Keene v. Behan

• Decision Date: 17 November 1905
• Citation: 82 P. 884,40 Wash. 505
• Parties: KEENE v. BEHAN et ux.
• Court: Washington Supreme Court

82 P. 884

40 Wash. 505

KEENE v. BEHAN et ux.

Supreme Court of Washington

November 17, 1905

Appeal from Superior Court, King County; W. R. Bell, Judge.

Action by Ed. S. Keene against Wallace C. Behan and wife. From a judgment for plaintiff, defendants appeal. Reversed.

Hastings & Stedman, for appellants.

Blaine Tucker & Hyland, for respondent.

CROW J.

Action to foreclose a chattel mortgage. From a judgment and decree in favor of respondent, this appeal has been taken.

On April 21, 1904, appellants, Wallace C. Behan and Mae Behan his wife, executed and delivered to one R. O. Reed seven promissory notes--six for the sum of $12.50 each, one falling due May 10, 1904, and one each month thereafter; and the seventh note for $84.50, falling due November 10, 1904. All of said notes bore interest from date at the rate of 1 per cent. per month, payable monthly, and contained a stipulation that, if said interest was not so paid, the whole sum of both principal and interest might be immediately declared due and payable at the option of the holder. Appellants on said April 21, 1904, also executed and delivered to said R. O. Reed, as security for said notes, the chattel mortgage now sought to be foreclosed, which provided that, in case of failure to pay any part of the principal or interest when due, the mortgage might declare the whole debt immediately due and payable. Respondent, Ed S. Keene, alleged that on June 8, 1904, he purchased for value and before maturity all of said notes except the one which had previously matured on May 10th; that no payment of either principal or interest had been made on any one of said seven notes; and that those purchased by him had been indorsed without recourse by said R. O. Reed. Appellants denied that respondent was a purchaser in good faith, or for value, or before maturity, and alleged that all of said notes were without lawful consideration; that said Reed and one R. W. Barto were partners under the firm name of Barto & Reed, and that said notes, although payable to Reed, were held by said firm as a partnership asset; that on or about May 16, 1901, appellants borrowed $200 from said Barto & Reed at the rate af 5 per cent. per month interest, and executed and delivered to said R. O. Reed for said firm their certain notes and chattel mortgage of that date to the total amount of $238, bearing interest at the rate of 1 per cent. per month; that appellants paid $176.20 thereon prior to December 11, 1902, at which time said Barto & Reed required them to execute renewal notes for $190, bearing interest at 1 per cent. per month; that prior to April 1, 1904, appellants had paid the further sum of $84.56 on this second series of notes, so that the entire payments made by them amounted to $260.76, more than sufficient to pay said original loan and all interest thereon at the maximum rate allowed by law; that on or about April 1, 1904, said Barto & Reed pressed appellants for another series of renewal notes to evidence the usurious interest on said former loan; that appellants, being in financial distress and threatened with litigation, afterwards executed said chattel mortgage and notes of April 21, 1904, to the amount of $159.50; that the only consideration therefor was the unlawful usury exacted by said Barto & Reed; and that respondent was not a bona fide purchaser for value, but knew that appellants had a complete defense. These affirmative defenses were denied. The trial judge made findings of fact and conclusions of law in favor of respondent, and refused those requested by appellants.

This is an action in equity, and is now before us for trial de novo. There is no dispute as to the usurious nature of the contracts between Barto & Reed and appellants, or that the rates of interest contracted and collected were in violation of section 2, c. 80, p. 128, Sess. Laws 1899. All of the allegations made by appellants were sustained. In fact, no attempt was made by respondent to controvert or rebut their evidence. He based his right to recover solely upon his claim that he became holder of six of said notes in due course for value and before maturity. We shall therefore consider this case on the theory that, as between Reed and appellants, said notes were fraudulent and void. Appellants contend that, as soon as they proved the notes were without consideration, the title of Reed was shown to be defective, and the burden of proof then fell upon respondent to show that he had acquired title as holder in due course; that in doing so he must not only show that he had acquired said notes before maturity and for value, but also that he took the same in good faith, and that at the time the notes were negotiated to him he had no notice of any infirmity therein or defect in the title of Reed. This contention is sustained, not only by the decisions of numerous courts of last resort, but also by sections 52, 55, 56 and 59 of our negotiable instruments law. Chapter 149, p. 350, 351, Sess. Laws 1899. See also, Crawford's Ann. Negotiable Instruments Law (2d Ed.) p. 59, note b; Canajoharie Nat. Bank v. Diefendorf (N. Y.) 25 N.E. 402, 10 L. R. A. 676; Fawcett v. Powell, 43 Neb. 437, 61 N.W. 586; Skinner v. Raynor, 95 Iowa, 536, 64 N.W. 601; Vosburgh v. Diefendorf, 119 N.Y. 357, 23 N.E. 801, 16 Am. St. Rep. 836; Knox v. Williams (Neb.) 39 N.W. 786, 8 Am. St. Rep. 220. The learned trial judge held against the contention of appellants as to the burden of proof, which probably accounts for the decree entered.

Section 55 of the act of 1899 provides: 'The title of a person who negotiates an instrument is defective, within the meaning of this act, when he obtained the instrument, or any signature thereto, by fraud, duress, or force and fear, or other unlawful means, or for an illegal consideration, or when he negotiates it in breach of faith, or under such circumstances as amount to a fraud.' In view of the facts above stated, we think that under this section the title of the original payee, Reed, was defective when he nogotiated the notes. Section 59 provides: '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 the burden was on of Reed being defective, the burden was on respondent to show that he acquired title as holder in due course. Section 52, defining a holder in due course, reads: '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.' Respondent testified that he purchased the notes before maturity for value, but did not attempt to show any further facts. After appellants had shown the title of Reed to have been defective, the burden devolved upon respondent to show: (1) That he took the notes, not only for value, but also in good faith. In other words, he was required to...