Downs v. Horton

• Decision Date: 09 April 1921
• Citation: Downs v. Horton, 287 Mo. 414, 230 S.W. 103 (Mo. 1921)
• Parties: CHARLES DOWNS, Appellant, v. J. E. HORTON et al
• Court: Missouri Supreme Court

230 S.W. 103

287 Mo. 414

CHARLES DOWNS, Appellant, v. J. E. HORTON et al

Supreme Court of Missouri, First Division

April 9, 1921

Appeal from Greene Circuit Court.-- Hon. Guy D. Kirby, Judge.

Reversed.

Lamar Lamar & Lamar for appellant.

(1) Under the law merchant, which has become a part of the common law, when the defendant makes proof which establishes prima-facie that he is a holder in due course, the burden of proof then shifts back to the defendants to show actual knowledge on the part of the defendant of facts which would destroy his right to recover, and in the absence of such proof by defendants, plaintiff is entitled to a peremptory instruction.Daniel on Negotiable Instruments(2 Ed.), sec 819;3 R. C. L. sec. 245, p. 1041;8 C. J. sec. 1295, pp 988-989;Johnson v. McMurry,72 Mo. 282;Henry v. Sneed,99 Mo. 422;Wright Inv. Co. v. Fidelity Co.,178 Mo. 80;Hamilton v. Marks,63 Mo. 180.(2) The purpose of the Negotiable Instrument Law was not to clog and hamper commercial paper, but to facilitate its transfer, and codify and make uniform the established rules of law, and this section did not change any rule as to proof, or the burden of proof, or the burden of evidence.Brannan on Negotiable Instrument Law (2 Ed.), p. 69;Selover on Negotiable Instrument Law (2 Ed.), p. 1;Ogden, Negotiable Instrument Law, pp. 253, 256;Crawford on Negotiable Instrument Law, p. 5;Bunker on Negotiable Instrument Law, pp. 1, 5;8 C. J., sec. 1291, p. 983;German Am. Bank v. Lewis,63 So. 743;Fisk Rubber Co. v. Parker,170 P. 581;Sisk v. Meager,73 A. 785;Campbell v. National Bank,126 S.W. 114;Metropolitan Co. v. Folden,180 S.W. 985;German Am. Bank v. Lewis, 66 So. 509.

Hiett & Scott and Roscoe C. Patterson for respondents.

RAGLAND, C. Brown and Small, CC., concur.

OPINION

RAGLAND, C.

This case comes to us upon certification by the Springfield Court of Appeals.The opinion written by the presiding judge of that court, in which both of his associates concurred, is as follows: "This is a suit on a promissory note given by defendants to T. P. Tuck & Company in payment of a horse.The plaintiff sues as a purchaser for value of said note and, having lost in the trial court, appeals the case here claiming to be an innocent purchaser for value.

"The horse in question was purchased by defendants who were farmers living near Mountain Grove, Missouri, for breeding purposes, each defendant purchasing one or more shares in the horse but giving a joint note.The pleadings in the case are so framed that defendants charged in their answer and plaintiff admitted by reply that this note was procured by fraud, the fraud being that the agent of Tuck & Co. gave two or three prominent farmers or stockmen without consideration an interest or share in the horse for the purpose of representing, as he did represent to defendants, that such persons were purchasers of such shares for cash, thereby inducing these defendants to believe that such prominent farmers and stockmen were joint purchasers of the horse with them.The nature of the fraud perpetrated and admitted will be fully seen by reference to the case of Ozark Motor Co. v. Horton,196 S.W. 395.

"The sole issue is whether the plaintiff is a holder in due course as defined by the Negotiable Instrument Law, Section 10022,Revised Statutes 1909, in which case the defense of fraud is not available.The title of Tuck & Co. who negotiated this note to plaintiff being admitted to have been defective, the burden was cast on and assumed by plaintiff to prove that he acquired the title as holder in due course as provided by Section 10029, Revised Statutes 1909.

"The plaintiff's evidence is to this effect: The note is dated July 18, 1911, due October 1, 1915, at seven per cent interest, payable annually.Plaintiff purchased this note and another from T. P. Tuck June 26, 1912.Plaintiff was then a banker at Carl Junction, Jasper County, where he had lived many years and had previously been in the mercantile business.He became acquainted in a business way with T. P Tuck in 1911.Tuck then and thereafter lived in Springfield, Mo., and was engaged in selling imported stallions.Tuck desired to have plaintiff or his bank handle some of his commercial paper and at that time offered to sell plaintiff a note on some parties in Arkansas.Plaintiff wrote to the Bank of Greene County at Springfield, getting the name of this bank from a bank directory, as to Tuck's financial and business standing.This bank replied that Tuck was not one of its customers and it had no 'line on him,' and referred plaintiff to the State Savings Bank of Springfield.Replying to plaintiff's inquiry the cashier of this bank said Tuck was worth from $ 6,000 to $ 10,000 and 'concerning the financial responsibility, etc., of Mr. T. P. Tuck of this city, beg to say that I have had considerable business dealings with Mr. Tuck in the last seven years, and I have always found him to be absolutely reliable and honest in all dealings I have had with him.'

"This was in August, 1911, and after further inquiry plaintiff bought the Arkansas note which was later paid.In January, 1912, Tuck offered to sell plaintiff or his bank the present note.The plaintiff then wrote a letter of inquiry to the Frst National Bank of Mountain Grove as to the financial responsibility, integrity, etc., of the makers of this note, these defendants.This bank replied by its cashier not unfavorably but somewhat indefinitely.Not being altogether satisfied plaintiff wrote a similar inquiry to E. H. Farnsworth, an attorney at Mountain Grove, who replied giving the property and worth of each of the defendants in detail, the purport being that two of the makers are "all O. K." being worth $ 3,000 to $ 5,000 above exemptions, others worth less but "considered good,""honorable and industrious," etc.Another letter of inquiry was sent to and answered by J. M. Hubbard, president of the First National Bank at Mountain Grove, in which he was asked in confidence as to the financial standing of each maker of the note and his "candid opinion of the loan as an investment."His answer is that he would have loaned each maker his proportional part of the note and "they are all good farmers and part of them are patrons of this bank.Now I consider each separately good for his proportionate part, but I don't consider either one single good for the whole amount, for they are not able or worth the amount, but each is good for his proportionate part at this time and I hope the future will prove a verification of these indications.'

"This note was then three months old; that plaintiff stated that he understood it was given in part payment of a horse and no intimation is made by any of these persons that anything is wrong with the note or that any party thereto was thinking of contesting it.It is not shown when the defendants discovered the fraud of which they complain but neither the bank officers nor Mr. Farnsworth, living in the same neighborhood, indicated that they had then heard of anything wrong.It is true that J. H. Hubbard is one of the parties who had been given a share in the horse (plaintiff not knowing this however) and he might be friendly to Tuck but not so of the others.

"The plaintiff did not buy the note at this time and in May, 1912, Tuck again offered him this note and a Texas note in a letter saying: 'As to the Mountain Grove notes I would endorse them as I am confident they are all O. K.The horse is doing extra good and they are extremely well satisfied with him and that is the keynote to horse paper.That alone makes it good when everything else fails.The Texas paper is strong enough that collection can be forced on it.I would consider it quite an accommodation and a personal favor if you could place these two sets of notes for me.'

"The plaintiff then bought the notes mentioned, the face value of which aggregated $ 1626.68, and paid therefor $ 1586.68.His profit was $ 40 and the accrued interest not then due.There is no question as to plaintiff having paid this amount for these two notes as this was proven not only by plaintiff but by documentary evidence.The Texas note was later paid without trouble.The notes in question were assigned to plaintiff'without recourse' as Tuck stated that he did not and would not endorse any of the paper sold by him.There was a credit on this eight hundred dollar note of $ 266 made on the same date as the date of the note of which plaintiff knew when it was first offered to him, but nothing was said as to this credit and plaintiff made no inquiry as there was nothing unusual.The plaintiff testified positively that when he bought the note he had no knowledge or information or even suspicion of any fraud in its procurement.

"The defendants offered no evidence, except some of the defendants testified that they had never paid anything on the note.The defendants state the facts most favorably to them in these words: 'The plaintiff purchased the notes, amounting to one-third of all he had, on statements from men that knew the makers of the notes and which statements the plaintiff himself in his letter to J. M. Hubbard said would lead him not to consider the notes and took them from Tuck endorsed without recourse, when Tuck before had written him that he would endorse them; took them endorsed without recourse by a man that he believed to be solvent; took them on men that lived one hundred and seventy miles from him and men that he had not heard of prior to the purchase of notes; did not know whether they were farmers or not, whether they were worth a thousand dollars or nothing, and whether they existed or not and endorsed by the only man he believed to be solvent without recourse.'

"The evidence has...