Ashley & Rumelin, Bankers v. Brady

• Decision Date: 09 July 1925
• Citation: 238 P. 314,41 Idaho 160
• Court: Idaho Supreme Court
• Parties: ASHLEY & RUMELIN, BANKERS, a Corporation, Appellant, v. J. ROBB BRADY, Respondent

238 P. 314

41 Idaho 160

ASHLEY & RUMELIN, BANKERS, a Corporation, Appellant, v. J. ROBB BRADY, Respondent

Supreme Court of Idaho

July 9, 1925

BLUE SKY LAW - EFFECT OF NONCOMPLIANCE ON NOTE GIVEN FOR STOCK - BILLS AND NOTES - BONA FIDE PURCHASER - PAYMENT OF VALUE - BEST EVIDENCE - BOOKS OF ACCOUNT - BURDEN OF PROOF.

1. A note given for the purchase of stock in a corporation which has not complied with the blue sky law is valid in the hands of a bona fide holder but voidable in the hands of one not a bona fide holder.

2. A bank discounting a note by passing its amount to the credit of the indorser becomes a purchaser for value only to the extent such credit has been exhausted before the note matures or before notice to it of any defenses to the note.

3. An officer of a bank having personal knowledge of the fact may over objection that it is not the best evidence, testify that a depositor has checked out the entire amount to his credit.

4. Where it is shown that a note was given for the purchase of stock in a corporation which had not complied with the blue sky law, the burden is upon the holder to prove that he was a bona fide purchaser.

APPEAL from the District Court of the Fifth Judicial District, for Bannock County. Hon. O. R. Baum, Judge.

Action on promissory note. Directed verdict for defendant. Reversed and new trial granted.

Reversed and remanded, with instructions. Costs awarded to appellant.

White &amp Bentley, for Appellant.

The illegality of the consideration of a negotiable note does not vitiate it in the hands of a bona fide purchaser, whether the illegal act is malum in se or malum prohibitum. unless the statute making the act illegal, expressly or by necessary implication, makes the instrument void in the hands of all holders with or without notice. (Gray v. Boyle, 55 Wash. 578, 133 Am. St. 1042, 104 P. 828.)

Where in an action on a note plaintiff made a prima facie case proof of fraud in securing the note will not defeat it unless notice thereof is brought home to the plaintiff. (First Nat. Bank v. Court, 183 Wis. 203, 197 N.W. 798.)

Where the plaintiff's testimony is not only consistent with good faith of the purchaser, but such that no fair-minded person could draw any other inference therefrom, the court possesses no option but to give judgment for the plaintiff. ( Southwest Nat. Bank v. Lindsley, 29 Idaho 343, 158 P. 1082.)

Where a witness assumes to know a fact he is competent to testify on the subject, even though he may also have books or records by which such facts could be established or corroborated. (2 Jones' Commentaries on Evidence, sec. 201a; Finseth v. Scherer, 138 Minn. 355, 165 N.W. 124; Fidelity & Deposit Co. of Maryland v. Bassett (Wash.), 233 P. 325; Cowdery v. McChesney, 124 Cal. 363, 57 P. 221.)

Where a bank was a bona fide purchaser of a note before maturity, after the bank had learned of a failure of consideration between the payee and maker, and after maturity of the note, bank had funds of payee on deposit, and failed to protect itself with them, will not prevent the bank from recovering from the maker. (Lincoln Alliance Bank v. Landers Co., 297 F. 225.)

Peterson & Coffin, for Respondent.

Where a bank, for the purpose of showing that it is the bona fide purchaser in due course of a negotiable instrument, offers evidence to the effect that it credited the person from whom it purchased the paper upon its books with the amount at which it purchased the note, and fails to prove that the credit was ever canceled by withdrawals or applied by the bank to the payment of claims in its hands against its vendor, it is not a bona fide holder. (Thompson v. Sioux Falls Nat. Bank, 150 U.S. 231, 14 S.Ct. 94, 37 L.Ed. 1063; McNight v. Parsons, 136 Iowa 390, 125 Am. St. 265, 15 Ann. Cas. 665, 113 N.W. 858, 22 L. R. A., N. S., 718.)

The stock which forms the consideration for the note sued upon was sold in violation of the so-called blue sky law of the state of Idaho, which rendered the note void. (Zimmerman v. Brown, 30 Idaho 640, 166 P. 924.)

"Contracts made in a state by a foreign corporation in violation of a statute requiring foreign corporations to comply with certain conditions before doing business in the state have generally been held to be absolutely void and unenforceable where the statute does not expressly require any penalty for failure to comply with its provisions but is prohibitory in form." (14 C. J., p. 1295.)

All agreements made by a corporation before complying with the provisions of the foreign corporation law are void. ( First Nat. Bank of Price v. Parker, 57 Utah 290, 194 P. 661.)

GIVENS, J. William A. Lee, C. J., Wm. E. Lee, Budge and Taylor, JJ., concur.

OPINION

GIVENS, J.

Ashley & Rumelin, Bankers, a Corporation, appellant, sought collection of a promissory note in the sum of $ 3,000 executed by respondent, Brady, payable to the order of F. K. Masters, who subsequently sold the note to appellant.

Appellant alleged that the note was sold to it in due course, for a valuable consideration, before maturity, and that it was the present holder and owner of the note. The answer put in issue the question of the purchase by appellant of the note in due course for a valuable consideration prior to maturity and as an affirmative defense alleged want of consideration and that the note had been given for stock in the Beaver Film Company, which company was not authorized to do business in the state under the statute regulating foreign corporations or to sell stock in this state under the "blue sky law" (C. S., chap. 206), and therefore that the note was void.

The third ground upon which respondent based his motion for a verdict in his favor was as follows:

"That the Beaver Film Company was not authorized to do business in the state of Idaho at the time of the giving of the note; that the said company was not authorized under the blue sky law to sell stock in the State of Idaho, the evidence showing that the note was given for the delivery, in connection with delivery, and for the sale of the stock of the so-called Beaver Film Company."

From the uncontradicted testimony of witnesses for both parties to the action it conclusively appears that the note was given for stock in the Beaver Film Company and that Masters was acting as the agent or representative of the company and sold the note in question to appellant for the Beaver Film Company, and the funds from such sale were placed to its credit in the Ashley & Rumelin Bank.

The Beaver Film Company came within C. S., sec. 5305, classifying certain corporations, associations and partnerships, selling or negotiating stocks, bonds or other securities as investment companies.

C. S., sec. 5306, requires such investment companies to procure a license and to file certain statements.

C. S., sec. 5309, authorizes the Department of Commerce and Industry to grant or refuse permits for such companies to do business within the state of Idaho, and C. S., sec. 5310, makes it unlawful for any such company to transact business without having such permit and without having complied with the law, and C. S., sec. 5317, provides a penalty for violations of the law.

The question to be determined is the intent of the legislature in passing this statute, which must be determined from the language thereof, the subject matter, the wrongs sought to be prevented and the purposes accomplished, that is, whether for protection of the public or merely for raising revenue. (13 C. J. 422, and cases cited in note.) In Zimmerman v. Brown, 30 Idaho 640, 166 P. 924, this court said:

"A statute prohibiting the making of contracts, except in a certain manner ipso facto makes them void if made in any other way. (9 Cyc. 476.) Where a license is prescribed by statute not as a revenue measure, but for the protection of the public, as a requisite to a particular trade or business, such as that of the keeper of a stallion, contracts violative thereof because of lack of license are void."

The Idaho blue sky law, excepting that part pertaining especially to mining corporations, not under consideration herein, is identical with the law of Kansas, Revised Statutes of Kansas 1923, chap. 17, art. 12, and practically identical with Comp. Laws of Mich. 1915, secs. 11945-11969; Supp. to Page and Adams Ann. Code of Ohio 1916, vol. 2, secs. 6373--1 to 6373--34; South Dakota Rev. Codes 1919, secs. 10127-10149; Rev. Codes of Mont. 1921, secs. 4026-4055; Digest of Stats. of Ark. 1921, secs. 750-771; Rev. Stats. Arizona 1913, Civil Code, title 9, chap. 9.

In Hall v. Geiger-Jones Co., 242 U.S. 539, 37 S.Ct. 217, 61 L.Ed. 480, the Ohio blue sky law was upheld and in the course of the opinion the court says:

"It will be observed, therefore, that the law is a regulation of business, constrains conduct only to that end, the purpose being to protect the public against the imposition of unsubstantial schemes and the securities based upon them. Whatever prohibition there is, is a means to the same purpose, made necessary, it may be supposed, by the persistence of evil and its insidious forms and the experience of the inadequacy of penalties or other repressive measures. The name that is given to the law indicates the evil at which it is aimed; that is, to use the language of a cited case, 'speculative schemes which have no more basis than so many feet of "blue sky"'; or, as is stated by counsel in another case 'to stop the sale of stock in fly-by-night concerns, visionary oil wells, distant gold mines, and other like fraudulent exploitations.' Even if the deceptions be regarded as theoretical, the existence of evil is indicated, and a belief of its detriment; and we shall not pause to do more than to state than the prevention is within the...