Somerall v. Citizens' Bank

• Decision Date: 26 June 1924
• Docket Number: 3 Div. 644.
• Citation: 211 Ala. 630,101 So. 429
• Parties: SOMERALL ET AL. v. CITIZENS' BANK.
• Court: Alabama Supreme Court

101 So. 429

211 Ala. 630

SOMERALL ET AL. v. CITIZENS' BANK.

3 Div. 644.

Supreme Court of Alabama

June 26, 1924

Rehearing Denied Oct. 9, 1924.

Appeal from Circuit Court, Conecuh County; Claude A. Grayson, Judge.

Action on promissory note by the Citizens' Bank against J. E Somerall and others. Judgment for plaintiff, and defendants appeal. Affirmed.

James J. Mayfield, of Montgomery, and J. Morgan Prestwood and Powell & Reid, all of Andalusia, for appellants.

Smith Young, Leigh & Johnston, of Mobile, and Hamilton, Page &amp Jones, of Evergreen, for appellee.

SAYRE J.

This is the second appeal in this case. 208 Ala. 501, 94 So. 476. As there stated the action is by the Citizens' Bank of Brewton against appellants as indorsers of a negotiable promissory note executed by F. L. Riley, payable to C. P. Deming and A. Cunningham, and by them indorsed to plaintiff. The pleadings have not been changed. For completeness of present statement we repeat that the special defense relied upon was that defendants had indorsed the note sued upon in renewal of a former note, with the understanding and agreement that their indorsement should not become operative and binding, unless and until it was indorsed by one Mason, by whom, along with defendants, the former note had been indorsed, and that Mason's indorsement had not been procured. Plaintiff replied specially that the note was negotiable paper, and that it had purchased the same for a valuable consideration in good faith before maturity and in the usual course of business. There was evidence tending to sustain the respective contentions of the parties.

Appellants, defendants, complain in the first place that the court gave two charges, C and D, which placed upon them the burden of proving that plaintiff, when it purchased the note, had notice of the agreement alleged in the plea. The effect of these charges is the same, the difference being that C hypothesizes expressly facts which were assumed in D, to wit, that plaintiff purchased the note before maturity and for value. This assumption was not improper, because the facts assumed were proved without contradiction. True it is that section 5007 of the Code defines a holder in due course as, among other things, one who takes in good faith and without notice of any infirmity in the instrument or defect in the title of the person negotiating it, that plaintiff in its replication did in effect allege that it had no notice of the agreement set up in the plea, and that section 5014 of the Code provides that:

"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 provision of the Negotiable Instruments Law, section 4973 of the Code, is such that, if a promissory note is delivered by the maker to the payee upon a verbal agreement that the instrument shall not take effect until other persons shall have signed, the paper will have no validity as between the original parties, unless so completed. And the section further provides:

"But where the instrument is in the hands of a holder in due course, a valid delivery thereof by all parties prior to him so as to make them liable to him, is conclusively presumed. And where the instrument is no longer in the possession of a party whose signature appears thereon, a valid and intentional delivery by him is presumed until the contrary is proved."

And section 5010 is:

"The title of a person who negotiates an instrument is defective within the meaning of this chapter [Negotiable Instruments Law] when he obtained the instrument, or any signature thereto, by fraud *** or when he negotiates it in breach of faith, or under such circumstances as amount to a fraud."

If there was the agreement set up by way of defense in defendants' plea, then plaintiff's assignor negotiated the note in bad faith as to all who signed conditionally.

Assuming proof of the facts alleged in the plea, it seems clear that the statute put upon the plaintiff the burden of showing that it was "a holder in due course"; but it is our opinion that, when plaintiff proved that it paid full value for the note before maturity, it established prima facie that it was a holder in due course, and that the burden of showing that plaintiff had notice of the infirmity of its assignor's title rested upon defendants; this for the reason that, notwithstanding the course of pleading put upon plaintiff, the burden of alleging that it had no notice of the infirmity set up in the plea, want of notice, from the nature of the issue, cannot in general be shown by direct evidence. There is authority to the contrary, but "the general rule is that, where the holder has restored his prima facie case by introducing evidence from which it appears that he took the instrument bona fide for value"-here plaintiff's evidence was that it purchased the note in suit for full value and before maturity and denied the facts constituting the alleged infirmity of its title, thereby denying by necessary inference notice of any such facts-"the burden is then shifted back to defendant to prove the holder's notice or knowledge of the specific facts invalidating the instrument, and in the absence of such further proof the holder is entitled to recover." 8 C.J. 987, where the cases are cited. The reason assigned for the rule placing the burden of proving want of notice on the holder is that proof of fraud suggests that the guilty party, being precluded from recovering thereon in his own name, has transferred the instrument to another to recover for his use, and the latter must overcome the presumption in that regard. Hence it has been held "that proof that the holder paid full value for the instrument sued upon makes out a prima facie case of bona fides." 4 Am. & Eng. Encyc. of Law (2d Ed.) p. 323, where the cases are cited, including First National Bank v. Dawson, 78 Ala. 67, a case, apart from any effect to be ascribed to the act, precisely in point. True, that decision, as well as the text last above cited, was written prior to the Negotiable Instruments Law, but the constituent elements of a holding in due course, the practical limitations on proof imposed by the nature of the subject-matter, and the reasonable inference to be drawn from proof of full or fair value paid, are the same as they have always been, and our judgment upon consideration of those parts of the act quoted above is that the rule as to the burden of evidence in cases where full value has been paid remains unchanged. This appears to be the reasonable interpretation of the statute-the only practicable method of administering justice in such cases. Hodge v. Smith, 130 Wis. 326, 110 N.W. 192.

In the sixth edition of Daniel on Negotiable Instruments (1919), § 819, speaking of the rule, prior to the statute, that the...