American Nat. Bank v. Fountain

• Decision Date: 28 October 1908
• Citation: 62 S.E. 738,148 N.C. 590
• Parties: AMERICAN NAT. BANK v. FOUNTAIN.
• Court: North Carolina Supreme Court

62 S.E. 738

148 N.C. 590

AMERICAN NAT. BANK v. FOUNTAIN.

Supreme Court of North Carolina

October 28, 1908

Appeal from Superior Court, Nash County; Neal, Judge.

Action by the American National Bank against S. K. Fountain. From a judgment for plaintiff, defendant appeals. Reversed, and new trial ordered.

The action was to recover the balance due on a promissory note for the purchase price of an automobile, given by defendant to one B. A. Blenner, and by said Blenner indorsed to plaintiff. The defendant resisted recovery on the ground that the note was procured by false and fraudulent representations on the part of Blenner, the vendor. The jury found that the note sued on was procured by misrepresentations and fraud on the part of Blenner, the vendor, and that the plaintiff was indorsee for value before maturity, and without knowledge or notice of any infirmity affecting the validity of the note. There was motion for a new trial on exceptions properly noted, which was overruled. Defendant excepted. Judgment on verdict for plaintiff, and defendant excepted and appealed.

In an action on a note by an indorsee, the defense being that it was procured by misrepresentation by the payee plaintiff's indorser, an instruction that the evidence of fraud having placed the burden on plaintiff to show that he was a holder in due course, and he having responded by showing that he acquired the note in good faith, for value etc., his prima facie case was restored, was error, as assuming that plaintiff's evidence was true and withdrawing this question from the jury, though, if no reasonable inference to the contrary was admissible under the evidence, an instruction to find for plaintiff, if the jury believed the evidence, would have been proper.

T. T Thorne and Jacob Battle, for appellant.

Bunn & Spruill, for appellee.

HOKE J.

Our statute on negotiable instruments (Revisal 1905, c. 54, § 2201) defines a "holder in due course" as one who takes a negotiable instrument that is (a) complete and regular in its face; (b) before it was overdue and without notice that it had been previously dishonored (if it had been); (c) in good faith and for value; (d) and at the time it was negotiated to him he had no notice of any infirmity in the instrument or any defect in the title of the person who negotiated it. And section 2208 of same chapter provides as follows: "That 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 holder in due course," etc. These sections of the statute are, to a great extent, a codification of certain general principles of mercantile law, applicable to the subject, established by well-considered decisions of the court in this country and England, notably Tatam v. Haslar and Others, 23 Q. B. Div. (1889) 345; National Bank v. Diefendorf, 123 N.Y. 191, 25 N.E. 402, 10 L. R. A. 676; Vosburgh v. Diefendorf, 119 N.Y. 357, 23 N.E. 801, 16 Am. St. Rep. 836; Giberson v. Jolly, 120 Ind. 301, 22 N.E. 306; etc.

There is some conflict of authority as to the extent and proper application of the burden which the law casts upon a plaintiff, where fraud has been established, or when there has been evidence offered tending to establish it, which is thus referred to in Norton on Bills and Notes, 334: "In the cases of illegality the rule is the same, and for the same reason. The burden is cast upon the plaintiff to show that he took the paper for value and in good faith. Some of the cases declare that the holder need not show that he had lack of notice, but need only show value, because the burden of showing notice is upon the party who seeks to impeach the title. But the other courts maintain, and properly, that in addition to proving value the holder should prove that he bought the note in good faith, and should show that he had no knowledge or notice of the fraud. If value and notice are disputed as facts, they must be passed upon by the jury." The author, in note 92, cites several additional cases in support of the text. In Tatam v. Haslar, supra, it was held "that when fraud is proved the burden of proof is on the holder to prove both that value has been given, and that it has been given in good faith, without notice of the fraud." In Vosburgh v. Diefendorf, supra, it is held: "(1) Where the maker of negotiable paper shows that it has been obtained from him by fraud, a subsequent transferee must, before he is entitled to recover thereon, show that he is a bona fide purchaser or that he derived his title from such a purchaser. It is not sufficient to show simply that he purchased before maturity and paid value. He must show that he had no knowledge or notice of the fraud."

The statute, then, having enacted into a law the doctrine sustained by these authorities, the rule established by the statute must be observed, to the effect that when fraud has been established in...