Story Case

A very convincing solicitor secured an order from Joe Karecki for a set of colored portraits of the Presidents of the United States. At the conclusion of the transaction, the solicitor explained that it would be necessary to put the matter in a "writing," and Joe signed his name on the blank line of a printed form which, owing to his slight knowledge of English, he did not try to read. He made four payments upon the pictures, which he thought settled the account. But he was thereafter requested by the Western Trust Company, which had purchased the note, that he make payment, at an early date, of the $50 still due. He ignored several notices, but after suit was instituted against him placed the matter with a lawyer. It was shown that Karecki did not intend to sign a note, bnt thought that he was signing only an order for pictures. The bank argued that this was not material, nor sufficient as against it, since it had purchased the note in ignorance, before its maturity. Should judgment be given for plaintiff or defendant?

Ruling Court Case. Calkins Vs. Whisler, Volume 29 Iowa Reports, Page 495

Smith was an agent of Whisler to sell grain seeders. One day, he requested Whisler to write his name on a blank piece of paper, in order that he might send it to the manufacturers of the seeders as evidence of the genuineness of orders for machines signed by Whisler and filled out by him. Now Smith made a promissory note on this piece of blank paper above Whisler's signature. Smith transferred the note to Caulkins, who paid full value for it without any knowledge of the methods by which Smith had procured the note. This was an action on the note by Caulkins.

Whisler contended that this instrument never was a note, and a transfer to a bona fide purchaser would not make it a valid note, especially since there was no negligence on his part.

Mr. Justice Beck said: "The case differs materially in its facts from the cases cited in support of plaintiff's right to recover. In those cases blanks were filled up contrary to the direction of the maker, or without his authority. But in all such cases the makers intended to execute an instrument that should be binding upon them. Blanks were filled up contrary to the authority given by the maker, or in some other way the instruments were made so that they did not correspond with the intention of the makers; bnt in all such cases there were makers and instruments, and through the frauds of those to whom the instruments were intrusted, they were thus made to be of different effect than was designed by the makers. In this case it is correctly held that, while the parties perpetrating the fraud in some cases may have been guilty of forgery, yet the makers were bound upon the instrument as against holders in good faith for value. The reason is obvious. The maker ought rather to suffer, on account of the fraudulent act of one to whom he intrusts his paper, or who is made his agent in respect to it, than an innocent party. In the case under consideration, no fault can be imputed to the defendant. He did not intrust his signature to the possession of the forger for the purpose of binding himself by a contract. He was not guilty of negligence in thus giving it, for it is not unusual in order to identify signatures, and for other purposes, for men thus to make their autographs." Judgment was given for Whisler.

Ruling Law. Story Case Answer

It has been shown heretofore that fraud in the inducement is only a personal defense, and can be raised only as against a person who perpetrated, or is aware of the fraud. Fraud in the nature of the instrument, however, constitutes a real defense. This kind of fraud exists when one person is induced to sign a paper or document with the understanding that it is other than a bill or note. It must be noted, however, that if there is the slightest negligence in this matter, the acceptor or maker will be deprived of his right to maintain this fraud as a defense against bona fide purchasers, for value, without notice of the fraud.

The Ruling Court Case illustrates the fact that where a man does not actually sign an obligation, he can not be made liable by a misuse of his signature. This is the most typical fraud in the execution or nature of the instrument. There are cases where a paper was folded so that the man who signed could not read the parts making him liable, where tearing in half an apparently innocent document caused the part with the signature to read as a valid instrument, and where a second printing, inserting alternate lines, transforms a petition into a promissory note. This is very different from the cases under the previous section, where the man knew he was signing a note but was deceived as to the benefits that would result to him. Still another case is illustrated in the Story Case. There was fraud there, and it went to the nature of the instrument, but it will not protect Karecki. He signed the instrument without knowing its contents, whereas he should have had it read to him if he could not read. Even though he may have an action against the man who deceived him, an innocent third person is not to suffer as a result of his careless act. He meant to sign his name, and he meant to give effect to this paper. He is therefore charged with the legal result. He was deceived as to what that result would be, but he assumed the risk by relying upon the statement. The bank is therefore entitled to recover, and judgment will be given for the plaintiff.