Downs v. Horton

• Court: Missouri Supreme Court
• Writing for the Court: Ragland
• Citation: Downs v. Horton, 287 Mo. 414, 230 S.W. 103 (Mo. 1921)
• Decision Date: 09 April 1921
• Docket Number: No. 21509.,21509.
• Parties: DOWNS v. HORTON et al.

230 S.W. 103

287 Mo. 414

DOWNS v. HORTON et al.

No. 21509.

Supreme Court of Missouri, Division No. 1.

April 9, 1921.

Appeal from Circuit Court, Greene County; Guy D. Kirby, Judge.

Action by Charles Downs against J. E. Horton and others. Judgment for defendants, and plaintiff appealed to the Springfield Court of Appeals, which reversed and remanded the cause, with directions, and Certified the case to the Supreme Court on the ground of conflict in decisions (209 S. W. 595). Judgment of trial court reversed, and cause remanded.

Lamar, Lamar & Lamar, of Houston, for appellant.

Hiett & Scott, of Houston, and Roscoe 0. Patterson, of Springfield, for respondents.

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 (209 S. W. 595), 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 & Co. 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, Mo., 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 the 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, R. S. 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, R. S. 1909.

"The plaintiff's evidence is to this effect: The note is dated July 18, 1911, due October 1, 1915, at 7 per cent. interest, payable annually. Plaintiff purchased this note and another from T. P. Tuck June 26, 1912. Plaintiff was then a hanker 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 First 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. The 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. M. 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 indorse them, as I am confident they are all C. 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 $1,626.88, and paid therefor $1,586.68. 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 indorse any of the paper sold by him. There was a credit on this $800 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 indorsed without recourse, when Tuck before had written him that he would indorse them; took them indorsed 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 indorsed by the only man he believed to be solvent without recourse.'

"The evidence has been set out at some length to see if there is any substantial evidence justifying a finding on the evidence that plaintiff had actual knowledge of the fraud in procuring the note or had knowledge of such facts that his action in taking the note amounted to bad faith, as that is the only question in the case. This question, we think, is wholly apart from any suggestion that plaintiff acted with poor business judgment in buying a note on the representation made to him and with no actual knowledge as to the financial worth or integrity of the makers. Evidence which raises a doubt as to a note not being a safe investment because of the risk taken as to the solvency of the makers must not be taken as equivalent to showing knowledge of fraud in the procurement of the note. The price paid is so nearly equal to the full value of the note that no point is made as to that indicating fraud, but, on the contrary, it is a strong argument of the purchaser's good faith. It is seldom that a man who is anxious to rid himself of a note because of his fraud in procuring it can sell it to another, who knows such fact, for full value.

"The fact that plaintiff took the note indorsed without recourse by the payee is not a badge of guilty knowledge of the fraud. To hold that a transfer in that manner casts suspicion on the title of...