Bank of Sampson v. Hatcher
66 S.E. 308
N.C.
1909
Check Treatment
Hoke, J.,

after stating tbe case: There was no evidence tending to establish any breach of contract ,at tbe time plaintiff became endorsee for value of tbe note sued on, tbe testimony showing tbat tbe locks were not ordered by defendant until June or July following, and tbe defects complained of were not disclosed until some time thereafter. Nor was there any testimony amounting to legal evidence to show tbat tbe plaintiff bank was interested with tbe payees in their transaction with defendants, otherwise than as endorsees of tbe notes, nor to show fraud on tbe part of tbe bank in connection with tbe matter, or any knowledge or notice of it! On tbe contrary, while tbe trade was made in tbe law office of H. A. Grady, Esq., wbo was at tbe time *362 vice-president of the bank, it appears that said Grady and the cashier of the bank had made a contract with Lothrop & Go. similar to that of defendants, and had taken the precaution to inquire as to the business standing and solvency of the payees, and had received assurances that both were good,-and there was nothing offered to show that these assurances were untrue.

There are several well-considered decisions of the Court which support this view of the facts in evidence, among others, Farthing v. Dark, 111 N. C., 243; Applegarth v. Tillery, 105 N. C., 407; and our statute on the subject (Revisal, sec. 2205) is conclusive:

“2205. Actual Knowledge Necessary to Constitute Notice of Infirmity. To constitute notice of an infirmity in the instrument or defect in the title of the person negotiating the same, the person to whom it is negotiated must have had actual knowledge of the infirmity or defect, or knowledge of such facts, that his action in taking the instrument amounted to bad faith.”

It has further been held with us (Evans v. Freeman, 142 N. C., 61) that the form of the endorsement, “without recourse,” does not affect the question, and the defense indicated in the counterclaim can only be sustained, if at all, on the ground that at the time of the endorsement the plaintiff bank was cognizant of the fact that defendant’s obligation arose out of an executory contract and was aware of its terms, and when there was nothing in such contract restricting the negotiability of the notes nor to indicate fraud or imposition or an existent breach; and the correct doctrine is against the defense suggested, on the principle stated and upheld in Mason v. Cotton Co., 148 N. C., 492. Even when such a notice appears on the face of the note, the authorities are against defendant’s position. Siegel v. Bank, 131 Ill., 569; Ferriss v. Tarbel, 87 Tenn., 386; Bank v. Barret, 38 Ga., 126.

The only decision we find which tends to support a contrary view is one in our own Reports (Howard v. Kimball, 65 N. C., 175). An examination into the facts of that case will disclose that the assignee of a note which expressed upon its face that it was given as purchase money of a certain tract of land not only had actual notice of the defect of title at the time he purchased, but he had taken a deed for such defective title from the original vendor, and held same, to be conveyed to the vendee when the note was paid. The case, therefore, is undoubtedly well decided; but, in so far as the opinion gives countenance to the position that a defect of title is available against an endorsee for value of a note for the purchase money, from the fact, and from that *363 alone, that tbe note on its face is expressed to be for tbe purchase money of land or a given tract of land, tbe case is not in accord with tbe better-considered decisions. As an authority for such a position, it was in effect disapproved by a subsequent decision of this Court, in Bank v. Michael, 96 N. C., 53, in which a note of that kind was held to be “negotiable”; the term “negotiable” being used in the sense that an endorsfee for value, without notice, ultra, became the owner of the note, unaffected by the equities and defenses existent between the original parties to the contract.

Our present statute on the subject would seem to put the matter at rest (Revisal 1905, ch. 54, sec. 2153). This, being one of the sections defining what constitutes negotiability of notes, provides:

“2153. What Promise Unconditional. An unqualified order or promise to pay is unconditional, within the meaning of this chapter, though coupled with (1) an indication of a particular fund, out of which reimbursement is to be made or a particular account to be debited with the amount, or (2)-a statement of the transaction which gives rise to the instrument. .But an order or promise to pay out of a particular fund is not unconditional.”

There was no error in the charge of the court or in the trial of the cause, and the judgment below is affirmed.

No error.