McCarty v. Kepreta

• Decision Date: 29 January 1913
• Citation: 139 N.W. 992,24 N.D. 395
• Parties: MCCARTY v. KEPRETA
• Court: North Dakota Supreme Court

139 N.W. 992

24 N.D. 395

MCCARTY v. KEPRETA

Supreme Court of North Dakota

January 29, 1913

An appeal from the District Court for Benson County; Cowan, J. From a judgment for plaintiff, defendant appeals.

Reversed and new trial ordered.

Case remanded. Appellant recovered his costs and disbursements on this appeal.

P. J McClory and Stuart & Comstock, for appellant.

Counterclaim for damages for wrongful taking and detention of property in claim and delivery action, proper, as arising out of or connected with the subject of the action. Rev. Codes, Sec 6860, Subdiv. 1; Cobbey, Replevin, 1st ed. secs. 783, also 795; Vallancey v. Hunt, 20 N.D. 579, 34 L.R.A.(N.S.) 473, 129 N.W. 455.

When it is shown that the title of a person who has negotiated the note is defective, the burden is on the holder to prove that he or some other person under whom he claims had title as a holder in due course. Rev. Codes 1905, Sec. 6361; Union Nat. Bank v. Mailloux, 27 S.D. 543, 132 N.W. 168; Hinkley v. Freick, 112 Minn. 239, 127 N.W. 940; American Nat. Bank v. Lundy, 21 N.D. 167, 129 N.W 99; Arnd v. Aylesworth, 145 Iowa 185, 29 L.R.A.(N.S.) 638, 123 N.W. 1000.

In an action by an alleged holder in due course on a note shown to have its origin or inception in fraud, the burden is upon the plaintiff to affimatively establish his good faith in the transaction. Iowa Nat. Bank v. Carter, 144 Iowa 715 123 N.W. 237.

The knowledge of an agent is the knowledge of the principal. Wade, Notice, § 672; First Nat. Bank v. Erickson, 20 Neb. 580, 31 N.W. 387; Stough v. Ponca Mill Co. 54 Neb. 500, 74 N.W. 868; Third Nat. Bank v. Marine Lumber Co. 44 Minn. 65, 46 N.W. 145; Harvester v. Miller, 72 Mich. 265, 40 N.W. 429; First Nat. Bank v. Shaw, 157 Mich. 192, 133 Am. St. Rep. 342, 121 N.W. 811.

Buttz & Sinness, for respondent.

Counterclaim must arise out of the contract or transactions set out in the complaint. Braithwaite v. Akin, 3 N.D. 374, 56 N.W. 133.

Good faith must be shown in purchaser. Rev. Codes, sec. 6358; First Nat. Bank v. Flath, 10 N.D. 285, 86 N.W. 867; 1 Morse, Banks & Bkg. § 75; Union Nat. Bank v. Matthews, 98 U.S. 621, 25 L.Ed. 188; Fortier v. New Orleans Nat. Bank, 112 U.S. 439, 28 L.Ed. 764, 5 S.Ct. 234.

Good faith does not require plaintiff to make inquiry as to possible defenses. Goodman v. Simonds, 20 How. 343, 15 L.Ed. 934; Gray v. Boyle, 55 Wash. 578, 133 Am. St. Rep. 1042, 104 P. 828; Crawford, Anno. Neg. Inst. Law, p. 68; Sucker State Drill Co. v. Wirtz, 17 N.D. 316, 18 L.R.A.(N.S.) 134, 115 N.W. 844.

Purchaser of note must have actual knowledge of infirmity, or knowledge of such facts as amount to bad faith. American Nat. Bank v. Lundy, 21 N.D. 167, 129 N.W. 99.

Purchaser of note may be required to state that he bought in good faith. Knowlton v. Schultz, 6 N.D. 422, 71 N.W. 550; First Nat. Bank v. Flath, 10 N.D. 281, 86 N.W. 867; Walters v. Rock, 18 N.D. 52, 115 N.W. 511; American Nat. Bank v. Lundy, 21 N.D. 167, 129 N.W. 101; Stough v. Ponca Mill Co. 54 Neb. 500, 74 N.W. 868.

GOSS, J. SPALDING, Ch. J., BRUCE, J., (dissenting).

OPINION

GOSS, J.

Plaintiff brings replevin alleging a special property interest by virtue of a chattel mortgage upon personal property. The debt secured by the mortgage is evidenced by a negotiable promissory note dated November 12, 1908, executed and delivered by defendant as maker to the Farmers & Merchants State Bank of Knox, and due October 1, 1909, bearing interest at 12 per cent, and indorsed, sold, and transferred for full value before maturity to plaintiff.

Defendant for answer admits the execution and delivery of the note by defendant to the bank, "but alleges that the same was given without any consideration whatever being paid him therefor by the said bank, and that the same is wholly void." That he received no consideration from anyone for the said note, and that no consideration whatever passed therefor from the bank. And as an affirmative defense, "defendant denies that the plaintiff was an innocent purchaser of the said mortgage in due course of business or at all, and alleges the fact to be that plaintiff took the said note, knowing that the same was given without any consideration to said bank, and was wholly void. That plaintiff is an officer of said bank, to wit, president, and had knowledge of the fact that there was no consideration given for the same, and that as such officer of such bank he was bound to know the facts in regard to the execution of said note, and that plaintiff took the said note with knowledge of the defenses thereto."

"For a further and affirmative defense to said complaint" the defendant alleged his ownership of the property replevied, its wrongful taking from him by replevin at this suit of plaintiff, and "that in consequence of said acts of this plaintiff the defendant was deprived of the use of said property for the period of four days to his damage in the sum of $ 30." Further, that he was to an expense of $ 15 to secure bondsmen to rebond and redeem said replevied property; that he was put to expense, trouble, and work amounting to four days' time in trying to regain possession thereof, which time was of the value of $ 15, and that he was compelled to employ attorneys to defend his possession of said property, and regained possession thereof at an expense to him of $ 50. The prayer for relief in the replevin action was coupled with a demand for judgment for the aggregate damages above recited in the sum of $ 110. The part of the answer alleging and asking for damages was treated as a counterclaim, and a demurrer thereto interposed on the grounds "that the same do not state facts sufficient to constitute a defense or counterclaim," "and that the cause of action pleaded as a counterclaim does not arise out of the transaction, or of the contract, or of the matters set forth in the complaint, nor is the same connected with the subject of the action." The trial court sustained the demurrer, and error is assigned on this appeal. On the trial of the main action, plaintiff testified to being a resident of Minneapolis, carrying on the business of real estate and loans; that he purchased the note in question from the cashier, and that "it was indorsed to me the day I bought it, and transferred and delivered to me that day. Paid $ 2,000 and accrued interest to the date I bought it for the note. Did not know the note had been dishonored, if it had been. I bought it in good faith. Did not know there was anything wrong with it in any way. I never saw it till the day I bought it. I was in the bank when I bought it. I was not acquainted with Kepreta, the maker. I bought some other notes at the same time, one or two I believe. I mean when I say that I bought that note in good faith that I bought it just the same as I bought every other note that I ever bought in my life, and that everything was straight about it, the note and mortgage, and I went entirely by that and the recommendation of the cashier that the paper and security was good, and that it was a first mortgage. That was the extent of the information I got when I say I purchased it in good faith. I kept the note in my possession until I sent it out for collection in September, 1909. At the time I bought this paper from the bank I had no knowledge or notice of any kind of any infirmity in the instrument, the note, or of any defect of the title of the bank to the note. I made no inquiries whatever that I know of in regard to the consideration for this note. Minckler (cashier) handed me the note and wanted me to buy it, showed me the security, and told me it was a first mortgage, and told me the man was good, and I bought it on those grounds, that is all I know; had no other transaction in regard to this." Such is the testimony of the plaintiff, upon which recovery was had by an instructed verdict on the theory that the plaintiff was a holder in due course.

In line with the answer, the defendant called plaintiff for cross-examination under the statute, and he testified that he was president of the bank in question; that the bank had been organized three years, and that he was and had been president of it at all times since its organization; that one Tuff and one Minckler were the other officers of the bank; that Minckler was cashier at the time Kepreta gave the bank this note; that he did not make any examination of the records of the bank with reference to the consideration for which the note was given. The defendant in his own behalf was called and asked the question: "State what transaction or what conversation you had with Minckler as cashier of the Farmers & Merchants State Bank of Knox at the time this note was given, and what it was given for." Counsel for plaintiff then interposed the objection that the answer sought was "incompetent, irrelevant, and immaterial, no longer an issue in this case; the evidence itself, both for the defendant and plaintiff, now showing the note to have been taken in good faith, and without any notice of any infirmity therein, or any defect in the title of the bank thereto, or any lack of consideration; and it appearing legal upon its face, and that McCarty became the holder of it before it was overdue and without any notice that it had been dishonored if it had been, and defendant is conclusively estopped from showing anything further." Before ruling upon the objection on inquiry from the court, defendant's counsel stated, with reference to this offer of proof, that the defendant had finished his evidence with reference to showing that McCarty did not purchase this note in good faith and in due course; and that the evidence offered would be with "reference to failure of consideration or lack of consideration for the note," and that otherwise the case so far as the...