Arnd v. Aylesworth

123 N.W. 1000, 145 Iowa 185

• Court: Supreme Court of Iowa
• Decided: December 20, 1909
• Status: Published

Opinion

Weaver, J.

The note in suit was given to Baxter & Recroft- for part of the purchase price of certain lands in Nebraska and secured by mortgage upon the property. There was evidence from which the jury might properly find that defendant was induced to buy the property and give the note by the false and fraudulent representations of Baxter & Recroft as to the location, quality, and value of the land. There was also evidence from which it might be found that E. E. Hart, a broker and banker at Council Bluffs, Iowa, purchased the notes and mortgage so given by defendant at a discount of about twenty-five percent from their face value; such purchase being effected through the agency or assistance of one Gaines, who had knowledge of the fraud which had been perpetrated on the defendant. After receiving the paper, Hart notified the defendant that he held it, and was informed by her that she had been defrauded in the deal and would not pay the debt unless she was compelled to do so. Later this action at law was brought on one of the notes in the name of Mrs. A. W. Way as plaintiff, who claimed to be an innocent purchaser thereof before maturity. Mrs. Way was an aunt of Ilart living in the state of New York, and the petition was verified by him as her agent. The defendant answered denying the good faith of plaintiff’s alleged purchase and ownership of the paper, and pleading fraud in its inception and consequent damage to her in more than the amount of the note. Evidence was offered and introduced on both sides, and when the parties had rested the court upon plaintiff’s motion directed a verdict against the defendant for the full amount of the note on the ground that there was no evidence in the record upon which a verdict in defendant’s favor could be sustained. The correctness of that ruling is the main question presented for our review. It should also be said- that, after this suit was commenced, and after her deposition had been taken, Mrs. Way died, and her administrator has been substituted as plaintiff.

I. Negotiable instruments: good faith purchaser: direction of verdict: sufficiency of ■ evidence. As has already been stated, the case as made presents evidence tending to sustain the defendant’s claim that the note had its inception in fraud. If defendant testifies truthfully (and her credibility was a matter for the jury to determine), she was the victim of a rank imposition devised and executed by Baxter & Becroft, with the aid of others, whereby she was induced to purchase a lot of very undesirable land at a grossly exorbitant price. Assuming the sufficiency of this showing, as we must for. the purposes of this appeal, the burden was cast upon the plaintiff to prove that Mrs. Way, or some person under whom she claims, acquired title to the paper in due course. Code Supp. 1907, section 3060a59. To remove this burden she was required to show by competent evidence: (1) That she became the holder of the note before it was overdue and without notice that it had been previously dishonored, if such was the fact; (2) that she took it in good faith for value; and (3) that at the time it was negotiated she had no notice of any infirmity in the note or defect in the title of the person negotiating it. Code Supp. 1907, section 3060a52. And to justify the court in directing a verdict in her favor the testimony of the bona -fide character of her holding must not only be without substantial evidence tending to impeach it, but the showing in its support must be so clear and unequivocal as to leave no room for difference of-opinion concerning it among fair-minded men. McNight v. Parsons, 136 Iowa, 397.

2. knowledge of defects. Does the record make such a case for the appellee? The statute provides that to constitute. notice of infirmity in a negotiable instrument or of a defect in the title of the person negotiating it the person to whom it. is negotiated must have had actual knowledge thereof or knowledge pi such facts that his action in taking the instrument.-amounts to bad faith. Code Supp. 1907, section 3060a56. This provision simply puts in statutory form a rule of the common law- as previously interpreted by this and many other courts. Keegan v. Rock, 128 Iowa, 43. In some of the states it seems to have been held that one who takes a transfer of negotiable paper under circumstances to put a reasonable person on inquiry as to defenses against it is considered as having notice of the facts which such inquiry would develop; but the more general trend of the decisions from an early day has been to the effect that mere ground of suspicion as to possible defects in the title of the negotiator or of the existence of defenses to the instrument negotiated is not th'e equivalent of notice to the transferee, and, to be regarded as an innocent purchaser, he need not as a matter of law be diligent to investigate the circumstances of the origin of the paper, though, if the negligence be of a marked or gross character, it may be competent to establish the mala '¡ides of the purchase. That which will charge the paper in his hands .with prior equities and defenses is actual or direct notice of the facts, or, in the absence of such notice or knowledge, the existence to his notice of such facts or circumstances that his action in taking the paper amounts to bad faith. Of this class of eases an illustrative example is Goodman v. Simonds, 61 U. S. 343 (15 L. Ed. 934), which is a leading case upon the subject. The court there, speaking by Clifford, J., and laying down the rule as it has frequently been recognized in this jurisdiction, held that mere ground of suspicion known to the purchaser of negotiable paper before maturity, or even negligence on his part, is not in itself sufficient to charge him with notice, and proceeds also to speak of the limitations to be observed in the application of such rule. It says:

Whether a party had such knowledge is a question of fact for the jury, and, like other disputed questions of scienter, must be submitted to their determination under the instructions of the court; and the proper inquiry- is: Did the party seeking to enforce the payment have knowledge at the time of the transfer of the facts and circumstances which impeach the title as between the antecedent parties to the instrument? And if the jury find-that he did not, then.he is entitled to recover, unless the transaction is attended by bad faith, even though the instrument had been lost or stolen. Every one must' conduct himself honestly with respect to the antecedent parties when he takes negotiable paper in order- to acquire a title which will shield him against prior equities. While he is not obliged to make inquiries, he must not willfully shut his eyes to the means of knowledge which he knows are at hand, as was plainly intimated ,by Baron Parke in 16 M. & W. 355, for the reason that such conduct, whether equivalent- to notice or not, would be plenary evidence of bad faith.

3. Same: good faith purchaser: proof” °f The courts accepting the rule of the Goodman case have not been uniform in their holdings as to where the burden' of proof lies in an action by the purchaser of negotiable paper tainted with fraud in its in- , . ception; but it has long been the doctrine m 7 0 this and many other states that, such fraud being shown, the burden is not upon the defendant to show the 'plaintiff’s bad faith in the purchase, but is upon the plaintiff to affirmatively establish his good faith in that transaction. Keegan v. Rock, 128 Iowa, 39, and cases there cited. It is important that this distinction be borne in mind in the consideration of cases like the one at bar, for it is quite possible that the testimony as a whole may be insufficient to justify an affirmative finding of bad faith on the part of the plaintiff, and still not be so conclusive of his good faith as to require a withdrawal of the question from the jury. Cox v. Cline, 139 Iowa, 128; Mace v. Kennedy, 68 Mich. 389 (36 N. W. 187). It is ordinarily to be expected, in these cases, that the purchaser will testify to his good faith and want of notice, and • that defendant is compelled to rely upon circumstantial evidence to rebut such showing. AVhether plaintiff has sufficiently satisfied the burden resting upon him and made good his claim to be an innocent purchaser is therefore a question for the jury, save in those instances where the testimony is not only consistent with the good faith of such purchase, but is such that no fair-minded por-1 son can draw any other inference therefrom. A categorical denial of notice or knowledge is something which in many, if not in most, instances can not be opposed by direct proof; and the credibility of the witnesses, their interest in the case, the reasonableness or unreasonableness of their statements, the'time, place and manner of the transaction, its conformity to or its departure from the ordinary methods of business, and all the other facts and circumstances which, though of slight moment in themselves, yet, when taken together, give character and color to the purchase under inquiry, constitute a showing which the court can not properly pass upon as a matter of law.

4 same- denial ' infirmity6- dí rented verdict. Observing this principle it has frequently been held that a denial of notice by the purchaser, though he be uncontradicted by any other witness, is not sufficient to justify a directed verdict in his favor. Bank v. Diefendorf, 123 N. Y. 191 (25 N. E. 402 10 L. R. A. 676); Joy v. Diefendorf, 130 N. Y. 6 (28 N. E. 602, 27 Am. St. Rep. 484); McNight v. Parsons, 136 Iowa, 390. Uncontradicted evidence is not sufficient to command a directed verdict where the inferences to be drawn from all -the circumstances are open to different conclusions by reasonable men. Elwood v. Telegraph Co., 45 N. Y. 549 (6 Am. Rep. 140) ; Honegger v. Weltstein, 94 N. Y. 252; Alabama Ins. Co. v. Ins. Co., 81 Ala. 329 (1 South. 561); Bank v. Donaldson, 6 Pa. 179; Rumsey v. Boutwell, 61 Hun. 165 (15 N. Y. Supp. 765); Shaffer v. Clark, 90 Pa. 94; Dibble v. Insurance Co., 70 Mich. 1 (37 N. W. 704, 14 Am. St. Pep. 470). Says the Massachusetts court: “It is not often, where the party has the burden of proving a fact by the testimony of witnesses, that the jury can be required by the court to say that the fact is proved. They may disbelieve the witness. If the conclusion is to be reached by drawing inferences from other facts, ordinarily the jury alone can draw these inferences. It is only when no inferences are possible except those which tend to one conclusion that the jury can be required to find a proposition affirmatively established.” Anthony v. Association, 162 Mass. 354 (38 N. E. 973, 26 L. R. A. 406, 44 Am. St. Rep. 367). See, also, Skillern v. Baker, 82 Ark. 86 (100 S. W. 764, 118 Am. St. Rep. 52), and Oleson v. Hendrickson, 12 Iowa, 222.

In the last cited case the court said: -“It is true that all the evidence for the defense had been ruled out as inadmissible under the state of the pleadings; still, before the plaintiff could recover, he was bound to prove tire substance of his complaint against the defendant. Whether he had done so or not it was the province of the jury to determine,, and it was not competent for the court to take the matter out of the hands of the jury.” In Elwood v. Telegraph Co., supra, the court pertinently observes: “It is undoubtedly the general rule that, where unimpeached witnesses testify distinctly and positively to a fact and are uncontradicted, their testimony should be credited and have the effect of overcoming a mere presumption; but this rule is subject' to many qualifications. There may be such a degree of improbability in the statements themselves as to deprive them of credit, however positively made. , The witnesses, though unimpeached, may have such an interest in the question at issue as to affect their credibility.

. . . And, furthermore, it is often a difficult question, to decide when a witness is, in a legal sense, uncontradicted. lie may be contradicted by circumstances as well as by statements of others contrary to 'his own. In such cases courts and juries are not bound to refrain from using their judgment and to blindly adopt the_ statements of the witness for the simple reason that no other witness has denied them, and that the character of the witness has not been impeached.” That the circumstances under which a note is negotiated may be sufficient to .sustain a verdict against the holder’s positive denial of notice has been frequently held. Bank v. Paddick, 90 Iowa, 63; Bank v. Creen, 138 Iowa, 156; Bank v. Schloesser, 101 Iowa, 571; McNight v. Parsons, 136 Iowa, 390; Keegan v. Rock, 128 Iowa, 39; Detroit Bank v. Trust Co. (Mich.) 123 N. W. 28. Speaking of this proposition in Hoffman v. Leibfarth, 51 Iowa, 711, it is said: “It is not essential that the knowledge of the plaintiff should have been established by direct, testimony. It may be established from circumstances and inference therefrom.” See, also: Custard v. Hodges, 155 Mich. 361 (119 N. W. 583) ; Bank v. Trust Co., 145 Mich. 656 (108 N. W. 1092, 116 Am. St. Rep. 319; Peirson v. McNeal, 137 Mich. 158 (100 N. W. 463); Goodrich v. McDonald, 77 Mich. 486 (43 N. W. 1019); Shirk v. Neible, 156 Ind. 66 (59 N. E. 281, 83 Am. St. Rep. 150); Auten v. Gruner, 90 Ill. 300; Johnson v. Way, 27 Ohio St. 380; Myers v. Bealer, 30 Neb. 280 (46 N. W. 479); Sullivan v. Langley, 120 Mass. 437; Jones v. Gordon, L. R. 2 App. 627.

good faith purchaser: evidence. 5 same-These authorities, and many others which might be cited, uphold with much unanimity the rule, as we have stated it, that neither negligence, nor knowledge of sus picious circumstances, nor failure to inquire into the consideration, will in or of itself be bad faith in a holder of negotiable paper who purchases it in the ordinary course of business; but they are equally consistent in holding that the existence of such facts may be evidence of bad faith sufficient to take the question to the jury, and especially is this so where the burden is upon the holder to establish the innocent character of his purchase. Applying the law thus stated to the record in the instant case, we are of the opinion that the trial court erred in directing a verdict for the plaintiff.

-In view of the necessity of ordering a new trial we refrain from expressing any opinion ’ upon the merits of the case, and enter upon no review in detail of the' evidence offered. It is sufficient, at this point, to say that observing the fundamental rule by which, upon an appeal from an order directing a verdict, this court is bound to give the evidence the most favorable construction for the appellant of which it is reasonably susceptible, we think there is testimony in the record from which the jury could properly find that the note in suit was purchased by ITart for and on account of Mrs. Way, or, in other words, that Hart’s relation to the matter was that of agent for Mrs. Way, and that the circumstances attending the negotiation were such that, under the rules of law hereinbefore discussed, the question whether the plaintiff had established the good faith of that transaction should have been submitted to the jury.

We may further say that, even if it be granted that Mrs, Way derived her title from Hart as an intermediate holder in his own right, the proof of the good-faith character of her holding is not so clearly and- affirmatively established as to permit the court to pass upon it peremptorily as a matter of law. This phase of .the case is involved in considerable obscurity, and the record discloses a failure in the production of the best evidence of which the casé was apparently capable, which, to say 'the least, leaves room for unfavorable inferences. This reticence, we assume, did not arise from any desire to suppress or withhold the facts, but rather from a misconception of the position of the respective parties with respect to the burden of proof to which we have frequently referred in this opinion. To illustrate, it appears that the transaction between Mrs. Way ánd Hart was effected entirely by correspondence. Hart also says that a record of this, with other business transactions with Mrs. Way, was kept or entered upon hisjoooks; but neither the correspondence nor the books, which ought to be the best possible evidence to show the nature and circumstances of this transaction, are put in evidence. Counsel for appellee say that defendant did not ask for the production of the books and letters, and, if she wanted them, she should have made the proper demand or request therefor. It is true -the request made was rather vague and indefinite, and probably insufficient to compel -the production as a matter of right; but.it must be remembered that the appellant, having proved the fraud attaching to the inception of the notes, was not required to go farther and show the mala fides of the plaintiff’s purchase; but it was incumbent on plaintiff, in order to recover, to show lier hand and open up the details of the transaction to the inspection of the court and jury. If, with this burden upon her, plaintiff could afford to take the chances of not producing this testimony, it could hardly be expected that defendant would take the chances of what an-excursion into the books and correspondence of her adversary might develop.

E . admissions: pleadings. ' Of the other errors argued, we need only allude to the following: The original petition filed in the suit alleged that the note in suit was indorsed and transferred by Baxter & Becroft to Thompson, and that Thompson sold and transferred it to plain- ..." x tiff, and it was no't until after the case had been pending about a year that the pleading was amended, alleging the sale of the paper by Thompson to Hart and by Hart to plaintiff. On the trial defendant offered' the allegation of the original petition in evidence as tending to support the theory that Hart’s position in the transaction was that of an agent instead of a purchaser in his own right, and upon the objection of plaintiff the testimony was excluded as incompetent, immaterial, and irrelevant. The objection .should have been overruled. The allegation in the pleading was of the nature of an admission by the plaintiff inconsistent' with her subsequent claim and -inconsistent with the testimony offered in her behalf on the trial, and defendant was entitled to put it in evidence for whatever the jury might find it worth in arriving at the truth of the controversy. This is especially true when the offered allegation has been withdrawn or. superseded by a subsequent pleading. Field v. Ruffcorn, 117 Iowa, 157; Shipley v. Reasoner, 87 Iowa, 555; Leach v. Hill, 97 Iowa, 81; Burns v. Railroad Co., 110 Iowa, 385; Ludwig v. Blackshere, 102 Iowa, 370; Raridan v. R. R. Co., 69 Iowa, 531. It is easy to say that upon the chief point in controversy such an admission of record, though not conclusive and still open to explanation, might easily be of material weight in the minds of the jury, and its exclusion was therefore prejudicial error. This error was made more injurious in the present case by the fact that the court at first admitted the evidence and allowed it to be read to the jury, bu.t later recalled the ruling and excluded it, thus emphasizing to the jury that the admission in the superseded pleading could not be ’considered by them. ,~

7' conclusion: hearsay. Again, Mrs. Way in her deposition was permitted- to answer in the affirmative, and over defendant’s objection, the direct question whether she “purchased said note in good faith and for value.” This was simply the witness’ conclusion of mixed law and x ° fact, and involved the ultimate question the jury were impaneled to decide. The objection should have been sustained. This witness was also permitted to say that she bought the notes before they were due, when it is conceded she never saw the notes and knew nothing of their terms except as she had been informed by Hart, and, while the answer was doubtless given in all candor, it was evident she was only repeating hearsay information, and defendant’s motion to strike such answer should have been sustained. In view, however, of the record as a whole, we should not be inclined to reverse on this ground alone.

Other errors argued are either not well assigned, or are of a nature not likely to arise on a retrial.

Por the reasons hereinbefore indicated, the judgment appealed from is reversed, and the cause remanded for a new trial. — Reversed.