Home Savings Bank v. Heizer , 200 Iowa 793 ( 1925 )

The action is in equity, to foreclose a real estate mortgage securing three notes aggregating $4,950. The notes are renewals of a note originally given by the appellants for stock in the American Bankers' Securities Company. The 1. BILLS AND original note was given in 1919, and on NOTES: September 28, 1920, was renewed by a note validity: secured by mortgage. There appears to have been renewal with another renewal; but, be that as it may, on knowledge of April 1, 1923, the notes and mortgage in suit fraud. were executed in renewal of the then outstanding note and mortgage. The original note was taken by the appellee bank as collateral security for a loan to the American Bankers' Securities Company, and all the renewals have been so held.

The defense presented was that the original note and the stock subscription for which it was given were procured by fraud; that the renewals were given before the fraud was discovered; and that the appellee was not a holder in due course. The bank claimed to be a holder in due course, and that, by renewing the note with knowledge of the fraud, appellants waived any defense based upon fraud in the inception of the original note.

The appellant C.B. Heizer was a stockholder in the American Bankers' Securities Company, prior to the giving of the original note, and was a member of the board of directors of that company in 1920. This situation is relied on by appellee as showing that, when appellants thereafter renewed the notes, they did so with knowledge, or the means of knowledge, of the claimed fraud.

The representations which the evidence tended to show were made to induce appellants to purchase the stock, so far as they were shown to be false, were concerning matters of which C.B. Heizer, while serving as a director of the corporation, had the fullest opportunity to learn the truth. Many of them related to matters which it was his duty as a director to know. Not only would the most ordinary diligence on his part have disclosed the truth, but a proper performance of his duty as a director would have sufficiently revealed the facts as to the organization and operations of the company to have put him upon inquiry. We think it clear that he must be held to have waived the defense of fraud when he knew, or by the exercise of ordinary diligence could have discovered, the truth in respect to the representations made to him, and thereafter repeatedly renewed his obligation. Farmers Merch. Sav. Bank v. Jones, 196 Iowa 1071; Grimes Sav. Bank v.McHarg, 197 Iowa 1393; Sullivan v. Gaul, 198 Iowa 630; Anthon St.Bank v. Bernard, 198 Iowa 1345; National Bank of Decorah v.Robison, 199 Iowa 1044; State Sav. Bank v. Deal, 200 Iowa 490.

The waiver is conclusive of appellants' liability on the note, 2. BILLS AND whether the bank was a holder in due course or NOTES: not. National Bank of Decorah v. Robison, supra. holdership We therefore have no occasion to determine that in due question. The decree is right, and it is — course: Affirmed. when issue immaterial.

FAVILLE, C.J., and EVANS and De GRAFF, JJ., concur.