Brook v. Teague

The opinion of the court was delivered by

HortoN, C. J.:

This was an action brought by H. M. Brook against M. Teague and Sabina Teague, upon a promissory note for $225, dated May 17, 1888, due one year from date, executed by the defendants to Dr. H. A. Eberle, and which was alleged as indorsed for value to the plaintiff before maturity by Eberle. The defense was fraud in obtaining the note by the payee, and failure of consideration. The evidence tended to show that, before Brook obtained the note, Eberle’s agent visited defendants’ house, about May 1, 1888, and left some advertising circulars there; that Eberle came along on May 17; that he represented his institute — called by him the “medical and surgical health institute” — consisted of 10 or 11 physicians — “specialists;” that any patient would get the benefit of the services of all of them; that they owned the building in which they were located; that it was one of the most valuable in Kansas City, Mo.; that no one need fear to give a note, as they never transferred any paper, always holding it, so that, upon failure to cure, it could be returned; that no incurable cases were taken; that they worked on the “no cure, no pay ” plan, and that no one would have to pay unless cured; that in case of failure their note would be returned; that these representations were relied upon, and were not found out to be untrue for some months; that the note was originally part of a larger piece of paper; that no cure had been effected or benefit derived; that the medical and surgical health institute occupied only two small rooms in the building they claimed to own; that Eberle had only two doctors helping him; a,nd that they were not in good standing in their profession. After the defendants’ evidence was all in, and they had rested their case, the plaintiff moved the court to strike out the evidence, and withdraw from the jury all statements made by the witnesses, including the defendant Teague, in reference, first, to statements of Doctor Eberle, as to the number of physicians associated with him; second, the kind and character of buildings occupied by him, or the medical and surgical institute, at Kansas City, Mo.; third, that they held the notes executed to them and never indorsed or transferred them to anyone; fourth, all statements in reference to the contract, or what Doctor Eberle or the medical and surgical institute agreed to do, which were made before or at the time the written contract was made. The motion was overruled, and the court refused to take from the jury any portion of the testimony, to which the plaintiff excepted. The plaintiff then filed a demurrer to the evidence, which was overruled by the court, and excepted to by the plaintiff.

*' -paroi°ev?-°te The rule is that parol contemporaneous evidence is inadmissible to contradict or vary the terms of a valid written instrument, but this rule is not infringed by the admission of parol evidence showing that the instrument is void between the original parties by reason of fraud. (1 Greenl. Ev., § 284.) Browne, in his new work on Parol Evidence, says: “Parol evidence is admissible as between the original parties to show fraud or duress, and so as to third parties with notice, or without having paid value.” (Page 259, §79.) At the time that the Teagues executed the note, Eberle delivered to them a written contract, signed by him for the medical and surgical health institute. It provided, among other things, that “ the medicines, prescriptions, advice, etc., or surgical apparatus for ‘course of treatment/ be furnished from time to time [to the Teagues] by the above institute, free of charge, according to the tenor of this contract (except express charges), until cured of the present disease or diseases.” Between the original parties, the note and contract are to be taken together, and, if construed together, the note was not to be paid or to become due until the Teagues were cured. The evidence received and objected to did not contradict or vary the terms of the written contract, but the circulars and statements of Eberle were representation concerning the standing of the medical and surgical institute, its staff of physicians, and its manner of collecting and returning notes received from patients. Most of these representations and statements were false. The institute, so-called, consisted only of Eberle and his two assistants. These false representations were properly received in evidence, as tending to establish thelfraud committed by Eberle in obtaining a negotiable promissory note, which he intended to sell and dispose of as soon as possible to a third party, and which he did dispose of the day after he obtained it, notwithstanding his representations to the contrary, and his written agreement of “no cure, no pay.”

2' proof?"of The rulings of the trial court, in admitting the testimony and in overruling the demurrer to the evidence, must be sustained. After the introduction of all the evidence, the instructions of the court, and the argument of the counsel, the jury returned a verdict for the defendants. The motion for a new trial was overruled. This ruling is subject to review. (Kennedy v. Taylor, 20 Kas. 558; Osborne v. Young, 28 id. 774.) It is contended that there was no evidence tending to show that the plaintiff was not an innocent holder for value of the note sued on, but we think otherwise. If the note was obtained by fraud, it was equally unenforceable in the hands of Eberle or in the hands of one affected with notice of the fraud. The burden is on the holder of a negotiable note to show that he was a bona fide purchaser, where the maker in an action against him has shown that it was obtained by fraud. Daniel on Negotiable Instruments thus states the rule:

“The principle is well established, that if the maker or acceptor, who is primarily liable for payment of the instrument, or any party bound by the original consideration, proves that there was fraud or illegality in the inception of the instrument, or if the circumstances raise a strong suspicion of fraud or illegality, the owner must then respond by showing that he acquired it bona fide for value, in the usual course of business, while current, and under circumstances which create no presumption that he knew the facts which impeach its validity.” (Section 815, and cases cited; Jordan v. Grover, 33 Pac. Rep. [Cal.] 889.)

The evidence upon the part of defendants tended to show that in March or April before the note was signed Eberle had tried to sell some of the same kind of notes to plaintiff, who replied, “He would not buy such notes, because they were given for medical treatment; that there would be trouble over them; and that he would not give 25 cents on the dollar for them;” that Eberle had treated Brook on an agreement of “no cure, no pay” before May 17; that he knew his plan of doing business was “no cure, no pay;” that he had seen Eberle’s circulars; that in September, afterward, he stated he held these notes as collateral; that “he knew that such men as Eberle were frauds;” that he stated on May 21 that, when he took notes from Eberle, he agreed to replace any he did not want; that íd July, 1888, Brook stated that, when he took the Eberle notes, it was upon the agreement that, if there was a failure to cure in any case, such note was to be returned and another given him in its place, and that he was informed of this agreement at the time he took the notes. Brook did not attempt to show the actual amount he paid for the note sued on.

“The mere possession of a negotiable instrument, payable to order and properly indorsed, is prima fade evidence'that the holder is the owner thereof; that he acquired the same in good faith, for full value, in the usual course of business, before maturity, without notice of any circumstance that would impeach its validity, and that he is entitled to recover upon it its full face value, as against any of the antecedent parties; and where the maker of such an instrument, so indorsed and held, claims that the holder of the instrument is not a holder for value, it devolves upon the maker to prove the same.” (Mann v. National Bank, 34 Kas. 746; Ecton v. Harlan, 20 id. 452; Lyon v. Martin, 31 id. 411; Rahm v. Bridge Co., 16 id. 530.)

3‘ chaserfwiieii" But where the purchaser of a negotiable note takes it under circumstances showing bad faith, or with knowledge that the maker has a defense, tbe holder is not an iuno-cent purchaser. (Dobbins v. Oberman, 17 Neb. 163; Smith v. Lockwood, 50 N. W. Rep. 400; Burroughs v. Ploof, 41 id. 704; Schmuckle v. Walters, 25 N. E. Rep. 281; Bank v. Dieffendorf, 25 id. 402; Franc v. Dickinson, 26 id. 250; Myers v. Bealer, 46 N. W. Rep. 479.) The rule also is, that when an action is brought upon a note by one not an innocent holder, the maker can urge the same defense that he could have made if the action had been brought by the payee. There was sufficient evidence introduced upon the trial to go to the jury that the plaintiff was-not a bona fide purchaser.

We have examined the instructions, but, under the law as declared, we do not perceive any error prejudicial to the rights of the plaintiff. Under the evidence and findings of the jury, we have no inclination to disturb the order overruling the motion for a new trial.

The judgment will be affirmed.

All the Justices concurring.

Case Details

Case Name: Brook v. Teague

Court Name: Supreme Court of Kansas

Date Published: Jul 15, 1893

Citation: 52 Kan. 119

Court Abbreviation: Kan.