Proctor v. Carolina Fertilizer & Phosphate Co.

• Citation: 126 S.E. 608,189 N.C. 243
• Decision Date: 04 March 1925
• Docket Number: 161.
• Parties: PROCTOR ET AL. v. CAROLINA FERTILIZER & PHOSPHATE CO. ET AL.
• Court: United States State Supreme Court of North Carolina

126 S.E. 608

189 N.C. 243

PROCTOR ET AL. v. CAROLINA FERTILIZER & PHOSPHATE CO. ET AL.

No. 161.

Supreme Court of North Carolina

March 4, 1925

Appeal from Superior Court, Pitt County; Barnhill, Judge.

Action by J. O. Proctor and another, trading as J. O. Proctor & Bros., against the Carolina Fertilizer & Phosphate Company and others. From a judgment for plaintiffs, defendant Jesse Fussell appeals. Affirmed.

Burden on holder of instrument tainted by fraud to show he was innocent purchaser for value.

Stevens Beasley & Stevens, of Warsaw, and Julius Brown, of Greenville, for appellant.

F. G James & Son, of Greenville, for appellees.

CLARKSON J.

This case was before this court on appeal by Jesse Fussell from a continuance of restraining order to the hearing heard by Lyon, J., at Beaufort, August 17, 1921, and is reported in 183 N.C. 153, 110 S.E. 861. This court, Clark, C.J., writing the unanimous opinion, affirmed the judgment of the court below. The facts are fully set forth in that opinion, and will not be repeated.

On the trial in the court below the issues submitted to the jury and their answers thereto were as follows:

"(1) Was the execution of the note for $10,000 procured from the plaintiff by false and fraudulent misrepresentation of the defendant phosphate company as alleged in the complaint? Answer: Yes.

(2) If so, did the bank of Grimesland purchase said note for value, before maturity, and without notice of any defect or infirmity therein? Answer: Yes.

(3) Was the certificate of deposit in controversy given for and in exchange of said note and as the proceeds thereof? Answer: Yes.

(4) Did the defendant Jesse Fussell take said certificate for value before maturity, and without notice of any defect or infirmity therein? Answer: No."

We think the issues submitted to the jury were the proper ones raised by the pleadings and in accordance with the law as set forth in the decision in this case when here on appeal from the continuance of the restraining order to the hearing.

The finding of the jury on the first issue established the fact that the $10,000 note was procured by fraud from the plaintiffs, and the finding of the jury on the third issue established the fact that the certificate of deposit purchased by Jesse Fussell was tainted and polluted with the same fraud. When the defendant phosphate company started out to negotiate the certificate of deposit, it had a paper tainted and polluted with fraud. Water cannot rise above its source. The certificate of deposit, the exchange for the fraudulent note (less discount) when it reached Jesse Fussell, was polluted with fraud. The burden was then on Jesse Fussell, as was said in Bank v. Felton, 188 N.C. 386, 124 S.E. 849, "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. * * * 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. p. 49." Pierce v. Carlton, 184 N.C. 175, 114 S.E. 13; Bank v. Sherron, 186 N.C. 297, 119 S.E. 497; Bank v. Wester, 188 N.C. 374, 124 S.E. 855; Grace v. Strickland, 188 N.C. 369, 124 S.E. 856.

The court below on this aspect of the case charged the jury:

"The court charges you, if you shall answer the first issue 'Yes' and the third issue 'Yes,' thereby finding that the note described in this suit was obtained by fraud, and that the certificate of deposit for $9,800 issued by the bank of Grimesland was received by the defendant Fertilizer & Phosphate Company in exchange for and as the proceeds of said note, then the court charges you that the fraud by which said note was obtained would attach to the certificate of deposit, that is, said certificate would be tainted with fraud, and that places the burden upon him who claims to own the said certificate of establishing such facts as shown by the greater weight of the evidence that he received the same in good faith and for value before maturity, that is, that he purchased the same for value, before maturity, without knowledge of fraud, infirmity, or defect in the title of the holder and without knowledge of such facts as would make the taking of such certificate bad faith on his part."

The court below clearly and accurately charged the law. This exception and assignment of error cannot be sustained.

In Manufacturing Co. v. Summers, 143 N.C. 102, 55 S.E. 522, Hoke, J., clearly established the law in this jurisdiction:

"When a man's property has been obtained from him by

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