L. O. HIBBERD, PLAINTIFF AND APPELLANT, VS. WM. J. ROHDE AND D. J. MCMILLIAN, DEFENDANTS AND APPELLEES.

Hibberd versus Rohde

The Case

This is a suit on a promissory note brought by the payee against the two makers, one of whom alone appeared and answered. The answering maker raised the special defense that the consideration for the note was illegal, being the stifling of a criminal prosecution. The case matters for two reasons. First, it fixes the exact reach of the rule that the genuineness and due execution of a written instrument are deemed admitted unless specifically denied under oath. Second, it draws the line between a lawful compromise of the civil liability arising from a crime and an unlawful agreement to compound or suppress the public prosecution.

Procedural History

The action was commenced in the Court of First Instance. Only the defendant Rohde appeared and answered, setting up among his defenses the illegality of the consideration. The plaintiff contended that this defense was cut off because Rohde had not entered a verified specific denial of the genuineness and due execution of the note. The trial court found as a fact that the consideration of the note was the compromise of a public offense, and on that finding ruled against the plaintiff. The case then came to the Supreme Court on appeal, and the Court reviewed the findings of fact submitted to it for review.

Facts

McMillian was in the retail liquor business and obtained a stock of merchandise valued at one thousand two hundred pesos from the firm of Brand and Hibberd, which he then sold. Brand and Hibberd alleged that the merchandise had been delivered to him on deposit only, and they filed a complaint of estafa against him. McMillian was arrested and released on bond pending the preliminary hearing before the justice of the peace.

The defendant Rohde, a practicing attorney, undertook McMillian's defense. He was well acquainted with the transaction and was convinced that the merchandise had been sold outright and that the estafa complaint was absolutely without foundation. After the preliminary hearing, one Sullivan told Rohde that he was satisfied from the evidence introduced at the hearing that McMillian would be held for trial in the Court of First Instance. On the strength of that statement, Rohde agreed to sign the note if Brand and Hibberd would withdraw the estafa complaint. He did so because his client was sick and he feared that confinement in jail for the three months before trial would seriously endanger his health.

The note, dated April 27, 1911, bound the undersigned jointly and severally to pay the firm of Brand and Hibberd one thousand two hundred pesos in monthly installments of one hundred pesos. After its execution, Brand and Hibberd moved in the justice court to dismiss the estafa complaint, and the motion was granted, the justice stating that from the evidence he was convinced there was no sufficient basis for a criminal action and that the controversy was of a civil character. Rohde subsequently paid two hundred pesos on the note, and the note was later assigned to the plaintiff, L. O. Hibberd.

Issues

• Whether or not the special defense of illegality of consideration is barred by the defendant's failure to enter a verified specific denial of the genuineness and due execution of the note set out in the complaint.
• Whether or not the consideration of the note was illegal or against public policy as an agreement to stifle a criminal prosecution.

Applicable Provisions

Section 103 of the Code of Civil Procedure, on actions and defenses based upon written instruments, provides:

When an action is brought upon a written instrument and the complaint contains or has annexed a copy of such instrument, the genuineness and due execution of the instrument shall be deemed admitted, unless specifically denied under oath in the answer; and when the defense to an action, or a counterclaim stated in an answer, is founded upon a written instrument and the copy thereof is contained in or annexed to the answer, the genuineness and due execution of such instrument shall be deemed admitted, unless specifically denied under oath by the plaintiff in his pleadings.

This is the provision the plaintiff invokes to cut off the defense of illegality of consideration for want of a verified denial.

Section 94 of the Code of Civil Procedure, second paragraph, provides:

A statement of any new matter constituting a defense or counterclaim.

This permits a defendant to answer by pleading new matter, and the Court reads it together with Section 103 so that the one does not repeal the other.

Section 285 of the Code of Civil Procedure provides:

The terms of a writing may be impeached by reason of its illegality or fraud.

This confirms that illegality is a recognized ground for impeaching a writing, and so cannot be foreclosed by a mere admission of execution.

Article 1813 of the Civil Code provides:

A civil action arising from a crime may be compromised, but the public action for the imposition of the legal penalty shall not be extinguished thereby.

This is the dividing line the Court applies: the private civil liability may be settled, but the public prosecution may not be bargained away.

Ruling

On the first issue, the Court held that the special defense of illegality of consideration is not barred by the failure to enter a verified denial of genuineness and due execution. The admission under Section 103 means only that the party whose signature it bears admits that he signed it or that it was signed for him with authority, that it was in words and figures exactly as set out, that it was delivered, and that formal requisites it lacks are waived. It cuts off defenses such as forgery, want of authority, want of delivery, or signing in another capacity. But it does not bar a defense of new matter on the merits. The Court reasoned that to interpret Section 103 so as to prohibit the defense of illegality of consideration would pro tanto repeal the second paragraph of Section 94, and would ignore Section 285, which allows the terms of a writing to be impeached for illegality or fraud. The evidence in support of the plea was therefore competent.

On the second issue, the Court first laid down the rule that an agreement to conceal a public offense, suppress evidence of it, or stifle a prosecution already commenced is contrary to good morals and public policy, and the courts will not enforce it. But it distinguished the lawful settlement of civil liability, quoting Article 1813, and held that mere threats of prosecution will not vitiate an instrument given for an amount embezzled or for the value of property feloniously taken, unless coupled with an agreement not to prosecute. Whether an agreement tends to interfere with the enforcement of the criminal law is always a question of fact. Reviewing the record, the Court found that the trial court's conclusion was not justified. McMillian owed the full amount of the note and Rohde knew it. There was no charge that the complaint was filed to extort settlement. The preliminary hearing had been fully held and all the evidence was before the justice before the agreement was made. It was not shown that Brand and Hibberd agreed not to testify, to suppress evidence, or to solicit the prosecutor. All they did was to move in open court for dismissal of the complaint. The Court held that no part of the consideration was illegal or against public policy.

Doctrine

First, the admission of genuineness and due execution under Section 103 of the Code of Civil Procedure extends only to the signing, the authority to sign, the identity of the words and figures, the delivery, and the waiver of formal requisites. It does not bar a defense of new matter on the merits, such as want or illegality of consideration, for to hold otherwise would repeal the second paragraph of Section 94 and defeat Section 285, which allows a writing to be impeached for illegality or fraud.

Second, an agreement whose purpose is to conceal a public offense, suppress evidence of it, or stifle a criminal prosecution already commenced is contrary to public policy and unenforceable, and the courts will leave the parties where they are found.

Third, the civil liability arising from a crime may be compromised under Article 1813 of the Civil Code, so long as the right of the State to exact the penalty is not trenched upon. Mere threats of prosecution, or the mere expectation that settlement of the civil liability will stay the prosecution, do not vitiate the instrument. Whether an agreement tends to interfere with the enforcement of the criminal law is a question of fact.

Disposition

The judgment appealed from was reversed, and judgment was decreed against the defendant Rohde for one thousand pesos, the unpaid balance on the note, with legal interest from the date of the institution of the action, without costs.

Remember This

The one line to memorize: a failure to deny genuineness and due execution under oath admits the signing and delivery of the instrument, but never admits away a defense of new matter such as illegality of consideration. Examiners use this case to test the limits of the sworn denial rule and to test the distinction between compromising the civil liability arising from a crime and stifling the public prosecution.