Spokane Sec. Finance Co. v. De Lano

• Decision Date: 30 June 1932
• Docket Number: 23765.
• Citation: 12 P.2d 924,168 Wash. 546
• Parties: SPOKANE SECURITY FINANCE CO. v. DE LANO.
• Court: Washington Supreme Court

12 P.2d 924

168 Wash. 546

SPOKANE SECURITY FINANCE CO. v. DE LANO.

No. 23765.

Supreme Court of Washington

June 30, 1932

Department 1.

Appeal from Superior Court, Pierce County; E. D. Hodge, Judge.

Suit by the Spokane Security Finance Company against Edith H. De Lano. From a judgment for plaintiff, defendant appeals.

Reversed.

Rex S Roudebush, of Tacoma, for appellant.

Harry H. Johnston, of Tacoma, for respondent.

HERMAN J.

The plaintiff, Spokane Security Finance Company, sued defendant Edith H. De Lano, a widow, upon a promissory note for $300. Plaintiff claimed to be a holder of the note in due course. During the trial, defendant introduced evidence in support of her affirmative defense, and at the close of such testimony plaintiff challenged the sufficiency of defendant's evidence by moving that the case be taken from the jury and judgment entered for plaintiff. This motion was granted, and from the judgment in favor of plaintiff entered pursuant thereto, defendant has appealed.

The assignments of error present the question whether the trial court erred in taking the case from the jury and entering judgment for respondent.

Respondent corporation made formal proof of its claim that it was a holder of the note in due course. The appellant's testimony showed that she was a widow who supported herself by keeping summer boarders at a small resort in Pierce county; that the note in question was given as part consideration for five thousand shares of Primus Placer Gold Mining Company stock at 10 cents a share. There was testimony intorduced to the effect that, although the mine had been represented to appellant as being rich and valuable and certain to have an increased value, it was valueless, and was known to the sellers to be worthless. There was evidence that the sale of the stock to Mrs. De Lano was simply part of a sales program to cheat such people as might be trapped by the various fraudulent representations which were made; that M. W. Oseran, the salesman and the payee on the note, was actively associated with C. R. Paulson in the sale of the mining stock; that, as part of the selling scheme, it was falsely represented to the appellant that C. R. Paulson was the Spokane business man who erected an office building in Spokane. There was also evidence that it was part of the program to get into the hands of a Spokane company any notes for stock, in order that collections could be enforced for the benefit of all concerned; that the note was indorsed by Oseran to Paulson, and by Paulson to his brother-in-law, F. M. Mohr, president of respondent corporation, and by F. M. Mohr to the corporation. There was ample evidence to warrant a jury in returning a verdict predicated upon the theory that the appellant was defrauded. In Harris v. Saunders, 108 Wash. 195, 182 P. 949, 950, the court said: 'The trial judge therefore was warranted in sustaining a challenge to the sufficiency of the evidence only if there was no substantial evidence on the part of the appellant tending to support the material issues. Disputes in the evidence and disputed inferences arising from the evidence were for the jury to determine, not the trial judge. It must be remembered also that in passing upon this question the appellant was entitled to have considered, where the evidence is contradictory, or where favorable or unfavorable inferences can be drawn from the evidence, that part of the evidence most favorable to his contention.'

After the introduction of testimony by appellant to the effect that the payee of the note obtained it by fraud, respondent corporation could no longer rest upon the ordinary presumption that the transferee of a promissory note has acquired it in good faith, without notice of any infirmity or defect, but was required to show affirmatively its good faith.

'Ordinarily the presumption is that the transferee of a bill of exchange or promissory note acquired it in good faith, without notice of any infirmity or defect. And the burden of proof is on the party asserting the contrary to show facts impeaching the holder's title. But the burden of making out good faith is always upon the party asserting his title as a bona fide holder, in a case where it is admitted or the proof shows that the paper has been fraudulently, feloniously, or illegally obtained from its maker or owner. Such a party makes out his title by presumptions, until it is impeached by evidence showing that the paper had a fraudulent inception, and when this is done the plaintiff can no longer rest upon the presumptions, but must show affirmatively his good faith. By such proof of fraud or illegality a prima facie case of notice to the holder is made out, and the burden of proving that he took without notice is thrown upon him. He must show that he came by the possession of the note fairly, and without any knowledge of the fraud or illegality, and unattended with any circumstances justly calculated to awaken suspicion.' 3 R. C. L. 1033, § 240.

'While the production of a negotiable instrument, properly indorsed, is prima facie evidence of the holder's right to recover against the maker, yet according to the prevailing view the maker may compel the holder to support his prima facie case with further evidence, by showing a defense that would have been available against the payee. The reason for this distinction, as generally given, is that a presumption exists that a fraudulent payee would be likely to shield himself by placing the instrument in the hands of another person to sue upon it. After proof that it was once in the hands of a fraudulent holder, it may justly be presumed to continue in the hands of a holder of that character until the contrary be proved. The position of the holder of negotiable paper is of an exceptional character. He may acquire a title through a thief, and yet maintain it against the original owner. But his possession is deemed to be not enough to support a recovery, after it once appears that he must trace title through fraudulent practices and unclean hands. The rule is not one that abridges the holder's substantive right as determined by the law merchant; it merely puts the burden of proof upon the one who knows the facts. If he is an innocent holder, the fact that the maker has a complete defense against the payee cannot affect him. From the character and importance of such a defense, this would seem to be a reasonable requirement, and it is approved by a large majority of the modern authorities.' 3 R. C. L. 1038, § 244.

In Ireland v. Scharpenberg, 54 Wash. 558, 103...