Guaranty Bank & Trust Co. v. McGirk State Bank

• Citation: 294 S.W. 456
• Decision Date: 09 May 1927
• Docket Number: (No. 15848.)
• Parties: GUARANTY BANK & TRUST CO. OF ELDORADO, ARK., et al. v. McGIRK STATE BANK et al.
• Court: Court of Appeal of Missouri (US)

294 S.W. 456

GUARANTY BANK & TRUST CO. OF ELDORADO, ARK., et al. v. McGIRK STATE BANK et al.

(No. 15848.)

Kansas City Court of Appeals. Missouri.

May 9, 1927.

Appeal from Circuit Court, Callaway County; D. H. Harris, Judge.

Action by the Guaranty Bank & Trust Company of Eldorado, Ark., and Charles McKee, State Banking Commissioner of Arkansas, against the McGirk State Bank and J. H. Hughes, State Commissioner of Finance of Missouri. Judgment for defendants, and plaintiffs appeal. Affirmed.

Ira H. Lohman, of Jefferson City, for appellants.

Embry & Embry and S. C. Gill, all of California, Mo., for respondents.

BLAND, J.

This is a suit on a certificate of deposit in the sum of $2,000, issued by the McGirk State Bank on May 27, 1921, to L. 0. Thompson, as payee, due six months after date, and bearing interest at the rate of 4 per cent. per annum. The note was indorsed by said Thompson to one L. L. Childs and indorsed by the latter to plaintiff. Guaranty Bank & Trust Company of Eldorado, Ark., in the month of September, 1921. The case was tried by the court without the aid of a jury, resulting in a judgment in favor of defendants, and plaintiffs have appealed.

The facts show that the Guaranty Bank &amp Trust Company of Eldorado, Ark., since the indorsement to it of the certificate of deposit, has been taken over by the banking commissioner of that state, and that since the execution of the certificate the McGirk State Bank of McGirk, Mo., has been taken over by the commissioner of finance of the state of Missouri. The petition alleges that the McGirk State Bank executed the certificate, and that the same was duly indorsed, and thereafter the Guaranty Bank & Trust Company became an innocent owner and holder thereof for value before maturity and in good faith. The separate answers of the defendants contain practically the same matter, and allege, among other things, a lack of consideration for the execution of the certificate of deposit. We are doubtful as to whether the answers plead any fraud in the execution of the certificate, but the case was tried on the theory that such matter was pleaded and is briefed in this court on the theory that fraud is involved in the case. The replies deny all the substantial facts pleaded in defense, and reaffirm the allegation that the Guaranty Bank & Trust Company was an innocent holder of the certificate in good faith for value and before maturity.

Plaintiffs proved the execution of the certificate, and introduced the same in evidence, together with the affidavit of L. L. Childs to the indorsement of Thompson and the indorsement of Childs to the Guaranty Bank & Trust Company. Defendants introduced evidence tending to show that the certificate was fraudulently issued. It is unnecessary for us to set out the evidence going to show such fraud, for the reason that the circumstances under which the certificate was issued are substantially described in the case of Howey Co. v. A. B. Cole et al., 219 Mo. App. 34, 269 S. W. 955. The certificate of deposit involved in the suit at bar was one of the first lot issued by Moore, the cashier of the McGirk State Bank. There is some dispute between the parties as to whether there was any testimony tending to show that there was no consideration given for the certificate at the time of its execution, but, as will hereinafter appear, the question of consideration is immaterial. At the close of the evidence plaintiffs asked the court to declare the law to be the effect that they were entitled to recover, which declaration was refused. There was no other declaration of law or finding of fact asked by either of the parties or given by the court.

Plaintiffs claim that, as they established that the bank was the holder of the certificate in due course, and there being no testimony on the part of the defendants tending to show that plaintiffs had actual knowledge of any defect in the title of the certificate or bad faith on the part of the Guaranty Bank & Trust Company, plaintiffs were entitled to a peremptory declaration in their favor. The oft-stated rule in regard to matters of this kind is as follows: The burden of proof—

"* * * is upon the holder of the note to prove his good faith and lack of notice of any defect in the title of the person negotiating the note to him, when such infirmity has been shown in the procuring of the note from the maker. If the holder shows this, then the burden is upon the defendants to prove specific facts tending to show plaintiff's actual knowledge of the defect in the title or his bad faith. In case of defendants' failure to offer any evidence to that effect, plaintiff is entitled to a directed verdict. Mere suspicious facts, or facts that would put a reasonable man on inquiry, or negligence, is not sufficient to charge the purchaser of the note with notice of its infirmity. Actual knowledge of the facts concerning the execution of the note must be brought home to the holder. Nothing short of actual knowledge or bad faith will defeat the holder's title." Reitherman v. Wheeler et al. (Mo. App.) 247 S. W. 222, 223.

"The rule concerning the burden of showing a lack of consideration for the giving of a note is somewhat different from the rule in regard to showing notice of fraud. When fraud is shown, the burden is upon the holder to prove his good faith and lack of knowledge of the fraud, while it is not only the duty of the defendant, when lack of consideration is claimed, to show such a lack, but to show that plaintiff had knowledge of such fact. Pattonsburg Savings Bank v. Koch (Mo. App.) 255 S. W. 580, 583; Bank of Polk v. Wood, 189 Mo. App. 62, 173 S. W. 1093." Kincaid v. Estes, 218 Mo. App. 109, 118, 262 S. W. 399, 402.

There was no showing on the part of defendants that the Guaranty Bank & Trust Company had any knowledge of a lack of consideration (if any) for the giving of the certificate, and therefore this defense wholly failed, and it is not necessary for us to further mention it.

Section 845, R. S. 1919, reads as follows:

"Every holder is deemed prima facie to be a holder in due course; but when it is shown 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 holder in due course. But the last-mentioned rule does not apply in favor of a party who became bound on the instrument prior to the acquisition of such defective title."

Section 841, R. S. 1919 describes when the title of a person negotiating an instrument is defective, and mentions, among other defects invalidating the title, the obtaining of the instrument by fraud. Section 838, R. S. 1919, provides:

"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."

It was therefore incumbent upon plaintiffs to show, fraud having been shown in the execution of the certificate, that the Guaranty Bank & Trust Company was a holder in due course within the meaning of section 838. In order to sustain this burden, plaintiffs introduced the deposition of W. C. Evans, of Shreveport, Ala., who stated that between May 28, 1921, and October 1, 1921, he was cashier of the Guaranty Bank & Trust Company of Eldorado, Ark. Upon being asked how the bank acquired the certificate of deposit, he stated:

"It was discounted by the Guaranty Bank & Trust Company during the month of September, 1921, in the regular and ordinary course of business, being received from L. L. Childs to whom a valuable consideration was paid."

He was then asked, "Did you or to your knowledge know of any infirmities or equities surrounding this certificate of deposit?" and he answered, "None." He further testified that the signature on the back of the certificate was that of L. L. Childs, and that he was not acquainted with the signature of Thompson.

Plaintiffs also introduced the deposition of H. Zaccharias, of Shreveport, Ala., who testified that he was assistant cashier of the Guaranty Bank & Trust Company of Eldorado, Ark., between May 28, 1921, and October 1, 1921. He was asked how that bank acquired the certificate of deposit, and he answered:

"It was discounted by said bank while I was connected with them, in the ordinary course of business; the bank giving a valuable consideration therefor."

He further testified that he was familiar with the signature of L. L. Childs, and the signature of that party was on the back of the certificate, but that he was not acquainted with the signature of Thompson. This was all the testimony of these two witnesses. They were not cross-examined, and the record fails to disclose whether defendants were represented at the taking of the depositions. It is claimed by plaintiffs that under this testimony it was shown that the Guaranty Bank & Trust Company was a holder in due course, within the meaning of the statute, and, at admittedly there was no evidence introduced on behalf of the defendants tending to show that said bank had actual knowledge of the defect in the title, or was guilty of bad faith, the court should have directed a verdict for plaintiffs. However, defendants claim that this evidence does not show that plaintiffs had no notice of a defect in the title of Thompson, the person negotiating the instrument, within the meaning of section 838, at the time the certificate was negotiated to it.

Where defendant makes proof of facts tending to show fraud, a presumption arises that plaintiff had knowledge of the fraud and the burden is upon plaintiff to disclose facts that are peculiarly...