Hall v. Box

• Decision Date: 11 December 1922
• Docket Number: 22832
• Citation: 94 So. 221,131 Miss. 218
• Court: Mississippi Supreme Court
• Parties: HALL v. BOX

94 So. 221

131 Miss. 218

HALL v. BOX

No. 22832

Supreme Court of Mississippi

December 11, 1922

BILLS AND NOTES. Estoppel. Negligence of maker of note will defeat defense of fraud in procurement in action by bona-fide purchaser, even though when one of two innocent persons must suffer by acts of third party, he who assisted in loss must bear it.

Negligence on the part of a maker of a promissory note in signing and delivering it will defeat any right that he may claim or attempt to set up in defense of such note in the hands of a bona-fide purchaser, even though he may establish a claim of actual fraud practiced on him in its procurement. Whenever one of two innocent persons must suffer by the acts of a third person, he who has enabled such third person to occasion the loss must sustain it.

HON. S F. DAVIS, Judge.

APPEAL from circuit court of Humphreys county, HON. S. F. DAVIS Judge.

Action by S. M. Hall against C. B. Box. From a judgment for defendant, plaintiff appeals. Reversed and remanded.

Reversed and remanded.

T. E. Pegram, for appellant.

On behalf of appellant, we, with deference, direct the court's attention to the following decisions of this court with reference to the effect of signing a note or other instrument of writing without reading it, wherein it is held such negligence as to preclude the party from a right to complain of its contents. Coats v. Bacom, 77 Miss 320; I. C. R. R. Co. v. Rogers, 76 So. 686; Allen v. Monroe County, 86 So. 297; Germania Life Ins. Co. v. Bouldin, 56 So. 613; Insurance Co. v Odom, 56 So. 379.

Parsons & Masons, for appellant.

To effect the standing of a purchaser of a negotiable instrument as a bona-fide holder, it is not sufficient, if it only appears that the plaintiff took the note under circumstances that ought to have excited suspicion in the hands of a prudent and reasonable man but it must appear that he took the note under circumstances that showed he acted in bad faith or with want of honesty." Kitchens v. Loudenback (Ohio), 26 N.E. 981. See, also, Cromwell v. Sac, 98 U.S. 51.

In the latter case the court held: "The purchaser of negotiable securities before their maturity, whatever may have been their original infirmity, can, unless he is personally chargeable with fraud in procuring them recover against the maker the full amount of them, though he may have paid therefor less than their par value." These two cases were decided before and without reference to the negotiable instrument law.

"Mere negligence or want of diligence however gross is insufficient to deprive the purchaser of a note of the character of a bona-fide holder thereof. There must be actual knowledge of the defect therein or bad faith on his part to deprive him of that character." Merrit v. Boyden, 60 N.E. 907, 191, Ill. 136; Cheever v. R. R. Co., 150 N.Y. 59, 44 N.E. 703; Magee v. Badger, 34 N.Y. 249; American Exchange N. Bank v. Bank & Belting Co., 148 N.Y. 705; Knotts v. American Co., 148 N.Y. 455; Bank v. Diefendof, 123 N.Y. 202, and other cases.

Tiedeman on Commercial Paper, par. 289, says: "But the great weight of authority in this country, as well as reason supports the contrary doctrine, that the bona-fide character of a holder can only be destroyed by proof of his participating in a fraudulent transfer or interest. There cannot be any doubt as to the great value to the commercial world of the latter ruling. If a banker or other endorsee of a negotiable instrument had to make an inquiry into every suspicious circumstance that attended the proffer of instruments of negotiation, it would clog the wheels of commerce and deprive commercial papers of its chief value to the commercial world."

BEASLEY, C. J., in Hamilton v. Vaught, 34 N.J.L. 187: "Where plaintiff shows his purchase for value before maturity in good faith and discloses all the facts and circumstances attending his purchase, he is entitled to a direct verdict, unless there is substantial evidence or reasonable inference therefrom that he had actual knowledge of fraud or such facts that his taking of the instrument amounted to bad faith." Downs v. Horton (Mo.), 209 S.W. 595; Johnson v. McMurry, 72 Mo. 278; Right Investment Co. v. Frisco Realty Co., 178 Mo. 72; Leavitt v. Taylor, 163 Mo. 158.

This rule which has already been announced by a great many courts was adopted in the Negotiable Instrument Law, Section 56 of the said Law, par. 2634 of the Hemingway Code. The undisputed evidence in this case is that the plaintiff paid value for the instrument. It is well settled that payment of the full face value of a bill or note is not necessary to make one a holder for value although the consideration paid must be more than merely nominal. C. J., Bills & Notes, Vol. 8, page 486, section 701.

"If value is parted with in the purchase of negotiable paper in good faith and without notice of any infirmity therein, the title of the purchaser is not to be impugned by the mere fact that the value paid is disproportionate to the face value of the paper, provided that disproportion is not so great as under the circumstances of the case to raise the presumption of bad faith." Young v. Lowry, 192 F. 825 & 827.

The fact that the note sued on was purchased by plaintiff from an endorsee for one-third of its face value was held to be insufficient to show that plaintiff was not a bona-fide holder. Ham v. Merrit, 150 Ky. 11, 149 S.W. 1131; Right Investment Co. v. Frisco Realty Co., 78 Mo. 72; Oppenheimer v. Farmers' Bank, 97 Tenn. 19, 56 Amer. States 778; Schoen v. Houghton, 50 Cal. 528; Lay v. Missman, 36 Iowa 305; Citizens Bank v. Raymond, 12 Neb. 541. Where notes were purchased for fifty per cent of their face value. Cannon v. Canfield, 11 Neb. 506; Richmond v. Diefendof, 51 Hun., 537; Bailey v. Smith, 14 Ohio 396, 84 Amer. Dec. 358; McNamara v. Joes, 69 P. 903.

In order to exonerate a party as between himself and an innocent holder where his signature of a negotiable note has been obtained by fraud, it must be shown that he was guilty of no negligence in affixing his name to the note or in not ascertaining the character of the instrument signed by him, Fisher v. Von Behran, 79 Ind. 19, 36 Amer. Reports 162.

The same principle of law was up held in the following cases: Woolen v. Ulrich, 64 Ind. 120; Kimbell v. Christie, 55 Ind. 140; Roach v. Karr, 18 Kas. 528, 26 Amer. Reports 788; Pa. R. R. Co. v. Shea, 82 Pa. State 198; Lindley v. Hoffman (Ind.), 53 N.E. 471; Douglass v. Matting, 4 American Reports 238, 29 Iowa 498.

We submit that under the facts in this case and the law, that the defendant is guilty of negligence in signing the paper sued on in this case, if he signed it without knowing it was a note, and that the peremptory instruction to find for the plaintiff, should have been given.

Barbour & Henry and E. L. Brown, for appellee.

There was no issue of whether or not the plaintiff was a bona-fide purchaser for value without notice, for the allegation in the declaration, that he was a "holder in due course," was a mere conclusion of the pleader, and raised no issue; besides which, being such holder is immaterial, if the instrument sued on is not the writing obligatory of the defendant. It will be observed, therefore, that both as a matter of substantive law and as matter of pleading, whether or not he was such holder is wholly immaterial.

There was no issue of whether or not the appellee was guilty of negligence in permitting the writing, in form, his negotiable instrument, to be placed in circulation, for there was no replication to raise such issue, and the declaration hinted at none, such pleading not being capable of raising such issue.

The plaintiff deliberately went to trial on the issue, whether or not the instrument sued on was the writing obligatory of the appellee; and the jury, on a clear conflict of evidence, between Golden, for the appellant, and Box and Mrs. Webb, for the appellee, found for the appellee. We asked for no instruction on any other issue, and introduced no evidence on any other issue; and all instructions asked, and evidence introduced, on any other issue by the plaintiff were irrelevant.

The paper sued on, the jury found, was obtained by the trick and device of inducing Box to sign, and attempting to sign, an application for stock, and substituting therefor an instrument which, in form, was a promissory note. He read an application, thought he signed an application, thought he endorsed an application; an application was the only instrument that was mentioned as one for him to sign; no mention was made of a promissory note, no promissory note was read by him, no promissory note was he asked, or did he intend, to sign; and, therefore, no such instrument could become his writing obligatory, for he never assented to the signing of any such instrument; and, hence, the plea, that he "did not make and did not believe the writing in the said declaration mentioned," was, as a matter of law, literally true. The jury so found, and they were the sole and only judges of whether or not the issue tried was sustained by the evidence.

The case of Foster v. McKinnon, 38 L. J. Repts. (N. S.) 310, decided by the court of common pleas in 1869 seems to be the one of first impression and the court there stated the case and decided it thus: "This was an action by the plaintiff as indorsee of a bill of exchange for three thousand dollars against the defendant as indorser. The defendant, by one of his pleas, traversed the indorsement and by another alleged that the defendant's indorsement was obtained from him by fraud. The plaintiff was a holder for value before maturity, and without notice of any fraud. There was contradictory evidence as to whether the indorsement was the defendant's signature at all, but,...