#### Jenkins v. Shinn.

Decided January 23, 1892.

Negotiable instrument—Payment—Estoppel.

If the maker of a negotiable note pays the same to the payee who is not: the holder, he is not discharged from his obligation to the indorsee andi holder without showing, either that the payee was authorized to receive payment, or that the holder led him to believe that he was so authorized^

Contract in writing—Parol agreement.

Where a written agreement between the payee and indorsee of a negotiable-note recites that the note is held as collateral security for a debt of the payee, it is inadmissible to prove a parol contemporaneous agreement between the parties that the indorsee should hold the note but not collect it but it may be shown that there was a parol contemporaneous agreement that the payee should collect the note as agent for the endorsee.

APPEAL from Pope Circuit Court.

Jordan E. Cravens,-Judge.

Jenkins sued Shinn and two others upon their note for *348.$230, executed to the American Desk and Stool Co. and indorsed to himself. Defendants answered that they had paid vthe note to one Dickerman, who was authorized by plaintiff to collect it. From the evidence it appeared that Dick-erman, who constituted the so-called American Desk and .Stool Co., had unconditionally transferred to plaintiff, by indorsement, two notes, executed by defendants, as collat->eral security for the payment of a note executed by him to plaintiff, and took a receipt therefor as follows:

“ Chicago, October 16, 1886.

“ Received of American Desk and Stool Co., Chicago, two notes of following descriptions, both dated July IO, 1886: .No. 1 for two hundred and twenty-five dollars, and No. 2 for -'two hundred and thirty dollars; No. 1 maturing June 1, 1887, and No. 2 maturing June I, 1888; both payable at First National Bank, Little Rock, Ark., and bearing interest at 8 per • cent per annum from June 1, 1886, signed J. L. Shinn, L. M. -Smith and J-. W. Pruitt. These notes are held by me as collateral security for the payment of a note of American Desk ■and Stool Co., of this date, for four hundred and fifty dollars .-,($450) in my favor, due four months from date at Oakland Bank, Chicago, with 8 per cent, per annum interest.

“S. P. Jenkins.”

The first note was paid to Jenkins through the bank designated. Before the second note fell due Dickerman wrote to Shinn and proposed to discount it at $240. Thereupon Shinn, not knowing that the note had been negotiated, sent him a draft for the amount named, and requested the return of the note. The money collected was not paid to the plaintiff,- nor was the balance due on the note, for the payment of which defendants’ notes were placed as collateral security, ever paid to plaintiff who still, 'retained defendants’ second note. The testimony is in ■conflict whether Dickerman was authorized to discount the note as agent for plaintiff. Over plaintiff’s objection defendants were permitted to prove by Dickerman that when ■plaintiff executed to Dickerman the receipt before men*349tioned, it was distinctly understood that Jenkins was simply to hold the Shinn notes as collateral security and not to collect the same, and to say nothing to Shinn about holding the notes. Dickerman testified: “In pursuance of the understanding and agreement that I had with Mr. Jenkins that he was not to collect the collateral notes, but that I was to collect the same, I opened up correspondence with Jenkins-in the summer of 1887 for the purpose of getting the Shinn note that fell due June 1, 1888, and expecting Jenkins would send me the note as he had agreed to do. I negotiated with< Mr. Shinn and finally discounted the note.”

Among other instructions, the court charged the jury as-follows:

“The law of estoppel is founded in reason and fact, and-if you find from the evidence that the plaintiff, by his consent and acquiescence, permitted Dickerman to collect the-money from the defendants, when it was his duty under all-the circumstances and in the custom of fair dealing to have advised the defendants not to pay to him except at their own risk, and he failed to so advise them, and the payment was-made to Dickerman in good faith by the defendants, the-plaintiff is not entitled to recover.”

“A promissory note, payable to order, is negotiable and: payable to the legal holder thereof if indorsed and transferred before maturity, and a payment by the maker to the - original payee after the transfer of the note will not ordinarily protect the maker from a suit by the legal holder, but a person can legally permit another to do that which he can himself do. And if the jury believe from the testimony ■ that the plaintiff authorized, or knowingly permitted, the American Desk and Stool Co., or F. W. Dickerman, its manager, to either collect or negotiate a discount of the note in-', suit, and such collection or discount was effected, then the plaintiff is bound by the action of said company or F. W. Dickerman, its manager, and they will find for the defendant.” '

There was a verdict for the defendants.

*350 S. R. Allen and C. C. Waters for appellant.

1. Parol evidence was inadmissible to alter, vary, add to, 'take from, or materially affect the terms of a written contract, or to show an understanding or intent different from that expressed. 13 Ark., 593; ib., 449; 15 id., 543; 21 id., ■69; 24 id., 210.

2. There is no question of estoppel in the case. The issue is, did Jenkins make Di'ckerman his agent to collect the note? There is no evidence to that effect. The burden was on appellee to show this authority.

• 3. The instructions on the subject of estoppel were not ■founded on any evidence whatever; the others complained of were misleading, confusing and prejudicial.

Dan B. Granger and G. W. Shinn for appellees.

1. The rule in 15 Ark., 543, as to parol testimony, applies only to parties to the contract; certainly not to parties to a suit where the contract may come collaterally in question. 1 Gr. Ev., 13th ed., sec. 279.

2. The answer presents a question of estoppel in pais, ■ as well as of agency, or rather a mixed question of both, which was a good defense. I Gr. Ev., sec. 207; 17 N. W. Hep., 345.

G. W. Shinn and' Dan B. Granger also for appellees.

1. There is proof that Jenkins held Dickerman out as Eis agent, and authorized him to discount the note. The •jury believed it, and so found by their verdict, and this court will not reverse on the mere preponderance of the evidence. ■51 Ark., 475; 40 id., 168, and many others.

2. Where a party fails to make his rights known when ■fairness and good conscience require he should do so, he is estopped, if another is injured by his failure. Herm. on Estoppel, secs. 787, 765 to 770, 774-6-7-9, 811. •

3. The note was only indorsed as collateral and Dicker-man had a right to collect it. 29 Ark., 501.

4. The acts of an agent bind his undisclosed principal. IMechem on Ag., secs. 695-6. He is estopped to deny the *351agency. Ib., secs. 83-4. One who knowingly permits another to make a collection for him is bound by payments made to such person. Mech. on Ag., sec. 86 ; 69 Iowa, 760; 16 Pac. Rep., 762.

5. The j'udgment is right on the whole record, and should not be reversed on account of incompetent evidence, or instructions based thereon, which could not have prejudiced appellant. 44 Ark., 556 ; Mech. on Ag., sec. 106.

6. If a maker pay to another than the rightful owner, he cannot rely on facts unknown to him and not influencing his action as an estoppel, but if the facts be of the character to establish an agency for collection, that is a defense against repayment. That is this case. See 30 Fed. Rep., 588.

Cockrill, C. J.

1. Towhoma negotiable note The only legitimate issue in this case was whether Jenkins, the indorsee and holder of the tiable note, had authorized Dickerman, the payee, to collect it for him from Shinn, the maker. Shinn thought Dicker-man was the holder of the note and paid him, without requiring its surrender or inquiring whether it had been negotiated. There is no evidence in the record from which the jury could have inferred that Jenkins had anything to do with bringing about that belief. The doctrine of estoppel had no place therefore in the case. It was simply a question of agency or no agency. If Dickerman was authorized to receive the money from Shinn as Jenkins’ agent without a surrender of the note, then Jenkins must be defeated, because he has already received payment through his agent. But if Dickerman was not his agent in fact to receive payment, there is nothing in the record to estop him from asserting and proving the fact. All the court’s instructions upon the doctrine of estoppel were therefore erroneous.

In this category also is that part of the charge which tells the jury that if Jenkins “ knowingly permitted Dickerman to negotiate a discount of the note with Shinn,” he is bound by D.ickerman’s action and cannot recover. Dickerman was indebted to Jenkins in an amount less than the face of *352Shinn’s note, which Jenkins held as collateral security. If Dickerman could induce Shinn to pay his (Dickerman’s). debt to Jenkins before the Shinn note was due, upon terms-that were advantageous to Shinn, it was not the duty or the right of Jenkins to interfere, for he was bound to surrender the collateral when the debt due him was paid. He could leave Dickerman and Shinn, therefore, to their negotiation without imperilling his own rights, so long as he did nothing to lead Shinn to believe that he could discharge his note by payment to Dickerman.

2. Wr contract-evidence. ¡tten - 1 Shinn makes no claim that he was misled by Jenkins. He paid the money to Dickerman therefore at his peril, and must stand the loss unless he can show that Dickerman was in fact authorized to receive the money for Jenkins in discharge of the note. When the note was indorsed to Jenkins'by Dickerman, Jenkins executed a writing to Dicker-man attesting that the note was assigned to him as collateral security. Shinn offered to prove by Dickerman that, at the time this writing was executed, it was understood between him and Jenkins that the latter was only (o hold the note, and was to have no authority to collect it. The court admitted the testimony. That was error. The legal import of the contract was to confer upon Jenkins authority to collect the note. But the rule which prohibits a party from contradicting the terms of a written contract by parol evidence of a different understanding or intent, entertained at the time the writing was executed, precludes the' varying of its-legal import by the like evidence. Richie v. Frazer, 50 Ark., 393. In a suit between Jenkins and Dickerman, the parol evidence offered would have been incompetent. But Shinn’s right to discharge the note by payment to Dickerman is dependent upon Dickerman’s right to receive payment, and that, on this phase of the case, is controlled by the terms of his assignment of the note. Shinn then, in effect, claims under Dickerman, and derives his right from Dickerman’s contract of assignment. -He is, therefore, bound by its terms, j’ust as Dickerman is. Langdon v. Langdon, 4 Gray, *353 186. It was, then, incompetent for Shinn to prove by parol that the written contract did not mean what the law implies from its terms.

But it was competent for Shinn to show that Jenkins had in fact constituted Dickerman his agent to collect the note for him, even by a parol agreement contemporaneous with the written contract of assignment, for the fact of agency is collateral to and not a contradiction of the terms of the writing. Evidence to that effect would not affect the writing as a contract, but would only show that Jenkins had appointed another to do for him what the contract authorized him to do. As the appointment of the agent carried no interest with it, it was revocable at will. But Dickerman’s contention as to the understanding between him and Jenkins would, if it prevailed, abrogate the contract of assignment, for it would lead to this: Jenkins, not being authorized to collect the note, could not prosecute the present suit if the note were unpaid, because the object of the suit is collection.

For the errors indicated the judgment must be reversed, and the cause remanded for a new trial.

It is so ordered.