Great Western Land Imp. Co. v. Sandygren

I cannot concur in the majority opinion. In my opinion, the jury had a clear conception of its duties in answering the special verdicts so as to avoid any inconsistency in them, or between them and the general verdict, under the law and under the facts in this case.

That Brockman committed a positive fraud on the appellant in obtaining the notes, there can be no doubt. I do not understand that the respondent contends otherwise. The evidence was that, after several visits and upon his gaining her confidence, he represented to her that the company had one flowing oil well served by a pipe line that led to a trunk or main pipe line; that they wanted money to sink another well, but preferred not getting money from the banks as the banks were trying to control the oil company and its property; and, he had an accomplice with him who, in Brockman's presence, stated to her that he was already getting three hundred dollars monthly dividends on his stock in the oil company. These representations, and some others, were shown to be false, but believing them to be true and relying on them she gave the notes. The notes were without consideration. At the time the notes were given and thereafter, two certain persons were officers of the bank and at the same time officers of the respondent. Each of them took part in the negotiations that resulted in the purchase of the notes. There was testimony that one of the officers, who resided in Idaho, learned that the notes were given for oil company stock and learned the name of the company the stock of which was given, and that he stated the reason the notes would not be purchased, except at the large discount, was that they were oil stock notes for which there was no sale at that time on the Spokane market. There was testimony also that the other officer, who resided in Spokane, stated in a conversation with a third person during a business transaction with him prior to the purchase of these notes, upon referring to this same oil company, "Why didn't you come to me and ask me to give you advice along that line," that he "had known them since the beginning of this oil scheme, . . . it was a crooked scheme from start to finish."

Applicable portions of the negotiable instruments law are Rem. Comp. Stat., §§ 3443 and 3447 [P.C. §§ 4123 and 4127]. The pertinent portion of the first is:

"A holder in due course is a holder who has taken the instrument under the following conditions, . . . 3. That he took it in good faith and for value; 4. 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."

The other section provides:

"To constitute notice of an infirmity in the instrument or defect in the title of the person negotiating the same, the person to whom it is negotiated must have had actual knowledge of the infirmity or defect, or knowledge of such facts that his action in taking the instrument amounted to bad faith."

The language is in the disjunctive, it speaks of an infirmity in the instrument or defect or knowledge of such facts that his action in taking the instrument amounted to bad faith. The notes in question having no consideration were void as between the parties to the notes. The payee in the notes got no title to them because of his fraud. The statute, Rem. Comp. Stat., § 3446 [P.C. § 4126], says so.

It cannot be denied that the jury had the right to believe that the bank did have actual knowledge of the infirmity, that it did know that the instruments possessed infirmity and that the payee's title to them was defective, because, at the time it took the notes, it knew they had been given for stock in an oil company that was "a crooked scheme from start to finish."

Special verdict number 4 says that at the time the First Exchange National Bank of Coeur d'Alene, Idaho, purchased the notes it did not have any notice of any alleged false and fraudulent representations made by Brockman to the appellant, by which she was induced to sign the notes. But what of it? It was neither important nor indispensable, under the facts in the case, that the bank should be apprised of the false representations Brockman made to the appellant in procuring the notes in order to charge it with not being a holder in due course, because at and prior to its purchase it had actual knowledge of infirmity in the instruments and defect in the title of the person negotiating them. The special verdict, so highly appraised for the purpose of destroying the general verdict, is wholly lacking in the matter of knowledge of infirmity and defect of title actually existing within the independent knowledge of the purchaser, and hence its weakness for that purpose.

If special verdict number 4 said that the bank at the time of the purchase had no notice concerning the facts with referenceto which alleged false representations were made by Brockman, the situation would be different. But it does not say so. It does not so much as say that the bank did not have knowledge of such facts that its action in taking the instruments amounted to bad faith, but it simply says and means that the bank had no notice of what Brockman told Mrs. Sandygren that induced her to sign the notes. That finding, however, in no way interfered with their finding by a general verdict in her favor, under the law and the instructions of the court, because of other evidence in the case showing actual knowledge on the part of the bank that the oil company had been born and continued in iniquity.

The appellant having shown that the notes were without consideration and the title of the payee therefore defective, the burden of proof then fell upon the respondent to show that it acquired title as a holder in due course. In doing so, it must show among other things that, at the time the notes were negotiated to it, it had no notice of any infirmity therein or defect in the title of the payee. Keene v. Behan, 40 Wn. 505,82 P. 884, and statutes and cases cited therein; UnionInvestment Co. v. Rosenzweig, 79 Wn. 112, 139 P. 874. The general verdict in this case, which rests upon evidence wholly separate from that to which special verdict number 4 relates, says in legal effect that that burden was not met by the respondent, because it was shown to have had actual knowledge that the notes were without consideration.

The rule is that a special verdict must be irreconcilably inconsistent with the general verdict before the latter can be set aside. Gaudie v. Northern Lumber Co., 34 Wn. 34, 74 P. 1009. In a number of our cases, the makers of notes have been allowed to prevail over suitors who claimed to be holders in due course, where there was no attempt to show that the holders had any knowledge of the false representations made by those who induced the makers to sign the notes. The following are some of such cases: Union InvestmentCo. v. Rosenzweig, 79 Wn. 112, 139 P. 874; Barry v.Danielson, 78 Wn. 453, 139 P. 223; National Bank ofCommerce v. Drewry, 70 Wn. 577, 127 P. 102; Citizens Sav.Bank v. Houtchens, 64 Wn. 275, 116 P. 866, and JohnsonCounty Savings Bank v. Rapp, 47 Wn. 30, 91 P. 382. The same principle was involved in Ireland v. Scharpenberg, 54 Wn. 558,103 P. 801, where there was a reversal of a judgment on a directed verdict against the makers of a note.

In Hamilton v. Mihills, 92 Wn. 675, 159 P. 887, the plaintiff sued as a holder in due course of a negotiable promissory note made by the defendant to the Orofino Portland Cement Company. The defenses were the same as in the present case. A judgment for the defendant was affirmed on appeal. In that case it appeared that on April 20, 1912, one Dunnett, an officer of the company, in consideration of five thousand dollars of the bonds and five thousand dollars of the stock of the cement company, obtained for the company one hundred dollars in cash and a note to it in the sum of four thousand nine hundred dollars from Mihills, due February 1, 1913, by fraudulent representations as to the condition of the company. Mihills deposited with the company certain timber company stock as collateral. No attempt was made to collect the note. Dunnett later again represented falsely that the cement company had arranged for the advancement of a large sum of money by one Kastle, a Nebraska banker, to construct a unit plant. Mihill, relying on the representation, gave a new note to the cement company on September 26, 1913, in the sum of four thousand nine hundred dollars and soon thereafter paid five hundred dollars on it. The note became due February 1, 1924. Meanwhile in July, 1913, Hamilton became active president and manager of the cement company. In January, 1914, before maturity of the note, defendant's note with others were transferred by the company to Hamilton as collateral. The cement company, it appears, owned no property, only an option to purchase limestone land. Hamilton sued on the note. In the opinion it was said:

"Though he [Hamilton] denies any knowledge of therepresentations made to defendant by Dunnett, it is at leastcertain that he knew what the note was given for."

Further,

"Defendant testified that Hamilton personally assured him that he intended to sue Kastle and make him `come through' on his agreement to finance the building of the mill, and that this was before the note was transferred to Hamilton."

Thus the court took into consideration two things in deciding the case, (1) the certainty of Hamilton's knowledge that the note sued on was given for stock in a worthless corporation, and (2) a dispute as to whether or not Hamilton had knowledge prior to his purchase of the note of the false representation that Kastle was to finance the building of the unit. Then, in deciding that the trial court was right in holding that Hamilton was not a holder in due course, this court said:

"Was the appellant a bona fide holder? At the time he took these notes as collateral security he was, and for some time prior thereto had been, president of the company and in active management of its affairs. He must have known that the only assets of the company were merely options on the limestone land. It is conceded that he knew the note was given for the bonds and stock. Itcannot be doubted that he knew both bonds and stock werepractically valueless. Though there is some evidence from which it might reasonably be inferred that he had learned, prior to acquiring this note, that respondent had been led to believe that the company had a certain and enforcible agreement with Kastle to finance the building of a plant, we find it unnecessary to holdthat he had full knowledge of Dunnett's representations. In anyevent, he is charged with knowledge of the failure ofconsideration. Even assuming, therefore, that he purchased this note before its maturity, he took it charged with knowledge of the infirmity of its consideration."

That is, whether or not he had notice of the false representations made by Dunnett that Kastle was to finance the company was not controlling, nor was it inconsistent with Hamilton's knowledge that the note was given for bonds and stock that were practically valueless — knowledge of the infirmity of the note on account of its lack of consideration.

In the case of Ozark Motor Co. v. Horton, 196 S.W. (Mo.App.) 395, the suit was on a negotiable instrument. The plaintiff alleged it was a holder in due course. The negotiable instrument law of that state is like ours. In discussing the same kind of question that is involved in the present case, the court said:

"In establishing that the note was procured by fraud, it is necessary to allege and prove the specific facts constituting the fraud; but, such fraud being once established, it is sufficient, on the question of notice or knowledge thereof, to prove that the purchaser of the note had knowledge that the note was in some way tainted with fraud; and it is not necessary that he have knowledge of the particulars of the fraud, or even of the nature of the fraud. It is said in 8 C.J. 506:

`It is sufficient to affect a purchaser with notice that he had knowledge of fraud or illegality in the transaction as a whole, and notice of the specific facts which impeach the validity of the instrument or transaction need not be brought home to him.' 1 Daniels on Negotiable Instruments, 799."

If in special verdict number 4 the jury had gone further and found that the bank, in taking the notes, did not have knowledge of the infirmity in them, nor defect in the title of the payee, nor knowledge of such facts that its action in taking them amounted to bad faith, then the general verdict for the defendant could not stand, but it is not so comprehensive nor, as already stated, can it be said that there is the least inconsistency between the special and general verdicts. Nor is there, upon the views herein expressed, any conflict between special verdicts numbered 3 and 4.