Winter v. Nobs
| Decision Date | 09 December 1910 |
| Citation | 112 P. 525,19 Idaho 18 |
| Parties | BERT WINTER, Appellant, v. JOHN NOBS et al., Respondents |
| Court | Idaho Supreme Court |
NEGOTIABLE INSTRUMENTS-NOTE EXECUTED THROUGH FRAUD-RIGHT OF INDORSEE TO RECOVER-NOTICE TO INDORSEE-BURDEN OF PROOF-GOOD FAITH OF INDORSEE-BONA FIDE PURCHASER QUESTION OF FACT FOR JURY.
(Syllabus by the court.)
1. Where the indorsee of a promissory note sues the makers, and on the trial they establish the fact that the note was given in payment of the purchase price of an animal sold under fraudulent misrepresentation as to the character and condition of the property sold and under a false and fraudulent guaranty, by sec. 3516, Rev. Codes, the burden of proof shifts from the defendants to the plaintiff to show that he acquired the note before maturity and in good faith for value.
2. Whether plaintiff in such a case has satisfactorily met the burden of proof to make good his claim to be an innocent purchaser, is a question of fact for the jury and is subject to the same rule as to its weight and sufficiency as any other fact in the case.
3. Under the provisions of sec. 3513 of the Rev. Codes, mere suspicious circumstances are not sufficient to charge the purchaser of a promissory note with bad faith and notice of equities and defenses, but in order to charge the paper in his hands with prior equities and defenses his notice must be actual, either of the facts constituting the equities and defenses or of such circumstances that his action in taking the paper in the face of such knowledge amounts to bad faith. The rights of the holder are to be determined by the simple test of honesty and good faith, and not by speculative issues as to diligence or negligence.
4. The mere failure to pay a periodical instalment of interest does not amount to a dishonor of a negotiable instrument, and that fact alone will not charge the purchaser with notice of any fraud or misrepresentation in the contract out of which the note arose or in the issuance and circulation of the note.
APPEAL from the District Court of the Eighth Judicial District, in and for Kootenai County. Hon. Robert N. Dunn, Judge.
Action by plaintiff on a promissory note. Judgment for defendants and plaintiff appeals. Affirmed.
Judgment affirmed. Costs awarded in favor of respondents.
Reed & Boughton and Robt. H. Elder, for Appellant.
"The holder of commercial paper is presumed to have taken it underdue for a valuable consideration and without notice of any objections to which it was liable; and this presumption stands until overcome by sufficient proof." (Carpenter v. Logan, 83 U.S. 271, 21 L.Ed. 313; Chambers Co. v. Clews, 88 U.S. 317, 22 L.Ed. 517; New Orleans Canal & B. G. Co. v. Montgomery, 95 U.S 16, 24 L.Ed. 346; Daniel on Negotiable Instruments, 4th ed., sec. 819; Meyer v. Lovdal, 6 Cal.App. 369, 92 P. 325.)
"Suspicious circumstances sufficient to put a prudent man upon inquiry are not in themselves sufficient to overcome the presumption of bona fides in the purchase of commercial paper." (Christianson v. Farmers' Warehouse Assn., 5 N.D. 438, 67 N.W. 300, 32 L. R. A. 730; McNamara v. Jose, 28 Wash. 461, 68 P. 903; Gray v. Boyle, 55 Wash. 578, 133 Am. St. 1042, 104 P. 828; Tourtelotte v. Brown, 1 Colo. App. 408, 29 P. 130; Wedge Mine v. Bank, 19 Colo. App. 182, 73 P. 873.)
Past due instalments of interest are not constructive notice of dishonor. (Union Investment Co. v. Wells, 39 Can. 625.)
We admit the rule to be that when fraud or illegality is set up as a defense in an action on a negotiable instrument, the plaintiff is required to show that he purchased the note in good faith, for value, before maturity, but the rule goes further, and it is the law that when the holder of a note, in addition to introducing the note, shows by competent evidence that he purchased the same before maturity for value in the usual course of business, he has met the burden required by the rule. (Drovers' Nat. Bank v. Blue, 110 Mich. 31, 64 Am. St. 327, 67 N.W. 1105; Reeve v. Insurance Co., 39 Wis. 520.)
R. T. Morgan and Ezra R. Whitla, for Respondents.
The defendants simply take the position that when they have shown fraud in the inception of the note and defect or infirmity in the title of the person who is negotiating the instrument, the burden is then upon the person claiming to be a holder to prove that he or some other person through whom he claims title is the holder in due course, and sec. 3516, Rev. Codes, shows clearly that when such facts are shown, the plaintiff must show that he had no notice of any infirmity in the instrument or defect in the title of the person who negotiated it to him. Under subdivision 4, sec. 3509, the question as to whether or not the plaintiff is a bona fide holder is a question of fact for the jury to determine.
The notes of McLaughlin Bros. are so fraudulent, and such fact is so well known, that it becomes incumbent upon the one purchasing the same to show that he did not know of the condition surrounding the execution of the note, as these notes have been so often declared fraudulent by the courts of last resort.
"An overdue and unpaid instalment of interest known to the indorsee at the time of the purchase dishonors negotiable paper and renders it subject, in the hands of the purchaser, to existing defenses between the original parties, the same as overdue and unpaid instalments of the principal."
The appellant is the indorsee of the note sued upon. The note was executed by the respondents in favor of McLaughlin Bros. in part payment for an imported stallion. The sale was made at Coeur d'Alene City through one V. E. Woods, as agent for the McLaughlin Bros. At the time the sale was made and the promissory note was executed, Woods, acting as agent for the vendors of the horse, executed and delivered to the vendees, who are the makers of the note, a certificate of warranty and guaranty as to the utility and general condition of the animal sold. The note came due on the 29th day of March, 1908, but prior thereto and on the 6th day of February, 1908, the payees, the McLaughlin Bros., sold, assigned and transferred the note to the appellant herein. At the time of the sale of the note to appellant, the respondents were in default of the payment of the annual interest due thereon. Defendants refused to pay the note on the ground of failure of consideration and fraud in the inception thereof, and the holder of the note thereupon commenced this action.
The defendants set up as a defense that the note was procured through fraud and deception, and pleaded the guaranty which was given with the animal at the time of the execution of the note, and further alleged a breach of the guaranty and warranties, and alleged that the plaintiff was not a bona fide holder of the note in due course. The evidence was submitted to the jury and they returned a verdict in favor of the defendants from which plaintiff appealed.
The evidence in the record is abundant to establish the first proposition, namely, that there was fraud in the inception of the contract; in other words, that the note was procured through fraudulent misrepresentations. It was shown by competent evidence that the horse was not what he was represented to be, and this defect was of such character that it must have been known to the vendors at the time the sale was made, and the facts and circumstances all point to that conclusion. The respondents gave notice to the agent or agents of the McLaughlin Bros. at Spokane as soon as they discovered the defects and condition of the horse, which was within a very short time after the purchase. It is claimed, however, in the briefs that it was impossible for the unsound condition of the horse and his defects to be discovered in so short a period of time. That might be true under some circumstances, but the condition in which he was at the time and his defects as to loss of vital energy were of such a character that they could as well be discovered and their effect foretold at the time and in the manner the discovery was made as could have been done months later. We conclude without any hesitation that the first proposition was sufficiently established to go to the jury and to justify a verdict that there was fraud in the inception of the contract.
The second proposition involves the construction of our statute. It is contended by respondent that under the provisions of sec. 3516, Rev. Codes,...
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