City Deposit Bank of Columbus v. Green
| Decision Date | 09 April 1908 |
| Citation | 115 N.W. 893,138 Iowa 156 |
| Parties | THE CITY DEPOSIT BANK OF COLUMBUS, OHIO, Appellant, v. SAMUEL T. GREEN and H. S. WILLIAMS, defendants, and JOHN THOMPSON, N. J. WILKINS, R. J. HIBBS, J. E. COREY, J. O. DOUGHTERTY, JAY GREEN, T. B. COLLICOTT, W. E. MOULDS, C. H. GREEN, JOHN RASMESS and BURNS GREEN, Appellees |
| Court | Iowa Supreme Court |
Appeal from Calhoun District Court.-- HON. F. M. POWERS, Judge.
ACTION on promissory note resulted in judgment for part of it only. Plaintiff appeals.
Affirmed.
J. B McCrary and E. A. & W. H. Morling, for appellant.
Hutchinson & Jacobs, for appellees.
Three notes of $ 1,000 each were executed to McLaughlin Bros. by the thirteen defendants as the price of a shire stallion. The payee transferred the note first maturing to the plaintiff. Upon its presentment payment was refused, and this action thereon was begun September 24, 1903. Default and judgment for the full amount claimed was entered against Samuel T Green and H. S. Williams. The other defendants answered in three counts. The first of these pleaded a general denial, and the second that each defendant was liable for but one-fifteenth of the note. The above counts were withdrawn, and the last trial had on the third count of the answer in which defendant alleged that McLaughlin Bros., in order to sell said stallion, by their agent Murray circulated a subscription contract substantially like that in McArthur v. Board, 119 Iowa 562, 93 N.W. 580, save that there were to be fifteen shares of $ 200 each; that each of the answering defendants, except Moulds and Jay Green, subscribed for one share, and Moulds and Jay Green for one-half share each; that said Murray orally represented that no persons not financially responsible would be accepted as subscribers for shares in the horse; that these defendants signed the same relying thereon; that three persons, Wingerson, Eakin, and Seay, signed said subscription contract for one share each, and said agent for McLaughlin Bros. released them therefrom and excused them from signing the notes heretofore mentioned, and fraudulently procured stock thus subscribed to be taken by Samuel T. Green and H. S. Williams; that said agent induced said Williams to do so and to sign said notes by paying him the sum of $ 35, and thereupon assigned to him the three shares of stock of $ 200 each in addition to the one he had subscribed for and delivered said Green one share; that said Williams and Green were then and have since then been insolvent; that at the time said defendants signed such notes they had no knowledge of said substitution of said Green and Williams, and would not have signed the same had they known thereof; that in doing as above stated McLaughlin Bros. knew of the insolvency of Green and Williams, and acted therein for the purpose of perpetrating a fraud on these defendants and compelling them to pay for the shares in the stallion so fraudulently disposed of to said persons; that in order to carry out their design said McLaughlin Bros. pretended to dispose of the notes to plaintiff, but this was not in good faith nor for a valuable consideration before maturity, but for the purpose of effectuating their fraudulent enterprise. By reason of the foregoing facts the defendants alleged that the note was held by plaintiff subject to the equities set up, and a part of said consideration of said note had failed, and that by reason of the fraud alleged the plaintiff was not entitled to recover of these defendants.
On a former appeal this court held that the circumstances of the transfer of the note in suit were such that the jury might have found plaintiff not to have been a bona fide holder for value. City Deposit Bank v. Green, 130 Iowa 384, 106 N.W. 942. The present contention that this issue was not raised by the answer is disposed of by the above statement of the issues. The main question now presented is whether the matters pleaded can be raised as defense, or should they be set up by way of counterclaim. If the fraud inhered in the notes in such a manner that by reason thereof defendants received less of value than they would have but for such fraud, then there was a partial failure of consideration and the authorities are agreed that part failure of consideration may be set up as a defense to a promissory note in the hands of a payee or holder with notice or not for value. Russ L. & M. Co. v. Muscupiabe L. & W. Co., 120 Cal. 521 (52 P. 995, 65 Am. St. Rep. 186); Hammatt v. Emerson, 27 Me. 308 (46 Am. Dec. 598); Torinus v. Buckham, 29 Minn. 128 (12 N.W. 348); 9 Cyc. 370; section 3070, Code 1897; Randolph on Com. Paper, section 539 et seq. But each of these defendants got the interest in the horse precisely as he bargained, and for which he had subscribed and signed the note. The effect of the fraud practiced was not to lessen the consideration paid, but to increase the liability of each therefor. All of them knew that both Williams and Green had subscribed for one share each, so that no complaint as to these can be entertained. But in excusing the three responsible persons from taking their shares and signing and issuing these shares to Williams, an insolvent, instead, an additional liability of $ 600 was saddled upon them. Had all signed the notes as originally proposed, recovery for the full amount could have been had against any one of the individual signers. No more is now demanded. How, then, can it be said that there has been any failure of consideration? Should any one of defendants pay the notes, contribution might be enforced against the others. This could have been done against the three responsible subscribers had they also signed the notes, but cannot be made effective as against Williams, as he was and is insolvent. The failure of consideration, then, was in the loss of the assistance of the three responsible subscribers through the fraudulent substitution of Williams therefor as a signer of the notes, and in event of payment of the same the right to resort for contribution against responsible persons. In other words, the difference between a solvent and an insolvent signer of a note is a valuable consideration to another who signs, relying on the financial responsibility of those who join as makers. The answer alleged that defendants acted on the representations that all the subscribers would be responsible, and that Wingerson, Eakin, and Seay, who were responsible, had subscribed for stock and would sign the note, and that Williams was fraudulently substituted in their stead, depriving them of the benefit of their assistance in payment of the notes, or, in event of payment thereof by defendants, the benefit to be derived from contribution. Manifestly this affected the consideration to the amount of the pro vata share which the three persons would have paid.
II. If the notes were tainted with fraud in their inception, even though this affected the consideration, the burden of proof was upon the plaintiff to show that it was a holder for value. Keegan v. Rock, 128 Iowa 39, 102 N.W. 805. And the evidence was such that the issue as to whether plaintiff took the note with notice of its infirmity was for the jury. Bennett State Bank v. Schloesser, 101 Iowa 571, 70 N.W. 705. Moreover the evidence as to whether value was paid for the note or merely a credit entered on the books of the bank was, like that on the former trial, and therefore properly submitted to the jury, and its finding that plaintiff did not pay value conclusive. City Deposit Bank v. Green, 130 Iowa 384, 106 N.W. 942. See McNight v. Parsons, 136 Iowa 390, 113 N.W. 858. The instruction submitting this last issue was accurate, but not as full as it might have been; but, in the absence of the request of a more comprehensive statement of the law, appellant is not in a situation to complain.
III. The evidence that the agent of the McLaughlin Bros. represented that the fifteen shares in the stallion would be sold to none but responsible persons was uncontradicted, and that defendants signed both the subscription paper and the notes, relying upon this representation, and with the understanding that such subscribers would sign the notes must have been found by the jury. The fair inference from the record is that the agent in making these representations did not entertain the purpose of disposing of all the shares to responsible parties, and that, when he falsely represented that all the subscribers would sign the notes, he knew this was not true, and secretly intended to procure a "strawman" to sign instead of Wingerson, Eakin and Seay, and thereby defraud defendants of the amount these parties would have paid. We agree with appellant that, if this was no more than a false promise to do something in the future, it would not amount to a fraud. But it was something more. It was a device to procure defendants' signatures to these notes with the knowledge that, but for the false representation of his intention and that of the three persons named, the defendants would not sign them, and with the secret intention not to procure their signatures. The existence of an intention unconnected with an act is not actionable. Starr v. Stevenson, 91 Iowa 684, 60 N.W. 217; Theusen v. Bryan, 113 Iowa 496, 85 N.W. 802. But an intention is a fact, for a witness may be asked what intention he entertained when he did a particular act. Kruse v. Seiffert, 108 Iowa 352, 79 N.W. 118.
Moreover this court has held that a sale of goods to a person having no intention to pay therefor may be rescinded and the property sold recovered, owing to the fraud practiced. Cox Shoe Co. v. Adams, 105 Iowa 402, 75 N.W. 316. If this be so, then it necessarily follows that an action...
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