Lundean v. Hamilton

• Court: United States State Supreme Court of Iowa
• Citation: 169 N.W. 208,184 Iowa 907
• Docket Number: 29968
• Parties: MAY LUNDEAN, Appellee, v. W. S. HAMILTON et al., Appellants
• Decision Date: 29 October 1918

169 N.W. 208

184 Iowa 907

MAY LUNDEAN, Appellee, v. W. S. HAMILTON et al., Appellants

No. 29968

Supreme Court of Iowa, Des Moines

October 29, 1918

Appeal from Pottawattamie District Court.--J. B. ROCKAFELLOW, Judge.

SUIT to cancel note and mortgage resulted in decree as prayed. Defendants appeal.

Affirmed.

H. L Robertson and L. W. Schneider, for appellants.

Tinley Mitchell & Pryor, for appellee.

LADD J. PRESTON, C. J., WEAVER, EVANS, and GAYNOR, JJ., concur. SALINGER, J. (dissenting).

OPINION

LADD, J.

The plaintiff owned the east 40 feet of Lot 18 of Block 15, Mill Addition to the city of Council Bluffs. On December 12, 1912, she signed a mortgage thereon, securing the payment of a promissory note for $ 3,600, of even date, and payable three years thereafter. The name of W. S. Hamilton, as payee in the note and mortgage, may have been inserted later. The mortgage purported to be witnessed by Hamilton and C. E. Price, defendant, before whom, as notary public, it was acknowledged, January 14, 1913. It was recorded on the same day. About that time, Hamilton applied to the defendant bank for a loan; and, on January 30th following, executed his note to the bank for $ 2,800, payable 4 months after date, and deposited the note and mortgage heretofore mentioned as collateral security, and in consideration thereof, the bank surrendered a note of his to it of $ 500 and accrued interest, and entered to his credit $ 2,286, which Hamilton subsequently checked out. In this suit, plaintiff prays that this note and mortgage be cancelled and surrendered to her; for that, as is alleged, these were procured by Hamilton through the perpetration of fraud; that Price participated therein; and that the bank is not an innocent purchaser; and that the note is not negotiable.

The last-named contention is disposed of by Des Moines Sav. Bank v. Arthur, 163 Iowa 205, 211, 143 N.W. 556, and no further attention need be given to it. The other two issues may be considered together. The record leaves no doubt that Hamilton procured the note and mortgage without parting with any consideration, and with the fraudulent purpose of depriving the plaintiff of said note and mortgage and appropriating the same to his own use, though inducing the plaintiff to rely on what he did in handling the note and mortgage as in her interest, and with the design of turning over the money to her. This is clearly within the allegation of the petition, though it alleged that Price and Hamilton entered into a fraudulent combination to accomplish this, and so did. The evidence did not warrant the inference of such combination with fraudulent purpose, but did justify the inference that Hamilton had fraudulently procured and appropriated the note and mortgage.

Mrs. Lundean had been engaged in dressmaking, first for herself and later as an employee of John Beno Company, since the death of her husband, some 15 years ago, except about 3 years, a part of which time she was trying to regain her health in Colorado, and the rest, was engaged in office work. She had supported herself and son, 18 years of age, at the time of the trial, and paid off a $ 1,000 mortgage on the premises heretofore described. She met Hamilton late in 1911, through his wife, whom she had known prior to their marriage. Her mother, in California, had been urging her to sell her home and take up her residence at Berkeley in that state, in order to continue the education of her son and make a home for her mother. She testified that Hamilton, upon hearing this, proposed selling the place, which she authorized; but instead, submitted opportunities for exchange, and, when these did not meet with her approval, suggested that she put a loan on the place and rent it, and said that she would receive as much in that way as by selling. This did not meet her approval at first; but, upon receiving another letter from her mother, his proposition that she make a $ 3,500 loan, and suggesting that, "if the worst should come to worst, Mrs. Lundean, if they take the place, I would not feel I had cheated them out or they had cheated me out," was acceded to; and he led her to believe that he was making loans through a Kansas City, Missouri, house. She testifies, further, that later, he reported that her "loan is coming through, and the money will come to you through the bank, the Commercial National Bank;" that he repeated this several times; that, one day, Hamilton telephoned her to come to the Commercial National Bank, and she did so; that Hamilton and Price were there; that the former said:

"I know your time is very limited, and all we will ask you to do is to sign this paper. You will have to sign this paper before your money can come, and it will come through the bank."

She then described how they were sitting,--Price at his desk and Hamilton across the aisle in a small room; that, as she sat down at the desk, Price stood, remarking, "Sign your name on this line, Mrs. Lundean" (pointing to the line); that Hamilton requested that she sign her name "Mary," as it appeared that way in the abstract; that, after so signing, she inquired if there was anything further, in response to which she was told that the paper could be finished after she left. On further inquiry, she repeated that Hamilton told her, in Price's hearing, that the money was coming through the bank, and that he said "Commercial National Bank;" and she swore that she had no recollection concerning the signing of the note, and heard nothing further of the transaction until May, 1913, when Mrs. Hamilton informed her of the transfer of the note and mortgage to the bank. The evidence further shows that she trusted Hamilton implicitly; that she had no recollection of signing the note; that there was never any conversation between her and Hamilton concerning a loan for $ 3,600; that their conversation was concerning a $ 3,500 loan; that at no time had a loan from Hamilton or in his name been mentioned: and the witness testified that she supposed it was an application for a loan, and not a mortgage, which she acknowledged before Price. The record leaves no doubt but that Hamilton procured the signing and acknowledgment of the papers with the design of defrauding the plaintiff.

In the first place, he pretended to be obtaining the loan through a Kansas City firm, when, in fact, he prepared the papers with his own name inserted as payee and mortgagee, without so informing her, or drew them in blank, and afterwards inserted his name. Of course, she could read; but he so planned the signing and acknowledgment of the papers that she would not be likely to read, and did not. In this way he procured the papers to be drawn to himself and to be left in his custody, in order to obtain and appropriate the proceeds of the loan, rather than to obtain a loan for the plaintiff. That such a transaction is fraudulent requires no argument to prove. The papers were not only procured by fraud, but were utterly without consideration. Hamilton's title, such as he had, then, was defective. Section 3060-a55, Code Supplement, 1913.

Having so shown, the plaintiff was entitled to a decree as prayed, unless defendant should be able to establish, by a preponderance of evidence, that the defendant bank acquired the papers without notice of such defect. Had suit been brought on the note, and fraud as here proven been interposed as a defense, this would have been the result. Keegan v. Rock, 128 Iowa 39, 102 N.W. 805; McNight v. Parsons, 136 Iowa 390, 113 N.W. 858; Arnd v. Aylesworth, 145 Iowa 185, 123 N.W. 1000; Farmers & Merch. St. Bank v. Shaffer, 172 Iowa 173, 154 N.W. 485; German Am. Nat. Bank v. Kelley, 183 Iowa 269, 166 N.W. 1053. The proof was such that, had the action been on the note, the petition must have been dismissed. If the proof would have been sufficient to establish a complete defense in an action on the note, certainly it was sufficient to justify a court of equity in cancelling such a note, with the mortgage securing its payment. Section 3060-a59 declares that:

"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 a 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 title."

The negotiable instrument statutes are not concerned with forms of action, nor the forums in which pending, but lay down general rules governing the rights of the respective parties thereto. Although every holder is deemed, prima facie, a holder in due course, this presumption is overcome by proof that the title of the person negotiating to him was defective. The instrument is then subject to the same defenses as though non-negotiable (Section 3060-a58, Code Supplement, 1913); and if these defenses are complete, dismissal of the petition necessarily follows, in an action at law or decree of cancellation or other appropriate relief in a court of equity. The burden, then, was on defendants to prove that the bank was a holder in due course. The evidence that full consideration was paid to Hamilton by the bank is not disputed. Did the bank acquire these papers without notice?

"To constitute notice of an infirmity in the instrument or defect in the title of the person negotiating the same, the person to whom it is negotiated must have had actual knowledge of the infirmity or defect, or knowledge of such facts that his action in taking the instrument amounted to bad faith." Section 3060-a56, Code Supplement, 1913.

The transaction in behalf of the bank was through Price,...