Southwest National Bank v. Lindsley

SULLIVAN, C. J.

This is an action to recover the principal and interest due upon a certain joint and several promissory note, in the usual form, made and executed by respondents in favor of McLaughlin Brothers, in payment for a certain imported stallion, which note, it is alleged in the complaint, was, prior to its maturity, for a valuable consideration, in the usual course of business, sold and assigned to appellant.

Prior to the commencement of the action, W. A. Shatzer, one of the makers of the note, died and Frank S. Eice, administrator of his estate, was made a defendant in that capacity. A motion has been made in this court to substitute Elizabeth Shatzer as administratrix of the estate of W. A. Shatzer, deceased, as a respondent herein in place of Frank S. Eice, as administrator, Eice having resigned his administratorship, since the appeal was taken and Elizabeth Shatzer having been appointed and qualified as administratrix of the estate. The application has been granted and the substitution made.

The defense disclosed by the amended answer is that respondents and S. Deimage and Henry J. Elfers entered into a contract with McLaughlin Brothers, through their agent, Emerson Mays, wherein it was agreed that respondents and Deimage and Elfers were to purchase a stallion from McLaughlin Brothers for the sum of $4,000, and were to give in payment therefor four promissory notes for $1,000 each; that pursuant to the agreement respondents executed the four notes, including the one sued upon, which were to be delivered to McLaughlin Brothers when signed by Deimage and Elfers; that at the same time and place, and as a part of the transaction, McLaughlin Brothers, through their agent, entered into three written agreements and one oral agreement with respondents, in substance as follows: 1. To hold each of respondents liable upon the purchase price of the stallion, as evidenced by the promissory notes, for the sum of $400 only, being the price of one share in the White Bird Percheron Horse Company, which was then formed by respondents and Deimage and Elfers; 2. That McLaughlin Brothers would warrant and guarantee the stallion to prove to be a sixty per cent foal-getter, or if he should not prove to be so, to exchange him for a Percheron, Belgian or French Coach stallion free of any charge to respondents; 3. That in the event the stallion should die before the end of the breeding season of 1908, McLaughlin Brothers would replace him with a Percheron, Belgian or French Coach stallion; 4. That it was orally agreed that McLaughlin Brothers should maintain stables in Spokane, Washington, during the years 1907 and 1908 where a stallion could be selected by respondents in place of the one purchased, in the event he should prove to be unsatisfactory, or should not be a sixty per cent foal-getter, or should die before the end of the breeding season of 1908.

Upon the issues thus made by the pleadings, the cause was tried by the court with a jury and a verdict and judgment rendered and entered in favor of the defendants. The appeal is from the judgment.

The admission of certain evidence and the giving and the refusing to give certain instructions and the insufficiency of the evidence to support the verdict are assigned as error.

The main defense was that the title of McLaughlin Brothers, who negotiated said note, was defective and that said promissory note was procured by fraud and misrepresentation, and that the appellant is not a holder of said note in due course.

Sec. 3512, Rev. Codes, declares when the title to a negotiable instrument is defective, within the meaning of the law concerning negotiable instruments, and is as follows:

“The title of a person who negotiates an instrument is defective within the meaning of this title when he obtained the instrument, or any signature thereto, by fraud, duress, or force and fear, or other unlawful means, or for an illegal consideration, or when he negotiates it in breach of faith, or under such circumstances as amount to fraud.” (Schellenberger v. Nourse, 20 Ida. 323, 118 Pac. 508.)

The evidence admitted on the trial was sufficient to show that McLaughlin Brothers’ title to said promissory note was defective. It then, under the statute, devolved upon the appellant bank to show that it was a holder in due course.

Sec. 3509, Rev. Codes, defines a holder of negotiable paper in due course as follows:

“A holder in due course, is a holder who has taken the instrument under the following conditions:

‘ ‘ First. That the instrument is complete and regular upon its face;

“Second. 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;

“Third. That he took it in good faith and for value;

“Fourth. 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.”

See. 3516, Rev. Codes, provides: “Every holder is deemed prima facie to be a holder in due course; but 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 last-mentioned rule does not apply in favor of a party who became bound on the instrument prior to the acquisition of such defective title.”

Since the title of McLaughlin Brothers to said note was shown to be defective, the provision of sec. 3516 applies, and the burden was placed upon appellant to prove that it acquired said promissory note as a holder in due course. The appellant bank was thereupon required to show that at the time it purchased the note it had no notice of any infirmity in the instrument or defect in the title of the person negotiating it. (Winter v. Nobs, 19 Ida. 18, Ann. Cas. 1912C, 302, 112 Pac. 525; Schellenberger v. Nourse, 20 Ida. 323, 118 Pac. 508; Park v. Johnson, 20 Ida. 548, 119 Pac. 52; Park v. Brandt, 20 Ida. 660, 119 Pac. 877; Vaughn v. Johnson, 20 Ida. 669, 119 Pac. 879, 37 L. R. A., N. S., 616; Vaughan v. Brandt, 21 Ida. 628, 123 Pac. 591.)

The following facts appear from the record: The note sued upon in this action bears date May 31, 1907, upon which date, or immediately thereafter, it was executed and delivered to McLaughlin Brothers’ agent and by McLaughlins sold to the appellant on April 12, 1909. This latter date was practically two years after the note was executed and delivered. On May 15, 1909, one "W. M. Moore, acting for and on behalf of the joint makers of the note sued upon, wrote to McLaughlin Brothers at St. Paul. In his letter he called attention to an agreement which seems to have been made but which is no part of the note in suit, to the effect that each of the joint makers of the note would be held only for his individual share in the horse and not for any other share should any of the others fail to pay their shares. He also stated that the stallion did not get sixty per cent of the producing mares with foal. He called attention to the fact that McLaughlin Brothers promised to replace the horse provided he did not possess the foal-getting qualities. He further stated: “Some of the shareholders also claim that Emerson Mays, your agent and manager, got their signatures through misrepresentation and fraudulent means and the company refuses to pay the notes,” and that “the above horse company also states that the horse is not worth more than one-half of the price contracted for and that they make the following offer for the said horse ‘Endurant’; that is, that they will pay you in cash one-half the total amount due on the horse and yon surrender all the notes given for said horse. ’ ’

The letter was written two years after the note was given, and after the note had been sold to the appellant. Even then only a part of the stockholders claimed that their signatures had been obtained through misrepresentation and fraud. All were agreed, however, and willing, apparently, to pay one-half of the amount still due for the horse. The query naturally arises whether it was a question of misrepresentation and fraud or a question of partial failure of consideration.

In any event, the makers of the note did not offer to return the stallion, although they received a letter from McLaughlin Brothers dated May 20, 1909, in reply to their letter of May 15, 1909. In this reply the McLaughlins said, among other things: “We are very sorry to learn that ‘Endurant’ is unsure, but if so we are prepared to perform our part of the contract on him whenever called upon-to do so.” They then gave directions for his shipment to Minnesota, and said that another stallion would be furnished in his place. They also informed the local horse company that the notes had been sold in the usual course of business in order to raise money to buy other horses, but the company did not see fit to bring an action to have the notes canceled, neither did they return or offer to return the stallion.

Neal, the president of the appellant bank, in answer to cross-interrogatories in his deposition and in his rebuttal interrogatories, testified that neither the plaintiff nor any of its officers had at the time they purchased the note in suit any notice, knowledge or information of fraud or misrepresentation charged to have been practiced upon the makers when the note was procured. The answers made by witness Neal were in response to the questions propounded by both counsel for the respondent and for the appellant. While it is clear that Neal was not in a position to absolutely testify what other officers of the bank knew in connection with procuring the notes' from the makers, he testified as most any other man would testify in regard to a transaction which he himself conducted for the bank, and we do not consider his testimony to the effect that the other bank officers knew nothing about the matter sufficiently irregular to nullify his entire testimony and" discredit him as a witness. It is clear from the record that the transaction or sale of the note in connection with other notes was made by William McLaughlin, representing McLaughlin Brothers, and witness Neal, who then occupied the position of president of the appellant bank. We think the record bears us out when we say that the business having been transacted by Neal, as president of the bank, and William McLaughlin, on behalf of McLaughlin Brothers, and by no one else, under the facts of this case, a recovery on the note cannot be defeated, for the reason that all of the other officers or employees of the bank were not called and interrogated as to their knowledge in connection with the procuring of the note in suit, and as to whether or not they had knowledge of any misrepresentations or fraud perpetrated upon the makers.

The true rule is, no doubt, that when the maker or indorser of a negotiable instrument by competent proof establishes the fact that the note is defective for the reason that it was procured by fraud and misrepresentation, or for any other lawful reason, the burden shifts, and the holder must then prove that he is a bona fide holder of the note in due course. (See. 3516, Rev. Codes.) Under such circumstances the holder is called upon to furnish satisfactory proof that he is a bona fide purchaser in due course, and this is a question for the jury, save in those instances where the testimony is not only consistent with the good faith of such purchase, but is such that no fair-minded person could draw any other inference therefrom.

An examination of the record in this ease will show that the instrument is complete and regular upon its face; that the appellant became the holder of it before it was overdue and without notice that it had been previously dishonored; that it took the note in good faith and for value; that at the time the note was negotiated it had no notice of any infirmity in the instrument or defect in the title of the person negotiating it. This note was paid for by the bank by cashier’s cheeks in the usual course of business, free, in our opinion, from all suspicion of knowledge of fraud in procuring the note so far as the bank was concerned. This transaction was supported, no doubt, by the written statement of M. M. Moore, cashier of the Salmon River State Bank, where some of the makers of the note did business, in which statement he said: “In regard to the notes of E. M. Lindsley, F. L. Taylor et al., in favor of McLaughlin Brothers, I consider it good paper and collectible.”

The fact that certain payments had been made and indorsed upon the note could in no way be considered as a suspicious circumstance in its purchase. Where payments are made upon a note, we think one would be justified in indulging the presumption, and particularly if these payments were made before due, that the obligation would be promptly paid when due. The fact that the annual interest had not been promptly paid, under the facts in this case, did not constitute a suspicious circumstance to be considered by the jury.

Since Neal’s testimony clearly shows that the transaction in the purchase of said note was made by himself and that none of the other officers of the bank knew anything about the transaction, the jury was not at liberty to ignore this testimony entirely when there was nothing in conflict with it and the witness had not been impeached. It was amply sufficient to prove that the bank acquired said note as a holder in due course. While the jury is the judge of the evidence and the weight that should be given to it, it is not at liberty to ignore entirely evidence where there is no conflict in it and where there is nothing to indicate that the witness was testifying falsely.

The record shows that the jury have been misled or influenced by passion or prejudice in rendering its verdict. In case this action is retried, only such evidence as is pertinent to the issues should be admitted, and only such instructions given as are applicable to the evidence.

The judgment is reversed and the cause remanded for further proceedings in accordance with the views expressed in this opinion. Costs are awarded to appellant.

Budge, J., concurs.