Bank of Gresham v. Walch ( 1915 )

Mr. Justice Bean

delivered the opinion of the court.

1, 2. Counsel for plaintiff objected and excepted to the introduction of any evidence in support of the allegations of defendant’s answer, for the reason that the same did not state facts sufficient to constitute a defense of fraud. With this contention we are unable to agree. The knowingly false and written representations made to defendant for the purpose of indueing him to purchase the worthless stock and execute the note upon which defendant relied as set forth in the answer were sufficient to permeate the whole transaction and vitiate the same. It was stated to defendant in writing that the Co-operative Supply House was a rich concern backed by the Bank of Gresham, the first of which was clearly false, and the latter denied by plaintiff. It was represented that the company had thousands of dollars worth of goods in its warehouse in Portland, when, in truth, it had no property, money or credit. That the representations were made by Englert & Hardley, as agents for the Supply House and plaintiff, with intent to defraud defendant, is plainly alleged: Anderson v. Adams, 43 Or. 621, 627 (74 Pac. 215); McFarland v. Carlsbad Hot Springs S. Co., 68 Or. 530 (Ann. Cas. 1915C, 555, 137 Pac. 210); Nevada Bank of San Francisco v. Portland National Bank (C. C.), 59 Fed. 338.

In order to determine the effect of the fraudulent transaction upon the note given by defendant to the plaintiff bank, it is necessary to consider our négotiable instruments law. Under the express terms of the statute every negotiable instrument is deemed prima facie to have been issued for a valuable consideration; but, under that rule and further provisions, such an instrument is open to the defense of want of consideration or fraud as against all persons except a holder in due course: 1 Daniel, Neg. Inst. (6 ed.), § 163. Section 5885, L. O. L., declares:

“A holder in due course is a holder who has taken the instrument under the following conditions: (1) That it is complete and regular upon its face; (2) that he became the holder of it before it was overdue, and without notice that it had been previously dishonored, if such was the fact; (3) that he took it in good faith and for value; (4) that at the time it was negotiated to him he had no notice of any infirmity in the instrument or defect in the title of the person negotiating it. ’ ’

The plaintiff hank is the original payee named in the note sued on. It has never been indorsed or transferred. Plaintiff is not a holder thereof in due course within the meaning of the statute. The note is subject to the defense stated in the answer. Under the statute the burden of showing that there was a want of consideration rests upon the defendant, and, if he offers any evidence that shows or tends to show a want of consideration, then it is incumbent upon the plaintiff to prove by a fair preponderance of the evidence upon the whole case that there was a consideration: Bringman v. Von Glahn, 71 App. Div. 537 (75 N. Y. Supp. 845). Absence or failure of consideration is a matter of defense as against any person not a holder in due course, as ordained by Section 5861, L. O. L. The evidence tended to support the allegations of the answer, and to show, and the jury by its verdict found, that the note was obtained from defendant by means of false and fraudulent representations made by Englert & Hardley, and for no consideration except the worthless certificates of stock in the Cooperative Supply House.

3. When the Bank of Gresham received the note from Englert & Hardley, and thereby accepted the benefit of the transaction, it was incumbent upon the bank to pay to defendant the consideration for the note which it received or to satisfy itself that he had been paid, and that the note was valid. If plaintiff was content to trust to Englert & Hardley to transact the business for it, this would not relieve the payee in the note from being subject to the defense available to the maker in an action between the original parties to the note. The fact that a prior note was executed payable to or at another bank where defendant usually did business, and was destroyed, does not strengthen plaintiff’s claim; but this circumstance was one that should have tended to put plaintiff upon its guard, if notice had been necessary.

4, 5. Our conclusion as to the status of the parties to the note under the statute renders the other question raised and ably briefed by the learned counsel for plaintiff of less importance. By the charge of the trial court the case was submitted to the jury upon the theory that, in order for the fraud to constitute a defense to the note, the plaintiff must be proven to have been connected therewith, or had knowledge or means of knowledge thereof in addition to the taking of the note from the defendant. This theory of the case was favorable to the plaintiff, and it has no reason to complain of the instructions in this regard. The court charged the jury, in effect, that the letter set out in the answer was the letter of the bank. Under the authority of Nevada Bank of San Francisco v. Portland Nat. Bank (C. C.), 59 Fed. 338, there was no error in so ruling: Morse, Banking, § 162. The writing of the letter by Mr. Eastman, the plaintiff’s cashier, was not disputed. In ruling upon the objection to introduction of letter, defendant’s “Exhibit A” the court said:

“It will be a question for the jury to determine whether these parties understood each other and were acting in conspiracy and concert for the purpose of working out this fraud. If the jury shall find that there was an understanding between Mr. Eastman and this other man by which this work was being done, then the declaration made by this man is introducible against the bank as the cashier is the manager of the bank, and not a subordinate.”

As we understand the records, there was no room for question but that there was fraud on the part of thp Co-operative Supply House and its agents, and therefore the remark of the court was not objectionable. The court did not refer to the fraud as being that of plaintiff, and its rights were not prejudiced thereby.

Finding no error in the record, the judgment of the lower court is affirmed.

Affirmed. Rehearing Denied.

Mr. Chief Justice Moore, Mr. Justice McBride and Mr. Justice Benson concur.