Arnd v. Aylesworth
| Decision Date | 20 December 1909 |
| Citation | 123 N.W. 1000,145 Iowa 185 |
| Parties | WILLIAM ARND, Administrator of the Estate of A. W. WAY, Deceased, Appellee, v. CHARLOTTE AYLESWORTH, Appellant |
| Court | Iowa Supreme Court |
Appeal from Pottawattamie District Court.--HON. O. D. WHEELER Judge.
ACTION at law upon a promissory note. There was a directed verdict and judgment for the plaintiff, and defendant appeals.--Reversed and remanded for a new trial.
Reversed.
Flickinger Bros., for appellant.
Mayne & Hazelton, for appellee.
The note in suit was given to Baxter & Recroft for part of the purchase price of certain lands in Nebraska and secured by mortgage upon the property. There was evidence from which the jury might properly find that defendant was induced to buy the property and give the note by the false and fraudulent representations of Baxter & Recroft as to the location quality, and value of the land. There was also evidence from which it might be found that E. E. Hart, a broker and banker at Council Bluffs, Iowa, purchased the notes and mortgage so given by defendant at a discount of about twenty-five percent from their face value; such purchase being effected through the agency or assistance of one Gaines, who had knowledge of the fraud which had been perpetrated on the defendant. After receiving the paper, Hart notified the defendant that he held it, and was informed by her that she had been defrauded in the deal and would not pay the debt unless she was compelled to do so. Later this action at law was brought on one of the notes in the name of Mrs. A. W. Way as plaintiff, who claimed to be an innocent purchaser thereof before maturity. Mrs. Way was an aunt of Hart living in the state of New York, and the petition was verified by him as her agent. The defendant answered denying the good faith of plaintiff's alleged purchase and ownership of the paper, and pleading fraud in its inception and consequent damage to her in more than the amount of the note. Evidence was offered and introduced on both sides, and when the parties had rested the court upon plaintiff's motion directed a verdict against the defendant for the full amount of the note on the ground that there was no evidence in the record upon which a verdict in defendant's favor could be sustained. The correctness of that ruling is the main question presented for our review. It should also be said that, after this suit was commenced, and after her deposition had been taken, Mrs. Way died, and her administrator has been substituted as plaintiff.
As has already been stated, the case as made presents evidence tending to sustain the defendant's claim that the note had its inception in fraud. If defendant testifies truthfully (and her credibility was a matter for the jury to determine), she was the victim of a rank imposition devised and executed by Baxter & Recroft, with the aid of others, whereby she was induced to purchase a lot of very undesirable land at a grossly exorbitant price. Assuming the sufficiency of this showing, as we must for the purposes of this appeal, the burden was cast upon the plaintiff to prove that Mrs. Way, or some person under whom she claims, acquired title to the paper in due course. Code Supp. 1907, section 3060a59. To remove this burden she was required to show by competent evidence: (1) That she became the holder of the note before it was overdue and without notice that it had been previously dishonored, if such was the fact; (2) that she took it in good faith for value; and (3) that at the time it was negotiated she had no notice of any infirmity in the note or defect in the title of the person negotiating it. Code Supp. 1907, section 3060a52. And to justify the court in directing a verdict in her favor the testimony of the bona fide character of her holding must not only be without substantial evidence tending to impeach it, but the showing in its support must be so clear and unequivocal as to leave no room for difference of opinion concerning it among fair-minded men. McNight v. Parsons, 136 Iowa 390 at 397, 113 N.W. 858.
Does the record make such a case for the appellee? The statute provides that to constitute notice of infirmity in a negotiable instrument or of a defect in the title of the person negotiating it the person to whom it is negotiated must have had actual knowledge thereof or knowledge of such facts that his action in taking the instrument amounts to bad faith. Code Supp. 1907, section 3060a56. This provision simply puts in statutory form a rule of the common law as previously interpreted by this and many other courts. Keegan v. Rock, 128 Iowa 39, 102 N.W. 805. In some of the states it seems to have been held that one who takes a transfer of negotiable paper under circumstances to put a reasonable person on inquiry as to defenses against it is considered as having notice of the facts which such inquiry would develop; but the more general trend of the decisions from an early day has been to the effect that mere ground of suspicion as to possible defects in the title of the negotiator or of the existence of defenses to the instrument negotiated is not the equivalent of notice to the transferee, and, to be regarded as an innocent purchaser, he need not as a matter of law be diligent to investigate the circumstances of the origin of the paper, though, if the negligence be of a marked or gross character, it may be competent to establish the mala fides of the purchase. That which will charge the paper in his hands with prior equities and defenses is actual or direct notice of the facts, or, in the absence of such notice or knowledge, the existence to his notice of such facts or circumstances that his action in taking the paper amounts to bad faith. Of this class of cases an illustrative example is Goodman v. Simonds, 61 U.S. 343 (15 L.Ed. 934), which is a leading case upon the subject. The court there, speaking by Clifford, J., and laying down the rule as it has frequently been recognized in this jurisdiction, held that mere ground of suspicion known to the purchaser of negotiable paper before maturity, or even negligence on his part, is not in itself sufficient to charge him with notice, and proceeds also to speak of the limitations to be observed in the application of such rule. It says:
Whether a party had such knowledge is a question of fact for the jury, and, like other disputed questions of scienter, must be submitted to their determination under the instructions of the court; and the proper inquiry is: Did the party seeking to enforce the payment have knowledge at the time of the transfer of the facts and circumstances which impeach the title as between the antecedent parties to the instrument? And if the jury find that he did not, then he is entitled to recover, unless the transaction is attended by bad faith, even though the instrument had been lost or stolen. Every one must conduct himself honestly with respect to the antecedent parties when he takes negotiable paper in order to acquire a title which will shield him against prior equities. While he is not obliged to make inquiries, he must not willfully shut his eyes to the means of knowledge which he knows are at hand, as was plainly intimated by Baron Parke in 16 M. & W. 355, for the reason that such conduct, whether equivalent to notice or not, would be plenary evidence of bad faith.
The courts accepting the rule of the Goodman case have not been uniform in their holdings as to where the burden of proof lies in an action by the purchaser of negotiable paper tainted with fraud in its inception; but it has long been the doctrine in this and many other states that, such fraud being shown, the burden is not upon the defendant to show the plaintiff's bad faith in the purchase, but is upon the plaintiff to affirmatively establish his good faith in that transaction. Keegan v. Rock, 128 Iowa 39, 102 N.W. 805, and cases there cited. It is important that this distinction be borne in mind in the consideration of cases like the one at bar, for it is quite possible that the testimony as a whole may be insufficient to justify an affirmative finding of bad faith on the part of the plaintiff, and still not be so conclusive of his good faith as to require a withdrawal of the question from the jury. Cox v. Cline, 139 Iowa 128, 117 N.W. 48; Mace v. Kennedy, 68 Mich. 389 (36 N.W. 187). It is ordinarily to be expected, in these cases, that the purchaser will testify to his good faith and want of notice, and that defendant is compelled to rely upon circumstantial evidence to rebut such showing. Whether plaintiff has sufficiently satisfied the burden resting upon him and made good his claim to be an innocent purchaser is therefore a question for the jury, save in those instances where the testimony is not only consistent with the good faith of such purchase, but is such that no fair-minded person can draw any other inference therefrom. A categorical denial of notice or knowledge is something which in many, if not in most, instances can not be opposed by direct proof; and the credibility of the witnesses, their interest in the case, the reasonableness or unreasonableness of their statements, the time, place and manner of the transaction, its conformity to or its departure from the ordinary methods of business, and all the other facts and circumstances which, though of slight moment in themselves, yet, when taken together, give character and color to the purchase under inquiry, constitute a showing which the court can not properly pass upon as a matter of law.
Observing this principle it has frequently been held that a denial of notice by the purchaser, though he be uncontradicted by any other witness, is not sufficient to justify a directed verdict in his favor. Bank v....
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