First Nat. Bank of Pocatello v. Pond

Decision Date06 November 1924
Citation39 Idaho 770,230 P. 344
PartiesTHE FIRST NATIONAL BANK OF POCATELLO, a Corporation, Respondent, v. RUFUS R. POND, Appellant
CourtIdaho Supreme Court

NEGOTIABLE INSTRUMENT-FRAUD-HOLDER IN DUE COURSE-BURDEN OF PROOF-SUFFICIENCY OF PROOF-DIRECTED VERDICT.

1. In an action on a negotiable promissory note, when defendant pleads and proves that the note was procured by fraud, the burden is on plaintiff to show that he took without notice of the fraud.

2. Where the only issue is whether the holder of a note took it without notice of fraud practiced in its inception, a verdict may be directed for the holder even though the only testimony is his own and his agent's, if it is unimpeached and uncontradicted, and no contrary inference can be drawn from the facts and circumstances shown by all the evidence.

3. Evidence examined and held to justify direction of verdict.

APPEAL from the District Court of the Fifth Judicial District, for Bannock County. Hon. Robert M. Terrell, Judge.

Action on promissory note. Judgment for plaintiff. Affirmed.

Judgment affirmed, with costs to respondent.

James &amp Ryan and Frank Croner, for Appellant.

The burden of establishing that a person is a holder in due course is upon the person making such claim, and in such a case the jury have the right to ignore the testimony of the party claiming to be a holder in due course, even though such testimony be not contradicted. In other words, even though the testimony of the holder of the note that he is a holder in due course be not contradicted, nevertheless the question must go to the jury. (Park v. Brandt, 20 Idaho 660 119 P. 877; First Nat. Bank v. Hall, 31 Idaho 167 169 P. 936; Winter v. Nobs, 19 Idaho 18, Ann. Cas. 1912C, 302, 112 P. 525.)

Where a suit is brought on a note by an indorsee thereof, which indorsee alleges that it is a holder in due course, and it appears that the note was fraudulent in its inception, the jury may take into consideration all the circumstances surrounding the transaction for the purpose of determining whether the purchase was made in good faith, whether such circumstances were sufficient to give notice to the indorsee, or lead an ordinarily prudent man to make inquiry as to whether the note possessed any infirmity. (Shellenberger v. Nourse, 20 Idaho 323, 118 P. 508; Park v. Johnson, 20 Idaho 548, 119 P. 52; Park v. Brandt, supra; 7 Cyc. 956 (8).)

In proving that a given person has knowledge of a given fact, it is competent to prove the notoriety of that fact in the neighborhood in which such person resides. (Merrill v. Hole, 85 Iowa 66, 52 N.W. 4; Jones v. Hatchett, 14 Ala. 743; Ward v. Herndon, 5 Port. (Ala.) 382; Brooks v. Thomas, 8 Md. 367; Hahn v. Penney, 62 Minn. 116, 63 N.W. 843; State v. Flint, 60 Vt. 304, 14 A. 178.)

Where the good faith of a party who claims to be the holder in due course of a negotiable instrument is an issue upon which he has the burden of proof, the credibility of his testimony in support of that issue, although uncontradicted, is for the jury. (First Nat. Bank v. Hall, 31 Idaho 167, 169 P. 936; Wright v. Spencer, ante, p. 60, 226 P. 173.)

H. J. Swanson, for Respondent.

The court properly directed a verdict for respondent because: (a) Fraud is not pleaded nor proved in the required manner as laid down by our supreme court. (Pocatello Security Trust Co. v. Henry, 35 Idaho 321, 206 P. 175.) (b) The respondent is a holder in due course. (1 Daniel, Neg. Inst., 6th ed., sec. 812; C. S., secs. 5919, 5923; Winter v. Nobs, 19 Idaho 18, Ann. Cas. 1912C, 302, 112 P. 525; Park v. Johnson, 20 Idaho 548, 119 P. 52; Park v. Brandt, 20 Idaho 660, 119 P. 877; Vaughn v. Johnson, 20 Idaho 669, 19 P. 879, 37 L. R. A., N. S., 816.)

Granting that there was fraud in the inception of the note, yet the evidence shows so clearly that the respondent bank is a holder in due course that no fair-minded person could draw any other inference therefrom, and under such a situation the court is always warranted in directing a verdict in favor of the holder of the note. (Southwest Nat. Bank of Kansas City v. Baker, 23 Idaho 428, 130 P. 799; Burdell v. Nereson, 28 Idaho 129, 152 P. 576; First State Bank of Oklahoma City v. Tobin, 39 Okla. 96, 134 P. 395; Fisk Rubber Co. of New York v. Pinkey, 100 Wash. 220, 170 P. 581; Larsen v. Betcher, 114 Wash. 247, 195 P. 27; Bank of Jordan Valley v. Duncan, 105 Ore. 105, 209 P. 149; Angus v. Downs, 85 Wash. 75, 147 P. 630, L. R. A. 1915E, 351; Showalter v. Webb, 42 Okla. 297, 141 P. 439; Robertson v. United States Livestock Co., 164 Iowa 230, 145 N.W. 535; Delaney v. Brownwood, 73 Colo. 83, 213 P. 578; Piper v. Neylon, 88 Neb. 253, 129 N.W. 277; Citizens' Trust & Sav. Bank v. Stackhouse, 91 S.C. 455, 74 S.E. 977; Downs v. Horton, 287 Mo. 414, 230 S.W. 103; Bank of Hale v. Linneman (Mo. App.), 235 S.W. 178; Central Savings Bank & Trust Co. v. Wachman, 221 Mich. 512, 191 N.W. 5; City National Bank of Lincoln v. Jones, 109 Neb. 724, 192 N.W. 509; Edelen v. First Nat. Bank of Hagerstown, 139 Md. 413, 115 A. 599; Howard Nat. Bank v. Wilson (Vt.)), 120 A. 889; Goedhard v. Folstad (Minn.), 195 N.W. 281; Arnd v. Jones (Iowa), 197 N.W. 45.)

In determining whether or not a plaintiff is a holder in due course neither the court nor the jury can disregard the uncontradicted testimony of the plaintiff, or of his witnesses, unless the facts and circumstances themselves impeach or throw some doubt upon the credibility of said testimony. (Showalter v. Webb, supra; Robertson v. United States Livestock Co., supra; Delaney v. Brownwood, supra; Piper v. Neylon, supra; City Nat. Bank of Lincoln v. Jones, supra.)

The court did not err in sustaining objections to the questions asked by appellants' counsel as specified in assignments of error Nos. 4, 5, 6, 7 and 8. (8 C. J., "Bills and Notes," sec. 726 (g), p. 517.)

MCCARTHY, C. J. William A. Lee and Wm. E. Lee, JJ., concur. Dunn, J., dissents.

OPINION

MCCARTHY, C. J.

This is an action upon a promissory note for $ 1,125, executed by appellant to Hibbard Bros., Inc., and transferred by that corporation to respondent by way of security. The appeal is taken from a judgment in favor of respondent entered upon a directed verdict. The principal specifications of error, and the only ones which we will expressly notice are as follows: (1) Directing a verdict in respondent's favor, (2) rejecting appellant's offer to prove that the corporate charter of Hibbard Bros., Inc., was duly forfeited by the state on December 1, 1919.

At the conclusion of the evidence the court directed a verdict for respondent. Appellant had set up fraud practiced on him by Hibbard Bros., Inc., in the inception of the note. Respondent contends that the court properly directed a verdict for it because fraud is not pleaded nor proved. We conclude that a case of fraud was pleaded and sufficient evidence was introduced to make a case for the jury, if that had been the only issue. (Pocatello Security Trust Co. v. Henry, 35 Idaho 321, 206 P. 175.)

However, pleading and proving that appellant was defrauded by Hibbard Bros., Inc., in the inception of the note was note decisive of the case. The note being negotiable, fraud practiced in its inception by Hibbard Bros., Inc., would not defeat respondent's right of recovery if it were a holder in due course; that is, if it took the note in good faith and for value, and without notice of any infirmity in the instrument or defeat in the title of the person negotiating it. (C. S., sec. 5919.)

"In an action on a negotiable promissory note when defendant pleads and proves that the note was procured by fraud, the plaintiff must show affirmatively that he took the note as a holder in due course."

"In such case the burden is on the plaintiff to show that he took without notice of the fraud." (Wright v. Spencer, ante, p. 60, 39 Idaho 60, 226 P. 173.) (First Nat. Bank v. Hall, 31 Idaho 167, 169 P. 936; C. S., sec. 5926.) In the present case respondent endeavored to sustain this burden of proof by testimony of its president, vice-president, cashier, assistant cashier, all the members of its loan committee, and the only one of its directors who was acquainted with the maker of the note, all of whom testified that they had no knowledge of any fraud practiced upon respondent in its inception. Appellant introduced testimony of one witness to the effect that about the time respondent took the note the general reputation for honesty and integrity of Hibbard Bros., Inc., and of its officers, J. A. Hibbard and W. E. Hibbard, was not very good in the vicinity of Pocatello where they were doing business and where respondent had its place of business.

Appellant contends that the question whether respondent took with knowledge of the fraud was for the jury because all of the witnesses who testified to a lack of such knowledge were its officers or employees and therefore interested. (First Nat. Bank v. Hall, supra.) In that case the court used the following language:

"In Massachusetts and North Carolina, in this class of cases, the courts have held that when the burden has been shifted to the plaintiff to show that he is a holder of negotiable paper in due course, the determination of the issue is always for the jury. . . .

"The rule apparently followed in the cases of Southwest National Bank v. Baker and Burdell v Nereson, supra, and announced in the majority opinion of the court in Southwest National Bank v. Lindsley supra, to the effect that the question of whether or not a transferee of a promissory note is a bona fide purchaser in due course, is one for the jury, save in those instances where the testimony is not only consistent with the good faith of such purchaser, but is such that no fair-minded person could draw any other inference...

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