Udell Savings Bank v. Hollingsworth
| Decision Date | 26 September 1922 |
| Docket Number | 34512 |
| Citation | 189 N.W. 944,194 Iowa 440 |
| Parties | UDELL SAVINGS BANK, Appellant, v. W. S. HOLLINGSWORTH, Appellee |
| Court | Iowa Supreme Court |
Appeal from Appanoose District Court.--C. W. VERMILION, Judge.
ACTION to recover on a promissory note by the plaintiff who claims to be a holder in due course. Upon the conclusion of the testimony the court sustained defendant's motion for a directed verdict and entered judgment against plaintiff for costs. Plaintiff appeals.
Reversed.
H. E Valentine, for appellant.
Purley Rinker and Howell, Elgin & Howell, for appellee.
DE GRAFF, J.
Plaintiff seeks to recover as a holder in due course on a promissory note reading as follows:
August 8, 1919. $ 750.
Six months after date I promise to pay to the order of myself seven hundred fifty . . . . dollars for value received, with interest at the rate of 6 per cent per annum.
Due February 8, 1920. W. S. Hollingsworth.
[Indorsed] W. S. Hollingsworth.
This appeal involves the correctness of the ruling of the trial court in directing a verdict for the defendant. In view of the two propositions argued in this court, there is little occasion to recite the facts and circumstances surrounding the inception and execution of the note in suit.
I. It is established by undisputed evidence that the note at the time of its negotiation to the plaintiff bank did not bear the internal revenue stamps as required by Federal statute. For this reason the trial court ruled "that the note was not regular and complete on its face" and that the bank "did not become a holder of the note in due course."
This ruling is predicated on the theory and principle stated in Lutton v. Baker, 187 Iowa 753, 174 N.W. 599, which since the instant trial has been overruled in Farmers State Bank v. Neel, 193 Iowa 685, 187 N.W. 555. See also, Richardson v. Cheshire, 193 Iowa 930, 188 N.W. 146.
Our legislature in the enactment of the Negotiable Instruments Law defined the essential elements of negotiable paper, and no other legislative body has power to change or amend that law. Negotiability is a property or characteristic of certain written instruments, and such instruments must contain the essential elements as defined, and must be transferred under the conditions prescribed by that law. A holder in due course does not come into being otherwise.
Sufficient to state in disposing of this point that the omission of revenue stamps does not affect the negotiable character of the note in suit. It was error to hold that it was not regular and complete on its face.
II. The other proposition concerns itself with the admissibility of a decree entered by the district court of Iowa in and for Polk County in a cause of action instituted by the state of Iowa upon relation of its attorney general against the Associated Packing Company for the dissolution of said corporation and the annulment of its charter.
The note in suit was executed and delivered to agents of said corporation by the defendant for shares of its stock. The date of the note is August 8, 1919. The note was purchased by the plaintiff bank on August 9, 1919. Some time subsequently thereto the petition in the dissolution suit was filed in the Polk County court and on the 23d day of October, 1920 the decree was singed by the presiding judge, Hon. E. M. McCall, and entered of record.
The Associated Packing Company at the time of the negotiation and purchase of this note by the plaintiff was competent to transfer its title to negotiable paper. It is also true that any fraud in the inception and execution of such paper may be proved by the maker as a defense when a claimed bona-fide holder seeks to recover thereon.
The defendant-maker sought to establish and prove fraud by the introduction of a subsequent decree of dissolution of the corporation which was the original indorsee of the note. Was the decree with the recitals therein competent and therefore admissible? The plaintiff bank was a stranger to the dissolution suit, to the issues, and to the provable and proved facts. True the court could have decreed the death of the Associated Packing Company without giving a reason. The material question is: Are the findings and declarations of the court upon which the judgment of dissolution is predicated as binding inter omnes as is the recital that the corporation is dead and its charter annulled?
This case has no quarrel with the distinction between judgments in rem and judgments in personam. The decree in the dissolution case fixed the status of the corporation and that status is binding on the world. The adjudication of a status is a judgment in rem. The res relates to the corporate franchise. The prayer of the petition of the state of Iowa asked "for the dissolution of the corporation, the Associated Packing Company, that its charter be revoked and a liquidation had," and the decree entered recites that "the same is hereby granted, and the charter of said corporation is hereby annulled and revoked and the corporation is ordered dissolved and its assets distributed."
The decree in the dissolution case recited by a finding that there was fraud practiced upon the state of Iowa in the application for the charter; that there was a conspiracy between the officers of the corporation and the officers of the Associated Finance Company to defraud the purchasers of stock in the Packing Company; that shares of capital stock were issued without having received the full par value therefor, in money or in property; that false written reports and statements of its financial affairs were made by the Packing Company; that it was a promotion scheme, and that its incorporators did not have a good-faith intention to engage in the packing business.
The trial court in the case at bar ruled that "the note in suit was without consideration having been given for shares of stock in a corporation which has been found and adjudicated in a proceeding brought by the state to have been organized and to have originated in a fraudulent purpose." This was not conclusive against the plaintiff bank, as it alleged that it was a holder in due course.
The defendant tendered the issue of fraud in the inception of the note, and as to this issue the defendant had the burden. The issue tendered by the plaintiff in its reply is the bona fides of the purchase of said note. The Negotiable Instruments Law on this issue places the burden of proof upon the plaintiff, and he must establish that he is a bona-fide holder within the definition of the statute. Negotiability contemplates two things: First, that the instrument in suit is negotiable in form; that is to say, that it possesses the earmarks of a...
To continue reading
Request your trial