Farmers' Nat. Bank of Oskaloosa v. Stanton, 33182.

• Decision Date: 03 May 1921
• Docket Number: No. 33182.,33182.
• Citation: 182 N.W. 647,191 Iowa 433
• Parties: FARMERS' NAT. BANK OF OSKALOOSA v. STANTON ET AL.
• Court: Iowa Supreme Court

191 Iowa 433

182 N.W. 647

FARMERS' NAT. BANK OF OSKALOOSA

v.STANTON ET AL.

No. 33182.

Supreme Court of Iowa.

May 3, 1921.

Appeal from District Court, Mahaska County; D. W. Hamilton, Judge.

Action at law to recover from defendants the amount alleged to be due to the plaintiff upon a promissory note. Trial to a jury. Verdict and judgment for plaintiff, and defendants appeal. Reversed.Thos. J. Bray and John E. Lake, both of Oskaloosa, for appellants.

David S. David, Burrell & Devitt, and McCoy & McCoy, all of Oskaloosa, for appellee.

WEAVER, J.

The action is brought upon a promissory note for $5,000 and interest, executed by the defendants and made payable to the order of the Lower System of Merchandising. It bears date of August 23, 1916, and is made payable six months thereafter. Embodied in the instrument is a clause as follows:

“And we hereby authorize the holder hereof to extend the payment of the same or any part thereof from time to time by reception of interest in advance or otherwise without impairing our several or joint liabilities.”

Alleging that it is the owner of this note and that the debt is wholly unpaid, the plaintiff bank asks judgment thereon.

Defendants admit the making of the note, but deny all liability thereon. By way of affirmative answer the defendants plead that the note is nonnegotiable, is wholly without consideration, and was obtained from them by fraud. They allege that the same was given for 375 shares of the capital stock in a corporation known as the Lower System of Merchandising; that such purchase was made and the note given at the solicitation and by the procurement of Robert Green, W. E. Lower, and G. J. Thomas, officers of said corporation, who falsely represented to the defendants the financial standing and condition of the corporation. They further allege that they believed and relied upon said representations, and in reliance thereon gave the note in suit; that in truth and in fact said corporation proved to be a mere sham, without capital or assets; and that the shares of stock were absolutely worthless.

Replying to this defense, the plaintiff alleges that it purchased the note in due course for a valuable consideration and without notice of any infirmities therein or of the existence of any defense thereto. It further alleges that defendants made the note knowing that it was to be negotiated to the plaintiff, and with such knowledge assured the plainiff that the note was all right, and by reason thereof defendants are now estopped to plead or prove the defenses set up in their answer.

The case was tried to a jury, which returned a verdict for plaintiff for the full amount of the note.

Notwithstanding the very extended briefs of counsel on either side, an examination of the record leads us to conclude that the result of this appeal must turn principally upon few propositions. So far as the case depends in any degree on the settlement of disputed facts, the verdict of the jury would seem to be final, and we shall not attempt their discussion. The debatable questions in this court are those arising upon exceptions taken to the court's charge to the jury.

I. Among other things, the court instructed as follows (paragraph 4):

“You are instructed that the note sued upon, which has been admitted in evidence as Exhibit A, is a nonnegotiable note, and that said note is subject to all the defense in the hands of the plaintiff bank that it would have been subject to had suit been brought thereon by the Lower System of Merchandising, the payee named in said note; therefore, if the defendants have established their defense of false and fraudulent representations by a preponderance of the evidence guided by these instructions, then your verdict should be for the defendants, unless you find that the plaintiff has established by a preponderance of the evidence its plea of estoppel, as explained hereafter in these instructions.”

Referring again to the plaintiff's plea of estoppel, the court, in paragraph 10, used the following language (the italics are ours):

“If, when you have considered all the evidence in this case and weighed the same in the light of these instructions, you do not find that there was fraud in the inception of the note and that it was wholly without consideration when given by the defendants to the Lower System of Merchandising, then your verdict must be for the plaintiff for the full amount of the note with interest thereon according to the terms of the note.

But, if you find from a preponderance of the evidence that the note in suit was procured by the Lower System of Merchandising from the defendants by and through fraudulent representations made by Robt. B. Green, W. E. Lower, G. J. Thomas, or some one of them, and that it was wholly without consideration, then your verdict should be for the defendants, unless you further find by a preponderance of the evidence that the plaintiff in good faith purchased the said note for a valuable consideration and that the defendants knew that said note was to be negotiated and consented thereto prior to the time that the plaintiff obtained said note, then you are instructed that, even though you find that said note was obtained from the defendants through fraud and false representations, as claimed by them, they would be estopped from setting up the claim of fraud as a defense to said note in the hands of the plaintiff.”

Still further upon the same topic the court again charged (paragraph 19):

“You are instructed that, if you find that the defendants at the time they executed the note in suit knew it was to be transferred to the plaintiff, and if they had reason to believe that the plaintiff was about to purchase said note for a valuable consideration, they must suffer the loss, if any they have sustained thereby,

because it is a maxim of the law that when one or two persons must be made to suffer from fraud or misconduct of another that the one who placed it within the power of such persons to perpetrate the fraud or do the wrong must bear the loss; and the defendants, believing or having reason to believe that their signing of said note would cause the plaintiff to part with a valuable consideration for the same, could not remain silent and now be heard to say that said note was obtained by fraud and without consideration.”

To this was added paragraph 20, as follows:

“You are instructed that, if you find from the evidence that at the time of the execution of said note by the defendants that they had knowledge of the fact that said note was to be sold to the plaintiff bank and acquiesced therein, and that at the time of the transfer of said note to the plaintiff bank the cashier of said plaintiff bank was advised that the defendants had notice of the fact that said note was to be sold to said bank, and that the bank, in purchasing said note, relied upon the assurance given to said bank that the defendants acquiesced in the bank purchasing the said note, then and in that event, if you so find from a preponderance of the evidence, the defendants would be estopped from asserting any defense to said note upon the ground of fraud or misrepresentations, and, if you so find, your verdict must be for the plaintiff in the sum of the amount of said note together...