Gray v. Boyle

• Citation: 55 Wash. 578,104 P. 828
• Parties: GRAY v. BOYLE.
• Decision Date: 08 November 1909
• Court: United States State Supreme Court of Washington

104 P. 828

55 Wash. 578

GRAY v. BOYLE.

Supreme Court of Washington

November 8, 1909

Department 1. Appellant from Superior Court, King County; A. W. Frater Judge.

Action by Charles H. Gray against Neal Boyle. From a judgment for plaintiff, defendant appeals. Affirmed.

Dudley G. Wooten, for appellant.

Henry S. Noon, for respondent.

RUDKIN C.J.

This action was instituted on a promissory note in the usual form to recover the sum of $233.36, with interest and stipulated attorney's fees. The note was made payable to the order of C. D. Behan, but was indorsed to the plaintiff for value before maturity. The principal defense interposed was that the note was given in part payment of the annual premium on a policy for $2,000 in the New York Life Insurance Company, of which the payee Behan was agent, and that a rebate of $16.64 was allowed to the insured, in violation of the anti-rebate act of March 14, 1905 (Laws 1905, p. 373, c. 178), which provides as follows:

'Section 1. No life insurance company doing business in this state shall make or permit any distinction or discrimination in favor of individuals between insurants of the same class and equal expectation of life in the amount or payment of premiums or rates charged for policies of life or endowment insurance, or in the dividends or other benefits payable thereon, or in any other of the terms and conditions of the contracts it makes; nor shall any such company or any agent thereof make any contract of insurance, or agreement as to such contract, other than as plainly expressed in the policy issued thereon; nor shall any such company or agent pay or allow, or offer to pay or allow as inducement to insurance, any rebate of premiums payable on the policy, or any special favor or advantage in the dividends or other benefits to accrue thereon; or any valuable consideration or inducement not specified in the policy contract of insurance.

'Sec 2. Every corporation violating any of the provisions of this act shall be fined in any sum not exceeding five hundred dollars.

'Sec. 3. Every officer or agent of any such corporation who shall violate any of the provisions of this act shall be deemed guilty of a misdemeanor and shall be fined in any sum not exceeding five hundred dollars or imprisonment in the county jail not exceeding six months.'

The court below found that the plaintiff was a holder of the note in due course, as that term is defined in the negotiable instruments act, and gave judgment according to the prayer of the complaint. From that judgment, the defendant has appealed.

We will assume at the outstart that the note was invalid as between the original parties and subsequent holders with notice by reason of the violation of the anti-rebate act. This leaves but two questions for consideration: First, was the respondent a holder in due course; and second, if so, does the anti-rebate act invalidate the note in his hands?

1. As already stated, the court found that the respondent was a holder in due course, and this finding is amply sustained by the testimony. A holder in due course is defined by our statute as follows:

'Sec. 52. A holder in due course is a holder who has taken the instrument under the following conditions: (1) That it is complete and regular upon its face; (2) that he became the holder of it before it was overdue, and without notice that it had been previously dishonored, if such was the fact; (3) that he took it in good faith and for value; (4) that at the time it was negotiated to him he had no notice of any infirmity in the instrument or defect in the title of the person negotiating it.'

'Sec. 56. To constitute notice of an infirmity in the instrument or defect in the title of the person negotiating the same, the person to whom it is negotiated must have had actual knowledge of the infirmity or defect, or knowledge of such facts that his action in taking the instrument amounted to bad faith.' Laws 1899, p. 350, c. 149.

The respondent purchased the note for value before maturity, and at the time of his purchase had no notice of any defect or infirmity in the instrument. The chief circumstance upon which the appellant relies to establish mala fides is the fact that the respondent knew that Behan was an insurance agent, and that the note was given in whole or in part in payment for an insurance premium. The rule by which the good faith of a holder of negotiable paper is to be determined is thus stated in Crawford's Annotated Negotiable Instruments Law, p. 68: 'The holder is not bound at his peril to be on the alert for circumstances which might possibly excite the suspicion of wary vigilance. He does not owe to the party who puts the paper afloat the duty of active inquiry in order to avert the imputation of bad faith. The rights of the holder are to be determined by the simple test of honesty and good faith, and not by a speculative issue as to his diligence or negligence. The holder's right cannot be defeated without proof of actual notice of the defect in title or bad faith on his part evidenced by circumstances. Though he may have been negligent in taking the paper, and omitted precautions which a prudent man would have taken, nevertheless, unless he acted mala fide, his title, according to settled doctrines, will prevail.' This rule is fully supported by the authorities, and, measured by it, the title and good faith of the respondent were not impeached.

2. Law writers substantially agree upon the defects which will invalidate commercial paper in the hands of a bona fide holder. 'The same doctrine will generally apply to all cases of a bona fide holder for value without notice before it comes due, where the original note, or the indorsement thereof, is founded on an illegal consideration,...