Continental Nat. Bank of Salt Lake City v. Cole, 5701

• Decision Date: 08 October 1931
• Docket Number: 5701
• Citation: 51 Idaho 140,3 P.2d 1103
• Parties: THE CONTINENTAL NATIONAL BANK OF SALT LAKE CITY, UTAH, a Corporation, Appellant, v. JOSEPH COLE, Respondent
• Court: Idaho Supreme Court

3 P.2d 1103

51 Idaho 140

THE CONTINENTAL NATIONAL BANK OF SALT LAKE CITY, UTAH, a Corporation, Appellant, v. JOSEPH COLE, Respondent

No. 5701

Supreme Court of Idaho

October 8, 1931

BILLS AND NOTES-BONA FIDE HOLDER-BURDEN OF PROOF-INDORSEMENT-GOOD FAITH-EVIDENCE.

1. In action on note, evidence of corporate payee's noncompliance with Foreign Corporations Law and Blue Sky Law held admissible, requiring plaintiff to prove itself due course holder (C. S., secs. 4772-4779, 5305-5324).

2. Indorsement without recourse is not evidence against indorsee's holding in good faith.

3. Indorsement without recourse does not operate as notice of defenses.

4. Where blank indorsee transferred note but refused to indorse held, instruction that transfer by delivery only was not evidence as to holder's good faith should have been given (C. S., sec. 5901).

5. In action on note given sugar company, defense being fraud admitting conversations between defendant and alleged agents of company held prejudicial error, where no connection was shown.

6. In action on note, allegation that plaintiff took note with knowledge of defenses or was not bona fide purchaser held unnecessary.

7. All facts and circumstances surrounding transaction should be considered by jury on question of holder's good faith.

8. Circumstances, to indicate bad faith in purchase of note must be more than suspicious and must be such as would charge ordinarily prudent person with bad faith, notice of infirmity or defect in transferor's title.

APPEAL from the District Court of the Fifth Judicial District, for Franklin County. Hon. Robert M. Terrell, Judge.

Action on promissory note. Judgment for defendant. Reversed and remanded.

Reversed and remanded. Costs awarded to appellant.

Gustin & Pence and P. M. Condie, for Appellant.

The fact that a transferor of a note transferable by delivery fails to indorse the same is no evidence of good or bad faith in the transaction. (Hutson v. Rankin, 36 Idaho 169, 33 A. L. R. 91, 213 P. 345; C. S., secs. 5901, 5905; Leavitt v. Thurston, 38 Utah 351, 113 P. 77.)

It is erroneous to instruct the jury that it might consider an alleged issue that the note was negotiated by the payee in breach of faith. (Veigel v. Johnson, 163 Minn. 288, 204 N.W. 36; Gwin v. Gwin, 5 Idaho 271, 48 P. 295.)

The testimony of the witness Cole, for the purpose of showing any binding representation or agreement made between respondent and the Pioneer Sugar Company, is incompetent. (1 Ency. of Evidence, p. 544.)

E. M. Wilson, and Carver & Carver, for Respondent.

The violation of C. S., chap. 206, constitutes a defect in title, makes the notes void in the hands of the payee or anyone not a holder in due course, and places the burden of proof upon the plaintiff and appellant here that he is a holder in due course. (Ashley and Rumelin v. Brady, 41 Idaho 160, 238 P. 314; Ashley State Bank v. Hood, 47 Idaho 780, 279 P. 418; Metz v. Jones, 39 Idaho 330, 227 P. 591.)

The question as to whether or not the plaintiff paid full value for the note is proper to be considered by the jury with the claim of the plaintiff's good faith. (National Bank of the Republic v. Price, 65 Utah 57, 234 P. 231.)

The testimony of the witness Cole was properly received as a part of the res gestae. (1 Ency. of Evidence, p. 541, and cases cited, also p. 548; Marks v. Taylor, 23 Utah 152, 63 P. 897.)

GIVENS, J. Lee, C. J., and Varian and McNaughton, JJ., concur.

OPINION

GIVENS, J.

The note, the basis of the action herein to enforce its payment, was one of several of a similar kind received by the Pioneer Sugar Company, a Utah corporation, for stock in said company, negotiated by it before maturity to E. R. Woolley, in payment of a sugar factory sold by Woolley to the company. Ninety-five thousand dollars face value of such notes were in turn transferred by Woolley before maturity to the National Bank of the Republic, later consolidated with appellant, in exchange for some $ 128,750 face value of notes of the Chesney Stock Farm.

It is conceded the National Bank of the Republic was anxious to dispose of the Chesney notes, as it would have required additional financing by the bank to carry the company, which it did not feel able to do. Woolley was anxious to get control of the company, which the purchase of its notes gave him because they were secured by a controlling interest in amount of the stock of said Chesney Stock Farm.

Respondent Cole interposed the following defenses to the action herein: That the Pioneer Sugar Company had not complied with the so-called "Blue Sky Law," C. S., chap. 206; had not complied with C. S., chap. 187, as to foreign corporations doing business in Idaho; fraud in the inception of the note; fraud in its negotiation; failure of consideration; and that appellant was not a holder in due course.

It was stipulated that the Pioneer Sugar Company had not complied with the "Blue Sky Law," C. S., chap. 206, and the Foreign Corporations Law, C. S., chap. 187. Appellant, though stipulating as to the fact, objected to the relevancy, materiality and competency thereof. This evidence was admissible (Chesney v. Bodily, 50 Idaho 597, 298 P. 937), and placed the burden on appellant of proving that it was a holder in due course. (Ashley State Bank v. Hood, 47 Idaho 780, 279 P. 418; Weisendanger v. Lind, 114 Kan. 523, 220 P. 263.)

In the cross-examination of Culbertson, vice-president of appellant bank, the only witness produced by appellant, it was brought out that at the time he secured the notes from Woolley, Woolley refused to indorse the notes. Appellant assigns as error the refusal of the trial court to give requested instruction No. 6, as follows:

"The Court instructs the jury that the fact that the note sued upon was transferred by Ernest R. Woolley to the plaintiff without his endorsement thereon, and by delivery only, is no evidence of either good or bad faith in the transaction, and is a fact which cannot be taken into consideration by you in determining whether or not plaintiff was a bona fide holder of the note sued upon."

An indorsement without recourse cannot be regarded as evidence against an indorsee's holding in good faith (Leavitt v. Thurston, 38 Utah 351, 113 P. 77); that payees indorsed a note without recourse is not evidence that transferees were not purchasers in good faith, and an instruction permitting the jury to consider such fact on that issue was held erroneous (Robertson v. Budzier, 229 Mich. 619, 201 N.W. 949); an indorsement without recourse does not operate as a notice of defenses (Hamilton v. Fowler, 99 F. 18, 40 C. C. A. 47). See, also, Downs v. Horton, (Mo. App.) 209 S.W. 595, aff. 287 Mo. 414, 230 S.W. 103, Morehead v. Harris, 121 Ark. 634, 182 S.W. 521, Elgin City Banking Co. v. Hall, 119 Tenn. 548, 108 S.W. 1068, Neely v. Black, 80 Ark. 212, 96 S.W. 984, Dollar Sav. & Trust Co. v. Crawford, 69 W.Va. 109, 70 S.E. 1089, 33 L. R. A., N. S., 587, Smith v. Breeding, 196 Iowa 670, 195 N.W. 208, and Omaha Steel Works v. Martin, 78 Colo. 560, 243 P. 619, to same effect.

If woolley's refusal to indorse had the same effect as an indorsement without recourse, it would seem that his lack of...