Sample v. Hundred Lakes Corp.

On April 23, 1925, J. W. Sample, representing himself and others, purchased certain property from Lake Marian Groves Corporation. In this transaction Sample executed certain notes and a mortgage to secure the same. In this case we are dealing with the fifth note of the series which was for the sum of $16,212.17, dated April 23, 1925, and due March 31, 1929, with 6% interest from date. The mortgage and the notes were signed "J. W. Sample, Trustee." The mortgage bearing the same date as the note and identifying the notes, and particularly the note here in controversy, began with the following declaration:

"THIS MORTGAGE DEED, Executed this 23rd day of April, A.D. 1923, by J. W. Sample as Trustee, of the County of Polk and State of Florida, hereinafter called the Mortgagor, to LAKE MARIAN GROVES CORPORATION, a Corporation under the laws of the State of Florida, doing business in the County of Polk and State of Florida, hereinafter called the Mortgagee."

The mortgage also contained the following clause:

"IT IS FURTHER AGREED and understood that there is to be no personal liability on the part of the said J. W. Sample, by reason of the execution of these presents as Trustee as aforesaid."

The uncontradicted evidence is that it was understood and agreed between the parties to the transaction at the time of the execution of the notes and mortgage that Sample assumed no personal liability for the payment of the obligation but that the payee and mortgagee was to look exclusively to the security of the mortgage for the payment of the obligation. That such was the accepted meaning of the above quoted clause in the mortgage.

In September, 1925, Lake Marian Groves Corporation, the payee named in the note, assigned and endorsed the same, as it is alleged, to Hundred Lakes Corporation and in consideration of said assignment and endorsement Hundred Lakes Corporation executed to Lake Marian Groves Corporation its note for $10,000.00, which note was afterwards paid.

The evidence shows that at the time of both transactions Sample was considered solvent. The officers of the two corporations involved were doing business in the same town and apparently their offices were located in the same business block, but on different streets, of that town. Sample was also doing business in the same town, which was one of those towns not so large but that most people residing there each knew the other residents of the town and about what their general reputation for solvency and ability to pay was. Interest was payable on the notes annually but no interest was paid and no action was brought to enforce the payment of anything on the note until after the due date thereof.

The note had upon its face "No. 5." The evidence showed that it was on a printed form and, as printed, interest was payable from maturity at 10% per annum. It had been changed with a pen so as to make interest payable from date at 6% per annum. It was signed "J. W. Sample, Trustee."

There is no question in this case of the liability of the maker of a note who executes the same by signing his name and thereafter adding the word "Trustee," and, therefore, the question as to whether or not the word "Trustee" following the name of Sample was merely descriptio personae is not involved.

There was a plea which challenged the allegation that the plaintiff was the holder in due course of the instrument sued on. This plea, showing defective title in the payee who was endorser to plaintiff, put the burden on the plaintiff to show that it was holder in due course and, under the provisions of Sec. 4732, R. G. S., 6818 C. G. L., it was incumbent upon the plaintiff to prove by preponderance of the evidence that it took the note in good faith and for value.

On motion the court directed a verdict in favor of the plaintiff.

We might well dispose of this case by order of reversal on authority of Sample vs. Wilson, 101 Fla. 818, 134 So. 549, as the only question presented which we will discuss, and which is the one controlling question in this case, is whether or not the facts and circumstances shown by the evidence indicating lack of good faith in the acquisition of the note on the part of the plaintiff was sufficient to go to the jury; however, it may be helpful for us to add something to what was said in that case.

If all the facts and circumstances within the knowledge of the plaintiff at the time of the acquisition of the note were sufficient to put it on inquiry as to whether or not there existed any infirmities which would preclude the payee of the note from maintaining an action to hold Sample personally liable thereon, then it was the duty of the plaintiff to make such inquiry and it could not fail or refuse to make such inquiry and then claim benefit of the lack of knowledge of those facts which would have been disclosed by such inquiry. The salient facts directing the exercise of caution on the part of the purchaser, and of which the purchaser was cognizant at the time of the purchase, were:

This note was numbered 5, indicating that it was the fifth of a series, the due dates and amounts of the other notes of the same series not appearing therein;

That the printed form of the note had been changed by erasures and insertions with pen and ink;

That the note was signed "J. W. Sample, Trustee," which may have indicated that Sample intended to execute the note in some capacity other than assuming personal liability;

That Sample was considered solvent and good for his obligations:

That the note was offered and purchased at an unusual and unbusiness-like discount.

These facts, with all the other evidence in the case, should have gone to the jury as a basis for its determination of whether or not the note was purchased in good faith, that is, in legal good faith. The determination of this question would require the jury to determine whether or not the knowledge of these several conditions required the purchaser to make such inquiry as it could have made to determine whether or not the obligation could be enforced by the payee against the maker as a personal, liability and we must hold that the court committed error and invaded the province of the jury in directing a verdict for plaintiff in this case.

It has been held:

"An offer to sell negotiable instrument at very much less than its face value is calculated to excite suspicion to a greater or less extent, according to the circumstances, and that fact always is admissible on the question of good faith." 3 Rawle C. L. 1079. See Olmsted vs. Winsted Bank,32 Conn. 278, 85 Am. Dec. 260; Hinckley vs. Kersting, 21 Ill. 247, 74 Am. Dec. 102; Williams vs. Huntington, 68 Me. 590, 6 A. St. R. 477; Eiefenthaler vs. Biersach, 182 Wise. 245.

In Williams Co., Inc. vs. Wiltz, a Connecticut case reported 137 A. 759, it is said:

"The plaintiff, as the holder, is deemed prima facie to be a holder in due course, but it being conceded that the instrument came to it from one having a defective title, the burden under the statute was upon the plaintiff to prove that it was a holder in due course. General Statutes #4417. This provision abrogates, so far forth, the general rule that it is from him who pleads facts to prove them. Parsons v. Utica Cement Mfg. Co., 80 Conn. 58, 60, 66 A. 1024.

"That plaintiff became the holder of this paper before maturity was not disputed, but it was contended by defendant that the evidence disclosed facts and circumstances in connection with the purchase which justified a finding that the plaintiff was chargeable with notice of the infirmity in the instrument because of its knowledge of such facts that its action in taking the instrument amounted to bad faith. General Statutes #4414. Chief among these was the admitted fact that this instrument, with others of like character, was bought by plaintiff at a substantial discount from face value.

"The payment of the full face value of a bill or note is not necessary to make one a holder for value; nor does the fact alone that it was bought at a discount charge the purchaser with notice of existing equities. The consideration paid for the note is, however, a fact to be considered upon the question of good faith and inadequacy of the consideration may, in connection with suspicious circumstances, justify a finding of bad faith. 8 C. J. 486, 508, 509.

"In Harris vs. Johnson, 89 Conn. 128, 93 A. 126, we had occasion to consider this question in a situation quite analogous to that here presented. In that case a $550 note was purchased by the plaintiff about two months before it became due for $400. The plaintiff offered no proof that he had made any investigation as to the responsibility of the maker or any of the indorsers of the note, or as to why the amount paid was so much less than the face value. The trial court directed a verdict for the plaintiff. In reversing the judgment, this Court said:

'The amount paid by the holder of a promissory note purchased before maturity may, under some circumstances, become important in passing upon the question of good faith. The amount paid may be so disproportionate to the real value of the note said to have been purchased, that the claim to have paid any value for it would be considered as a mere subterfuge to conceal the true character of the transaction. In the present case, the deduction of so large a sum from the face of the note is a fact which should have been submitted to the jury in connection with all of the evidence bearing upon the question of good faith.' "

See also Moore Co. v. Burling, et al., 93 Wash. 217,160 P. 420.

In Union State Bank of Emory et al. vs. Savord, 186 Wise. 365, 202 N.W. 688, it is said:

"Whether holder of note took in due course and in good faith is generally for the jury, depending on inferences to be drawn from all circumstances."

In Deerk et al. vs. Babcock, et al., a Nebraska case reported in 231 N.W. 754, it is said

"An indorsee of a negotiable instrument, the title to which is defective, who takes with knowledge of such facts that his action in taking the instrument amounts to bad faith, will be deemed to have taken with notice of such defective title."

Whether or not a negotiable note is acquired by an indorsee in due course and in good faith is a question to be determined upon the facts in each case and it is not possible to state in a concise definition just what will constitute bad faith, or what acts of omission or commission will show the exercise of good faith. Sample vs. Wilson, 101 Fla. 818,134 So. 549. But, we take it that it can be safely said that where the facts and circumstances made known at the time to the purchaser clearly indicate that there is some infirmity existing which would preclude the payee, or the then holder by indorsement, of the note from successfully maintaining an action to enforce the payment thereof against the maker that he is thereby put upon inquiry as to whether or not such infirmities do exist and if by inquiry he could ascertain that such infirmities do exist he could not, by refusing to make inquiry, place himself in the attitude of a holder in due course for value and in good faith.

For the reasons stated, the judgment should be reversed, with directions that a new trial be awarded. It is so ordered.

Reversed.

WHITFIELD, TERRELL AND DAVIS, J.J., concur.

ELLIS AND BROWN, J.J., dissent.