Youle v. Fosha

90 P. 1090, 76 Kan. 20, 1907 Kan. LEXIS 215

• Court: Supreme Court of Kansas
• Decided: June 8, 1907
• Docket: No. 14,946
• Status: Published

Opinion

The opinion of the court was delivered by

Graves, J.:

The plaintiff in error claims that the instructions given by the trial court are erroneous, and that the instruction requested should have been given. On the other hand, the defendant in error insists that, the note having been obtained by false and fraudulent representations, the burden of proof was cast upon the plaintiff in error to establish his claim that he was an innocent holder, and, having failed to do this, the instructions given, even if erroneous, were not prejudicial. He further urges that even if the holder received the note in good faith, and without notice of the manner in which it was obtained from the payer, -still he knew thereof before he parted with value or did anything under his contract, and therefore is not in a position to claim protection for anything paid or done thereafter. Lastly, it is insisted that, if the rule stated in the instruction refused is correct, the jury in their general verdict found bad faith on the part of the hoider in the purchase of the note, and therefore a new trial should not be granted.

We are unable to assent to any of the contentions made by the defendant in error. As we view the situation, the note was not obtained from the maker by the use of fraudulent representations. It may be assumed that false representations were made, but they were not believed and relied upon. Fosha refused to make the note payable to Abrams or to the company, but executed and delivered it to his neighbor and friend, Quantic, whom he authorized to investigate the financial condition of the company, and, if he found it to be as represented, then to transfer the note to the company, but otherwise to return it to the maker. Evidently Fosha was suspicious and deemed it best not to rely upon the statements of Abrams. He appointed Quantic to act for him under instructions not to part with the note until he found by a personal investigation that the company was sound. Afterward Quantic transferred the note to Abrams for the company. It cannot therefore be said that the company obtained the note by means of fraudulent representations made to the maker. Fraudulent representations, to be available as a cause of action or defense, must have been relied upon by the complaining party. (20 Cyc. 39; 14 A. & E. Encycl. of L. 106; White, Admx., v. Smith, 39 Kan. 752, 18 Pac. 931; Wood v. Staudenmayer, 56 Kan. 399, 43 Pac. 760; Gretner v. Fehrenschield, 64 Kan. 764, 68 Pac. 619; Trust Co. v. McIntosh, 68 Kan. 452, 75 Pac. 498.)

The plaintiff in error, before receiving notice of any objections to the note, had obligated himself to do $9000 worth of work for the oil company, and received the note as part of a payment thereon. The fact that this part payment was made in advance is immaterial. In addition to his obligation to perform the contract he had actually expended more than $3000 in preparation for its completion before he received notice that the maker was dissatisfied. This was sufficient to make him a purchaser for value. (7 Cyc. 928, and following pages; 4 A. & E. Encycl. of L. 283.)

Notice of an infirmity in a note after there has been a bona fide sale thereof does not affect the purchaser, unless he is in a situation where he can protect the maker without loss to himself. Here the holder could not, after notice, have surrendered the note or done anything to relieve the payer, without being injured thereby.

This relation between the parties is wholly unlike that existing between a fraudulent vendor and a purchaser who has notice of the fraud before complete payment of the purchase-money has been made. In such a case it would be a matter of indifference to the vendee to whom the remainder of the purchase-price is payable. The argument of the defendant in error and the cases cited apply only to such a situation, and are not in point here.

We think the plaintiff in error is a bona fide purchaser of the note in controversy, and is entitled to be protected as such. The legal rule relating to. notice as stated in the instruction requested by him and refused by the .court is correct. (4 A. & E. Encycl. of L. 300; 7 Cyc. 944; Fox v. Bank of Kansas City, 30 Kan. 441, 1 Pac. 789.)

The error of the court in improperly instructing the jury upon this question is not cured by the verdict. The special findings of fact amount to a statement that the holder of the note took it without actual notice of any defense thereto. The whole subject of bad faith was withheld from the jury, and they were practically instructed that no such question was in the case. It cannot therefore be said that the general verdict contains any finding upon that subject.

Because of the error of the court in presenting the case to the jury the judgment is reversed.