Brown v. Keyes

MISER, C.

Appellant Keyes is receiver of the Corn Belt National Bank of Scotland, under the 'Comptroller of the Currency of the United States. Among the listed assets of said bank, at the time it was turned over to him as receiver, were three notes purporting to be signed by respondent Brown. Keyes, as receiver, 'brought suit in federal court against Brown upon one of these notes, which was in the sum of $i,ooo. Brown defended on the ground that said note was a forgery; and, upon trial, verdict and judgment were in his favor. Brown then brought this suit in state court against Keyes for damages for malicious prosecution. This appeal is from a judgment upon a verdict in Brown’s favor.

The elements of “malicious prosecution” have been declared by this court to be: “ (I) the commencement or continuance of an original criminal or civil judicial proceeding; (z) its legal causation by the present defendant against plaintiff, who was defendant in the original proceeding; (3) its bona fide termination in favor of the present plaintiff; (4) the absence of probable cause for such proceeding; (5) the presence of malice therein; (6) damage conforming to legal standards resulting to plaintiff.” Just v. Martin Bros. Co., 37 S. D. 470, 476, 159 N. W. 44, 46; Larsen v. Johnson, 47 S. D. 202, 204, 197 N. W. 230; 38 C. J. 386; Chapman v. Anderson, 55 App. D. C. 165, 3 F.(2d) 336; Wheeler v. Nesbit et al, 24 How. (65 U. S.) 544, 16 L. Ed. 765. That elements 1, 2, 3, and 6 exist in this case is undisputed. Appellant contends, however, that elements 4 and 5 are entirely lacking. That the absence of either of these two elements is fatal to- such an action has heretofore been pointed out by this court. “The want of probable cause is essential to every suit for a malicious prosecution. Both that and malice must concur. Malice, it is admitted, may be inferred by the jury from a want of probable cause, but the want of probable cause cannot be inferred from any degree of express malice.” Richardson v. Dybedahl, 14 S. D. 126, 132, 84 N. W. 486, 487; Id., 17 S. D. 630, 634, 98 N. W. 164.

In Wadlington v. Coyne, 49 S. D. 563, 207 N. W. 539, this court quoted with approval from Newell on Malicious Prosecution, par. 8, as follows: “The want of probable cause is the essential ground of the action. Other grounds or essentials may be inferred from this; but this can never be inferred from anything else. It must be established by positive and express proof.”

“Probable cause” has been variously defined as follows: “Probable cause, as applicable to the prosecution of a civil action, is such reason, supported by facts and circumstances, as will warrant a cautious man in the belief that his action, and the means taken in prosecuting it, are legally just and proper.” Eickhoff v. Fidelity & Casualty Co., 74 Minn. 139, 76 N. W. 1030; 18 R. C. L. 35, citing 93 Am. St. Rep. 458. “The standard of conduct for beginning or continuing- any proceeding, whether civil or criminal, is that of a reasonable or ordinarily prudent man placed in the same situation as the defendant.” 18 R. C. L. 36. There seems to be no dispute as to where the burden of proof lies in a malicious prosecution suit. In Richardson v. Dybedahl, supra, this court said: “The burden is upon the plaintiff to show, by a fair preponderance of the evidence, both want of probable cause and that the prosecution was malicious.”

As to the amount of proof of want of probable cause which is necessary to support a judgment for maliciously prosecuting a civil action, the Supreme Court of Minnesota, in Kasal v. Picha, 156 Minn. 446, 195 N. W. 280, says: “When damages áre sought for the alleged malicious prosecution of a civil action, there being no-interference with person or property, the absence of probable cause must be ‘very -palpable’ — proven very clearly. Eickhoff v. Fidelity and Casualty Co., 74 Minn. 139, 76 N. W. 1030; Virtue v. Creamery Package Mfg. Co., 123 Minn. 17, 142 N. W. 930, 1136 L. R. A. 1915B, 1179, 1195. And. whether the undisputed facts are sufficient to constitute probable cause is wholly a question of law. In consequence we must determine it for ourselves as if the case had been heard here. Cox v. Lauritsen, 126 Minn. 128, 147 N. W. 1093, and cases cited.” In Cooley on Torts (3d Ed.) p. 351, speaking of malicious civil suits when there has been no interference with person or property, the author says: “It is held that the want of probable cause must be very palpable and that greater latitude in the doctrine of reasonable cause must be exercised in such cases than would be permissible in an action for maliciously prosecuting a criminal case.”

Kolka v. Jones, 6 N. D. 461, 71 N. W. 558, 66 Am. St. Rep. 615, is a leading case on the extension of the law of malicious prosecution to civil actions wherein the defendant was not deprived of his liberty or property, and was not injured in his business. It was followed in so holding by this court in Teesdale v. Liebschwager, 42 S. D. 323, 174 N. W. 620. A careful reading of Kolka v. Jones leaves no doubt that it was the purpose of that decision to declare that legal redress might be had against “the malignant persecutor and harasser of a citizen, who, by his abuse of legal forms, causes heavy damage to such citizen, in property, reputation, and business prospects, by the unfounded suit, which he who institutes it knows full well he cannot maintain”; but “that the honest claimant should not be frightened from invoking the aid of the law by the statutory threat of a heavy bill of costs against him in case of defeat.” Although some courts have criticized the rule which requires the absence of probable cause to be very palpable, as stated in Kasal v. Picha, supra, we find no case where the allowance of damages in such cases has received judicial approval where absence of probable cause has not been very clearly proven. The rule is well stated in Eickhoff v. Fidelity & Casualty Co., supra, where, after using the language hereinbefore quoted from Cooley on Torts (3d Ed), the court proceeds: “Before a party can justly be held liable for maliciously prosecuting a civil action, where there was no intereferenee with the person or property of the defendant, want of probable cause must be very clearly proven. Bigelow, Torts, 78; Newell, Mal. Pros. § 26. This rule is sustained by principles of justice and public policy. To compel a party who brings a civil action and fails to maintain it to pay the costs is, as a rule, all that a practical administration of justice requires, and is usually sufficient to make him cautious about bringing such suits. Any other rule would make litigation interminable. Cooley, Torts, 207.”

The province of the court andi jury as to the question of probable cause in actions for malicious prosecution has recently been succinctly stated iby the Minnesota court as follows: “What facts constitute probable cause is for the court; but what the facts are, if there is a dispute about them, is for the jury.” Reiherzer v. Bresky, 170 Minn. 266, 212 N. W. 456. In Cox v. Lauritsen, supra, it is said: “Whether the undisputed facts are sufficient to constitute probable cause * * * is a. question exclusively for the courts, and, upon appeal, will be weighed in this court as if the case had been heard here.” See, also, 18 R. C. L. 58; 38 C. J. 509.

It therefore becomes the duty of this court to determine from the evidence adduced whether appellant Keyes, at the time he instituted the civil suit in federal court, had probable cause for so doing; for “the existence of probable cause depends upon the facts within the knowledge of the defendant at the time the prosecution was instituted and not upon subsequent events nor upon matters then unknown to him." Lewis v. Goldman, 241 Mass. 577, 578, 136 N. E. 67, 68 (24 A. L. R. 260). If the judgment of the lower court is to- be affirmed, the evidence must show that respondent has established, by positive and express proof, the want of probable cause for instituting the action in federal court at the time it was instituted. Stone v. Crocker, 24 Pick. (Mass.) 81, 84. The evidence before us is conflicting; but, resolving every disputed question of fact in favor of respondent, the evidence discloses the following facts to be clearly established:

For 17 years prior to taking charge of the Cornbelt National Bank of Scotland, appellant had been with the Comptroller of the Currency .as a bank receiver. This bank was closed by one Smiley, who took charge of it on January 21, 1921, for the Comptroller and turned it over to appellant as receiver in May, 1921. At the time of the trial, appellant was receiver for the Scotland bank and three other national banks, and Smiley, who had been a bank examiner for three years, was president of a Minneapolis bank. When Smiley took charge of the Scotland bank, he found, among several other notes of respondent Brown, the note on which appellant later sued Brown. Smiley listed this note as an asset, handled it in the same manner as any other note, and turned it over to appellant as one of the bank’s assets. Smiley found other paper in the bank that was claimed to be forged, but as to whether such paper or the note sued on was forged or not he ¡did not know. While he had charge of the bank, Brown made no such claim to him. Brown testified that, on the day when Smiley turned the Scotland bank over to appellant Keyes, Smiley introduced Brown to Keyes in the bank; Keyes showed to Brown, and they discussed, two other notes; and when the note in question was shown to him, he said, “That ain’t mine.” In this he is contradicted by Smiley and Keyes, both of whom testify that, on that occasion, he said that he did not owe it; that he had paid it. There is no evidence that Brown on any other occasion stated to Keyes that the note was forged or that Keyes was so advised by any one else.

Schramm, who was clerk under Receiver Keyes for five months in 1921, and who, for three years prior to the trial, was himself a receiver of national banks under the Comptroller of the Currency, testified that he showed Brown this note and discussed it with him several times, and that Brown did not claim to him that it was a forgery.

Schramm was succeeded as clerk by Schennum, who had had 18 years’ experience in banks. At the time of the trial, he was receiver of two national banks. Brown talked to him twice about this note, but did not tell him it was a forgery. Brown admits that he told neither Schramm nor Schennum that the note was forged, although he denies that he told them that he had paid the note in a big settlement with ‘Wilson, the former cashier. On October 25, 1922, Schennum heard Keyes dictate a letter, the office copy of which was received in evidence, in which Keyes stated that a thorough search of the records disclosed no evidence that the note had been paid, and that unless Brown could show some conclusive evidence of payment, he would have to institute legal action against Brown. The following morning, Brown showed Schennum. the letter on the street, stated that they knew he did not owe the note, and if they made any trouble about it he was going to fight back. Schennum toldl Brown that there was nothing in the bank to show that he had paid it, that Keyes had been able to find no evidence of payment, and that Brown should see Keyes about it. Brown did not see Keyes nor answer the letter. On November 29, 1922, Schennum told Keyes about his conversation with Brown on October 26th; and Keyes at once sent the note to counsel for the purpose of bringing suit. Suit was begun December 11, 1922. According to the testimony of Keyes, the first intimation he had of Brown’s claim that the note was forged was when Brown filed his answer. We have not stated the conflicting evidence of malice, but have assumed, for the purpose of this opinion, that malice has been proven.

The vital question herein is not whether the note was forged, nor whether Brown claimed to Keyes that the note was forged. It is not the law that any purported maker of negotiable paper who successfully interposes the defense of forgery may thereafter recover damages for malicious prosecution against the holder who brings suit on the note. Keyes could not know of his own knowledge that the note was forged. This despite his angry retort the day after the trial of the original action when charged by Brown with having tried to “gyp” him. The vital question is whether the appearance of this note was such that Keyes was warranted in believing that he should sue on it. Keyes owed a duty to Brown not to hale him into court without probable cause. He owed no less a duty to the depositors of that insolvent bank to collect its assets for their benefit. Should Keyes have brought the suit to collect, or should -he have reported it to the Comptroller of the Currency as worthless?

What was the appearance of this note? The only direct evidence as to that is the testimony of Keyes, who said that, when compared with admitted signatures of Brown, he thought there was a slight variation, but that, despite his 19 years’ experience as clerk and assistant' and receiver, he could not say whether the note was forged. There was forged paper in the bank. Keyes was not permitted to testify that paper which he suspected as forged was afterward acknowledged and paid by the makers thereof, nor that he had been able to prove as genuine notes that the makers claim's 1 to be forgeries. The note in question was not introduced in evidence; although the specific allegation in respondents’ complaint that it was forged was generally denied in appellant’s answer. The testimony of Smiley, Schramm', and Schennum, all experienced bank men who had handled this note and discussed it with Brown, negatives the inference that the forgery, if any, was palpable. When sued on the note, Brown paid to- his attorney $356.10 as follows : $300 for attorney’s fees, $50 for a handwriting expert, and $6.10 for incidental expense. That trial took one court day. Conceding that the note was forged, the testimony of Keyes that the variation was not sufficient for him to say on his own responsibility that the note was a forgery is not only uncontradicted, but is supported by every reasonable inference from the evidence as a whole.

At the time of appellant’s motion for a directed verdict at the conclusion of the evidence, the trial court was confronted — and this court is now confronted — with a question, not of fact, but of law. This question was whether an absence of probable cause had been proven by respondent. Appellant’s motion for a directed verdict in his favor should have been granted. Every conflict in the evidence may be resolved in favor of respondent. It may even be assumed that there is evidence of malice sufficient to have gone to the jury on that element of the tort; yet the proof of absence of probable cause — that essential fourth element of the tort — which it was respondent’s burden to produce, was not that “positive and express” proof, that “very palpable” proof, that “very -clear” proof which, in the light of all the authorities hereinbefore cited, the law requires of respondent herein.

The judgment must be and is reversed, and the cause remanded, with instructions to enter judgment for appellant.

SHERWOOD, P. J., and POLLEY and; BURCH, JJ., concur. CAMPBELL, J., disqualified and not sitting.