Harbison v. Hammons

• Decision Date: 11 May 1914
• Docket Number: (No. 315.)
• Citation: 167 S.W. 849
• Parties: HARBISON et al. v. HAMMONS.
• Court: Arkansas Supreme Court

Page 849

167 S.W. 849

HARBISON et al. v. HAMMONS.

(No. 315.)

Supreme Court of Arkansas.

May 11, 1914.

On Rehearing, June 15, 1914.

Appeal from Circuit Court, Clay County; W. J. Driver, Judge.

Action by J. W. Hammons against J. H. Harbison and others. Judgment for plaintiff, and defendants appeal. Affirmed. On rehearing modified and affirmed.

This is an action upon a promissory note by J. W. Hammons against J. H. Harbison, and Minerva Harbison, and G. L. Lynch. The defendants filed an answer, in which they denied that Hammons was the owner of the note sued on. They alleged that the note was procured by the fraudulent representations of Johnson & Jarrett, the payees, and alleged that Hammons was not a bona fide purchaser for value before maturity of the note. The note was introduced in evidence by the plaintiff's attorney. It bears date of November 12, 1908, and it is due and payable 10 months after date to the order of Johnson & Jarrett, and is signed by the defendants.

J. C. Jarrett testified that the note was executed by the defendants, and was given for the premium of a policy of life insurance in the St. Louis National Insurance Company issued upon the life of J. H. Harbison; that he and Johnson, the other payee in the note, were the local agents of the company and procured the application of Harbison for the policy of insurance; that the plaintiff, J. W. Hammons, was the state agent of said company, and that the note sued on was transferred by Johnson & Jarrett to Hammons not later than February, 1909, in payment of certain indebtedness owed by them to Hammons; that at the time the note was transferred to Hammons the latter did not have any knowledge that there was any defense to the note.

The defendant J. H. Harbison testified, in effect, that the note was procured by Johnson & Jarrett by means of fraudulent representations. In rebuttal, Jarrett denied that the note had been procured by means of fraudulent representations, and stated that it was given to pay the premium upon a policy of life insurance upon the application of J. H. Harbison therefor.

Other facts will be referred to in the opinion. The jury returned a verdict for the plaintiff against all the defendants, and the case is here on appeal.

G. B. Oliver, of Corning, for appellants. R. P. Taylor, of Paragould, and J. L. Taylor, of Corning, for appellee.

HART, J. (after stating the facts as above).

It is first insisted that there is no evidence to warrant the verdict; but we do not agree with counsel in this contention. The note was introduced in evidence by the plaintiff's attorney. It bore date of November 12, 1908, and was payable to Johnson & Jarrett 10 months after date. Jarrett testified that not later than February, 1909, the note was transferred to the plaintiff in payment of an indebtedness owed by Johnson & Jarrett to him. His testimony in this respect is not attempted to be contradicted. The transfer of a negotiable instrument before maturity, in payment of an antecedent debt, is a sufficient consideration to constitute the purchaser a holder for value. Southern Sand & Material Co. v. People's Savings Bank & Trust Co., 101 Ark. 266, 142 S. W. 178; Miles v. Dodson, 102 Ark. 422, 144 S. W. 908. Jarrett also testified that at the time the note was assigned to Hammons the latter did not have any notice that there was any defense to the note. If it be said that Jarrett's testimony on this point is not undisputed because he was contradicted in regard to his statement that the note was not procured by fraud, still the burden of proof was upon the defendants to show that the plaintiff had notice of the fraudulent procurement of the note. Where, in an action on a promissory note, the defense is made that the execution of the note was procured by fraud, the burden is on the plaintiff to show that value was given for the note. Tabor et al. v. Merchants' National Bank, 48 Ark. 454, 3 S. W. 805, 3 Am. St. Rep. 241. The reason assigned for this rule is that:

"Where there is fraud, the presumption is that he who is guilty will part with the note for the purpose of enabling some third party to recover upon it, and such presumption operates against the holder, and it devolves upon him to show that he gave value for it."

But when such payment is shown, it devolves upon the defendant to prove that plaintiff purchased with notice, actual or constructive, that the execution of the note was procured by fraud. Bank of Monette v. Hale, 104 Ark. 388, 149 S. W. 845; Old National Bank of Ft. Wayne v. Marcy, 79 Ark. 149, 95 S. W. 145, 9 Ann. Cas. 339. The rule is that the plaintiff must show himself to be a holder for value, and, on having done so, the burden is then shifted back to the makers of the note to show that plaintiff had notice of the fraudulent procurement of the note at the time that he purchased the paper. The reason is that the facts which constitute the fraud are, for the most part, affirmative in their nature, and must be set up by the defendants as a defense to the action on the note. Therefore the burden of proof is upon them to establish their defense.

Mr. Daniel, after approving the rule as announced above, said:

"This principle is obviously correct, for to require the plaintiff to show absolutely that he had knowledge of facts would be to burden him with the necessity of proving an impossible negative. He makes out a prima facie case by proving that the instrument was indorsed to him for value before maturity. Nothing else appearing, a presumption arises that he purchased...