Bank of Varina v. Sherron

• Decision Date: 24 October 1923
• Docket Number: 258.
• Citation: 119 S.E. 497,186 N.C. 297
• Parties: BANK OF VARINA v. SHERRON.
• Court: North Carolina Supreme Court

119 S.E. 497

186 N.C. 297

BANK OF VARINA v. SHERRON.

No. 258.

Supreme Court of North Carolina

October 24, 1923

Appeal from Superior Court, Wake County; Cranmer, Judge.

Action by the Bank of Varina against J. L. Sherron. From a judgment for plaintiff, defendant appeals. New trial.

Where defense to note was that it was procured through fraud of payee, and that plaintiff bank was not a bona fide owner evidence that plaintiff had acquired a similar note executed by one of plaintiff's directors to such payee, that the director told plaintiff's cashier that the note was invalid because procured by fraudulent practices of such payee, and that, after some controversy, plaintiff returned the note to such director, held admissible to show knowledge on the part of plaintiff.

This is an action by the plaintiff to recover upon an alleged promissory note of the defendant for $2,500, dated November 18, 1919, payable to the defendant himself 12 months after date. The defendant denied he had executed said note or had indorsed it; and denied that the plaintiff had purchased it for full value before maturity and was the owner of the same. He also denied that he had made payments upon it or was indebted thereon to plaintiff as alleged. He alleged that the said paper writing was fraudulent and void, and was without consideration, and denied that the plaintiff was a bona fide owner and holder for full value and without notice. He alleged that certain agents of the Cumberland Railway & Power Company in November, 1919, came to his home near Cardenas, N C., and solicited him to purchase certain stock and bonds of said company, and in connection therewith made to him many false and fraudulent representations, specifically set out in the answer, representing that said company was a strong corporation, abundantly solvent, and in prosperous financial condition, all of which was false; and that it owned certain specific properties, which it did not own; and that its bonds were extremely valuable, which was not true; that the said company was worth $1,000,000, etc.; that the said agents of the Cumberland Railway professed to read over to him a paper utterly different from the alleged note, and by their false representations obtained his signature to a paper writing totally different from the alleged note, and by the false representations obtained his signature to a paper writing totally different from the alleged note, and which said paper writing they read falsely to him as not maturing until 40 years after date, and being payable to the Cumberland Railway & Power Company; that the defendant could not read or write and relied upon the representations made to him by said agents; that the same were material, false, and calculated and intended to deceive him, and did deceive him, and that the transaction was fraudulent and void. He further alleged that the paper writing or note was procured contrary to and in violation of the laws of North Carolina; that it came within the provisions of C. S. § 6367, and chapter 156, Public Laws of 1913, and chapter 121, Pulic Laws 1919, known as the "Blue Sky Law," and that there was no contract in writing executed containing the clause required by said statutes.

He alleged that neither the name of the Cumberland Railway & Power Company nor of the said agents appeared in the said pretended note as required by law, and that the said writing was fraudulent and void, and contrary to the laws of North Carolina, and part of an illegal and forbidden transaction. He further alleged that the plaintiff had knowledge of the fraudulent character of the transaction of the Cumberland Railway & Power Company, and that the defendant had, prior to plaintiff's acquisition of the paper writing in controversy, notified the plaintiff that the defendant disputed the validity of the same and the grounds thereof. The further and fuller allegations of the defendant appear in the answer as set forth in pages 4-12 of the record.

There was a verdict in favor of the plaintiff, and the defendant appealed.

Stacy, J., dissenting.

R. N. Simms, of Raleigh, for appellant.

Pou, Bailey & Pou, of Raleigh, for appellee.

CLARK C.J.

The defense set up by the defendant is that the note sued on was procured by false and fraudulent representation, and by disregard of the requirements of the "Blue Sky Law," and the defendant offered evidence to show that the plaintiff bank in this case acquired about the same time $15,000 or $20,000 of similar paper held by the Cumberland Railway & Power Company, and that it had knowledge of the defects alleged.

There are numerous other exceptions assigned as error, but it is unnecessary to do more than to mention the following evidence which was excluded, and its exclusion excepted to by the defendant, which was offered to show knowledge on the part of the bank, and especially that the bank had acquired a note executed by A. W. Thompson to the Cumberland Railway & Power Company; that said Thompson was and had been for many years one of the directors of plaintiff bank, and offered evidence to show that said Thompson acquainted the cashier of the bank with the said fraudulent practices by which this paper in question was procured, and that, after some controversy, the bank returned said paper to Thompson. It is true that the cashier testified that Thompson paid the paper, but there was also evidence offered that he had acquainted the cashier with the defects, and that the paper was returned to him by the cashier canceled and without payment.

C. S. § 3040, provides:

"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 a holder in due course."

There are numerous cases which hold:

"Upon proof of fraud or illegality being offered, burden is shifted to holder and he must show that he received the instrument bona fide and for value." Discount Co. v. Baker, 176 N.C. 546, 97 S.E. 495; Moon v. Simpson, 170 N.C. 335, 87 S.E. 118; Wilson v. Lewis, 170 N.C. 47, 86 S.E. 804; Smathers v. Hotel Co., 168 N.C. 69, 84 S.E. 47; First Nat. Bank v. Warsaw Drug Co., 166 N.C. 99, 81 S.E. 993; Bank v. Branson, 165 N.C. 344, 81 S.E. 410; Trust Co. v. Whitehead, 165 N.C. 74, 80 S.E. 1065, Ann. Cas. 1915D, 200; Trust Co. v. Ellen, 163 N.C. 45, 79 S.E. 263; Bank v. Exum, 163 N.C. 199, 79 S.E. 498; Hardy v. Mitchell, 161 N.C. 381, 77 S.E. 225; Id., 156 N.C. 76, 72 S.E. 95; Myers v. Petty, 153 N.C. 462, 69 S.E. 417, and many others.

Where evidence establishes the title of party who negotiated a check to defendant was defective, burden is upon the defendant claiming to be bona fide purchaser for value and without notice, to make good claim by greater weight of the evidence. Manufacturing Co. v. Summers, 143 N.C. 103, 55 S.E. 522. Also where the complaint in an action by indorsee of instrument does not state that he is holder in due course, and defendant alleges that the execution of instrument was procured by fraud of payee, burden is on indorsee to show that he is the holder in due course. Campbell v. Patton, 113 N.C. 481, 18 S.E. 687.

The evidence offered by defendant for the above purposes and excluded is as follows:

Mr. F W. Kurfees, cashier of the plaintiff bank, testified: "We had bought other notes of the Cumberland Railway & Power Company at the time we bought this. I could not tell you how long we had been doing this; I cannot say. We had bought some stocks or bonds with the Cumberland Railway & Power Company in connection with this matter. They were delivered with the note or soon afterwards by the stock salesmen. I could not say whether Mr. Sherron brought them in or not. I think that the stock salesman brought them in, because I requested him to bring them in as soon as they were issued. I knew that they were connected with...