Barre Trust Company v. Frank S. Ladd Et Ux

• Decision Date: 05 May 1931
• Parties: BARRE TRUST COMPANY v. FRANK S. LADD ET UX
• Court: Vermont Supreme Court

154 A. 680

103 Vt. 392

BARRE TRUST COMPANY v. FRANK S. LADD ET UX

Supreme Court of Vermont

May 5, 1931

October Term, 1930.

Bills and Notes---Practice Act---Pleading---Affirmative Defenses---Waiver of Sufficiency of Pleadings by Course of Trial--- Fraud---Falsity of Representations and Scienter or Its Equivalent as Essential Elements---Waiver of Allegation of Scienter---Amendment in Supreme Court Making Allegations Conform to Proof---Harmless Error---Failure of Consideration as Element of Fraud under Certain Conditions---Corporations---Stockholders Prior to Issuance of Stock Certificate---Representations as to Value as Fraud---Jury Questions---Effect of Fraud in Inception of Note on Payee's Title---Negotiable Instruments Act---Notice of Defect in Title---Matters from Which Bad Faith May Be Inferred---Credibility of Witness---Exceptions Not Briefed---General Exceptions---Charge in Relation to Bad Faith of Purchaser of Note---Knowledge by Purchaser of Circumstances Sufficient To Put Prudent Man on Inquiry as to Payee's Title---Remoteness of Testimony---Protested Checks and Notes as Evidence of Insolvency---Custom as to Permitting Overdrafts---Harmless Error---Questions Not Raised Below.

1. Since adoption of Practice Act, fraud as defense to suit on note cannot be shown under general issue, but all matters relied upon as an affirmative defense must be specially pleaded, unless statute provides otherwise.

2. Course of trial may be such as to constitute waiver of any question respecting sufficiency of pleadings to make defense available.

3. Two essential elements of actionable fraud are that representations were false and known to be false by person making them or made as of his own knowledge without in fact knowing them to be true.

4. Where defendants, pleading fraud as defense to action on promissory note, failed to allege scienter, and plaintiff failed to demur to pleas on that ground and by its replication showed that it was fully informed of the nature of defense, and made no objection to testimony introduced by defendants to show falsity of representations by payee of such note, held that plaintiff had waived question of necessity of such allegation.

5. Where action on promissory note, in which defendants pleaded fraud but failed to allege scienter, was tried in all respects as it would have been if scienter had been alleged in pleas, and an amendment to permit such allegation would merely make allegations conform to proof, held that such amendment would be permitted in Supreme Court to avoid reversal, if necessary.

6. Refusal of court to grant plaintiff's motion to withdraw from jury's consideration allegation that note in suit was obtained from defendants by plaintiff and others in collusion with it, and for its benefit, on ground of lack of evidence to support such allegation, while error, held harmless, where charge of court was such question was not before jury for consideration.

7. In action on promissory note given for capital stock of corporation, where defendants' defense of failure of consideration was based upon claim that stock was represented as being of value when in fact worthless, held that such failure of consideration, if it existed, would constitute an element of fraud to be considered by jury with other evidence of fraud.

8. Persons purchasing capital stock of corporation and giving their note therefor, held thereby to become stockholders even though no certificate of ownership of stock was issued to them, issuance of certificate being immaterial except as evidence of ownership.

9. Representations respecting value, standing alone, may or may not be fraudulent, depending upon circumstances of case, and whether fraud was intended is usually for jury.

10. Where evidence warranted finding by jury that person selling capital stock of corporation and procuring note therefor knew corporation was then insolvent and its capital stock worthless and made representations of value of stock as assertions of fact, which were so received by purchasers held that whether fraud was intended thereby was for jury.

11. Refusal of court to grant plaintiff's motion to withdraw from jury's consideration allegation that to induce defendants to purchase stock in corporation, for which note in suit was given, defendants were told by payee of note that some of biggest men in certain city were purchasing such stock "and felt sure of it," held not reversible error under evidence in case.

12. Refusal of court to grant plaintiff's motion to withdraw from jury's consideration allegation that payee of note in suit told defendants that corporation, for purchase of stock of which such note was given, was doing large volume of business of specified amount, held not reversible error there being evidence from which jury could find that such representations were in part false.

13. Under G. L. 2924, fraud in inception of note, held to render title of payee defective as matter of law.

14. Under Negotiable Instruments Act, to constitute notice of defect in title of person negotiating instrument, person to whom it is negotiated must have had actual knowledge of defect or knowledge of such facts that his action in taking instrument amounted to bad faith.

15. While gross negligence, knowledge of suspicious circumstances, or failure to inquire into consideration will not, as matter of law, prevent recovery by holder of negotiable paper who purchases in ordinary course of business, existence of such facts may be evidence of bad faith sufficient to take question to jury.

16. Matters from which bad faith in purchase of negotiable instrument may be inferred, stated.

17. If holder of note had actual knowledge of suspicious circumstances coupled with means of readily informing himself of facts, and wilfully abstained from making inquiries, his intentional ignorance may amount to bad faith.

18. Credibility of testimony of plaintiff's treasurer contradictory in some respects, as to plaintiff's good faith in taking note in suit, explaining failure to make inquiries where means of information were readily available, held for jury.

19. Exceptions to charge not briefed will not be considered.

20. General exceptions to failure of court to charge as requested, held unavailing.

21. Request to charge that "neither suspicion nor defect in title" of note in suit, "nor knowledge of circumstances that would excite suspicion in mind of prudent man or put him on inquiry," would affect rights of purchaser of note, unless circumstances or suspicions "were so cogent and obvious that to remain passive would amount to bad faith," held properly refused.

22. Knowledge by purchaser of note of circumstances which would excite suspicion of prudent man or put him on inquiry as to defect in payee's title may be evidence of bad faith sufficient to take question to jury.

23. Objection to admission of protested checks and notes, that times of their protest were too remote, is addressed to discretion of trial court.

24. Fact that there was continual protest of corporation's notes after certain date, held admissible as tending to show its insolvency on that date.

25. General objection to each of protested checks and notes, that it did not show condition of maker at time protested nor at time note in suit by same maker was negotiated, held, without merit, since taken together they had tendency to prove issue of insolvency.

26. Question as to custom in permitting overdrafts by companies doing amount of business of corporation, for stock in which note in suit was given, held properly excluded, not being material to any issue in case.

27. Admission of grand list of payee of note, given for stock in corporation, to show that during certain year such person paid only poll tax, if error, held harmless as against indorsee thereof suing on such note.

28. Questions not raised below will not be considered by Supreme Court.

ACTION OF CONTRACT by holder of promissory note indorsed to him by payee. Pleas, failure of consideration and fraud. Replication by plaintiff. Trial by jury at the March Term, 1930, Washington County, Buttles, J., presiding. Verdict for defendants and judgment thereon. The plaintiff excepted. The opinion states the case.

Judgment affirmed.

NOTE. MR. JUSTICE WILLCOX sat in the hearing of this case, but took no part in the disposition of it.

Deane C. Davis and John W. Gordon for the plaintiff.

F. L. Laird, H. C. Shurtleff, and W. E. Miller for the defendants.

Present: POWERS, C. J., SLACK, MOULTON, WILLCOX, and THOMPSON, JJ.

OPINION

THOMPSON

The plaintiff seeks to recover on a demand promissory note for five thousand dollars, executed by the defendants, who are husband and wife, dated May 11, 1929, payable to the order of George B. Littlefield, and indorsed by him to the plaintiff. There was a trial by jury, and a verdict for the defendants. The plaintiff excepted.

The defendants filed three pleas. The first plea alleges that the note was obtained from them without consideration. The substance of the third plea is that the defendants were induced to execute and deliver the note in question by the false and fraudulent representations made to them by said George B. Littlefield, "that they were to receive therefor five thousand dollars worth of the capital stock of the Littlefield Piano Company, Incorporated, and upon the further misrepresentation that said stock was good and valid and worth the full value of said note and that some of the biggest men in Barre, Vermont, were purchasing such stock and felt sure of it, and that said corporation was doing a large volume of business around $ 150,000 per year." It is further alleged in the plea that said representations were false; that they believed them, and were thereby...