Trustees of Iowa College v. Hill , 12 Iowa 462 ( 1861 )

Wright, J.

This case has been very fully argued by counsel; seldom have we found one more so. We have examined it with great care, and now proceed to state our conclusions, without much elaboration of the points made.

Three questions of fact, under the instructions of the court, were presented for the determination of the jury: First, Was the note obtained without consideration ? Second, Had plaintiffs notice of this before taking the same ? Third, If they had not this notice, did they take it for val-tue in the due course of trade. It is manifest that the jury* must have found for the defendant upon the first question, for this determined in favor of plaintiffs would have entitled them to a verdict. It is equally clear that their finding must have been in favor of defendant upon one or both of the other issues. The first, and either of the others, if decided in favor of defendant, entitled him to a verdict. Whereas, a contrary result as to the first, or that found for defendant and the other two against him, would have compelled a verdict for plaintiffs.

What was the consideration then, was the first material inquiry. Briefly, the defendant claims that at the time the note was given, he, a resident of Davenport, was about to visit Boston; that Lambrite called upon him and left four blank notes signed by said Lambrite, which defendant had the privilege of filling up, in sums not to exceed f5000 each, for the purpose of negotiating the same in Boston for the benefit of said Lambrite; that after the notes were thus signed and delivered, defendant at his own instance handed to Lambrite four similar blank notes, including the one now in suit, to serve as a receipt or to indemnify him in case defendant should misuse any funds that might be raised on Lambrite’s notes; that he never used the notes obtained from Lambrite, but on the contrary returned the same to him, without even having filled them up; that Lambrite filled up one of the notes thus signed by defendant, with the sum of $8629, 81, and passed the same to plaintiffs. On the part of plaintiffs it is claimed that the transaction was an exchange of notes, each party having the right to fill up and negotiate the paper thus delivered, and thus raise money for himself. To support these respective claims the parties introduced a very great amount of testimony, after considering all which the jury found for defendant. And to sustain this finding we think the testimony is most abundant. That it is was ever intended by the parties, that Lam- ^ brite should use the blanks delivered to him, except to indemnify himself, should the contingency arise, we do not for one moment believe. We are equally clear that Lambrite never intended to thus use them, and that he only concluded in an evil hour to thus use defendant’s name, to do which was at most but partial justice to the plaintiffs, whose funds, which had como into his hands as treasurer, he had used and which he hoped to bo able to replace, and redeem the note without the negotiation being known to Hill. Nor do we think any just exception can be taken to the instructions on this subject. The onus was upon the defendant. The presumption was that the consideration was right in every particular and it was incumbent on the defendant to rebut this presumption. If plaintiffs Avere Iona fide holders for value, then it could make no difference that the note was signed in blank; nor that it was accommodation paper merely and had been misused by Lambrite. If the transaction was an exchange of notes, then so far, plaintiffs could not be defeated by showing that subsequent to the transfer, defendant had delivered up and cancelled the notes of Lam-brite. If, however, the notes of Hill were delivered, not as accommodation paper, but merely to answer in the place of a receipt or receipts, or to protect Lambrite in case Hill should misuse the funds arising from the notes delivered to negotiate, any note filled up by Lambrite, (his notes not having been used,) would in his hands be without consideration. All this was stated to the jury, and substantially and correctly covered the whole law of the case touching the question of consideration. Nor was there any error in refusing those asked by plaintiffs upon the same subject. In the first place so far as applicable, they were covered by the instructions in chief. In the next place, while some of those asked and refused, as abstract propositions were good law, the giving of them could have answered no good purpose under the testimony submitted. We take occasion to say what we have frequently repeated; that a court is not bound to repeat an instruction previously given. Nor should an instruction be given, which though abstractly correct, is not pertinent to the actual facts developed upon the trial.

II. Did the plaintiffs take the note with notice ? With the question of facts here involved, we have nothing to do more than to say that if the jury found in the affirmative, we should entertain very heavy doubts of the correctness of the verdict. As the discussion of this question, however, will be immaterial, from the final view we shall take of the case, we shall confine ourselves to the law governing it as given by the court.

The jury were told that the presumption was that plaintiffs took the note in good faith, in the usual course of business, before its maturity and for a valuable consideration ; that express or actual notice that the note was without consideration, or that it had been filled up without authority was not necessary. That it was sufficient if the circumstances brought home to the plaintiffs are of such a strong and pointed character as necessarily to cast a shade upon the transaction and put them upon inquiry. They are not to be charged with notice because of any want of diligence on their part in making inquiry, or even if they took the note under suspicious circumstances, provided they had no notice actual or constructive of the alleged equities subsisting between Lambrite and Hill. That defendant was not bound to prove that the plaintiffs purchased with full and certain knowledge of the want of consideration, but if the circumstances attending the transfer of the note were such as to put them on their guard, or if they must have known therefrom that the person offering it had no right to transfer it, then they were bound to make inquiry, and if they did not they took the note at their peril. Other instructions bearing upon this question, referring more in detail to the facts developed, were given, but the foregoing will serve to show the general view of the law taken by the judge trying the cause. To these we do not think plaintiffs can have any just ground of exception. As sustaining them see : Kelly v. Ford, 4 Iowa 140 ; Clapp v. Cedar County, 5 Ib. 58 ; Story on Notes § 197; Cole v. Baldwin, 12 Pick. 546. In this connection appellants insist that certain instructions were erroneous, for the reason that they were based upon a state of facts of which there Avas no testimony. We recognize fully the rule that it is erroneous to instruct upon a hypothetical state of facts of which there is no evidence. Moffitt v. Crumbe, 8 Iowa 122; U. S. v. Brentling, 20 Howard 252. But the rule has no application in this case, for the reason, that in one instance the instruction was clearly applicable and as to tbe other appellant clearly mistakes the language used by the court. Thus, we should be very far from holding that there was no testimony as to Lambrite’s insolvency at the time of the transfer. On the contrary we think they -would have been fully justified in finding him notoriously so. This is certainly the impression the testimony makes upon our minds. And then as to the other instruction, the objection is, that the jury were told that notice to one agent is notice to another, whereas the instruction given is, that notice to the agent of matters coming within the purview of the his agency was notice to the principal. In this part of the case therefore, there was no error in the action of the court.

III. The question of most importance, and that most discussed by counsel, arises under the third branch of the case As already suggested, it is claimed by defendant, and the evidence tends to prove that plaintiffs received this note from Lambrite as collateral to secure a pre-existing indebtedness, and upon this subject the court instructed, that though plaintiffs took the note as collateral security for an antecedent debt, they are nevertheless, prima facie, though not conclusively, to be considered holders for value, and it is on the defendant to show they are not such holders. If it was taken for collateral security only; if plaintiffs parted with nothing, and agreed to give no time, and in fact, gave no consideration for it; agreed to relinquish no right, and did not suffer any damage, or injury as the consideration, or in consequence of receiving it, the plaintiffs would not be such holders. Other instructions upon the same point were given, and some asked by the parties refused, which, however, need not be recited, for if the foregoing is the law, it in our view, renders the consideration of all the others unimportant, and the same is true, if it is not the law.

Two propositions are said by Justice StoRY, to be laid up among the fundamentals of the law, and to require no authority or reasoning to support them. The first is, that a bom fide holder of a negotiable instrument, for a valuable consideration, without notice of facts which imperil its validity as between antecedent parties if he takes it by endorsement before the same becomes due, holds the title unaffected by these facts, and may recover thereon, although as between the antecedent parties, the transaction may be without any legal validity. The second is, that the holder of negotiable paper taken before it is due is not bound to prove that he is a bona fide holder for a valuabble consideration, without notice, for the law will so presume in the absence-of all rebutting proofs, and therefore it is incumbent upon the defendant to overcome by satisfactory proofs the prima facie title of the plaintiff. Swift v. Tyson, 16 Pet., 1. But as applied to this case, the question remains, what constitutes a valuable consideration under the general rule applicable to negotiable instruments ?

It was held by this court in Johnson v. Baney, 1 Iowa, 531, as settled by the current of decisions, that the rights of the holder of negotiable paper are the same whether the debt for which it is transferred is pre-existing or contracted at the time. This of course referred to a case where the instrument was taken, in satisfaction or payment of the pre-existing debt; for by reference to the case it will be found that while the question of the rights of a holder who takes the paper as collateral security on a previous liability was discussed by counsel, it was not decided, as the case was disposed of upon another point. At that time, however, the question was very elaborately discussed by able counsel, and the writer of this opinion, who is the only member of the present bench who heard the argument, concurred with those authorities which hold in accordance with the instructions given in this case. He has seen no reason to change the view then entertained, and this being the opinion of the other members of the court, is so held.

Authorities upon the subject are to be found, perhaps, in every State in the Union, except our own, to say nothing of the adjudications in the federal courts and those of England. The most casual reader, however, must be struck with the number of times the question has been determined without really arising. If the evils resulting from an indulgence in mere obiter dictum were ever apparent, they are peculiarly so in this instance.

Taking it for granted, that taking the note in payment and as collateral security merely, were the same in principle, as affecting the rights of the assignee, cases of the first character are decided, and then it is announced without the least necessity, or occasion for it, that the same rule applies in the second. And well might Justice CatroN, in the leading case of Swift v. Tyson, supra, say that what is incorporated in the principal opinion on this subject was aside from the case made by the record or argued by counsel.

The same thing occurs in effect in Bond v. Central Bank, 2 Kelley, 106, and based upon the reasoning there used to a great extent, Nesbet, J., decides the case of Gibson v. Conner, 3 Ib., 47. So in Allaine v. Hartshorne, 1 Zabriskie, 665. The note was transferred for a consideration then advanced in part, and though the question as applied to collaterals, did not arise, it was discussed and decided. The case in 11 Ohio, 172, is clearly one of payment, and all that is said about collaterals is obiter and nothing else. So again in the case of Blanchard v. Stevens, 3 Cush., 162, required nothing more than the recognition of the principle, that the receiving of the note in payment of a pre-existing debt, will exclude all equities between the original parties, and thus we might in almost numberless cases show the truth of the general remark above made. But these will suffice. Some cases are found where the question under discussion fairly and legitimately arose, and was decided as claimed by appellants. Of this character is the case in 8 Kelly, supra. (But see Meadow v. Bird, 22 Georgia, 246;) Bank v. Carrrington, 5 R. Is., 515, and some others referred to by counsel. The case of Bank v. Chapin, 8 Met., 40, however, does not in its facts come clearly within the rule. The debt for which the note in suit was pledged, was not a pre-existing one.

Rut without further reference to these cases we conclude, that the correct rule is found clearly stated in Roxborough v. Meesick, 6 Ohio, St. R., 448, thus: “ When the note is transferred as collateral security and for value, such as a loan or further advancement, or a stipulation, express or implied, of further time to pay a pre-existing debt, or the like, the assignee will be protected from infirmities affecting the instrument before it was thus transferred. If, however, the note is transferred as collateral security to a pre-existing debt, without any consideration, so that the transfer is a mere voluntary act on the part of the debtor, and is received by the creditor without incurring any new responsibility, parting with any right, or subjecting himself to any loss or delay, and leaving the subsisting debt precisely in the condition it was before such transfer, the holder has not taken the note for value, nor in the usual course of trade.” “To hold otherwise” says SwáN, J., in that case “would be a departure from the established rules of law, governing the rights of parties to negotiable paper, and losing sight of the ground of public policy upon which the law is founded.”

And the annotators’ note, to Swift v. Tyson, 1 Am, Lead. Cases, 336, states this rule substantially as one that may be considered as settled, and to support it refers to cases in Pennsylvania, Connecticut, Maine, New Hampshire, Ohio, Kentucky, Illinois, Alabama, Michigan and Delaware.

Affirmed.