First Nat Bank of Council Bluffs, Iowa v. Moore

• Citation: 148 F. 953
• Decision Date: 01 October 1906
• Docket Number: 1,323.
• Parties: FIRST NAT. BANK OF COUNCIL BLUFFS, IOWA, v. MOORE.
• Court: United States Courts of Appeals. United States Court of Appeals (9th Circuit)

148 F. 953

FIRST NAT. BANK OF COUNCIL BLUFFS, IOWA, v. MOORE.

No. 1,323.

United States Court of Appeals, Ninth Circuit.

October 1, 1906

James Kiefer and James McNeny, for plaintiff in error.

L. C Gilman and M. M. Lyter, for defendant in error.

Before GILBERT and ROSS, Circuit Judges, and DE HAVEN, District Judge.

DE HAVEN, District Judge.

This was an action brought to recover the sum of $5,000, with interest from January 2, 1897, the amount alleged to be due upon three promissory notes made by the defendant in error to the Citizens' State Bank of Council Bluffs, Iowa assignor of the plaintiff in error. The answer put in issue the allegation of the complaint in reference to the assignment of the notes and also alleged that the action was barred by the statute of limitations. The answer further set forth that the notes sued upon were given in renewal of a note made by the defendant in error, in March, 1893, to one George J. Crane, for the sum of $5,000, and that the original note made to Crane was without consideration, and was obtained from the defendant in error by fraud and by false representations upon the part of said Crane and his partner one F. P. Bellinger; the answer in this connection alleging:

'That the sole and only consideration for the said original note for $5,000 and several notes sued upon in this action was the agreement by and between the defendant and the said Crane and Bellinger that they, the said Crane and Bellinger, would organize a corporation under the laws of the state of Washington and transfer to said corporation, in payment for its capital stock a secret remedy, formula, recipe or prescription for the cure of the morphine, cocaine, chloral opium, liquor, tobacco and other drug habits and the diseases and infirmities caused by the habitual use of such drugs and to transfer to the defendant one-fifth of the capital stock of the said corporation.'

'That with intent to cheat and defraud the defendant and to induce him to execute and deliver the said original note of $5,000 the said Crane and Bellinger falsely and fraudulently represented and pretended to the defendant that the said Bellinger was the discoverer of, and author of, and in possession of, the said secret remedy, formula, recipe or prescription, and that the said secret and known only to the said Bellinger, and the same was a sure and certain cure and a specific for the said habits and diseases, and that they intended to deliver the said secret formula to the said corporation; that the said Crane and Bellinger, on the 15th day of March, 1893, procured a corporation to be organized, under the laws of the state of Washington, and then represented and pretended that they had transferred and assigned to the said corporation the said remedy, formula, recipe or prescription in payment for the entire capital stock of said corporation; that, relying on the said representations, and believing them to be true, the defendant gave to the said Crane and Bellinger the said original note for $5,000; that the said representations and pretenses of the said Crane and Bellinger when made; that the said Crane and Bellinger had not nor had either of them any secret or other remedy, formula, recipe or prescription for the cure of the said habits and diseases or either or any of the said habits and diseases, and they had not nor had either of them any intention to deliver to the said corporation any secret or other remedy, formula, recipe or prescription for the cure of any or either of the said diseases or habits, * * * and the stock of the said corporation is and was wholly worthless and of no value whatsoever and was known to be so by the said Crane and Bellinger.' The answer further alleges that the Citizens' State Bank of Council Bluffs acquired said original note after maturity, without paying value therefor, and with notice that the same was without consideration and had been obtained from the defendant in error by the fraudulent representations of the payee therein, and that, in order to induce the defendant in error to execute the notes sued on in this action, in renewal of the said note for $5,000, the Citizens' State Bank of Council Bluffs falsely represented to him that it had taken said original note for $5,000, in the ordinary course of business before maturity, and had paid value therefor, without notice of any defense thereto, and that, believing these representations to be true, he executed to the Citizens' State Bank of Council Bluffs the notes sued upon. The defense of the statute of limitations does not seem to have been relied upon at the trial. It appears from the evidence that the assignor of the plaintiff in error, the Citizens' State Bank of council Bluffs, Iowa, acquired the original note executed by the defendant in error to George J. Crane, before maturity in due course of business and for value; that is, it appears that the note was indorsed by Crane to said bank as collateral security for a previously existing indebtedness of Crane to the bank. There was also evidence tending to show that the original note executed by the defendant in error to Crane was without consideration and was obtained from the defendant in error by means of the false and fraudulent representations alleged in the answer. When the testimony was closed, the plaintiff in error moved the court to give to the jury a peremptory instruction to find a verdict for it for the full amount sued for, stating as one of the grounds of the motion that the evidence was insufficient to show that the Citizens' State Bank of Council Bluffs, at the time of acquiring the original note, had knowledge or notice that the same was without consideration, or had been obtained from the defendant in error by fraudulent representations. The motion was denied, and this ruling was duly excepted to. The court then gave to the jury the following, among other instructions:

'If the jury find from the evidence that, when the Citizens' State Bank of Council Bluffs, Iowa, received the note made by the defendant for $5,000 in favor of George J. Crane, in March, 1893, the officers of said bank knew of nothing to apprise them or put them upon inquiry with respect to the claim now made by the defendant that the note was given without consideration or procured by fraud, the verdict of the jury will be for the plaintiff for the full amount sued for.'

The foregoing is substantially in the language of one of the instructions requested by the plaintiff in error, and then the court added:

'Now, gentlemen of the jury, there is a question in the case as to which there is a conflict of testimony, and it is referred to the jury to decide what the truth about it is, whether there was knowledge on the part of the cashier, or whoever acted for the Citizens' State Bank of Council Bluffs at the time of receiving that $5,000 note. It is shown by uncontradicted evidence that the transaction was through Mr. Hannan, who was an officer of the bank at that time, and whose deposition has been taken in this case. Mr. Hannan will be presumed, as the result of the uncontradicted testimony in the case, to have been authorized to act for the bank in that matter, and any knowledge or information which he had on the subject is to be imputed to his principal, the bank for which he was acting, and the jury must determine this question of whether he knew of the fact that Mr. Moore had been swindled (if in fact he was swindled) in the transaction by which the note was obtained by him. In determining that question you are to consider all the facts and circumstances attending the transaction and showing what knowledge Mr. Hannan did have in regard to the maker and the payees of the note and in regard to their dealings together with respect to that note and the circumstances under which the note was obtained, and determine from a consideration of the testimony whether the evidence shows that Mr. Hannan did know of enough of the transaction to have a prudent man on inquiry before accepting the note as a purchaser of it in good faith. The bank is chargeable, not only with the knowledge which Mr. Hannan actually did have, but, if there was some knowledge on his part which should have been a warning to him and would have caused a prudent business man to have made inquiry, then the bank is chargeable with all the knowledge that might have been obtained by an inquiry, and, if there was a swindle practiced, and the bank, through Mr. Hannan, knew it or should have known it, then the note was equally void in the hands of that bank as in the hands of Crane and Bellinger, and, if void in the hands of the Citizens' Bank, it is likewise void in the hands of the plaintiff bank.'

The bill of exceptions shows that the plaintiff in error excepted to so much of the foregoing instruction as states that:

'Any knowledge of Hannan or information which he might have which would put a prudent man upon inquiry, was to be imputed to the bank and considered the knowledge of the bank so far as anything which might have been found out by inquiry goes.'

The court, also, at the request of the defendant, instructed the jury as follows:

'I charge you that, if you shall find from the evidence that said note was fraudulent and without consideration in its inception, then the burden of proof is upon the plaintiff to establish by preponderance of evidence that the Citizens' State Bank was a bona fide holder of said note, and, if you shall find from the evidence that the said note was fraudulent and without consideration in its inception, and shall further find that the plaintiff has not established by a preponderance of the evidence that the same was taken in due course of business without notice of such fraud, then your verdict must be for the

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