Donovan v. Fox
| Decision Date | 24 March 1894 |
| Citation | 25 S.W. 915,121 Mo. 236 |
| Parties | Donovan v. Fox, Appellant |
| Court | Missouri Supreme Court |
Appeal from St. Louis City Circuit Court. -- Hon. D. D. Fisher Judge.
Affirmed.
H. J Grover for appellant.
(1) The instruction asked for by the defendant, after the close of all the evidence, that on the pleadings and evidence the plaintiff could not recover, should have been given, for the reason that the evidence showed that Donovan had acquired the notes with full knowledge of the facts and infirmities inherent in the original transaction, which would impeach the validity of the note as between Ferguson and Fox, and that Donovan had acquired the notes in bad faith. Daniel on Neg. Inst., sec. 799; Henry v. Sneed, 99 Mo. 423; Whaley v. Neil, 44 Mo.App. 320. (2) One who takes a note, whether before or after maturity, with notice that it was given for a subscription to the stock of a corporation, which has not been issued, takes it subject to the defense of want of consideration, upon the falling through of the organization of the company, and failure to issue such stock. Bradford v. Harris, 26 A. 186; Harris v. Nichols, 26 Ga. 413. (3) Knowledge on the part of a purchaser of a note that "there was trouble about the trade," is sufficient to charge upon the purchaser notice of the fraud, equity or illegality in the trade or transaction. Henry v. Sneed, 99 Mo. 408; Daniels on Neg. Inst., sec. 799; Whaley v. Neil, 44 Mo.App. 320. (4) Willful blindness, when by seeing the purchaser could know all the infirmities of the notes, is fraudulent blindness and constitutes bad faith. Daniels on Neg. Inst., 977a, 795b. (5) Gross negligence which is not in itself proof of mala fides, may be so great as to amount to notice. Daniels on Neg. Inst., 795b, 774. (6) In view of Donovan's admitted knowledge of Fox's ample solvency, the inadequate price paid by Donovan for the notes was notice to him of infirmities of the paper. Daniels on Neg. Inst., 777a, 778, 779. Donovan's own testimony disclosed his knowledge of sufficient facts to put him on inquiry, and the maker was thus relieved of any duty of bringing home to him such knowledge. See Mayes v. Robinson, 93 Mo. 121; Whaley v. Neil, 44 Mo.App. 320.
Willi Brown for respondent.
(1) As to what constitutes bad faith, see the article on "What is bad faith," citing the rule in the U. S. supreme court, in various state courts, and in England. 22 Cent. L. J. 437. (2) Prior to the case of Hamilton v. Marks, 63 Mo. 177, it was the rule in this state that suspicious circumstances (though we claim there were none in this case) put a purchaser of a note upon inquiry as to the validity of the consideration, but that case decided that bad faith alone would defeat his title. Edwards v. Thomas, 66 Mo. 483; Johnson v. McMurray, 72 Mo. 282; Bank v. Tinsley, 11 Mo.App. 502; Mason v. Bank, 16 Mo.App. 278, 281; Mayes v. Robinson, 93 Mo. 114; Bank v. Stanley, 46 Mo.App. 448; Studebaker v. Dickson, 70 Mo. 274; Boone v. Shackleford, 66 Mo. 497; Cass Co. v. Green, 66 Mo. 511; Smith v. Steel, 81 Mo. 458; Straus v. Railroad, 86 Mo. 438; Dobyns v. Myers, 20 Mo.App. 71. (3) The answer in this case is drawn to follow the rule of Mayes v. Robinson, supra, that the holder must have actual notice of the fraud before his title can be impeached. (4) "When general proof is made by the holder that he received the paper before due, bona fide and for value, it then devolves upon the maker to prove that the holder had actual notice of the specific facts which would render it originally invalid, otherwise the plaintiff must recover." And "the jury were very properly instructed that there was no testimony that plaintiff knew of the fraud." Johnson v. McMurray, 72 Mo. 282; Mayes v. Robinson, supra. (5) "A bona fide purchaser of a negotiable instrument, even though stolen, becomes owner of same notwithstanding defect in the title of his vendor." Bank v. Heinsman, 1 Mo.App. 336. (6) "The consideration of negotiable paper in the hands of a bona fide holder for value before maturity can not be inquired into." "Actual notice of the facts which impeach the validity of the note must be brought home to the holder." Mayes v. Robinson, 93 Mo. 114; Bank v. Stanley, 46 Mo.App. 440. (7) "Where a negotiable note is assigned before maturity there can be no inquiry into the consideration as between the original parties till it is shown the holders were not innocent purchasers." Merrick v. Phillips, 58 Mo. 438; Hamilton v. Marks, supra. (8) "That a negotiable note is taken without recourse can not in any manner affect the rights of the indorsee against the maker." Mayes v. Robinson, supra. (9) In the cases of Massman v. Holscher, 49 Mo. 87, and Henshaw v. Dutton, 59 Mo. 139, just such defenses as are here interposed were set up and the court says:
This is an action on two negotiable promissory notes drawn by the defendant Hugh L. Fox, both dated on the twenty-seventh day of May, 1890, payable to his own order, one year after date, each for the sum of $ 2,960, with interest at the rate of seven per cent. per annum after maturity, which the plaintiff in his petition alleges the defendant thereupon negotiated by indorsing his name thereon and delivering the same to one J. A. Ferguson who afterwards and before the maturity thereof, to wit, on the twenty-fourth of June, A. D. 1890, indorsed and delivered the same for value to plaintiff, who afterwards, to wit, on the thirty-first day of January, 1891, indorsed and delivered the same for value to the German American Bank, who at the maturity of said notes was the holder thereof, and who caused the same to be duly presented for payment, and upon payment being refused caused the same to be duly protested for nonpayment. That afterwards, to wit, on the sixteenth day of June, 1891, plaintiff paid said bank the amount of the principal and interest due on said note and costs and took up said notes, which still remain due and unpaid, and for which he asks judgment.
The answer of the defendant admits the execution of the note, as maker, and that he indorsed the same, denies all the other allegations of the petition, and sets out the circumstances under which he alleges said notes were so executed and indorsed, his plea in substance being that the notes were obtained from him by fraud and without consideration, and that plaintiff took them with notice. The reply was a general denial.
The facts disclosed by the evidence are substantially as follows: At the date of this transaction the plaintiff and defendant were business men in the city of St. Louis. W. L. Hill was the general agent or manager of the New York Life Insurance Company in that city, and John A. Ferguson residing in Denver, Colorado, was agency director, and solicitor of said company. On or about the twenty-seventh of May, 1890, Ferguson having been sent to St. Louis by the inspector of agencies on that business, solicited the defendant and others to take out life insurance policies in said company. As a result of his solicitation, the defendant on that day made application in writing to said company for three policies of life insurance amounting in the aggregate to the sum of $ 100,000, for the cash premium on which, the notes sued on were executed, indorsed and delivered to the said Ferguson and by him delivered to the said Hill, who thereupon executed and delivered to the defendant a receipt therefor, to the effect that the same were to be applied to the payment of said premiums in case the application of defendant should be approved by said company, and policies issued thereon, and in case said company should not issue the policies on said application said notes to be returned to the defendant and the receipt given up. The application was forwarded to the office of the company at New York, and thereafter in due course policies were issued, as applied for.
Before they were received in St. Louis, however, Ferguson entered into negotiations with the plaintiff, who was a dealer in real estate, for the purchase of an undivided half of a tract of land in East St. Louis, in the course of which he signified his willingness to take the land provided the plaintiff would take in exchange the notes of the defendant, which he informed the plaintiff had been given for the premum upon a hundred thousand dollar policy that Mr. Fox had applied for, and that if Mr. Fox was found by the medical board to be an acceptable risk, and the policies were issued as applied for, he would sell him the notes at their face value, and take the real estate. A preliminary agreement to this effect was entered into about the twelfth of June, a deed of that date was signed by plaintiff and his wife which was acknowledged on the sixteenth of June. In the meantime the application of the defendant had been accepted by the insurance company, policies issued and forwarded to the St. Louis office of the company, and delivered to the defendant, his notes charged up to Ferguson as cash on his account with the company in that office, and delivered to Ferguson together with a written memorandum dated June 24, 1890, signed by said Hill as "manager" stating that the premium on $ 100,000 insurance issued to H. L. Fox had been paid to the company, and that the notes for $ 5,800 taken for the premium is the property of the said Ferguson. On the next day Ferguson informed the plaintiff that Fox had received his policies, and exhibited to him the statement of Hill and thereupon the trade between them was closed by the indorsement and delivery of...
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