First Nat. Bank v. Pond

This is an action upon a promissory note for $1,125, executed by appellant to Hibbard Bros., Inc., and transferred by that corporation to respondent by way of security. The appeal is taken from a judgment in favor of respondent entered upon a directed verdict. The principal specifications of error, and the only ones which we will expressly notice are as follows: (1) Directing a verdict in respondent's favor, (2) rejecting appellant's offer to prove that the corporate charter of Hibbard Bros., Inc., was duly forfeited by the state on December 1, 1919.

At the conclusion of the evidence the court directed a verdict for respondent. Appellant had set up fraud practiced on him by Hibbard Bros., Inc., in the inception of the note. Respondent contends that the court properly directed a verdict for it because fraud is not pleaded nor proved. We conclude that a case of fraud was pleaded and sufficient evidence was introduced to make a case for the jury, if that had been the only issue. (Pocatello Security Trust Co. v. Henry, 35 Idaho 321,206 P. 175.)

However, pleading and proving that appellant was defrauded by Hibbard Bros., Inc., in the inception of the note was not decisive of the case. The note being negotiable, fraud practiced in its inception by Hibbard Bros., Inc., would not defeat respondent's right of recovery if it were a holder in due course; that is, if it took the note in good faith and for value, and without notice of any infirmity in the instrument or defect in the title of the person negotiating it. (C. S., sec. 5919.) "In an action on a negotiable promissory note when defendant pleads and proves that the note was procured by fraud, the plaintiff must show affirmatively that he took the note as a holder in due course."

"In such case the burden is on the plaintiff to show that he took without notice of the fraud." (Wright v. Spencer, ante, p. 60, 226 P. 173.) (First Nat. Bank v. Hall, 31 Idaho 167, 169, Pac. 936; C. S., sec. 5926.) In the present case respondent endeavored to sustain this burden of proof by testimony of its president, vice-president, cashier, assistant cashier, all the members of its loan committee, and the only one of its directors who was acquainted with the maker of the note, all of whom testified that they had no knowledge of any fraud practiced upon respondent in its inception. Appellant introduced testimony of one witness to the effect that about the time respondent took the note the general reputation for honesty and integrity of Hibbard Bros., Inc., and of its officers, J.A. Hibbard and W.E. Hibbard, was not very good in the vicinity of Pocatello where they were doing business and where respondent had its place of business.

Appellant contends that the question whether respondent took with knowledge of the fraud was for the jury because all of the witnesses who testified to a lack of such knowledge were its officers or employees and therefore interested. (First Nat.Bank v. Hall, supra.) In that case the court used the following language:

"In Massachusetts and North Carolina, in this class of cases, the courts have held that when the burden has been shifted to the plaintiff to show that he is a holder of negotiable paper in due course, the determination of the issue is always for the jury. . . . .

"The rule apparently followed in the cases of SouthwestNational Bank v. Baker and Burdell v. Nereson, supra, and announced in the majority opinion of the court in SouthwestNational Bank v. Lindsley, supra, to the effect that the question of whether or not a transferee of a promissory note is a bona fide purchaser in due course, is one for the jury, save in those instances where the testimony is not only consistent with the good faith of such purchaser, but is such that no fair-minded person could draw any other inference therefrom, is subject, in that class of cases to which this one belongs, to the following modification: Where the good faith of a party who claims to be the holder in due course of a negotiable instrument is an issue upon which he has the burden of proof, the credibility of his testimony in support of that issue, though uncontradicted, is for the jury."

If the credibility of the testimony of the holder of a promissory note, though uncontradicted, is always for the jury, it follows that the credibility of the testimony of officers of a corporation, though uncontradicted, is always for the jury. In that case there were circumstances which tended to show knowledge of the fraud on the part of Reed, the vice-president of the bank, who acted for it in the transaction, and who was the only witness testifying to a lack of knowledge on its part. The court said: "These facts were proper for the jury to consider as circumstances in determining the credibility of Reed's testimony."

Therefore, it was not necessary to base the decision upon the theory that the question is always one for the jury. Moreover, in several of the cases cited in the opinion it appeared that there was evidence of facts and circumstances tending to throw doubt upon the good faith of the holder of the note. Nevertheless if the language used in First Nat. Bank v. Hall, and referred to supra, is to be literally followed, it necessarily results that the court erred in directing a verdict and the judgment should be reversed. The Iowa cases cited and quoted from in the opinion have been modified by later Iowa cases. We conclude the better rule is that a verdict may be directed, even where the only testimony relied on by the holder of the note is his own or his agent's if they are unimpeached and uncontradicted, and no contrary inference can be drawn from the facts and circumstances shown by all the evidence. (Com.Savings Bank of Washington v. Colthurst, 195 Iowa, 1032,188 N.W. 844, 191 N.W. 787; Smith v. Breeding, 196 Iowa, 670, 195 N.W. 208; Robertson v. United States etc. Stock Co.,164 Iowa, 230, 135 N.W. 535. See, also, Delaney v. Brownwood,73 Colo. 83, 213 P. 578; Citizens' Trust Sav. Bank v. Stackhouse,91 S.C. 455, 74 S.E. 977, 40 L.R.A., N.S., 454; City Nat. Bankv. Jones, 109 Neb. 724, 192 N.W. 509; Edelen v. First Nat. Bankof Hagerstown, 139 Md. 413, 115 A. 599.) Accordingly, the rule of First Nat. Bank v. Hall, supra, is modified in accordance with the view just above expressed.

The further question arises whether there was proof of any fact which tended to contradict or impeach the testimony of respondent's officers to the effect that they had no knowledge of any fraud practiced in the inception of the note. The officers who testified were all the officers who had to do with the transaction or could be presumed to have any knowledge concerning it. One Dr. Jamison, a witness for appellant, was asked whether in November, 1919 (about the time respondent took the note), he was acquainted with the general reputation for honesty and integrity of Hibbard Bros., Inc., and of J.A. Hibbard and W.E. Hibbard, its officers, in the vicinity of Pocatello, Idaho. Over objection he was permitted to answer that he believed he was acquainted with their general reputation and that it was not very good. Appellant argues from this evidence that respondent's officers knew or should have known that Hibbard Bros., Inc., and its officers were lacking in integrity and honesty, and therefore should have suspected there might be something wrong about the transaction in which Hibbard Bros., Inc., acquired the note, and should have made inquiry. Appellant cites several authorities in support of this contention which we will briefly analyze. The first isMerrill v. Hole (Iowa), 52 N.W. 4. In this case it was held that an article in a newspaper, of which the transferee of a note was a subscriber, and the fact that the transaction upon which the note was based was the current talk of the town where he lived, were admissible to prove that he knew or should have known that the note was void. In Ward et al. v. Herndon, 5 Port. (Ala.) 382, it is held:

"It is no departure from the rules of evidence, to prove the notoriety, in the neighborhood of a fact, already proved to exist, to lay the foundation for an inference, that defendants were cognizant of that fact."

In Brooks v. Thomas, 8 Md. 367, and Hahn v. Penney, 62 Minn. 116,63 N.W. 843, it is held that evidence of reputation of a person as to solvency or insolvency is competent to prove notice or knowledge of such solvency or insolvency. In State v.Flint, 60 Vt. 304, 14 A. 178, it is held:

"Where defendant had told a man that he had not heard of the crime till a certain time, evidence that the matter was notorious in the community before that time is relevant to impeach defendant."

Where the issue is whether one has been negligent in failing to acquire information which he should have acquired, it may be that such evidence is relevant and competent. Where the issue is whether a party actually had knowledge of the fact in question it does not seem that such evidence is relevant or competent, unless in an extreme case where it appears that knowledge of the fact was so widespread in a community that no intelligent person could well have been ignorant of it. Great caution should be exercised in admitting such evidence. We are not prepared to hold that evidence of one witness that the reputation of Hibbard Bros., Inc., for honesty and integrity was not very good casts even a suspicion upon the good faith of respondent in taking the note or tends to contradict or impeach the evidence of its officers. In Winter v. Nobs, 19 Idaho 18, Ann. Cas. 1912C, 302, 112 P. 525, this court said:

"Under the provisions of sec. 3513 of the Rev. Codes, mere suspicious circumstances are not sufficient to charge the purchaser of a promissory note with bad faith and notice of equities and defenses, but in order to charge the paper in his hands with prior equities and defenses his notice must be actual, either of the facts constituting the equities and defenses or of such circumstances that his action in taking the paper in the face of such knowledge amounts to bad faith. The rights of the holder are to be determined by the simple test of honesty and good faith, and not by speculative issues as to diligence or negligence."

Testing respondent's rights "by the simple test of honesty and good faith and not by speculative issues as to diligence or negligence" it does not seem to me that this bit of testimony as to the reputation of Hibbard Bros., Inc., required the submission of the case to the jury.

Appellant denied in his answer that Hibbard Bros., Inc., indorsed or transferred the note to respondent. Appellant offered to prove that on December 1, 1919, the charter of Hibbard Bros., Inc., was forfeited by the state of Idaho, through the action of the Secretary of State, as provided by the Compiled Statutes, and the court denied appellant the privilege of introducing such evidence. Appellant argues that, if the charter of the corporation was forfeited at the time it attempted to transfer the note to respondent, the transaction was void and no title passed. Without deciding as to the merit of this contention, it appears from the uncontradicted evidence that the note was indorsed to respondent on or about November 20, 1919, in any event before December 1st. Therefore the evidence was immaterial and properly rejected.

We have examined the other specifications of error and do not find merit in any of them.

The judgment is affirmed, with costs to respondent.

William A. Lee and Win. E. Lee, JJ., concur.

Dunn, J., dissents.