Howard National Bank v. Graham Wilson And Trustee

• Citation: 120 A. 889,96 Vt. 438
• Parties: HOWARD NATIONAL BANK v. GRAHAM WILSON AND TRUSTEE
• Decision Date: 02 May 1923
• Court: Vermont Supreme Court

120 A. 889

96 Vt. 438

HOWARD NATIONAL BANK v. GRAHAM WILSON AND TRUSTEE

Supreme Court of Vermont

May 2, 1923

January Term, 1923.

ACTION OF CONTRACT on a promissory note. Plea, the general issue. Trial by jury at the March Term, 1922, Chittenden County Willcox, J., presiding. Verdict directed by the court for the plaintiff, and judgment thereon. The defendant excepted. The opinion states the case.

Judgment affirmed and cause remanded for further proceedings respecting the liability of the trustee.

V A. Bullard, C. F. Black, and C. P. Cowles for the defendant.

Present WATSON, C. J., POWERS, TAYLOR, MILES, ^[1] and SLACK, JJ.

OPINION

TAYLOR

This is an action of contract on a promissory note signed by the defendant Graham Wilson and payable to the order of the plaintiff. The answer was a general denial. The trial was by jury, and, at the close of the evidence, a verdict was directed for the plaintiff. The case is here on the defendant's exceptions to the direction of a verdict and to the judgment thereon. Other exceptions saved at the trial are not briefed and so are waived.

The note in suit was executed and delivered to the plaintiff September 19, 1919, and was payable on demand with interest. Interest was indorsed thereon to January 1, 1920. The plaintiff introduced the note in evidence, proved defendant Wilson's signature thereto, the issue to him of a cashier's check for the amount of the note, the subsequent payment of the check when presented therefor, and the amount due on the note to the time of trial. With this the plaintiff rested. The defense relied upon was that the note was given solely for the accommodation of one Frank W. Elliott, the then acting president and managing director of the plaintiff bank, that the note was procured by Elliott through fraud, and that the note went to the benefit of the plaintiff, as its proceeds were used to cover Elliott's overdrafts at the bank. Evidence offered by the defendant in support of his claims was not objected to as being outside the issues made by the pleadings. The course of the trial indicates that the defense was supposed to be available under the general denial, as it doubtless would have been under the general issue prior to the adoption of the Practice Act (G. L. 1789 et seq.). See Limerick Bank v. Adams, 70 Vt. 132, 40 A. 166. It is now necessary that all matters relied upon as an affirmative defense should be specially pleaded, when the statute does not provide otherwise. Dernier v. Rutland Ry., etc., Co., 94 Vt. 187, 110 A. 4; Burlington Grocery Co. v. Lines, 96 Vt. 405, 120 A. 169; McAllister v. Benjamin, 96 Vt. 475, 121 A. 263. As a general rule cases are tried in court upon the issues made by the pleadings. But counsel may, by conduct or agreement, limit or enlarge the issues. Dernier v. Rutland Ry., etc., Co., supra; Brown v. Aitken, 90 Vt. 569, 99 A. 265; Probate Court v. Enright, 79 Vt. 416, 65 A. 530; Poole v. Mass. Mut. Acc. Assn., 75 Vt. 85, 53 A. 331. So it is held that the course of the trial may be such as to constitute a waiver of any question respecting the sufficiency of the pleadings to make available a defense not properly pleaded. Bradley v. Blandin, 91 Vt. 472, 475, 100 A. 920. It should be held in the circumstances attending the trial that the case at bar is within the exception to the general rule, and should be treated as though the necessary pleadings had been filed. Though the point is not raised, we have thought best to advert to it to avoid misunderstanding.

The defendant's evidence tended to show the following facts: During all the time material Elliott was acting president of the bank and had general oversight and management of its affairs. He was also interested in a lumber business conducted as the W. E. Elliott Lumber Company and acted as its treasurer. He had two check accounts with the plaintiff bank, one his personal account and the other an account as treasurer of the Lumber Company. He also had a check account of the Lumber Company with the Waterbury Savings Bank and Trust Company of Waterbury, Vermont, hereinafter referred to as the Waterbury Bank. From July 6, 1919, to September 18, 1919, his personal account with the plaintiff was overdrawn in increasing amounts, until on the latter date the overdraft as shown by the books of the bank amounted to $ 14,594.14. On the matter being brought to the attention of some of the other directors, they called on Elliott to take care of the overdraft. An arrangement was entered into by which the plaintiff made a loan to the Lumber Company which was deposited in its account with the plaintiff, and Elliott transferred $ 14,750 from this to his personal account, leaving a balance to his credit of $ 155.86. On September 15, Elliott had drawn a check on his personal account for $ 10,000 which had not been returned to the bank when this adjustment was made. To cover this check when returned, he drew a check to himself on the Waterbury Bank for a like amount, which he deposited in his personal account. This overdrew the Lumber Company's account at the Waterbury Bank about $ 8,700. There was no evidence that any one other than Elliott knew of this situation at the time the note in question was given. In fact, the contrary fairly appeared so far as any representative of the bank was concerned. On the day the note was given, the defendant called at the plaintiff bank on business which was transacted with Elliott in the directors' room. In the course of the interview Elliott procured the defendant to sign the note for his (Elliott's) accommodation. It is unncessary to detail the representations made to induce the defendant to sign the note. No question is made but that they were false and fraudulent. The note was executed, and Elliott took it out into the bank and directed the assistant cashier to make a cashier's check in favor of the defendant for the amount of the note, which was done. Elliott returned with the check which the defendant indorsed in blank and delivered to Elliott. The latter deposited the check to the credit of the Lumber Company in the Waterbury Bank on September 20. The movement of these checks was so timed that want of funds did not appear on the books of either bank. Elliott paid the interest on the note indorsed January 1, 1920. He died in the latter part of January, 1920, when for the first time, so far as appeared, it was discovered that he was insolvent.

The defendant relies upon the claim that the evidence made a question for the jury whether the plaintiff took the note subject to the defenses of fraud and failure of consideration. It is insisted that the plaintiff, being the payee of the note, is not a holder in due course as a matter of law; and that, in any event, in the circumstances of the case, this was a question of fact. As we shall see, this position is neither wholly right nor wholly wrong. Section 52 of the Uniform Negotiable Instruments Act (G. L. 2921), defines "a holder in due course" as 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 a 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 did not have notice of any infirmity in the instrument of defect in the title of the person negotiating it.

It is at once apparent that the delivery of the note to the plaintiff made it a "holder" thereof in contemplation of the Negotiable Instruments Act. It is insisted, however, that the payee of a negotiable instrument is not "a holder in due course" under the Act and certain decisions in other states are relied upon in support of the claim, of which Vander Ploeg v. Van Zuuk, 135 Iowa 350, 112 N.W. 807, 13 L.R.A. (N.S.) 490 124 Am. St. Rep. 275, is perhaps the leading case. The theory of these decisions is that, under the Uniform Negotiable Instruments Act, a holder in due course is a person to whom after completion and delivery an instrument has been "negotiated"--one who has taken by negotiation and not as an original party. "Negotiated" is construed as meaning "transferred from one holder to another." Vander Ploeg v. Van Zuuk, decided in 1907, followed the decision of the court of the King's Bench in Herdman v. Wheeler, 1 KB 361, which was practically overruled by the later English case of Lloyd's Bank v. Cooke (1907), 1 KB 794. It is frequently cited to the general proposition that the protection accorded a holder in due course does not extend to the payee of a negotiable instrument. However, in deciding the question presented the court said: "We do not mean to say that in no case can the person named as payee in a negotiable instrument be the holder thereof in due course, " assuming by way of illustration a case very similar to the case at bar. The court was dealing with a question arising under Section 14 of the Act relating to the filling of blanks. The defendants affixed their signatures to a blank note at the request of Pothoven, who was a partner of one of them in a mercantile business, on the representation that he might, within a short time, find it necessary to raise $ 150 or $ 200 for temporary use in business. Pothoven being indebted individually to plaintiff on a note for about $ 2,000, without authority inserted plaintiff's name as payee, and $ 2,000 as the amount to be paid, and delivered the note to the plaintiff, who surrendered the past-due obligation. The question was whether the provision of Section 14 respecting the filling of blanks "strictly in accordance with authority given," or the provision respecting an instrument "negotiated to a holder in due course," controlled the...