Planters' Bank & Trust Co. v. Felton

• Decision Date: 15 October 1924
• Docket Number: 101.
• Citation: 124 S.E. 849,188 N.C. 384
• Parties: PLANTERS' BANK & TRUST CO. v. FELTON ET AL.
• Court: North Carolina Supreme Court

124 S.E. 849

188 N.C. 384

PLANTERS' BANK & TRUST CO. v. FELTON ET AL.

No. 101.

Supreme Court of North Carolina

October 15, 1924

Appeal from Superior Court, Wayne County; Oliver H. Allen, Judge.

Action by the Planters' Bank & Trust Company against M. J Felton and others. Judgment for plaintiff, and defendants appeal. Reversed, and new trial granted.

The plaintiff bank brought this action, and since the suit was instituted has been placed in the hands of a receiver, the Bank of Fremont. The receiver bank was made a party plaintiff to the action, and the judgment rendered was in favor of the Bank of Fremont, receiver of the Planter's Bank & Trust Company

The suit was to recover on two notes, one for $3,000 and one for $10,000, dated December 31, 1919, and due at 12 months, with interest from date, made by Thomas Felton. The notes are similar in every respect except the amount.

It was admitted that the notes were signed by Thomas Felton. The notes were made payable to the order of himself, and it was contended that he indorsed them; the said notes being for the purchase price of stock in the Fisheries Products Company sold by agents of said company, and said notes having been sold by said agents to the plaintiff. After the filing of the final account by the executor, and long after said notes became due, the same having matured during the life of Thomas Felton, the plaintiff brought suit upon said notes against the defendants as legatees and beneficiaries under the will of the said Thomas Felton. The defendants denied the indorsement of said notes by the said Thomas Felton, and set up as a defense that said notes were illegal under C. S. art 10, chap. 106, known as the "Blue Sky Law," that they were obtained by misrepresentation and fraud; and the defendants further contended that, in any event, the defendants, legatees and beneficiaries under said will, were not liable upon said notes.

The exceptions and assignments of error will not be considered seriatim, but the main contentions will be passed on and the other material facts set forth in the opinion.

S. G Mewborn, of Wilson, and Dickinson & Freeman, of Goldsboro, for appellants.

Langston, Allen & Taylor, of Goldsboro, and B. F. Aycock, of Fremont, for appellee.

CLARKSON J.

The contention by the defendants that the plaintiffs should have sued M. J. Felton, executor of Thomas Felton, and not the defendants, legatees and beneficiaries under the will of Thomas Felton, cannot be sustained. The record shows, and it is not disputed, that M. J. Felton was duly appointed and qualified as executor of the last will and testament of Thomas Felton. As executor, he advertised as required by law and, after the expiration of the year, filed a final account with the clerk of the superior court and settled with the legatees and beneficiaries. The suit is allowable by statute in such cases for the debts of such decedent unpaid and the extent of liability fixed. Consolidated Statutes on the subject are as follows: Sections 45, 59, 60, 76, and 101.

The next contention is one of serious concern. It relates to negotiable instruments. The form of negotiable notes, in accordance with C. S. § 2982, is as follows:

"An instrument to be negotiable must conform to the following requirements: (1) It must be in writing and signed by the maker or drawer; (2) must contain an unconditional promise or order to pay a sum certain in money; (3) must be payable on demand or at a fixed or determinable future time; (4) must be payable to the order of a specified person or to bearer; and (5) where the instrument is addressed to a drawee, he must be named, or otherwise indicated therein with reasonable certainty."

C. S. § 3033:

"A holder in due course is a holder who has taken the instrument under the following conditions: (1) That the instrument is complete and regular upon its face; (2) that he became the holder of it before it was overdue and without notice that it has been previously dishonored, if such was the fact; (3) that he took it for good faith and 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."

C. S. § 3036, defines when title defective:

"The title of a person who negotiates an instrument is defective within the meaning of this chapter 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."

C. S. § 3037, defines what constitutes notice of infirmity or defect:

"To constitute a 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."

C. S. § 3040, further defines who is deemed a holder in due course:

"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."

A note payable to a specified person or his order is negotiable. C. S. § 2989. If payable to order, it is negotiated by the indorsement and completed by delivery. C. S. § 3010. Under the above Negotiable Instrument Law, when Thomas Felton made the negotiable notes sued on "payable to the order of myself" and he indorsed and delivered them and plaintiff bank became the holder, it "is deemed prima facie to be the holder in due course." By "due course" is meant that the bank became the holder before maturity; that it took the notes for good faith and value and without notice of any infirmity in the instrument or defect in the title of the person negotiating it. Nothing else appearing, this entitles the holder, the plaintiff bank, to maintain an action on the notes. By presenting the notes admitted to be signed by Thomas Felton and proof of his indorsement (which is denied in this case), the plaintiff bank makes out a prima facie case, that is, a case sufficient to justify a verdict; but this prima facie case may be rebutted.

The defendants introduced evidence tending to show that the execution of the notes had been obtained by fraud and tainted with illegality (infirmity in the notes and defect in the title), and thereupon the burden devolved upon the plaintiff to show by the greater weight of the evidence that it acquired the notes before maturity bona fide for value without notice of any infirmity in the notes or defect in the title (fraud or illegality) of the party negotiating them--the Fisheries Products Company. Such notice on the part of the plaintiff means either actual knowledge of the infirmity or defect, or knowledge of such facts that its action in taking the notes amounted to bad faith. Holleman v. Trust Co., 185 N.C. 49, 115 S.E. 825.

In construing section 3040, supra, in Bank v. Sherron, 186 N.C. 299, 119 S.E. 498, citing many cases, it is said.

"There are numerous cases which hold: 'Upon proof of fraud or illegality being offered, burden is shifted to holder, and he must show that he received the instrument bona fide and for value.' "

In Steel Co. v. Ford, 173 N.C. 196, 91 S.E. 845, it was said:

"The law presumes that the holder of a note endorsed in blank is its holder in due course; that he took it for value before maturity and without notice of any equity; that he is the owner and has the right to bring suit to enforce collection."

Is there any competent evidence in this case to be submitted to the jury to rebut this presumption or statutory declaration that the plaintiff bank is deemed prima facie to be a holder in due course?

The evidence was that in the community where the plaintiff bank did business, there were men selling stock for the Fisheries Products Company. B. C. Scott was cashier of the plaintiff bank. He testified on cross-examination:

"I don't know how long I had known these stock sales agents, but I had known them for some time, and they had been in the bank before and talked with me about handling the notes.

Q. You had made arrangements with them? A. I didn't make any arrangements with them at all to handle a paper like that; it had to be approved by the finance committee. These agents came in there to see if the bank would handle them."

J. L. Hare, a director of the bank and a member of the finance committee of the bank, testified, on cross-examination:

"Q. I will ask you if you didn't know that these particular notes were stock notes given for stock and offered to the bank as coming from a stock salesman? A. I imagine so.

Q. Do you know whether those other notes which he paid were also given for Fisheries Products stock? A. The same notes I thought, the same concern."

The notes given by Thomas Felton, when taken by the plaintiff bank, were not paid for in money, but certificates of deposit given the sales agent, and these certificates of deposit of the bank fell due the same day that Felton's notes fell due--12 months off, or on January 1, 1921. Three certificates, amounting to some $25,000, were given the sales agent and included the Felton notes and other notes of the Fisheries Products Company bought of the sales agent. The sales agent left $4,500 on deposit in the bank at the time he negotiated the notes and took certificates of deposit. The bank...