Federal Intermediate Credit Bank v. Carolina Petroleum Co.

• Decision Date: 12 February 1930
• Docket Number: 12835.
• Citation: 151 S.E. 738,154 S.C. 435
• Parties: FEDERAL INTERMEDIATE CREDIT BANK v. CAROLINA PETROLEUM CO. et al.
• Court: South Carolina Supreme Court

151 S.E. 738

154 S.C. 435

FEDERAL INTERMEDIATE CREDIT BANK v. CAROLINA PETROLEUM CO. et al.

No. 12835.

Supreme Court of South Carolina

February 12, 1930

Appeal from Common Pleas Circuit Court of Beaufort County; J. B Heyward, Special Judge.

Action by the Federal Intermediate Credit Bank against the Carolina Petroleum Company and another. The circuit court ordered a nonsuit, and plaintiff appeals. Affirmed.

Randolph Murdaugh, of Hampton, and D. W. Robinson, of Columbia, for appellants.

Howell & Fishburne, of Walterboro, for respondents.

STABLER J.

Action on a note. The complaint alleges that the defendant, Carolina Petroleum Company, executed and delivered to the Beaufort Bank its promissory note dated March 3, 1926, payable to the order of that bank, for 1,200, due 60 days after date thereof, with interest after maturity at the rate of 8 per cent. per annum, 10 per cent. attorney's fees, and the costs of collection; that the defendant Christensen indorsed the note before its delivery; and that the plaintiff "is now the owner and holder of said note, having heretofore acquired same for value."

The defendants, by their answer, admit the execution by the Carolina Petroleum Company, the indorsement by Christensen and the delivery to the Beaufort Bank of a note for $1,200 dated March 3, 1926, but allege that they have no exact knowledge and recollection of the terms, provisions , and conditions thereof, the note not being in their possession and therefore deny the allegations of the complaint as to execution and delivery, and specifically deny that the plaintiff is the owner and holder of the note.

When the case was called for trial, plaintiff's counsel produced and offered in evidence a note, conforming to the allegations of the complaint, signed by the defendant company, and indorsed by the defendant Christensen, but not indorsed by the payee, the Beaufort Bank. Defendants' counsel objected to the introduction of the note in evidence on the ground that there had been no proof of its execution or indorsement by the defendants, or of its assignment or delivery by the Beaufort Bank to the plaintiff, and no testimony that the plaintiff was the owner and holder of the note by assignment or otherwise. After argument by counsel, the trial judge excluded the note. On inquiry by the court, plaintiff's counsel stated that he had no further testimony, whereupon a nonsuit was ordered.

Plaintiff appeals upon exceptions imputing error to the trial court in refusing to admit the note in evidence and in granting the nonsuit.

Appellant's position is that it is the owner and holder of the note in question, that its possession thereof is prima facie evidence of its ownership, and that, by producing and offering in evidence the note, it made out a prima facie case, subject, of course, to rebuttal by the defendants. In support of this position it cites certain provisions of the Negotiable Instruments Act (sections 3678, 3702, and 3710 of the 1922 Code), as follows:

3678: "Where the holder has a lien on the instrument, arising either from contract or by implication of law, he is deemed a holder for value to the extent of his lien."

3702: "The holder of a negotiable instrument may sue thereon in his own name, and payment to him in due course discharges the instrument ."

3710: "Every holder is deemed prima facie to be a holder in due course; but when it is shown that the title of any person who has negotiated the instrument was defective, the burden is on the holder to prove that he or some person under whom he claims acquired the title as a holder in due course. But the last mentioned rule does not apply in favor of a party who became bound on the instrument prior to the acquisition of such defective title."

The trouble with appellant's position, in so far as it depends upon the Negotiable Instruments Act, is that it does not take into account the following pertinent definitions found in that law (section 3842):

"'Holder' means the payee or endorsee of a bill or note, who is in possession of it, or the bearer thereof."

"'Bearer' means the person in possession of a bill or note which is payable to bearer."

"'Endorsement' means an endorsement completed by delivery."

The appellant, not being the indorsee of the note sued on in this case, obviously is not the "holder" thereof, and cannot claim the rights accorded to a "holder" under the Negotiable Instruments Act. It is a mere possessor of the note, and its rights must be determined accordingly.

Coming then to this question, appellant's contention apparently is that, in an action by one in possession of a promissory note against the maker thereof, execution not being denied, possession of the note constitutes prima facie evidence of ownership, and the note is admissible in evidence, when produced by the plaintiff, to show such ownership. The respondents, while admitting that this is undoubtedly the rule where the note is payable to order of the payee and indorsed in blank by him--and, we interpolate, where the note is payable to bearer or the plaintiff is the payee or special indorsee--contend that, where a note is payable to order of the payee, but not indorsed by him, mere possession by one other than the payee is not evidence of ownership in the possessor, and that the note is not admissible in evidence without testimony tending to show such ownership.

We agree with appellant that the answer in this case, in effect, admits the execution and indorsement of the note by the defendants (Guaranty Trust Co. v. Kibler, 105 S.C. 513, 90 S.E. 159); but it does not necessarily follow that the note was admissible as evidence of ownership. As we see the matter, the question of admissibility here is dependent upon the determination of the question as to presumption of ownership from possession of the note, for we can see no reason for admitting a note for the purpose of showing possession as evidence of ownership, if in fact the possession constitutes no such evidence.

We find nothing in the Negotiable Instruments Act creating a presumption of ownership in the possessor of a note payable to order but not indorsed by the payee. The cases on this point are not in harmony, but reason, as perhaps the weight of authority, supports the view that mere possession by a stranger of a note payable to order of the payee (or special indorsee), but not indorsed by him, is no evidence of ownership, but the one in possession must prove his ownership by evidence dehors the note. As the effect of an indorsement in blank by the payee of a note payable to his order is to make the title transferable by delivery of the note, so the absence of such indorsement on such a note, nothing further appearing, indicates that ownership is still in the payee. And in fact it has been said that the possession of a note payable to order, but not indorsed by the payee, not only is no evidence whatever of title, but rather is a suspicious circumstance which needs full explanation from the one in possession.

In School District v. Reeve, 56 Ark. 68, 19 S.W. 106 107, the court said: "Where indorsements show title in the plaintiffs, they are sufficient proof of that fact; but where there is no indorsement, or, there being one, it passes title to another than the plaintiff, it becomes necessary to establish ownership by proof dehors the paper. The record in this case contains no evidence of title in the plaintiff, except such as may be implied from his possession of warrants that upon their face show title in another. Is the fact of possession sufficient proof of plaintiff's title to overcome the proof contained upon the face of the warrants? Where paper is payable to bearer, or has been indorsed in blank by the payee,...