The American National Bank, a Corp. v. Lundy
| Decision Date | 23 December 1910 |
| Citation | 129 N.W. 99,21 N.D. 167 |
| Court | North Dakota Supreme Court |
Appeal from the District Court of Barnes county; Burke, J.
Action upon a promissory note. Defendant had judgment.
Reversed and new trial granted.
Judgment reversed and a new trial granted.
Lee Combs, for appellant.
Mere knowledge of suspicious circumstances will not defeat a recovery. First Nat. Bank v. Flath, 10 N.D. 281, 86 N.W. 867.
Being an officer of a purchasing bank and the corporation that is payee of the note is not notice, if he is ignorant of the defenses. Iowa Nat. Bank v. Sherman, 17 S.D. 396 106 Am. St. Rep. 778, 97 N.W. 12.
Not mere suspicion, but bad faith and want of honesty, must be shown. Dobbins v. Oberman, 17 Neb. 163, 22 N.W. 356; 7 Cyc. Law & Proc. pp. 945, 946; First Nat. Bank v Moore, 78 C. C. A. 581, 148 F. 953; Joyce Com. Paper § 475; Sinkler v. Siljan, 136 Cal. 356, 68 P. 1024; Massachusetts Nat. Bank v. Snow, 187 Mass. 159, 72 N.E. 959; Robbins v. Swinburne Printing Co. 91 Minn. 491, 98 N.W. 331, 867; Tamlyn v. Peterson, 15 N.D. 488, 107 N.W. 1081; Walters v. Rock, 18 N.D. 45, 115 N.W. 511; 7 Cyc. Law & Proc. p. 948 and cases there cited.
Knowledge that a note was not to be paid on a certain contingency already taken place, if buyer was ignorant of it, will not defeat recovery. Miller v. Ottaway, 81 Mich. 196, 8 L.R.A. 428, 21 Am. St. Rep. 513, 45 N.W. 665; Adams v. Smith, 35 Me. 324; Kelso v. Frye, 4 Bibb, 493; Dow v. Tuttle, 4 Mass. 414, 3 Am. Dec. 226; Davis v. McCready, 17 N.Y. 230, 72 Am. Dec. 461; Tiedeman, Com. Paper, § 42, and cases cited.
Page & Englert, for respondent.
Whether plaintiff purchased in good faith was for the jury. Walters v. Rock, 18 N.D. 45, 115 N.W. 511; Tamlyn v. Peterson, 15 N.D. 488, 107 N.W. 1081; Mendenhall v. Ulrich, 94 Minn. 100, 101 N.W. 1057; Mee v. Carlson, 22 S.D. 365, 29 L.R.A.(N.S.) 351, 117 N.W. 1033; Rochford v. Barrett, 22 S.D. 83, 115 N.W. 522; Bank of Spearfish v. Graham, 16 S.D. 49, 91 N.W. 340; Montrose Sav. Bank v. Claussen, 137 Iowa 73, 114 N.W. 547; McNight v. Parsons, 136 Iowa 390, 22 L.R.A.(N.S.) 718, 125 Am. St. Rep. 265, 113 N.W. 858, 15 A. & E. Ann. Cas. 665; Neyens v. Worthington, 150 Mich. 580, 18 L.R.A.(N.S.) 142, 114 N.W. 404; Joy v. Diefendorf, 130 N.Y. 6, 27 Am. St. Rep. 484, 28 N.E. 602; Canajoharie Nat. Bank v. Diefendorf, 123 N.Y. 191, 10 L.R.A. 676, 25 N.E. 402; Mutual Loan Asso. v. Lesser, 76 A.D. 614, 78 N.Y.S. 629; McGammon v. Shantz, 49 A.D. 460, 63 N.Y.S. 611; Padget v. O'Connor, 71 Neb. 314, 98 N.W. 870; Harrington v. Butte & B. Min. Co. 27 Mont. 1, 69 P. 102; Taft v. Myerscough, 197 Ill. 600, 64 N.E. 711; Kipp v. Smith, 137 Wis. 234, 118 N.W. 848.
Where there is fraud or lack of consideration, proof of these may be given, and burden is then on plaintiff to show that he is a holder in due course and for value. McNight v. Parsons, 136 Iowa 390, 22 L.R.A.(N.S.) 718, 125 Am. St. Rep. 265, 113 N.W. 858, 15 A. & E. Ann. Cas. 665; Rochford v. Barrett, 22 S.D. 83, 115 N.W. 522; Bank of Spearfish v. Graham, 16 S.D. 49, 91 N.W. 340; Padget v. O'Connor, 71 Neb. 314, 98 N.W. 870; Neyens v. Worthington, 150 Mich. 580, 18 L.R.A.(N.S.) 142, 114 N.W. 404; Goodrich v. McDonald, 77 Mich. 486, 43 N.W. 1019; State Nat. Bank v. Bennett, 8 Ind.App. 679, 36 N.E. 551; Bowman v. Metzger, 27 Or. 23, 39 P. 3, 44 P. 1090.
Knowledge of bad faith may be shown by evidence, direct or circumstantial. Bowman v. Metzger, 27 Or. 23, 39 P. 3, 44 P. 1090; Schmueckle v. Waters, 125 Ind. 265, 25 N.E. 281.
This is an action brought to recover on two negotiable promissory notes executed and delivered by the respondent to the Great Western Beet Sugar Company, and purchased by and indorsed to the appellant for value four days after their execution and delivery to the Sugar Company. They bear date the 14th day of May, 1906. One is for $ 748, payable the 14th day of May, 1907, while the other is for $ 630 and payable the 1st day of October, 1907, and they bear interest at the rate of 6 per cent per annum from their date. The answer, in short, alleges that they were executed and delivered by the respondent to the Great Western Beet Sugar Company, a corporation, as the purchase price for certain land and a water right in the state of Idaho which the payee claimed to own or control and be able to convey, and that at the time the notes were executed and delivered, contracts were also executed by the Sugar Company and delivered to the respondent, agreeing to convey such land and water right, and that another independent contract was at the same time executed and delivered, to the effect that if the respondent should visit Idaho at any time within one year, and should then become dissatisfied with his purchase, the Sugar Company would return all payments made and the notes to him. The answer also alleges that the appellant had full notice and knowledge of such agreements, and of all other facts set forth in the answer, prior to the time it became the holder of the notes in suit, and that for a long time prior thereto the cashier of the appellant bank had been a stockholder and member of said sugar company, and acquainted with the condition of said company, and its method of doing business, at the time of purchasing said notes and for a long time prior thereto; and further that the sugar company owned neither land nor water rights so agreed to be conveyed, and was unable to convey them; that respondent ascertained these facts on a visit to Idaho within the time required, and duly demanded of the company the return of the notes in question and the money paid.
The trial resulted in a verdict and judgment in favor of defendant, whereupon plaintiff submitted a motion for judgment notwithstanding the verdict, or for a new trial. The motion was denied and plaintiff appeals. We have heretofore filed an opinion in this case, reversing the judgment of the lower court and granting a new trial. Petitions for a rehearing have been submitted by both parties, and, on a further examination of authorities and more extended consideration of this controversy, we think, while adhering to our original conclusions, that a new trial should be granted that incidental conclusions stated in our former opinion should be modified or changed. Many errors are assigned regarding the admission of evidence introduced for the purpose of showing fraud in the inception of the contract and in the negotiation of the notes, which it will not be necessary to notice. Without taking up the evidence in the exact logical order, it may be said that it fully sustains the answer of the defendant that, as a part of the same transaction as the giving of the notes, the contracts set forth in the answer were executed and delivered, and that the respondent visited Idaho within the time limited and was dissatisfied with his trade, and elected to rescind the same in accordance with the terms of the contract. Much parol evidence was admitted over objection, as to conversations between the respondent and the agent of the sugar company regarding the representations made to induce the giving of the notes, and with employees and officers regarding the reasons for his dissatisfaction with his venture. Error is assigned as to practically all of these conversations, and we think that at least those preceding the execution of the contracts were improperly admitted in so far as they relate to stipulations and negotiations subsequently covered by and embodied in the written contracts. Of course, in so far as such conversations have any tendency to disclose a fraudulent enterprise on the part of the sugar company or any of its officers to defraud defendant, or in so far as such conversations disclose fraudulent representations on the part of any representative of such sugar company made to induce, and which operated to induce, defendant to enter into such contracts, such testimony was clearly admissible. The contracts were plain and unambiguous, and, as far as they cover any of the oral negotiations relative to the terms of the contract, explain themselves. As to those on his visit to Idaho, some of them are incompetent; but so much as relates to the inability of the sugar company to locate or convey land or water right, or to respondent's notice of rescission and demand for his money, is competent. One of these contracts brings the notes in question within the terms of § 6357, Rev. Codes 1905, which reads: "The title of a person who negotiates an instrument is defective within the meaning of this chapter when he obtained the instrument or any signature thereto by fraud, duress, or force, or fear, or other unlawful means, or for an illegal consideration, or when he negotiates it in breach of faith or under such circumstances as amount to a fraud." The sugar company negotiated these notes in breach of faith. This court held in First Nat. Bank v. Flath, 10 N.D. 281, 86 N.W. 867, on facts which we think make that case exactly in point, that where in an action on a negotiable note by an indorsee, the burden to prove a good-faith purchase has shifted to the plaintiff by the introduction of evidence showing fraud between the original parties thereto, the burden is sustained prima facie by showing a purchase for full value and before maturity. In the case at bar proof of the express agreement to return the notes in case of dissatisfaction shifted the burden to the plaintiff, and, in accordance with the holding in the Flath Case, that burden was sustained and a prima facie case made of holding in due course by the testimony of the cashier of the appellant, who was its executive officer and had sole charge of the purchase of this paper, as to having paid a valuable consideration...
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