Vickery v. Burton
| Decision Date | 19 November 1896 |
| Citation | 69 N.W. 193,6 N.D. 245 |
| Court | North Dakota Supreme Court |
Appeal from District Court, Burleigh County; Winchester, J.
Action by Daniel W. Vickery against Melkert H. Burton and another. From a judgment for plaintiff, defendant's appeal.
Reversed.
Judgment of the District Court reversed and a new trial ordered.
Newton & Patterson, for appellants:
This action was to recover the amounts of certain notes by foreclosing the mortgage given to secure them. They were open to any defense arising out of the same transaction between the original parties. Olds v. Cummings, 31 Ill. 188; Edgerton v. Young, 43 Ill. 464; Kluman v Frishie, 63 Ill. 482; White v. Sutherland, 64 Ill. 181; Haskell v. Brown, 65 Ill. 29; International Bank v. Bowen, 80 Ill. 541; Melendy v Keen, 89 Ill. 395; Bailey v Smith, 14 Ohio St. 396; Bush v. Lathrop, 22 N.Y. 535; Johnson v. Carpenter, 7 Minn. 176; Hostetter v. Alexander, 22 Minn. 559; Schmidt v Frye, 5 La.Ann. 435; Garner v. Gay, 26 La.Ann. 376; Morris v. White, 28 La.Ann. 855; Butler v. Slocum, 33 La.Ann. 170; Wright v. Eames, 10 Rich. Eq. 585; Shaw v. Carpenter, 54 Vt. 155. A mortgage is an assignable but not negotiable instrument, § § 4716-4717, Rev. Codes. The court cannot presume as a matter of law that P. J. Scovil written upon the back of the notes is the payee Pulaski J. Scovil. Andrews v. Wynn, 54 N.W. 1047; Spinning v. Sullivan, 11 N.W. 758; Central Trust Co. v. First National Bank, 101 U.S. 68, 25 L.Ed. 876. The plaintiff in the first instance had made out a case by the production of the notes and an indorsement to him. The burden was then cast upon defendants to show some illegality or other matter that would defeat the notes in the hands of the payee. Thereupon such defense having been introduced, the burden shifted back upon the plaintiff to show that he was holder in due course. Clark v. Pease, 41 N.H. 414; Bigelow on B. and N. 507; Heath v. Sanson, 2 B. and Ad. 291; Brown v. Philpot, 2 M. and Rob. 285; Bailey v. Bidwell, 13 M. and W. 73; Mills v. Barber, 1 M. and W. 425; Bingham v. Stanley, 2 A. and E. 117, 2 Greenl. Ev. § 172; Monroe v. Cooper, 5 Pick 412; Woodhul v Holmes, 10 Johns 231; Vallett v. Parker, 6 Wend. 615; Small v Smith, 1 Den. 583; Worcester Co. Bank v. D. & M. Bank, 10 Cush 488; Wyer v. D. & M. Bank, 11 Cush. 52; Crosby v. Grant, 36 N.H. 273; Rockwell v. Charles, 2 Hill 499; Bissell v. Morgan, 11 Cush. 198. Whether a transaction is bona fide is a question of fact for the jury. Slattery v. Donnelly, 1 N.D. 264. Plaintiff must show not only that he purchased for value before maturity, but also that he acted in good faith to overcome defendants showing of illegality. Canajoharie Nat. Bank v. Diefendorf, 1 N.Y.S. 58, 23 N.E. 801, 10 L. R. A. 626; Cummings v. Thompson, 18 Minn. 246; Sullivan v. Langley, 120 Mass. 437; Smith v. Livingstone, 111 Mass. 342; Paton v. Coit, 5 Mich. 505; Bank v. Richter, 57 N.W. 61; First Nat. Bank v. Helan, 65 N.W. 952; Averill v. Bayles, 3 N.W. 731; Wortendyke v. Meehan, 2 N.W. 199; Darst v. Backus, 24 N.W. 681; Colby v. Parker, 52 N.W. 693; United States, etc. v. Crosby, 53 N.W. 352.
Boucher & Philbrick, for repondent.
The burden of proving that the assignee took the mortgage with notice or that he is not a bona fide purchaser is on the party who sets up fraud. Marshall v. Billingsby, 7 Ind. 250; Farmers Bank v. Douglas, 19 Miss. 469; Langdon v. Keith, 9 Vt. 299; Hotchkiss v. National Bank, 88 U.S. 354; Murray v. Lardner, 69 U.S. 110. The holder of negotiable paper before maturity and without notice takes it clear of equities between the original parties and neither fraud nor duress will invalidate it in his hands. Clarke v. Pease, 11 N.H. 425; Hogan v. Moore, 48 Ga. 162; Hall v. Wilson, 16 Barb. 551; Phelan v. Moss, 67 Pa. 59; Magee v. Badges, 34 N.Y. 247; Bank v. Hoge, 35 N.Y. 65. The purchaser in good faith of a promisory note before maturity who takes an assignment of a mortgage securing the same, takes the security as the note free of equities. 1 Jones Morts. § § 834-840; Beals v. Neddo, 2 F. 41; Carpenter v. Langan, 16 Wall. 271; Renicott v. Supervisors, 16 Wall. 452; Sawyer v. Picket, 19 Wall. 146; Hayden v. Drury, 3 F. 782; Swett v. Stark, 31 F. 858; Sprague v. Graham, 29 Me. 160; Pierce v. Fannee, 47 Me. 507; Paige v. Chapman, 58 N.H. 333; Taylor v. Page, 6 Allen 86.
This action is brought to foreclose a mortgage given to secure the payment of two promissory notes dated October 12, 1892, of $ 300 each. The notes were executed by the defendants, and delivered to one Pulaski J. Scovil, to whose order they were made payable, and the mortgage was made and delivered by the defendants to Scovil at the same time the notes were delivered. The mortgage covered real estate situated in Burleigh County, and was properly recorded. The complaint alleges: "That thereafter the said notes were, by the indorsement of the said Pulaski J. Scovil, for a valuable consideration, and before the same became due, transferred and delivered to the plaintiff; that the said mortgage at the same time was sold and transferred to the said plaintiff by the said Pulaski J. Scovil; that thereafter said Pulaski J. Scovil, by an instrument in writing, duly executed, acknowledged, and delivered, assigned to the said plaintiff the above described mortgage, and the said assignment was thereafter, on the 18th day of March, 1895, filed in the office of the register of deeds of said County of Burleigh, and recorded in Book E of Mortgages." The allegations of the complaint above quoted, and having reference to the transfer and indorsement of the notes and the assignment of the mortgage, are put in issue by the defendants' answer. As new matter, and as a defense, the answer sets out, in effect, that the notes in suit were given by the defendants to Scovil for a part of the purchase price of a certain threshing machine outfit sold by Scovil to the defendants; that certain false and fraudulent representations concerning the qualities of said machinery and outfit were made to the defendants by said Scovil as an inducement to them to purchase the same, and that such representations were believed and relied upon, and the defendants were induced thereby to purchase the same, and did accordingly purchase the same; that said representations were known to be false by Scovil when they were made, and the same were false and fraudulent, and that the said machinery and threshing outfit were not worth a greater sum than was paid down in cash for the same at the time of the purchase; and that the notes and mortgage were wholly without consideration.
The fraud in the sale of the machinery, as set out in the answer, was established by the testimony offered at the trial in behalf of the defendants, and no evidence was offered by plaintiff to disprove such fraud. The fraud pleaded must therefore be regarded as an established fact in the case. But fraud, as between original parties, would not be available to the defendants in this action if the plaintiff in this action is a good faith purchaser of the notes, in due course, and without notice of such fraud. There is much conflict of judicial opinion as to whether, where fraud in a sale of property, as between the vendor and vendee, is shown, such showing operates to shift the burden of proof to the plaintiff in a case where negotiable paper given for the property by the purchaser is sued on by an indorsee of the paper. We think the better reason and the weight of authority support the view that proof of such fraud does shift the burden of proof, and that in such cases, after proof of fraud, the plaintiff has the burden of showing a good faith purchase of such paper, in due course and without notice. See Vosburgh v. Diefendorf, (N. Y. App.) 119 N.Y. 357, 23 N.E. 801; Id., (Sup.) 1 N.Y.S. 58; Bank v. Crosley, (Iowa) 86 Iowa 633, 53 N.W. 352; Colby v. Parker, (Neb.) 34 Neb. 510, 52 N.W. 693; Darst v. Backus, (Neb.) 18 Neb. 231, 24 N.W. 681; Averill v. Boyles, (Iowa) 52 Iowa 672, 3 N.W. 731; Bank v. Holan, (Minn.) 63 Minn. 525, 65 N.W. 952; Bank v. Richter, (Minn.) 55 Minn. 362, 57 N.W. 61; Smith v. Livingston, 111 Mass. 342; Sullivan v. Langley, 120 Mass. 437. Under the rule of evidence established by these authorities,--fraud as between original parties having been shown,--the burden of showing a good faith purchase, in due course, of the notes in suit, was cast upon the plaintiff. Plaintiff assumed this burden, and undertook to show by his testimony that he was such good faith purchaser, in due course of business. And this issue--which was tendered squarely by the defendants answer--presents the turning point of the case.
The notes matured, respectively, in November, 1893 and 1894, and were put in evidence without objection, as was the original instrument of assignment, whereby the mortgagee (Scovil) assigned the mortgage to the plaintiff. The notes were indorsed with the following words: "P. J. Scovil." The instrument of assignment bears date the "14th day of March, A. D., 1895," and said instrument was recorded in the office of the register of deeds on the "18th day of March, A. D. 1895." Said instrument of assignment recites that the mortgagee, in addition to the mortgage, does grant, bargain, sell, and set over the "notes or obligations" described in the mortgage. To show that the notes to the plaintiff were transferred to him in good faith, and in due course, before their maturity, the plaintiff put in evidence his own deposition, that of Pulaski J. Scovil, and the deposition of one Charles Chambers. No other testimony was offered on this feature of the case. It will serve no useful purpose to set these depositions out at length. It will suffice to say that they...
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