Somerall v. Citizens' Bank , 211 Ala. 630 ( 1924 )

This is the second appeal in this case. 208 Ala. 501,94 So. 476. As there stated the action is by the Citizens' Bank of Brewton against appellants as indorsers of a negotiable promissory note executed by F. L. Riley, payable to C. P. Deming and A. Cunningham, and by them indorsed to plaintiff. The pleadings have not been changed. For completeness of present statement we repeat that the special defense relied upon was that defendants had indorsed the note sued upon in renewal of a former note, with the understanding and agreement that their indorsement should not become operative and binding, unless and until it was indorsed by one Mason, by whom, along with defendants, the former note had been indorsed, and that Mason's indorsement had not been procured. Plaintiff replied specially that the note was negotiable paper, and that it had purchased the same for a valuable consideration in good faith before maturity and in the usual course of business. There was evidence tending to sustain the respective contentions of the parties.

Appellants, defendants, complain in the first place that the court gave two charges, C and D, which placed upon them the burden of proving that plaintiff, when it purchased the note, had notice of the agreement alleged in the plea. The effect of these charges is the same, the difference being that C hypothesizes expressly facts which were assumed in D, to wit, that plaintiff purchased the note before maturity and for value. This assumption was not improper, because the facts assumed were proved without contradiction. True it is that section 5007 of the Code defines a holder in due course as, among other things, one who takes in good faith and without notice of any infirmity in the instrument or defect in the title of the person negotiating it, that plaintiff in its replication did in effect allege that it had no notice of the agreement set up in the plea, and that section 5014 of the Code provides that:

"When it is shown that the title of any person who has negotiated the instrument was defective, the burden is on the holder to prove that he or some person under whom he claims acquired the title as a holder in due course."

But the provision of the Negotiable Instruments Law, section 4973 of the Code, is such that, if a promissory note is delivered by the maker to the payee upon a verbal agreement that the instrument shall not take effect until other persons shall have signed, the paper will have no validity as between the original parties, unless so completed. And the section further provides:

"But where the instrument is in the hands of a holder in due course, a valid delivery thereof by all parties prior to him so as to make them liable to him, is conclusively presumed. And where the instrument is no longer in the possession of a party whose signature appears thereon, a valid and intentional delivery by him is presumed until the contrary is proved."

And section 5010 is:

"The title of a person who negotiates an instrument is defective within the meaning of this chapter [Negotiable Instruments Law] when he obtained the instrument, or any signature thereto, by fraud * * * or when he negotiates it in breach of faith, or under such circumstances as amount to a fraud."

If there was the agreement set up by way of defense in defendants' plea, then plaintiff's assignor negotiated the note in bad faith as to all who signed conditionally.

Assuming proof of the facts alleged in the plea, it seems clear that the statute put upon the plaintiff the burden of showing that it was "a holder in due course"; but it is our opinion that, when plaintiff proved that it paid full value for the note before maturity, it established prima facie that it was a holder in due course, and that the burden of showing that plaintiff had notice of the infirmity of its assignor's title rested upon defendants; this for the reason that, notwithstanding the course of pleading put upon plaintiff, the burden of alleging that it had no notice of the infirmity set up in the plea, want of notice, from the nature of the issue, cannot in general be shown by direct evidence. There is authority to the contrary, but "the general rule is that, where the holder has restored his prima facie case by introducing evidence from which it appears that he took the instrument bona fide for value" — here plaintiff's evidence was that it purchased the note in suit for full value and before maturity and denied the facts constituting the alleged infirmity of its title, thereby denying by necessary inference notice of any such facts — "the burden is then shifted back to defendant to prove the holder's notice or knowledge of the specific facts invalidating the instrument, and in the absence of such further proof the holder is entitled to recover." 8 C. J. 987, where the cases are cited. The reason assigned for the rule placing the burden of proving want of notice on the holder is that proof of fraud suggests that the guilty party, being precluded from recovering thereon in his own name, has transferred the instrument to another to recover for his use, and the latter must overcome the presumption in that regard. Hence it has been held "that proof that the holder paid full value for the instrument sued upon makes out a prima facie case of bona fides." 4 Am. Eng. Encyc. of Law (2d Ed.) p. 323, where the cases are cited, including First National Bank v. Dawson,78 Ala. 67, a case, apart from any effect to be ascribed to the act, precisely in point. True, that decision, as well as the text last above cited, was written prior to the Negotiable Instruments Law, but the constituent elements of a holding in due course, the practical limitations on proof imposed by the nature of the subject-matter, and the reasonable inference to be drawn from proof of full or fair value paid, are the same as they have always been, and our judgment upon consideration of those parts of the act quoted above is that the rule as to the burden of evidence in cases where full value has been paid remains unchanged. This appears to be the reasonable interpretation of the statute — the only practicable method of administering justice in such cases. Hodge v. Smith,130 Wis. 326, 110 N.W. 192. In the sixth edition of Daniel on Negotiable Instruments (1919), § 819, speaking of the rule, prior to the statute, that the burden of proof rested upon the defendant to show plaintiff's knowledge of fraud, it is said:

"This principle is obviously correct, for to require the plaintiff to show absolutely that he had [no] knowledge of facts would be to burden him with the necessity of proving an impossible negative. * * * Unless there were circumstances which seem to bring home to him notice of the fraud or illegality imputed, the requirement of further proof than the giving of fair value seems unreasonable, harsh, and exacting."

This is in accord with the general rule which, conceding that where plaintiff's right depends upon the truth of a negative, upon him is cast the burden of proof, unless the thing to be proved lies within the peculiar knowledge of the adverse party (Freeman v. Blount, 172 Ala. 661, 55 So. 293), for otherwise rights, of which a negative forms an essential element, might be enforced without proof, holds that, "In deciding what quantum of evidence shall be deemed sufficient, the practical limitations on proof imposed by the nature of the subject-matter or the relative situation of the parties will be considered, and the burden of evidence," that is, the burden of producing evidence, "will be sustained by proof which renders probable the existence of the negative fact," in this case proof that plaintiff paid full or fair value for the note in suit. 22 C. J. 80, 81, note 35. To the conclusion that the negotiable instruments law, the avowed purpose of which was to advance the currency of negotiable paper, has not changed this rule we are led by the considerations stated and the fact that in several cases, decided in this state since the enactment of the law, it has been so held. Elmore County Bank v. Avant,189 Ala. 418, 66 So. 509 (cited in Clearman v. Cobbs, 197 Ala. 546,73 So. 83); Merchants' National Bank v. Norris,163 Ala. 481, 51 So. 15; German-American Bank v. Lewis, 9 Ala. App. 352,63 So. 741.

It is also argued that charge C was error for that it confined defendants to proof "that the note should not become binding unless it was indorsed by Mr. A. H. Mason," whereas, it is suggested that defendants under their pleading introduced evidence tending to show that, as between the original parties, there was no consideration for the note in suit. But what has been said disposes of the only real defense attempted, and the trial court was justified in charging the law with reference to it without unnecessary excursions into the field of issues which had proved to be immaterial. Unless the defense heretofore considered at length was established, defendants had no defense, for, in that event, by their unqualified indorsement they warranted that the instrument at the time of indorsement evidenced a valid and subsisting obligation. Code, § 5021.

The charge of error in the refusal of charge A to defendants seems to us to be answered by the undisputed fact that defendants indorsed the note in suit in renewal of an older note on which they were liable as indorsers, the time of payment being extended.

Charge C, refused to defendant, asserted the proposition that plaintiff was not entitled to recover any attorney's fee for litigating this case in the Supreme Court on former appeal. The parties to the note in suit, whether makers or indorsers, severally agreed "to pay all costs of collecting or securing or attempting to collect or secure this note, including a reasonable attorney's fee whether the same be collected or secured by suit or otherwise." The proof was that plaintiff had recovered judgment at the end of a previous trial, but that such judgment had been reversed on appeal. Plaintiff's right to judgment is now established. The right now established was not affected by the reversal on former appeal. This case therefore seems to fall within the rule of Alabama City, etc., Ry. Co. v. Kyle, 204 Ala. 597, 87 So. 191. Appellants suggested that plaintiff should have avoided the expense of attorney's fees on appeal by confessing error in this court or in the trial court, Per contra, and nearer the heart of this issue, it might be suggested that defendants would have avoided this liability by payment of the debt according to promise, or by confessing judgment for the same. When plaintiff's assignor exacted the stipulation for attorney's fees it did not promise infallibility in the exercise of its right to sue, but only to use good faith and ordinary care, and, for aught appearing, it did so at every stage of the litigation. The peculiar stipulation in McCormick v. Falls City Bank (C. C.) 57 Fed. 108, upon which is based the text of 8 C. J. 1101, cited by appellant, serves to distinguish that case from this.

The court committed no error in declining to allow evidence to the effect that there was no consideration for the note in question. Pleas denied consideration for the indorsement to plaintiff, but not the consideration moving from the maker of the note to plaintiff's assignor. The last-mentioned matter was not put in issue.

Witnesses for the defendants, some of the defendants themselves, had testified that when they went to plaintiff bank to see about the payment of the note in suit and ask for indulgence, plaintiff's cashier Crum had said to them that the note had been bought conditionally, and Crum had denied that he made any such statement. Plaintiff's president, McMillan, testifying in rebuttal for plaintiff, was asked: "Did Mr. Crum have any authority to make any statement for the Citizens' Bank that this note was bought on any conditions?" Defendants' objection was overruled, and the witness answered, "No." This ruling is assigned for error, and argued in the briefs. The objection was that the question called for the conclusion of the witness, and that there was better evidence. The argument for error proceeds upon the theory that as matter of law, in the absence of charter provision, by-law, or resolution of the corporation, to the contrary, the cashier had authority to bind the plaintiff bank in any negotiation concerning the note, and therefore that the opinion of the president, that Crum had no authority in the premises, was a mere gratuitous opinion as to a question of law and was erroneous besides. We do not construe the question as asking for the witness' opinion on a question of law; we construe it as asking whether as matter of fact there was any usage of the bank or any express authority on the subject of the cashier's authority. Evidently plaintiff expected the negative answer, and the competency of the question is to be judged in connection with the answer. The bank had the right to define the authority of its cashier by resolution, by-law, or usage, as it saw fit. If there was no record to the contrary, and if by the usage of the bank the cashier had no authority to negotiate a loan or bind the bank by declarations made in the course of negotiations concerning the extension of loans, as, in substance, the cashier Crum had testified, it is not perceived that there was reversible error in allowing this witness to state, in effect, the collective fact that there was no such record or usage subject to cross-examination. There was no denial of the fact that the witness had the means of knowledge, and if there was no such record nor any such usage, there would seem to be no better or more direct method of proof than that adopted in the trial court. Gould v. Cates Chair Co., 147 Ala. 629, 41 So. 675. A different question would have been presented had plaintiff sought to elicit an affirmative answer. This much is said with respect to the admissibility of the evidence in question. We have no doubt, however, that, if Crum assumed to treat with the defendants concerning the payment of the note in what appeared to be the usual course of the bank's business, and in the course of such negotiation made a statement of the reason for refusing to defer payment which would tend to impeach the bank's title, such statement was proper for submission to the jury on the issue as to plaintiff's knowledge of the infirmity, if any there was, in plaintiff's title as alleged in the plea. And so the trial court ruled.

Affirmed.

ANDERSON, C. J., and GARDNER and MILLER, JJ., concur.