Ford v. Ott

• Decision Date: 03 July 1919
• Docket Number: No. 32949.,32949.
• Citation: 173 N.W. 121,186 Iowa 820
• Parties: FORD v. OTT ET AL.
• Court: Iowa Supreme Court

186 Iowa 820

173 N.W. 121

FORD

v.OTT ET AL.

No. 32949.

Supreme Court of Iowa.

July 3, 1919.

Appeal from District Court, Fayette County; C. N. Houck, Judge.

Three suits were brought on four promissory notes, secured by mortgage on the maker's land, and judgment and decree of foreclosure prayed. These suits were consolidated and, on hearing, decree entered as prayed. The defendants Rudolph Ott and Alwine Ott appeal. Modified and affirmed.Edwards, Longley, Ransier & Harris, of Waterloo, and Jay Cook, of Oelwein, for appellants.

E. R. O'Brien, of Oelwein, and R. J. O'Brien, of Independence, for appellee.

LADD, C. J.

The three suits on the several notes were consolidated and heard as one. Judgment on four notes and decree of foreclosure of the mortgage, securing all of them, was prayed. One of these notes was for $4,000, another for $2,500, and the others for $1,000 and $500, each. These notes and mortgage were parts of the same transaction bearing date May 8, 1912, and payable five years after date. Each was executed by Rudolph Ott and Alwine Ott to Adam Kiefer. The latter, on June 20, 1912, sold and transferred the $4,000 note to Myron Baum, and, after maturity, November 28, 1917, Baum sold and transferred this note to plaintiff. The $2,500 note was sold and transferred by Kiefer to R. M. Campbell, July 13, 1912, and Campbell sold and transferred it to plaintiff on December 8, 1917, after maturity. The $1,000 and $500 notes also were indorsed by Kiefer over to Campbell, February 1, 1913, and by him to plaintiff after maturity.

The Otts admitted the execution of the notes and mortgage securing payment of same, but denied all other allegations with reference thereto, and averred that they had borrowed different sums of money and given notes to said Kiefer aggregating over $8,000, and, “being without notice or knowledge that said Adam Kiefer had disposed of such notes or did not then own the same, went to said bank for the purpose of adjusting and settling such notes, and the said Adam Kiefer then stated to these defendants that he still owned such notes, but had misplaced them, and that, if the defendants would pay all of such indebtedness above the sum of $8,000, and execute new notes to him, with an extension of five years' time, secured by mortgage, he would find and cancel the then existing notes and mortgages and return them to these defendants.” They further alleged that they were deceived and misled by said statement and believed that Kiefer then owned the notes and were induced by his representation to pay all of said indebtedness by executing to him the notes sued on and the mortgage on 160 acres of land securing their payment; that the statements were false, and known by Kiefer so to be, and made for the purpose of cheating and defrauding defendants; and that said notes sued on were negotiated in fraud of defendants' rights. Alleging said notes to be without consideration and procured by fraud, they prayed for equitable relief, and especially that the notes and mortgage be canceled.

In reply, the plaintiff put in issue the allegations of fraud and pleaded waiver and an estoppel by defendants' conduct in paying interest and some of the principal on the notes, and saying they were good, and also that the defense was barred by the statute of limitation.

[1] I. The pleadings have been referred to specifically as the best way to dispose of the contention that plaintiff participated in the fraud alleged to have been perpetrated by Kiefer. The answer does not so allege. Even if it had, however, the evidence failed to show that plaintiff had authorized Kiefer generally to have renewed the notes held by him as collateral security. True, Kiefer then owed Ford $8,000 or $10,000 and had delivered to Ford, as collateral security, several notes, including that for $4,400 hereinafter more particularly referred to, and Ford kept these in a box in the bank operated by Kiefer Bros., at Hazelton, but Ford retained the key to the box, while the bank held the master key, so that Ford retained control of the papers. This is the only evidence on which appellants contend that plaintiff participated in the fraud alleged, and it was insufficient to warrant such an inference.

[2][3][4] II. As plaintiff obtained title to the notes after maturity, he did not acquire them in due course unless the parties from whom he obtained them, Baum and Campbell, were holders in due course. Section 3060a58, Code Supplement. The issues, then, are whether the notes were defective because obtained by Kiefer, the payee, by fraud (section 3060a55 of the Code), and whether Baum and Campbell, in purchasing these notes of Kiefer, were charged with notice. To so adjudge them, it must appear that they had actual knowledge of the fraud, or of such facts as that “taking the instrument amounted to bad faith.” Section 3060a56, Code Supplement. “When it is shown,” however, “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.” Section 3060a59, Code Supplement. These sections are so clear that explanation seems unnecessary, but see Lundeen v. Hamilton, 169 N. W. 208;German-American National Bank v. Kelley, 166 N. W. 1053.

[5][6] It appears from the record that prior to May 7, 1907, the Otts had given Adam Kiefer a note for $2,000 and secured it by a mortgage on 40 acres of land, and that, on May 9th of the same year, they purchased of Adam Kiefer 80 acres of land and executed in part payment thereof a note for $4,400 to him, securing the same by a mortgage on the land. These notes matured May 8, 1912, to which time defendants had paid the interest. A few days later, Kiefer went out to see Rudolph Ott, when the latter said to him that he would like $1,600 more to pay some debts, and Kiefer, after examining the premises, responded that he would make the additional loan and all would amount to $8,000. Ott testified that--

“When he had new notes made out, I asked him before he took the notes, I asked him where he had the old notes, and he said he got it to home and he forget it; he said he forget it. He was going to send them to me. He said he had it, the note he was going to send it to me. He was to send them and cancel them; the $2,000 note and the $4,400 note. He made out notes and mortgages for $8,000, and this is the $8,000 represented by the note of $4,000, the note of $2,500, the note of $1,000, and the note of $500, that has been offered in evidence here. That is the notes that was made out that day. * * * When he told me he still had the $2,000 note and the $4,400 note down at Hazelton, I believed him. I thought he had it; that induced me to give him the new ones. He was going to send me the old ones back. The $1,600 was the only money consideration there was for the $8,000 of notes, and the rest of the consideration was the $4,400 note and the $2,000 note I owed Adam. I did not know he had sold it to anybody.”

An attorney, whom Ott had consulted, testified on cross-examination that Ott had told him:

“That Kiefer had obtained from him a note of $2,000 and a note of $4,400, and had come to him when these notes were due and represented that he still held the notes and wanted to renew them, and that he had forgotten the notes and left them in the bank, but that if Ott would renew them, give new notes, and take some additional money, $1,600, that Ott wanted, that he would cancel the old mortgages securing these notes and return him the notes.”

This evidence was not objected to and, though hearsay, was corroborative of Ott's testimony. The evidence recited was not contradicted, but was somewhat discredited by Ott's payment of interest and on the principal, and his statement that the notes were good and would be paid, made after he had discovered the fraud. But Ott was an unlearned man, could not read or write the English language, and what he may have said should be given no more weight than the opinion of such a person on such subjects ordinarily would be accorded. Kiefer was not called to contradict what Ott swore he had represented, and it was a representation such as a person bent on obtaining the notes likely would have made, and we entertain no doubt as to the accuracy of Ott's account of the transaction. Nor do we entertain any doubt but that Kiefer intended Ott to understand that he (Kiefer) still owned and retained the papers and that they were so subject to his control that he could cancel and return them. As contended, the promise to surrender them was not a representation of an existing fact. Because of the assumption implied in the promise, i. e., that he could surrender the subjects of that promise, this was corroborative of the testimony that he represented that he retained them. Much is said of the pleading by counsel for appellee; but, even if the answer did not recite the facts accurately, enough was proved, necessarily included within such allegations of the answer, to make out the defense. The indebtedness to Kiefer is there said to be more than $8,000; it was not essential that this much be proven. That too large a sum was named did not obviate making out the defense by showing that the actual amount was only $6,400. Nor was it a fatal variance to prove that, instead of an excess being paid by Ott, he received $1,600 in addition to the $6,400 evidenced by the two notes. The gravamen of the charge was that Kiefer made misrepresentations concerning the two notes for $4,400 and $2,000, respectively, and thereby fraudulently induced the Otts to execute the notes in suit. Whether Kiefer stated that he left the notes home or at the bank, or somewhere else, such statement, together with the remainder of the conversation, clearly indicated that he intended to and did represent that he held the notes, whereas the note for $4,400 had been turned over to Ford as collateral...