First Nat. Bank of Armstrong v. Smith
| Decision Date | 12 May 1925 |
| Docket Number | No. 36404.,36404. |
| Citation | 199 Iowa 1277,203 N.W. 802 |
| Parties | FIRST NAT. BANK OF ARMSTRONG v. SMITH. |
| Court | Iowa Supreme Court |
OPINION TEXT STARTS HERE
Appeal from District Court, Kossuth County; F. C. Davidson, Judge.
Action at law against the maker and indorser of two promissory notes. From a judgment upon a verdict for plaintiff, the maker of the notes appeals. Reversed and remanded.Healy & Breen and Hanson & Schaupp, all of Fort Dodge, for appellant.
Morse & Lee, of Estherville, and Sullivan, McMahon & Linnan, of Algona, for appellee.
The action is upon two promissory notes, one for $4,000, and one for $1,500, signed by the appellant, Elmer Smith, payable to the appellee, Ernest Smith, and indorsed by the payee. The notes are renewals of earlier like notes so indorsed. The appellee bank claimed to be a holder of the notes in due course. It is undisputed that the original notes were, at different times, executed by the appellant to his brother Ernest as payee at the request of the latter, who indorsed and delivered them to the bank, and received credit for their face upon his open checking account, and that the renewals in suit were executed and indorsed in the same manner and turned over to the bank.
The allegations of the answer as amended were to the effect that, at the times the original notes were executed, Ernest Smith represented to appellant that he was indebted upon a mortgage in the sum of $15,000, and to the appellee bank in the sum of approximately $11,000 and had substantially no other indebtedness; that the officers of the bank had advised him that his indebtedness to the bank was in excess of the amount the bank was permitted to loan to one person, and had requested him to procure the appellant to sign the notes payable to Ernest, who would indorse them to the bank, and by that means his indebtedness to the bank would appear to be reduced, and would not be questioned by the national bank examiner, and that the notes would be merely for the accommodation of the bank, and appellant would incur no liability to the bank, and that the execution of the renewals in suit was induced by the same representations; that the representations were made as of the personal knowledge of Ernest, and for the benefit of the bank, and were false, and that appellant relied upon them. It was further alleged that the bank had full knowledge of such representations and their falsity, and that its officers had conspired with Ernest to so procure the notes, and that the bank intended to hold appellant thereon; that the bank was not a holder in due course of the notes; and that they were without consideration, and were mere accommodation notes.
The defenses so pleaded may be stated as: (1) That the notes were without consideration, and were executed and taken by the bank for the accommodation of the bank; (2) fraud on the part of the bank, practiced by Ernest Smith as its agent or through a conspiracy between the bank's officers and Ernest, in procuring the notes; (3) that the notes were procured by fraud on the part of Ernest, and that the bank was not a holder in due course. The question of the sufficiency of the evidence to establish any of these propositions is not before us.
There was evidence tending to show that the cashier of the bank directed Ernest to procure the notes for the accommodation of the bank. The testimony also tended to show that representations, substantially as pleaded, were made by Ernest to appellant. It might have been found by the jury, therefore, that the representations were expressly authorized to be so made by the bank, or that, if not so authorized, yet Ernest was the agent of the bank to procure the notes and made the representations without the knowledge or authority of the bank. Or, on the other hand, it might have been found that Ernest did not represent the bank and acted for himself in procuring the notes, and that the bank was a holder in due course.
The errors assigned, with one exception, relate to the instructions given by the court to the jury upon these issues, and to the refusal of the court to give certain instructions requested by appellant.
[1][2] I. Error is assigned on the giving of an instruction on the claim of the appellant that the notes were for the accommodation of the bank and on the refusal of the court to give a requested instruction on the same subject. The requested instruction was a correct statement of the law that a party for whose accommodation a note is given cannot recover thereon against the maker, and it might well have been given. First National Bank v. Felt, 100 Iowa, 680, 69 N. W. 1057;Woodbury v. Glick, 151 Iowa, 661, 132 N. W. 67;Smouse v. Bank (Iowa) 199 N. W. 350. But the instruction given by the court is not open to the criticism made of it that it assumed the notes were for the accommodation of Ernest, the payee. It correctly stated the appellant's claim that the notes were for the accommodation of the bank, and instructed that, if this defense was established, the verdict should be for the appellant. Nor is the instruction open to the further criticism made that it imposed too great a burden on appellant. Aside from such fraud of Ernest alone as would not be a defense if the bank was a holder in due course, two distinct defenses were presented: (1) That the notes were for the accommodation of the bank; and (2) fraud of the bank, practiced by Ernest as its agent or representative. It was with the defense that the notes were for the accommodation of the bank, not the defense of fraud, that the instruction in question dealt; and it correctly required, under the testimony, a finding of an agreement on the part of the bank that the notes were for its accommodation, communicated to appellant through Ernest as its representative, before that defense was established. The notes were not payable to the bank. While the instruction might have been couched in plainer and more concise language, it sufficiently covered the proposition presented by the one asked. We find no prejudicial error here.
[3][4] II. An instruction is criticized because it required a finding, in order to sustain the defense of fraud, that the alleged representations as to Ernest Smith's indebtedness and that appellant would incur no liability by signing the notes were known to Ernest to be false. The precise point made is that appellant should only have been required to show that the representations were made as of a fact within his personal knowledge and with intent that they be relied on as true and that they were in fact false. It is well settled that scienter may be shown (1) by actual knowledge of the falsity of the representations; (2) that the statement was made as of the personal knowledge of the party, or in such unqualified and positive terms as to imply personal knowledge; or (3) that the circumstances were such as to make it his duty to know as to their truth or falsity. Davis v. Land Co., 162 Iowa, 269, 143 N. W. 1073, 49 L. R....
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