First National Bank of St. Thomas v. Flath
| Decision Date | 23 May 1901 |
| Citation | 86 N.W. 867,10 N.D. 281 |
| Court | North Dakota Supreme Court |
Appeal fro District Court, Pembina County; Sauter, J.
Action by the First National Bank of St. Thomas against William Flath and others. Judgment for plaintiff. Defendants appeal.
Affirmed.
Templeton & Rex, for appellants.
Bosard & Bosard, for respondent.
Plaintiff seeks in this action to foreclose a mortgage upon certain real estate situated in Pembina county. The mortgage was executed and delivered by William Flath, one of the defendants herein, to William McBride, and was assigned by the latter to the plaintiff. The interest of the other defendants, Anton Flath and John Birkholz, in said real estate was acquired subsequent to the execution and recording of the assignment of the mortgage to plaintiff, and is not claimed to be in any way superior thereto. The judgment of the trial court was in all things favorable to plaintiff. Defendants appeal from the judgment, and demand a review of the entire case in this court.
The mortgage in suit was executed on June 2, 1898, to secure a promissory note for $ 1,200, of even date therewith, payable to the said William McBride, which note by its terms bore 12 per cent. interest from the date of its execution, and became due on November 1, 1898. On July 11, 1898, McBride sold and indorsed said note to plaintiff, and on the same day executed and delivered to plaintiff a written assignment of the mortgage securing the same, which is the mortgage involved in the action. Both the mortgage and the assignment were properly recorded at the date of their execution. There is no pretense that the note has been paid to the bank, but it is claimed by the defendants, and the evidence fully sustains them, that as to McBride they have a defense to it. It appears that McBride was surety for Flath on a number of notes which the latter owed to Noyes Bros. & Cutler amounting in all to $ 1,176.80. The note and mortgage in question were given to McBride by Flath to indemnify him against liability arising out of such suretyship, and for no other purpose whatever. A separate written instrument was executed and delivered by McBride to Flath contemporaneously with the execution of the note and mortgage, which stated such purpose, and contained the further agreement that the mortgage was to be satisfied when the Noyes Bros. & Cutler notes were paid. It is undisputed that these notes have been paid, and that the payments were all made by Flath, except as to the sum of $ 50 payment. This is very properly conceded by counsel for plaintiff. But it is claimed that the plaintiff is an indorsee in due course, and that it holds the note in question entirely freed from the defense interposed. This presents the first question for consideration, namely, is the plaintiff an indorsee in due course? If so, the defense is not available. Section 4884, Rev. Codes, was in force when the note was executed. It reads as follows "An indorsee in due course is one who in good faith in the ordinary course of business and for value before its apparent maturity or presumptive dishonor and without knowledge of its actual dishonor acquires a negotiable instrument duly endorsed to him, or endorsed generally, or payable to the bearer, or one other than the payee, who acquires such an instrument of such an indorsee thereof." Section 4885, Rev. Codes, being the section succeeding that just quoted, provides that such an indorsee acquires absolute title. The note in question is negotiable in form. It was properly indorsed, and was transferred to plaintiff before it was due. Under the general rule the burden would rest upon the defendants to show that plaintiff is not a good-faith purchaser, but it is contended that, under the facts of this case, the burden is shifted to plaintiff to establish its good faith. There is no doubt that, when fraud in the inception of a note is shown, the holder who claims to be a good-faith purchaser has the burden of showing it; that is, the burden shifts. This court has so held in a number of cases. See Vickery v. Burton, 6 N.D. 245, 69 N.W. 193; Knowlton v. Schultz, 6 N.D. 417, 71 N.W. 550; Mooney v. Williams, 9 N.D. 329, 83 N.W. 237. We find it unnecessary to decide whether the facts shown in this case are sufficient to cast the burden upon plaintiff to show its good faith. We will assume, for the purpose of the decision, that the rule is the same here as in cases where there is fraud in the inception or fraud in delivery of the note. The result is the same. The burden has been sustained. As has been stated, the note was purchased before maturity, and it was properly indorsed, and the evidence shows that plaintiff paid full value for it. This proof raises a presumption that it purchased in good faith and without notice of the alleged fraud. Bank v. Sargent, 85 Me. 349, 27 A. 192, 35 Am. St. Rep. 376. Kellogg v. Curtis, 69 Me. 212, 31 Am. Rep. 273. See, also, Bank v. Foote, 12 Utah 157, 42 P. 205. The reason for the presumption is that it is not likely one would give full value for a note which he believed to be fraudulent, taking the hazard upon himself, and because it would be difficult to prove good faith in any other way. Unless there are circumstances which seem to bring home notice of the fraud or illegality imputed, the requirement of further proof than the giving of full value seems unreasonably harsh and exacting. 1 Daniel, Neg. Inst. § 819. But plaintiff's good faith in the case at bar does not rest alone upon the proof of payment of full value. The president of the bank, who conducted the negotiations and made the purchase, testifies that the bank "had no notice or knowledge of what the note was given for, or that Mr. Flath claimed any defense to it of any kind," until long after the purchase was made. And this evidence is undisputed. A great variety of facts are relied upon by appellants to show bad faith on the part of the bank. None of them go the extent of showing knowledge, and it is extremely doubtful whether there were any facts within the knowledge of the officers of the bank which would create even a suspicion of the purpose for which the note was given. But, even so, that is not enough. As was said in Moorehead v. Gilmore, 77 Pa. 118: The Supreme Court of Maine in Farrell v. Lovett, 68 Me. 326, 28 Am. Rep. 59, in announcing its adherence to the rule that knowledge of circumstances which might tend to arouse suspicions would not defeat a recovery, said: See cases cited in opinion. Good faith did not require the plaintiff to make inquiry as to possible defenses, of which it had no notice either from the face of the paper or facts communicated at the time. Howry v. Eppinger, 34 Mich. 29; Murray v. Beckwith, 81 Ill. 43; 1 Daniel, Neg. Inst. § 775.
It is true McBride did not act in good faith towards Flath in selling the note, but it is not his good faith which is in question. In every case of this kind it is the bona fides of the indorser, that is in question. Daniel, Neg. Inst. § 770; Helmer v. Krolick, 36 Mich. 371. The direct evidence shows that McBride made no disclosure to Thompson of the secret purpose of the note, and all of the circumstances also go to show that he did not do so. It appears that Flath owed him about the amount of the note in suit, outside of the liability on his suretyship, and that it was unsecured. His purpose was to dispose of the note so that Flath would not be able to make a defense, which he could do so long as he held it. McBride is shown to have had many years of experience in handling...
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