Benton Cnty. Sav. Bank of Norway v. Boddicker

Citation75 N.W. 632,105 Iowa 548
PartiesBENTON COUNTY SAV. BANK OF NORWAY v. BODDICKER ET AL.
Decision Date19 May 1898
CourtUnited States State Supreme Court of Iowa

OPINION TEXT STARTS HERE

Appeal from district court, Benton county; O. Caswell, Judge.

Action at law on a bond given to secure the payment of money. There was a trial by jury, and a verdict and judgment for the plaintiff. The defendants appeal. Reversed.Heins & Heins, for appellants.

Tom. H. Milner, for appellee.

ROBINSON, J.

In January, 1881, the plaintiff was organized as a corporation by virtue of chapter 60 of the Acts of the 15th General Assembly for the purpose of transacting business as a savings bank at Norway, in Benton county. Its capital stock, at first but $10,000, was, in the year 1887, increased to $15,000. The firm of G. A. Miller & Sons was engaged at Norway in selling coal, lumber, and agricultural implements, and borrowed money of the plaintiff. In the first part of the year 1891 the firm was indebted to the plaintiff to the amount of about $6,000, and upon the demand of the plaintiff executed and delivered to it the instrument in suit, of which the following is a copy: “Know all men by these presents that we, G. A. Miller & Sons, as principals, and Joseph Boddicker and V. A. Thoman, as sureties, of Benton county, Iowa, are held and firmly bound unto the Benton County Savings Bank of Norway, Benton county, Iowa, in the sum of five thousand ($5,000) dollars, to be paid to the said Benton county Savings Bank or its assigns; to the payment of which we bind ourselves, and each of us, our heirs and legal representatives, firmly by these presents. It is the intention and purpose of this instrument or obligation to fully protect and indemnify the said Benton County Savings Bank or its assigns against any and all losses by reason of the failure of the said G. A. Miller & Sons to pay their indebtedness now owing (or which may be contracted hereafter) to the said Benton County Savings Bank. The condition of the above obligation is such that, if the said G. A. Miller & Sons shall pay the full amount of their indebtedness to the said Benton County Savings Bank, then this obligation to be void and of none effect; otherwise to remain in full force and virtue. G. A. Miller & Sons. Joseph Boddicker. V. A. Thoman.” On the 31st day of January, 1896, the plaintiff commenced this action against the firm of G. A. Miller & Co. and its members to recover the amount due on certain promissory notes, and against the sureties to recover the amount of the bond. The action was aided by attachment which was issued against the property of the firm and its members. In April, 1896, judgment was rendered against all the defendants excepting the sureties on the bond for the sum of $14,620.55, an attorney's fee, and costs, and a special execution was ordered against certain town lots. Thereafter, by order of the court, a separate petition setting out the claims of the plaintiff upon the bond was filed, and to that the sureties Boddicker and Thoman filed an answer. The verdict and judgment against them were for the full amount of the bond.

1. The defendants claim that each of them signed the bond upon the express condition that before it should be delivered and take effect it should also be signed by three other men of good financial responsibility; also that Boddicker signed the bond on that condition, and notified the plaintiff of that fact before the bond was delivered, and that Thoman signed after Boddicker did, and relying upon his signature. There was evidence which tended to support these claims. The court charged the jury that the burden was on the defendants to show that the plaintiff had knowledge or notice of the condition on which the bond was signed, if it was signed on the condition alleged, before it was delivered, or before any credits had been extended or benefits conferred by virtue thereof; and of that portion of the charge the appellants complain. The answer alleges that the plaintiff had the knowledge or notice specified before the bond was delivered, but the appellants insist that upon proof of the fact that the bond was executed on the condition stated a presumption that the plaintiff took the bond with knowledge of the condition was created, and that the burden of rebutting that presumption, and showing that the bond was taken in good faith, was upon the plaintiff. It is a rule of general application that the holder of negotiable paper which is payable to bearer or is indorsed in blank is presumed to be its bona fide owner, but that, when fraud or other illegality in the inception of the paper is shown, the burden is shifted to the holder to show that he acquired and holds it in good faith. Bank v. Barber, 56 Iowa, 559, 9 N. W. 890, and authorities therein cited; Bank of Monroe v. Anderson Bros. Min. & Ry. Co., 65 Iowa, 692, 701, 22 N. W. 929;Lane v. Krekle, 22 Iowa, 399;Bank v. Schloesser (Iowa) 70 N. W. 705;Bank v. Holan (Minn.) 65 N. W. 952;Bank v. Richter (Minn.) 57 N. W. 61; 1 Am. & Eng. Enc. Law (2d Ed.) 369; Tied. Com. Paper, § 303. And when an alteration in an indorser's contract is shown the burden is on the holder of the note to show the sufficiency of the indorsement. Robinson v. Reed, 46 Iowa, 219. The rule of these cases applies notwithstanding the fact that in actions by persons not payees of such paper it is necessary to plead in defense that the plaintiffs are not good-faith holders of the paper in suit. Lane v. Krekle, supra; Sillyman v. King, 36 Iowa, 207, 214. These rules have been applied to purchasers of real property whose titles were assailed. Rush v. Mitchell, 71 Iowa, 333, 32 N. W. 367;Gardner v. Early, 72 Iowa, 518, 34 N. W. 311;Merrill v. Tobin, 82 Iowa, 529, 48 N. W. 1044; Sillyman v. King, supra. In this case there has not been any transfer of the instrument alleged to have been wrongfully delivered, and it is not a negotiable instrument. Therefore the rules which protect the bona fide owners of negotiable instruments are not in all respects applicable. We cannot, however, assent to the claim of the defendants that, if the bond in suit was delivered in violation of an agreement to the effect that it should not be delivered until three additional sureties should sign it, no recovery can be had thereon, even though the plaintiff took it without knowledge or notice of the agreement. The case of Johnston v. Cole (Iowa) 71 N. W. 195, involved the validity of a contractor's bond, on which recovery was sought against a surety named Cole. He pleaded as a defense that the bond was not to be delivered unless it should be signed by another surety, and the jury found specially that he did not deliver the bond nor authorize its delivery without the signature of another surety. We held, under the issues tendered and the special finding, that the invalidity of the bond had been established, and called attention to the fact that the issues did not bring in question the legal effect of the delivery made; and that the answer pleaded an affirmative defense, the sufficiency of which was not in any manner questioned. Whether the bona fide holder of such a bond might, in any event, be entitled to recover upon it as against the surety who had not authorized its delivery, and upon whom rested the burden of proof as to the good faith of the holder, were questions not decided in that case. In Daniels v. Gower, 54 Iowa, 319, 3 N. W. 424, and 6 N. W. 525, a recovery was sought against the sureties on a nonnegotiable promissory note. Three of the sureties signed the note when it was in the hands of one Stoller, with the agreement that it should not be delivered unless the signature of one Blajok should be obtained. It was held that if Stoller was not the agent of the plaintiff, and the note was delivered without the knowledge and consent of the three sureties, in violation of the condition upon which it had been placed in the hands of Stoller, the sureties would not be liable. The correctness of that decision was questioned in Taylor Co. v. King, 73 Iowa, 153, 34 N. W. 774, and the fact was pointed out that it rested in part upon the supposed authority of Pepper v. State, 22 Ind. 399, which has been overruled in State v. Pepper, 31 Ind. 76, and in part upon the case of Ayres v. Milroy, 53 Mo. 516, which was examined and questioned, if not distinguished, in State v. Potter, 63 Mo. 212. The case of People v. Bostwick, 32 N. Y. 445, tends to sustain the doctrine of Daniels v. Gower, but was questioned in Russell v. Freer, 56 N. Y. 67, although it was cited in Whitford v. Laidler, 94 N. Y. 145. In some cases a distinction has been suggested between official bonds and other nonnegotiable instruments, based upon grounds of public policy. Carroll Co. v. Ruggles, 69 Iowa, 269, 28 N. W. 590;Taylor Co. v. King, 73 Iowa, 153, 34 N. W. 774. Although there are a few authorities which support the rule of Daniels v. Gower, the greater number do not. See Butler v. U. S., 21 Wall. 272;Dair v. Same, 16 Wall. 1;White v. Duggan, 140 Mass. 18, 2 N. E. 110; Ordinary v. Thatcher, 41 N. J. Law, 403; Quick v. Milligan, 108 Ind. 419, 9 N. E. 392;Russell v. Freer, 56 N. Y. 67;State v. Peck, 53 Me. 284;State v. Pepper, 31 Ind. 76;McCormick v. Bay City, 23 Mich. 457;Millett v. Parker, 2 Metc. (Ky.) 608;State v. Potter, 63 Mo. 212, and cases therein cited; Cutler v. Roberts, 7 Neb. 4;Nash v. Fugate, 32 Grat. 595;Jordan v. Jordan, 10 Lea, 124;Tidball v. Halley, 48 Cal. 613;City of Chicago v. Gage, 95 Ill. 613. The ground upon which some of these decisions are based is that, where sureties have placed in the hands of their principal an instrument which purports to be valid and complete, they are estopped to assert, as against an innocent holder for value, that they did not...

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