Hill v. Ward

• Decision Date: 08 March 1910
• Docket Number: 6,755
• Citation: 91 N.E. 38,45 Ind.App. 458
• Parties: HILL v. WARD
• Court: Indiana Appellate Court

91 N.E. 38

45 Ind.App. 458

HILL v. WARD

No. 6,755

Court of Appeals of Indiana

March 8, 1910

From Noble Circuit Court; Joseph W. Adair, Judge.

Action by Frank R. Hill against James B. Ward. From a judgment for defendant, plaintiff appeals.

Reversed.

L. W Welker and Blacklidge & Wolf, for appellant.

Weir D Carver, for appellee.

OPINION

HADLEY, J.

Appellant sued appellee on a promissory note, averring that said note was executed by appellee to one Doremus, at the Noble County Bank, Kendallville, Indiana; that before maturity Doremus assigned the note by indorsement to one Freeman, who, before maturity, assigned it by indorsement to appellant. To this complaint appellee answered in four paragraphs: (1) General denial; (2) plea of no consideration with knowledge of appellant; (3) failure of consideration and assignment to appellant after maturity; (4) fraud in the procurement of the note and appellant's knowledge thereof. Demurrers were overruled to the second, third and fourth paragraphs of answer. These rulings are assigned as error. It is urged that the second paragraph of answer is insufficient, for the reason that it does not aver that the first indorsee was not a bona fide holder of the paper.

It is a well-settled rule of law that under a plea of no consideration or failure of consideration to the suit by an indorsee on a negotiable note the burden is upon the defendant to show that the indorsee was not a bona fide holder in all that that term implies. First Nat. Bank v. Ruhl (1890), 122 Ind. 279, 23 N.E. 766; Hinkley v. Fourth Nat. Bank (1881), 77 Ind. 475; Shirk v. Mitchell (1894), 137 Ind. 185, 36 N.E. 850, and cases cited. In the case of First Nat. Bank v. Ruhl, supra, the court said: "There is, however, at least one paragraph of the answer which is clearly bad, and that is the paragraph which pleads want of consideration. This paragraph is bad because it does not aver that the plaintiff was not a purchaser for value and in good faith. The authorities discriminate between cases in which a note is obtained by fraud and those in which there is a want or total failure of consideration. There is reason for this distinction. It often happens that one man executes a note without consideration for the accommodation of another and no one would think of declaring that it would not be valid in the hands of one who paid value for it before maturity, although he may have known that it was executed without consideration."

The paragraph of answer in question does aver that appellant had notice of the defense alleged, but this is not sufficient. Appellant was a second indorsee, and the law is that he has the same rights and his claim is subject only to the same defenses that might be interposed as against his indorser, even though at the time he purchased he had notice of such defense as against the maker. Hereth v. Merchants' Nat. Bank (1870), 34 Ind. 380; Riley v. Schawacker (1875), 50 Ind. 592; Peckham v. Hendren (1881), 76 Ind. 47; McCardle v. Barricklow (1879), 68 Ind. 356; Hinkley v. Fourth Nat. Bank, supra; Bassett v. Avery (1864), 15 Ohio St. 299; New v. Walker (1886), 108 Ind. 365, 58 Am. Rep. 40, 9 N.E. 386; Peabody v. Rees (1864), 18 Iowa 571; Fairclough v. Pavia (1854), 9 Exch. 689; Eckhert v. Ellis (1882), 26 Hun 663; Woodman v. Churchill (1862), 52 Me. 58; Wilson v. Mechanics Sav. Bank (1863), 45 Pa. 488; Lewis v. Long (1889), 102 N.C. 206, 9 S.E. 637, 11 Am. St. 725; Smith v. Hiscock (1837), 14 Me. 449; 1 Daniel, Negotiable Inst. (4th ed.), § 726a. In the case of Hinkley v. Fourth Nat. Bank, supra, the court uses this language: "An acceptor of a bill of exchange cannot shift the burden upon the indorsee by proving that he received no consideration for his acceptance. There is a double burden upon such an acceptor. He must not only show that he accepted without consideration, but he must show that there was no consideration between the indorsee who sues and his immediate indorser."

The reason for the rule is well stated in the case of Bassett v. Avery, supra. In that case Bassett was a second indorsee, one Barrett being his immediate indorser, and it was contended that, notwithstanding Barrett had no notice of the defense, since Bassett had, the defense was available. The court held to the contrary, and in passing upon the question, said: "The reason why notice lets in a defense, in cases in which, without notice, it could not be set up, is the bad faith involved in the purchase. But if a party holds a negotiable instrument discharged of defenses which may have existed between the antecedent parties, no reason is perceived why his right of sale should be any more restricted than his right to collect. The liability of the maker is then fixed. It is not increased by a subsequent sale or gift of the note to another; and it would be inconsistent that the law should recognize a perfect title in a party, and yet limit his power of disposition in the manner claimed. Nor do we perceive the principle upon which a knowledge of the prior infirmity can be made the ground of imputing bad faith to a purchaser in no way responsible for the wrong in obtaining the paper, or putting it in circulation. Notwithstanding its former invalidity he knows that it has now become valid. Payment alone, by the maker, will discharge it, and, to him, it must be a matter of indifference, whether it be made to the holder or his indorsee." In the case of Hereth v. Merchants Nat. Bank, supra, the court said: "It is well settled, that the purchaser of commercial paper from one who is an innocent holder for value, may recover on it, notwithstanding he knew that there were defenses against the note, at the time he took it." The second paragraph of answer to be sufficient as a defense should aver not only that appellant was not a good-faith purchaser, but that his indorser was likewise in mala fides.

The third paragraph of answer for the same reason is insufficient. It is said by the learned author in 1 Daniel, Negotiable Inst. (4th ed.), § 726a: "A transferee can generally get as good a title as his transferrer possesses, and it is, therefore, a settled principle that if the party who transferred the instrument to the holder acquired the note before maturity, and was himself unaffected by any infirmity in it, the holder acquires as good a title as he held, although it were overdue and dishonored at the time of transfer." In the case of Cromwell v. County of Sac (1877), 96 U.S. 51, 59, 24 L.Ed. 681, Field, J., says: "The rule has been too long settled to be questioned now, that, whenever negotiable paper has passed into the hands of a party unaffected by previous infirmities, its character as an available security is established, and its holder can transfer it to others with the like immunity. His own title and right would be impaired if any restrictions were placed upon his power of disposition." And to the same effect are the cases of Riegel v. Cunningham (1874), 9 Phila. (Penn.) 177; Roberts v. Lane (1874), 64 Me. 108, 18 Am. Rep. 242; Woodman v. Churchill, supra; Wilson v. Mechanics Sav. Bank, supra; Smith v. Hiscock, supra; Chitty, Bills and Notes (12th Am. ed.), *220. Measured by the foregoing authorities, the third paragraph was insufficient in not averring the right to set up the defense as against appellant's immediate indorser.

The fourth paragraph of answer avers in substance that the note sued upon was procured by the payee Doremus, from appellee by fraud and false representation, in this, that prior to the making and delivery of said note said Doremus falsely and fraudulently represented to appellee that he (Doremus) was a regular practicing physician, licensed to practice...