Shellenberger v. Nourse

• Decision Date: 07 October 1911
• Citation: 118 P. 508,20 Idaho 323
• Parties: GEORGE H. SHELLENBERGER, Respondent, v. R. L. NOURSE, Appellant
• Court: Idaho Supreme Court

118 P. 508

20 Idaho 323

GEORGE H. SHELLENBERGER, Respondent, v. R. L. NOURSE, Appellant

Supreme Court of Idaho

October 7, 1911

PROMISSORY NOTE-DEFECTIVE-ACTION ON BY INDORSEE-BURDEN OF PROOF-BONA FIDE PURCHASER-INSTRUCTIONS-NEGOTIABLE INSTRUMENTS.

(Syllabus by the court.)

1. Held, under the evidence that it was shown that the promissory note sued on was obtained by the G. W. B. S. Co. through fraud, without consideration and under an agreement that it would not be transferred, and that on such showing the burden of proof shifted to the respondent to show that he was a bona fide holder thereof in due course, as defined by the provisions of sec. 3509, Rev. Codes.

2. Held, that all evidence of facts and circumstances which tended to show the defect in the title to said promissory note should have been admitted.

3. Held, that it was error for the court to exclude any evidence tending to show the plaintiff's relation, as agent or otherwise, with the G. W. B. S. Co. up to the time of the alleged purchase of said note.

4. The giving of instructions Nos. 3, 9 and 11 held as error.

APPEAL from the District Court of the Third Judicial District for Ada County. Hon. Carl A. Davis, Judge.

Action to recover on a promissory note. Judgment for plaintiff. Reversed.

Reversed and remanded. Costs awarded to the appellant.

John T Morrison, and Perky & Crow, for Appellant.

The admissibility of the evidence adduced to show the respondent's knowledge of such facts and circumstances as would make his action in taking the instrument bad faith is clearly established by the authorities.

Knowledge need not necessarily be proved by direct and positive evidence; on the contrary, it may be inferred from facts and circumstances. (Park v. Wooten, 35 Ala. 242; Kneeland v. Wilson, 12 Cal. 241; Knight v State, 88 Ga. 589, 15 S.E. 450; Lynch v Richardson, 163 Mass. 160, 47 Am. St. 444, 39 N.E. 801; Robinson v. Worden, 33 Mich. 316; Abbe v. Justus, 60 Mo.App. 300; Van Raalte v. Harrington, 101 Mo. 602, 20 Am. St. 626, 14 S.W. 710, 11 L. R. A. 424; Pendexter v. Carlton, 16 N.H. 482; Parker v. Conner, 93 N.Y. 118, 45 Am. Rep. 178; Stainback v. Junk Bros. Lumb. & Mfg. Co., 98 Tenn. 306, 39 S.W. 530; Murray v. State, 46 Tex. Cr. 128, 79 S.W. 568; Davis v. Van Wie (Tex. Civ. App.), 30 S.W. 492; Stanton v. Simpson, 48 Vt. 628.)

It is competent to prove the notoriety of a fact in the neighborhood of a party sought to be charged with knowledge of it. (Merrill v. Hole, 85 Iowa 66, 52 N.W. 4; Jones v. Hatchett, 14 Ala. 743; Ward v. Herndon, 5 Port. (Ala.) 382; Brooks v. Thomas, 8 Md. 367; Hahn v. Penney, 62 Minn. 116, 63 N.W. 843; State v. Flint, 60 Vt. 304, 14 A. 178.)

Richards & Haga, for Respondent.

Taking up the evidence introduced by the appellant under the rule of law that the burden of proof is on him to show circumstances sufficient to defeat the note, we contend that nothing short of actual fraud or mala fides is sufficient to overcome the effect of such evidence, or invalidate the title of the holder supported by such evidence. (Collins v. Gilbert, 94 U.S. 753, 24 L.Ed. 170; Forbes v. Nat. Bank, 21 Okla. 206, 95 P. 785.)

Our law does not permit a man to place on the market an instrument which on its face is negotiable and then defeat recovery on it, as against an innocent purchaser, by showing a secret understanding that it was to be non-negotiable. (Joyce, Defenses to Commercial Paper, sec. 307; Parsons v. Parsons, 17 Colo. App. 154, 67 P. 345.)

Instruction No. 3, excepted to, is in strict conformity with the provisions of secs. 3481, 3502 and 3485 of our code, and is in harmony with the ruling of this court in Yates v. Spofford, 7 Idaho 737, 97 Am. St. 267, 65 P. 501.

The whole question to be determined is whether or not respondent was a holder in "due course." If he is, then the defense of failure of consideration is no defense. (Daniels v. Englehart, 18 Idaho 548, 111 P. 3.)

Appellant did not make sufficient showing to shift the burden of proof to the respondent to show that he was an innocent purchaser in due course. (Brown v. Feldwert, 46 Ore. 363, 80 P. 414.) It would have been an error for the court to assume such a state of facts in its instructions. (Owens v. Snell etc. Co., 29 Ore. 483, 44 P. 827.)

Failure of consideration is no defense against a bona fide purchaser for value. (Statton v. Stone, 15 Colo. App. 237, 61 P. 481; Spencer v. Alkali etc. Co., 53 Wash. 77, 132 Am. St. 1058, 101 P. 509.)

"The rights of the holder are to be determined by the simple test of honesty and good faith, and not by a speculative issue as to his diligence or negligence." (Murray v. Lardner, 2 Wall. 110, 17 L.Ed. 857.)

SULLIVAN, J. Stewart, C. J., and Ailshie, J., concur.

OPINION

SULLIVAN, J.

This action was brought to recover on a promissory note dated May 21, 1908, for $ 873, principal, with interest, and $ 125 attorney's fees and costs of suit. The note was given to the Great Western Beet Sugar Company of Mountainhome as partial payment on a water right. It is alleged that prior to the maturity of the note, on the 29th day of May, 1908, said sugar company for a valuable consideration transferred and delivered said promissory note to the plaintiff; that the plaintiff now is, and ever since said note was indorsed to him has been, the owner and holder thereof; that no part thereof has been paid. The answer admits the execution of said note and on information and belief denies that said note was assigned to respondent on the 29th day of May, 1908, or at any time, for a valuable consideration or for any consideration, and denies that the plaintiff is the owner or holder of said note; admits that said promissory note has not been paid, but avers that the same was given without consideration, and was obtained for the sale by the payee named therein to the defendant of an alleged water right, when in truth and in fact said sugar company did not have any water rights to sell and no reasonable expectation of having any, or having any canals or ditches through which said water could be delivered, all of which respondent well knew. And as a second defense it is averred that on the date said note was executed the sugar company entered into a contract as a part of said transaction, and upon the same consideration, whereby the company agreed that if he, the defendant, at any time within one year from said date desired to cancel said water right, he should have the right to do so and receive the return of certain notes, including the note involved in this suit, and alleges that the plaintiff knew of said agreement at the time of the pretended assignment to him. And as a third defense it is averred that said sugar company was hopelessly insolvent at the time said note was given, and that said company had no water or means of obtaining the water for delivery to the lands intended to be irrigated with said water; that it had no canals constructed through which to convey said water; that it had greatly over-sold the capacity of its canals and ditches and its water rights at the time of the sale of said water right to this appellant, all of which was well known to the officers of the company and to plaintiffs; that at the time of the giving of said note and at the time of the transfer of the note to the plaintiff herein, the said plaintiff was one of the confidential agents of the company, and its manager, John H. Garrett, and well knew that the consideration for said promissory note was valueless, and prays for judgment.

Upon the issues thus made the cause was tried by the court with a jury and verdict and judgment rendered and entered in favor of the plaintiff as prayed for in the complaint. Numerous errors are assigned and a reversal of the judgment asked.

We will first consider the sufficiency of the evidence to shift the burden of certain proof to the plaintiff. The respondent was sworn and testified on his own behalf, that he procured the note on which this suit was brought on the 29th day of May, 1908, and was at the time of the trial its holder and owner, and that no part thereof had been paid, and rested his case. Respondent was then placed upon the witness-stand for cross-examination under the act of the legislature providing for the cross-examination of an adverse party. (Sess. Laws 1909, p. 334.) He testified that he received said promissory note from John H. Garrett, general manager of the Great Western Beet Sugar Company; that he himself had been general agent for said company for the sale of water rights, from March, 1906, to March, 1907, and made numerous sales during that time; that prior to receiving the note he had never seen the party's system near Sunnyside where appellant's land for which the water right was given, was situated; that he bought the note from Garrett and received an absolute title to it. He testified as follows: "I gave full face value for this note; gave Mr. Garrett $ 873. I gave him the check. I do not now have the check. I have had it. I bought the note from Garrett. I purchased an absolute title to it."

Witness was then handed a paper, which is in words and figures as follows:

"DEFENDANT'S EXHIBIT 1.

"Boise, Idaho.

"Rec'd from J. H. Garrett the following collateral to be held for guarantee for payment of a certain note of even date given said Geo. H. Shellenberger by the Great Western Beet Sugar Co. for $ 1523.85.

"Water right deed from L. I. Herz for 320 acres of land.

"One note of R. L. Nourse for $ 866.00 due in one yr.

"One note of R. L. Nourse for $ 873.00 due in 6 months.

"One note of Mary O. and Jas. A. Baker for $ 300 due in one yr.

"GEO. H. SHELLENBERGER.

"5/29/08."

The respondent then identified a letter written to the appellant on November 2, 1908, in which he states that...