Vaughn v. Johnson

• Decision Date: 27 November 1911
• Parties: EDGAR J. VAUGHN, Appellant, v. J. P. JOHNSON et al., Respondents
• Court: Idaho Supreme Court

119 P. 879

20 Idaho 669

EDGAR J. VAUGHN, Appellant, v. J. P. JOHNSON et al., Respondents

Supreme Court of Idaho

November 27, 1911

NEGOTIABLE PAPER-ADMISSION OF EVIDENCE-BONA FIDE HOLDER-ACTUAL KNOWLEDGE OF INFIRMITY IN INSTRUMENT-BAD FAITH-INSTRUCTIONS-COSTS.

(Syllabus by the court.)

1. Where the evidence of a witness is taken by deposition after notice given as provided by statute, and the adverse party neglects to appear and cross-examine the witness and thereafter gives notice in conformity with law of the taking of the deposition of the same witness, and in pursuance of such notice takes the deposition of such witness, and in so doing cross-examines the witness on the deposition previously given by him, it is erroneous procedure to admit the later deposition as a part of plaintiffs' case and before defendant has opened his side of the case. The party taking such deposition should be required to withhold the same and introduce it as a part of his defense in making his own proofs.

2. Mere evidence of fraud or deception in procuring a negotiable promissory note which is fair and regular on its face is not sufficient to raise a presumption of bad faith against the purchaser of such paper in due course, nor should such fact be given any consideration by a jury in determining the other fact, namely, that the holder of the instrument had actual knowledge of the infirmity or defect or knowledge of such facts that his action in taking the instrument amounted to bad faith.

3. Evidence of fraud in procuring the execution of a negotiable instrument shifts the burden of proof as to the good faith of a purchaser thereof before maturity and is admissible for that purpose, but of itself in no way tends to establish bad faith on the part of such purchaser.

4. Those who execute negotiable paper and set it afloat are chargeable with a much higher degree of diligence and caution than is chargeable to those who purchase such paper in due and regular course of business.

5. The purchaser of negotiable paper in due course and before maturity is under no duty to make inquiry as to the title to such paper, fair and regular on its face, nor is he under any duty to inquire into the consideration given for the note or of the transaction out of which it arose. He is only chargeable with facts which actually come to his knowledge; that is, actual knowledge of a defect in the title, want of consideration, or such facts as would constitute a defense to the note as between the maker and original payee, or actual knowledge of such facts and circumstances as would lead an honest and fair business man to make further inquiry and which inquiry if made would lead to the discovery of the fraud, defect and defenses.

6. An instruction to the jury that if they find from the facts of the particular transaction "or knowledge of other like transactions of McLaughlin Brothers that the plaintiff is not acting honestly, then they had a right to find that he did not act honestly in the purchase of this note," was erroneous in that it authorized the jury to infer that the purchase of a negotiable instrument was fraudulent where they found that such purchaser had subsequently done some act they did not consider honest and fair.

7. Where a party failed to appear at the time and place designated in a notice for taking deposition and cross-examine the witness and thereafter duly and regularly served notice of the taking of the deposition of the same witness, and in pursuance thereof took the deposition of such witness which consisted of a cross-examination of the witness on the deposition previously given, the costs and expense of taking such subsequent deposition should not be allowed as a part of the costs of the case.

APPEAL from the District Court of the Eighth Judicial District for the County of Kootenai. Hon. Robert N. Dunn, Judge.

Action on a promissory note. Judgment for defendants and plaintiff appealed. Modified and affirmed.

Cause remanded with directions.

Reed &amp Boughton, and Robert H. Elder, for Appellant.

There is nothing in the case to show that appellant had actual knowledge of the infirmity or knowledge of such facts that his action in taking the instrument amounts to bad faith. (Bothwell v. Corum, 135 Ky. 766, 123 S.W. 291.)

There must be something more than a failure to inquire into the consideration upon which it is made or accepted, because of rumors or general reputation as to the bad character of the maker. (Goetz v. Bank of Kansas City, 119 U.S. 551 7 S.Ct. 318, 30 L.Ed. 515; American Nat. Bank v. Lundy (N. D.), 129 N.W. 99; Canon v. Farmers' Bank, 3 Neb. (Unof.) 348, 91 N.W. 585; Sinkler v Siljan, 136 Cal. 356, 68 P. 1024; Lehman v Press, 106 Iowa 389, 76 N.W. 818; Borgess Inv. Co. v. Vette, 142 Mo. 560, 44 S.W. 754; Merritt v. Boyden, 191 Ill. 136, 85 Am. St. 246, 60 N.E. 907.)

Suspicion of the defense or the knowledge of circumstances calculated to excite the suspicions of a prudent man will not suffice to defeat the purchaser's title. That result can follow only from bad faith on his part. (Gray v. Goode, 72 Ill.App. 504; Kent v. Barnes, 72 Ill.App. 616; Metcalf v. Draper, 98 Ill.App. 399; Mann v. Merchants' Loan & Trust Co., 100 Ill.App. 224.)

This is true though he is guilty of negligence in not first following up such information for the purpose of disclosing the fraud or illegality to which the suspicious circumstances may seem to point. (Tourtellotte v. Brown, 1 Colo. App. 408, 29 P. 130; Coors v. Bank, 14 Colo. 202, 23 P. 328, 7 L. R. A. 845; Rand v. Stationery Co., 1 Colo. App. 270, 28 P. 661; Swift v. Smith, 102 U.S. 442, 26 L.Ed. 193; First State Savings Bank v. Breckenridge, 121 Mich. 149, 79 N.W. 1068.)

The court erred in admitting any evidence of fraud in the inception of the contract upon which the note was based, in the absence of any showing made by defendants tending to show that plaintiff had notice of the infirmities in the note, if any there were. (Drovers' National Bank v. Blue, 110 Mich. 31, 64 Am. St. 327, 67 N.W. 1105; Reeve v. Liverpool etc. Ins. Co., 39 Wis. 520; Wetmore v. Markoe, 196 U.S. 68, 25 S.Ct. 172, 49 L.Ed. 390, 2 Ann. Cas. 265.)

Whitla & Nelson, for Respondents.

When such facts and circumstances have been shown to the court and jury as were shown in this case, then it becomes a question of fact for the jury to decide whether or not the plaintiff was a purchaser in good faith. (City Nat. Bank v. Jordan, 139 Iowa 499, 117 N.W. 758; Winter v. Nobs, 19 Idaho 18, 112 P. 525; Park v. Winsor (Minn.), 132 N.W. 264; Citizens' Savings Bank v. Houtchens (Wash.), 116 P. 866.)

Plaintiff knew of McLaughlin Brothers' transactions and could not help but know that they were engaged in swindling deals. The decision of various courts upon this question is conclusive. (City Nat. Bank v. Jordan, 139 Iowa 499, 117 N.W. 758; Union Nat. Bank v. Winsor, 101 Minn. 470, 118 Am. St. 641, 112 N.W. 999, 11 Ann. Cas. 204; Union Investment Co. v. Wells, 39 Can. S.Ct. 625, 11 Am. & Eng. Ann. Cas. 33, and cases cited supra.)

"In a proper case the expense of taking depositions is a proper item of costs to be allowed to the prevailing party." (11 Cyc. 121; Pyne v. Nat. Steamship Co., 18 N.Y.S. 166; Finch v. Calvert, 13 How. Pr. 13; Cox v. Charleston F. & M. Ins. Co., 3 Rich. L. (S. C.) 331, 45 Am. Dec. 771; Smith v. Servis, 13 N.Y.S. 941, 59 Hun, 552.)

AILSHIE, J. Sullivan, J., concurs. STEWART, C. J., Dissenting.

OPINION

AILSHIE, J.

The motion to dismiss the appeals in this case must be denied, and it is so ordered.

On the 29th day of March, 1906, the respondents herein executed and delivered their promissory note to McLaughlin Brothers as part payment of the purchase price of a stallion. Thereafter and prior to the maturity of the note, and on about the 5th day of February, 1910, McLaughlin Brothers sold and delivered the note to the appellant herein, who thereafter commenced this action against the makers for the collection of the principal and interest thereon. The case was tried before a jury and a verdict was rendered for the defendants and a judgment was thereupon entered accordingly.

A large number of errors have been assigned but most of the questions presented have been considered by this court and passed upon in Winter v. Nobs, 19 Idaho 18, 112 P. 525, and Park v. Johnson, ante, 20 Idaho 548, 119 P. 52. We will therefore only consider such questions as have not received consideration in the foregoing cases.

It seems that the deposition of the appellant was taken in conformity with the statute at Columbus, Ohio, on the 3d day of February, 1911; that at the time of the taking of the deposition no one appeared on behalf of the respondents and no cross-examination was had. Thereafter and about the 27th of March, the attorneys for the defendants served notice on the attorneys for plaintiff that they would take the deposition of the plaintiff at Columbus, Ohio, on the 6th day of May following. The deposition was thereafter taken in conformity with the notice. When this deposition was taken, however, on the part of the defendants, it was taken as if it were a cross-examination of the witness on his previous deposition. The questions were propounded in the form of cross-examination, and the witness' attention was called to the evidence previously given by him. When the case came on for trial, the plaintiff introduced the deposition containing the evidence he had first given. Before the plaintiff rested his case, the defendants offered "deposition on cross-examination." The plaintiff's counsel objected to the introduction of this deposition as a deposition on cross-examination, and insisted that if it be admitted at all it should go in as a part of defendant's evidence when they came to make...