E. S. Co., Inc. v. Rocheleau

• Decision Date: 22 June 1932
• Docket Number: No. 7143.,7143.
• Citation: 161 A. 145
• Parties: E. S. COMPANY, Inc. v. ROCHELEAU.
• Court: Rhode Island Supreme Court

161 A. 145

E. S. COMPANY, Inc.

v. ROCHELEAU.

No. 7143.

Supreme Court of Rhode Island.

June 22, 1932.

Exceptions from Superior Court, Providence and Bristol Counties; Alexander L. Churchill, Judge.

Action by the E. S. Company, Inc., against Walter C. Rocheleau. Verdict for defendant, and plaintiff brings exceptions.

Exceptions overruled, and case remitted for entry of judgment on the verdict.

David Stoneman and Robert Clayton, both of Boston, Mass., and Charles Z. Alexander, of Providence, for plaintiff.

James H. Rickard, of Woonsocket, and Everett L. Walling, of Providence, for defendant.

RATHBUN, J.

This is an action in assumpsit on two promissory notes. The case is here on plaintiff's exceptions to the admission and exclusion of evidence, and to a ruling directing a verdict for the defendant.

At the trial in the superior court, the plaintiff, a holder to whom the payee had indorsed the notes, introduced the notes and rested. The defendant then took the stand and testified to facts sufficient to warrant a finding not only that there was a failure of consideration, but that there was fraud in obtaining the notes, and that the payee negotiated the notes in breach of faith and under such circumstances as amount to a fraud.

The defendant then rested, to enable the plaintiff to attempt to show that it was a holder in due course. Instead of attempting to do so, the plaintiff rested its case and moved for a direction of a verdict in its favor. The defendant also made a motion for a direction of a verdict in his favor. After each party had rested and made a motion for a direction of a verdict and argued their respective motions, the plaintiff requested permission to reopen its case and introduce testimony.

Section 65 of our Negotiable Instrument Act, chapter 227, Gen. Laws 1923, provides, in part, as follows: "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."

The plaintiff contends (1) that the word "shown" means proved to the satisfaction of the jury, and (2) that, although a plaintiff offers no evidence to prove that he is a holder in due course, a trial justice, regardless of the amount of evidence produced by the defendant showing that the payee's title was defective, is never warranted in directing a verdict for the defendant.

By said section "every holder is deemed prima facie to be a holder in due course." In other words, there is a presumption that a holder is a holder in due course. A presumption, however, is not evidence, and cannot be weighed as evidence. When the person against whom a presumption operates produces satisfactory evidence to rebut the presumption, it becomes inoperative, and the case proceeds as if no presumption had been invoked. Colangelo v. Colangelo, 46 R. I. 138, 125 A. 285. If it is shown that there was fraud in the inception of the note, i. e., in obtaining it or in negotiating it in breach of faith or under such circumstances as amount to a fraud, the presumption disappears, and a contrary presumption, that the holder is not a holder in due course, arises, and the burden is on the plaintiff to prove that he is a holder in due course. See said section 65; Cook v. Am. Tubing Co., 28 R. I. 41, 65 A. 641, 9 L. R. A. (N. S.) 193. The reason for the rule given in the English cases is that where there is fraud the presumption is that he who is guilty will part with the instrument for the purpose of enabling some third party to recover upon it, and such presumption operates against the holder, and it devolves upon him to show that he is a holder in due course. Bailey v. Bidwell, 13 Mees. & Wels. 73; approved in Smith v. Braine, 3 Eng. L. & Eq. 379; and in Harvey v. Towers, 4 Eng. L. & Eq. 531.

There was evidence showing fraud in obtaining the notes and that the notes were obtained by a promise to keep them in the treasury of a certain corporation for bookkeeping purposes, and not to negotiate them. Upon the question of fraud, the defendant established a prima facie case. As this court said in Halliday v. R. I. Co., 42 R. I. at 353, 107 A. 86, 87: "His testimony is consistent and reasonable. It is the only evidence bearing on this question. This testimony is not impeached by any physical facts or 'by circumstantial evidence either intrinsic or extrinsic,' and therefore must be taken to be true." See, also, Rostron v. Rostron, 49 R. I. 292, 142 A. 162; Gorman v. Hand Brewing Co., 28 R. I. ISO, 66 A. 209; Tiffany v. Morgan (R I.) 73 A. 465.

The defendant having established a prima facie case of fraud, it was incumbent upon the plaintiff either to rebut this evidence of fraud, or to show that the plaintiff was a holder in due course. The plaintiff did not attempt to do either. The trial justice, in passing upon their respective motions for a direction of a verdict, had no alternative but to direct a verdict for the defendant. In section 497 of Bigelow on Bills, Notes and Checks (3d Ed.) p. 392, the rule is stated as follows: "It is quite clear from the language of § 59, placing the burden on the plaintiff 'when it is shown that the title of any person who negotiated the instrument was defective,' that the defendant is required, in the first instance, to establish the special defense of defect of title in some prior party, before the plaintiff can be required to assume the burden of establishing his own character as a holder in due course. But after the defendant has thus prima facie established the facts constituting the defect of title, then the burden of showing that he holds in due course rests upon the plaintiff." The entire text is supported by numerous authorities there cited. See, also, Vaughn v. Johnson, 20 Idaho, 669, 119 P. 879, 37 L. R. A. (N. S.) 816; Standard Trust Co. v. Commercial Nat'l Bank, 167 N. C. 260, 83 S. E. 474; Fidelity Trust Co. v. Ellen, 163 N. C. 45, 79 S. E. 263; Myers v. Petty, 153 N. C. 462, 69 S. E. 417; American Nat'l Bank v. Fountain, 148 N. C. 590, 62 S. E. 738; Hahn v. Bradley, 92 Mo. App. 339.

In Canajoharie Nat'l Bank v. Diefendorf, 123 N. Y. at page 205, 25 N. E. 402, 406, 10 L. R. A. 676, the court said: "It makes no difference in the question presented whether the plaintiff pursues the orderly course of first presenting and proving his note, relying upon the presumption of bona fides which accompanies the possession of the paper, and delays making proof of the circumstances of his purchase until after the defendant gives evidence of his defense, or, as in this case, he makes the proof of such circumstances as part of his affirmative case. * * *...