latter, in consideration
of the surrender of the note in question, all his right, title, and
interest in the above property, the same deed that had been filed
by the defendant with his answer. The court held this evidence to
be inadmissible unless the defendant proposed to show that the
plaintiff accepted the deed. To this ruling the defendant excepted.
The defendant was not present when Dulaney took a deed from the
owner of the mining property, nor was it ever delivered to him.
Page 153 U. S. 232
MR. JUSTICE HARLAN, after stating the facts in the foregoing
language, delivered the opinion of the court.
The general rule that a written contract cannot be contradicted
or varied by evidence of an oral agreement between the parties
before or at the time of such contract has been often recognized
and applied by this Court, especially in cases in which it was
sought to deprive
bona fide holders of or parties to
negotiable securities of the rights to which they were entitled
according to the legal import of the terms of such instruments.
Renner v. Bank of
Columbia, 9 Wheat, 587;
Brown v.
Wiley, 20 How. 442;
Specht v.
Howard, 16 Wall. 564;
Forsyth v. Kimball,
91 U. S. 291;
Brown v. Spofford, 95 U. S. 474;
Martin v. Cole, 104 U. S. 30;
Burnes v. Scott, 117 U. S. 582;
Falk v. Moebs, 127 U. S. 597.
Page 153 U. S. 233
Several of these cases were cited in the opinion of the court
below, and have been cited here, as supporting the exclusion of the
evidence with the appellant offered to introduce. 23 P. 915. It is
supposed that
Burnes v. Scott is particularly in point for
the appellees. That was an action by the endorsee of a negotiable
note against the maker. The defendant in that case offered to prove
that the note was not intended by him or by the payee as a
promissory note, but was given to and was received by the payee as
a mere memorandum of the estimated value of the payee's interest in
certain railroad bonds placed in the hands of the marker, and which
were to be accounted for in the settlement of certain partnership
affairs in which the maker and payee were interested, and that upon
such settlement it would appear that the payee had received, prior
to the giving of the note, more than his proper share of the
partnership assets, and therefore was not entitled to claim
anything in virtue of such memorandum. This Court held the evidence
inadmissible upon the ground that by an alleged contemporaneous
verbal agreement, it varied and contradicted the written contract
of the parties. If that action had been brought by the original
payee against the maker, and if the evidence above referred to had
been excluded, a different question would have been presented. But
as we have seen, the issue in
Burnes v. Scott was between
the endorsee of a negotiable note and the maker. The rule is
settled that a negotiable instrument in the hands of an innocent
holder for value cannot be contradicted to his prejudice by
evidence of an oral agreement or understanding between the original
parties variant from the terms of their written contract.
The authorities cited do not determine the present case. The
issue here is between the original parties to the note. And the
evidence offered by the appellant and excluded by the court did not
in any true sense contradict the terms of the writing in suit, nor
vary their legal import, but tended to show that the written
instrument was never in fact delivered as a present contract
unconditionally binding upon the obligor according to its terms
from the time of such delivery, but was left in the hands of
Dulaney to become an absolute obligation
Page 153 U. S. 234
of the maker in the event of his electing, upon examination or
investigation, to take the stipulated interest in the property in
question. In other words, according to the evidence offered and
excluded, the written instrument upon which this suit is based was
not, except in a named contingency, to become a contract or a
promissory note, which the payee could at any time rightfully
transfer. Evidence of such an oral agreement would show that the
contingency never happened, and would not be in contradiction of
the writing. It would prove that there never was any concluded,
binding contract entitling the party who claimed the benefit of it
to enforce its stipulations. The exclusion of parol evidence of
such an agreement could be justified only upon the ground that the
mere possession of a written instrument, in form a promissory note,
by the person named in it as payee is conclusive of his right to
hold it as the absolute obligation of the maker. While such
possession is, undoubtedly,
prima facie -- indeed, should
be deemed strong -- evidence that the instrument came to the hands
of the payee as an obligation of the maker, enforceable according
to its legal import, it is open to the latter to prove the
circumstances under which possession was acquired and to show that
there never was any complete, final delivery of the writing
as
the promissory note of the maker, payable at all events and
according to its terms. The rule that excludes parol evidence in
contradiction of a written agreement presupposes the existence in
fact of such agreement at the time suit is brought. But the rule
has no application if the writing was not delivered as a present
contract. The authorities supporting these views are numerous, and
to some of them it will be well to refer.
In
Ware v. Allen, 128 U. S. 590,
128 U. S. 595,
which was an action upon a written instrument, the defense was that
it was understood between the parties at the time the instrument
was signed that it should not be of any effect unless in certain
named contingencies, which, it was shown, never occurred. Mr.
Justice Miller, speaking for this Court, said:
"We are of opinion that this evidence shows that the contract
upon which this suit is brought never went into effect, that the
condition upon which it was to become operative never occurred, and
that it is not a
Page 153 U. S. 235
question of contradicting or varying a written instrument by
parol testimony, but that it is one of that class of cases, well
recognized in the law, by which an instrument, whether delivered to
a third person as an escrow or to the obligee in it, is made to
depend as to its going into operation upon events to occur or to be
ascertained thereafter."
Citing
Pym v. Campbell, 6 El. & Bl. 370, 373;
Davis v. Jones, 17 C.B. 625;
Wallis v. Littell,
11 C. B. (N.S.) 369;
Wilson v. Powers, 131 Mass. 539, and
Pawling v. United
States, 4 Cranch 219.
Pym v. Campbell, above cited, was an action upon an
alleged agreement by the defendants to purchase from the plaintiff
an interest in an invention of the latter. The defendants gave in
evidence that, in the course of negotiations with the plaintiff,
they got so far as to agree upon the price at which the invention
should be purchased, if bought at all, and had appointed a meeting
at which the plaintiff was to explain his invention to two
engineers, when, if they approved, the machine would be purchased.
At the appointed time, the defendants and the two engineers
attended, but the plaintiff did not come, and the engineers went
away. Shortly after they were gone, the plaintiff arrived. One of
the engineers was found, and expressed a favorable opinion. The
other could not then be found. It was then proposed that, as the
parties were together and might find it troublesome to meet again,
a writing should be then drawn up and signed which, if the absent
engineer approved the invention, should be the agreement, but if he
did not approve it, should not be one. The absent engineer did not
approve of the invention when he saw it, and the defendants
contended that there was no bargain. The jury were directed that if
it was agreed among the parties before the paper was signed that it
should not operate as an agreement until the absent engineer
approved of the invention, they should find for the defendants. A
verdict was accordingly returned for the defendants. Upon a rule
nisi for a new trial on the ground of misdirection, the
cause was heard before the Court of Queen's Bench. Erle, J., said
that while the production of a paper purporting to be an agreement
of a party, with his signature attached, affords a strong
presumption
Page 153 U. S. 236
that it is his written agreement, and if in fact he did sign the
paper
animo contrahendi, the terms contained in it were
conclusive, and could not be varied by parol evidence, yet, if it
were proved that in fact the paper was signed with the express
intention that it should not be an agreement, the other party could
not fix it as an agreement upon those so signing. "The distinction
in point of law," he said, "is that evidence to vary the terms of
an agreement in writing is not admissible, but evidence to show
that there is no agreement at all is admissible." Crompton, J.,
said that he knew of no rule of law estopping parties from showing
that a paper purporting to be a signed agreement was in fact signed
on the terms that it should not be an agreement till money was paid
or something else done. "The parties," he observed,
"may not vary a written agreement, but they may show that they
never came to an agreement at all, and that the signed paper was
never intended to be the record of the terms of the agreement; for
they never had agreeing minds. Evidence to show that does not vary
an agreement, and is admissible."
Lord Campbell, C.J.:
"I agree. No addition to or variation from the terms of a
written contract can be made by parol; but in this case the defense
was that there never was any agreement entered into. Evidence to
that effect was admissible, and the evidence given in this case was
overwhelming. It was proved in the most satisfactory manner that
before the paper was signed, it was explained to the plaintiff that
the defendants did not intend the paper to be an agreement till
Abernethie had been consulted, and found to approve of the
invention, and that the paper was signed before he was seen only
because it was not convenient to the defendants to remain. The
plaintiff assented to this, and received the writing on those
terms. That being proved, there was no agreement."
See also Lindley v. Lacey, 17 C. B. (N.S.) 578, 585;
Clever v. Kirkman, 33 L.T. (N.S.) 672;
Gudgen v.
Besset, 6 El. & Bl. 986; 2 Taylor's Ev. (8th ed.) ยง
1135.
The case of
Wilson v. Powers, above cited, was an
action brought by the payee against the sureties in a promissory
note. The defense was that the sureties had been discharged
Page 153 U. S. 237
from liability by a written agreement between the payee and the
principal, which was delivered to the principal, whereby the time
of payment was extended. To this the plaintiff replied, and
sustained his position by proof that the writing signed by him, and
which was relied upon as discharging the sureties, was delivered as
a proposition merely, and upon the agreement that it should become
binding only upon the assent of the sureties. The Supreme Judicial
Court of Massachusetts said:
"The manual delivery of an instrument may always be proved to
have been on a condition which has not been fulfilled, in order to
avoid its effect. This is not to show any modification or
alteration of the written agreement, but that it never became
operative, and that its obligation never commenced."
In
Benton v. Martin, 52 N.Y. 570, 574, the principle is
thus stated:
"Instruments not under seal may be delivered to the one to whom,
upon their face, they are made payable, or who, by their terms, is
entitled to some interest or benefit under them, upon conditions
the observance of which is essential to their validity, and the
annexing of such conditions to the delivery is not an oral
contradiction of the written obligation, though negotiable as
between the parties to it or others having notice. It needs a
delivery to make the obligation operative at all, and the effect of
the delivery and the extent of the operation of the instrument may
be limited by the conditions with which delivery is made. And so
also, as between the original parties and others having notice, the
want of consideration may be shown."
To the same effect are
Juilliard v. Chaffee, 92 N.Y.
529, 535, and
Reynolds v. Robinson, 110 N.Y. 654, in the
latter of which it was said that the rule was now well established
that
"parol evidence is admissible to show that a written paper which
in form, is a complete contract, of which there had been a manual
tradition, was nevertheless not to become a binding contract until
the performance of some condition precedent resting in parol."
The same doctrine was announced in
McFarland v. Sikes,
54 Conn. 250. That was an action upon a
Page 153 U. S. 238
note which, the defendant alleged, had been executed and
delivered to the plaintiff upon an agreement that it should be
cancelled under certain named circumstances, and in the event he
demanded, by a named day, that it be returned to him. The trial
court having ruled that the facts relied upon by the defendant did
not constitute a defense, the Supreme Court of errors of
Connecticut, reversing the judgment, said:
"The error was in applying to the case the familiar and well
established rule that parol evidence is inadmissible to contradict
or vary a written contract. A written contract must be in force as
a binding obligation to make it subject to this rule. Such a
contract cannot become a binding obligation until it has been
delivered. Its delivery may be absolute or conditional. If the
latter, then it does not become a binding obligation until the
condition upon which its delivery depends has been fulfilled. If
the payee of a note has it in his possession, that fact would be
prima facie evidence that it had been delivered; but it
would be only
prima facie evidence. The fact could be
shown to be otherwise, and by parol evidence. Such parol evidence
does not contradict the note or seek to vary its terms. It merely
goes to the point of its nondelivery. The note, in its terms, is
precisely what both the maker and the payee intended it to be. No
one desires to vary its terms or to contradict them."
For the reasons stated, and without considering the case in
other aspects, we are of opinion that it was error to exclude the
evidence offered by the defendant tending to show that the writing
sued on was not delivered to or received by Dulaney as the
promissory note of the defendant, binding upon him as a present
obligation, enforceable according to its terms, but was delivered
to become an obligation of that character when, but not before, the
defendant examined, and, by working them, tested the mining
properties purchased by the plaintiff and elected to take the
stipulated interest in them. According to the evidence so offered
and excluded, the writing in question never became, as between
Burke and Dulaney, the absolute obligation of the former, but was
delivered and accepted only as a memorandum of what Burke
Page 153 U. S. 239
was to pay in the event of his electing to become interested in
the property, and from the time he so elected, or could be deemed
to have so elected, it was to take effect as his promissory note,
payable according to its terms. His election, within a reasonable
time, to take such interest was made a condition precedent to its
liability to pay the stipulated price. The minds of the parties
never met upon any other basis, and a refusal to give effect to
their oral agreement would make for them a contract which they did
not choose to make for themselves.
The judgment is reversed, and the cause is remanded that a
new trial may be ordered, and further proceedings had in conformity
with this opinion.