182 Ky. 531 | Ky. Ct. App. | 1918
Opinion of the Court by
Reversing.
In 1891 the fiscal court of Johnson county, by an order duly made and entered upon its records, authorized the issual of ten (10) of the county’s bonds for the sum of $500.00 each,- aggregating $5,000.00, -which was done for the purpose of raising funds to build a jail and jailer’s residence. The bonds were duly issued, bearing six per cent, interest payable semi-annually, and were made payable to bearer and at the Second National
This suit was filed by the appellant and plaintiff below, Citizens State Bank of Greenup, Kentucky, against the county to recover upon a bond which plaintiff alleges is one of the issue above referred to, and which it claimed to own under a bona fide purchase made in due course from the then holder in the early part of the year 1905.
The answer pleaded (1) a denial that plaintiff was a. bona fide purchaser, or that it obtained the instrument sued on in due course. (2) Non est factum. (3) Payment and cancellation, and (4) that the bond sued on if duly executed was never issued, but after execution was canceled. Other defenses growing out of facts arising subsequent to the time plaintiff obtained the bond and which defendant insists rendered the plaintiff a purchaser with notice, if one at all, were relied on, but none of them is sustained by any testimony in the record. True it is-that plaintiff made some contracts looking to a contemplated transfer of the bond, but according to the testimony none of them was ever completed so as to vest the attempted transferee with full and complete title. So that, according to our view, the case must be determined upon the theory that plaintiff at the time of the suit occupied the same status with reference to the paper that it did when it first .acquired it. Appropriate pleadings made up the issues, and upon trial, under instructions from the court, the jury returned a verdict in favor of defendant, resulting in the dismissal of the petition. Complaining of that judgment, plaintiff prosecutes this appeal.
Perhaps it should have been said that the bonds provided for the county to have the right, after five years from date of their issual, to pay and discharge them, and the-principal defense as argued by counsel is that this reserved right was exercised with reference to the bond sued on, if indeed it was ever put in circulation after being executed. And further, that if it was never put in circulation it was afterwards canceled, and that in
The defense of non est factum, which includes the one that the bond was forged, finds no support whatever by any testimony found in the record. On the contrary, it is conclusively shown that the bond sued on was duly subscribed by the proper officers of the county with the seal of the county thereto attached. This seems to be conceded by counsel representing the county, and these defenses will require from us no further consideration.
That all of the ten bonds directed to be and which were executed were also issued and put into circulation is equally established by the testimony, especially by that of John P. Wells, who is shown by an order of the fiscal court to have been employed for the express purpose of negotiating the bonds'. He says in his testimony that all ten of them were given to him .and that he sold them, but he does not give the names of the purchasers. So that this testimony at once silences the contention that the bond sued on, provided it was one of the ten, was not issued after being executed.
Another uncontradicted fact appearing in the record is that only nine of the ten jail bonds issued were ever taken up or paid by the county. On December 15, 1897, one Howes, the ex-sheriff of the county, produced numbers 6, 7 and 8 of the jail bonds as having been paid by bim, and they were ordered canceled. On that same day the then sheriff of the county, Samuel Stapleton, produced numbers 3, 4 and 5 of the same issue, which he had paid; and they were likewise ordered canceled. On the next day, December 16, an order was made to cancel two of the jail bonds which the order recites had theretofore been paid by W. E. Litteral, county judge. There was also produced at the trial bond number 9, upon which was written in red ink these, words: ‘ ‘ Canceled by S. P. King, October 2, 1902, by J. M. Price, clerk, by C. Buckinham, D. C.” There was never any
It is conceded, as indeed it would have to be, that the bond under the law as it then existed was a negotiable instrument and commercial paper, so as to protect bona fide holders in due course against latent defense. Its terms fully met all of the requirements of the law relating to such paper so as to make it a negotiable instrument, and it was made payable at a regularly incorporated bank in this state, which was a requirement of the law at that time, and plaintiff acquired it before its maturity. So that the first question under this head is, did plaintiff acquire the bond in due course and without notice so as to protect it against the defenses interposed?
Our present statute upon the subject (being subsection 56 of section 3720b’ of the Kentucky Statutes) defines the character of notice which would deprive the holder of such an instrument from being one in due course in this language: ‘ ‘ To constitute notice of 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 as that his action in taking the instrument amounted to bad faith.” But since our present statute was passed subsequent to the execution of the bond sued on, its provisions would not govern the rights of the parties, unless they coincided with and were declarative of the law upon the subject as theretofore existing.
In the English case of Gill v. Cubit, 3 B. & C. 446, decided in 1824, the doctrine was announced that if the holder acquired the paper under circumstances which should have excited the suspicions of a prudent man, he would he deprived of the benefits accruing to a holder in due course, although he may have given full
Some of the states, in the absence of a statute, follow the doctrine of the Cubit case, but the great majority of them follow substantially or in slightly modified form the rule announced in the Goodman case, as will be seen from a note to the case of Mee v. Carlson, 29 L. R. A. (N. S.) 351, in which the annotator in summing up the present state of the law upon the subject says: “But the weight of authority is that circumstances which will excite the suspicions of a prudent man are not sufficient to put the purchaser of a negotiable instrument on inquiry.” To the same effect is the text, as well as the cases in the notes supporting it, in 8 Corpus Juris, pages 500-503. This court in the case of Woolfork v. Bank of America, 10 Bush 504, announced the same rule, saying: “Neither want of ordinary care nor gross negligence will divest the holder of his title, and he must be allowed to recover unless he obtained the paper mala fides.” See, also, 3 R. C. L., pages 1071-73.
The term “mala fides” as applied to conduct of the purchaser of negotiable paper before its maturity as used by the court in that opinion may be considered, as indeed it is synonymous with bad faith as used in the statute. We therefore conclude that the statute above referred to was but declaratory of the common law rule as theretofore existing (3 R. C. L., page 1022), and that unless
Actual notice is defined to be either actual knowledge of the particular infirmity in the instrument or actual knowledge of facts which if investigated would disclose the infirmity or defect, and of such nature as not to investigate them would amount to bad faith, and the knowledge of facts which would impose investigation may arise from matters aliunde the instrument, or from facts appearing upon the face of it. There is no pretense here that plaintiff had any actual knowledge of any infirmity or defect in the bond sued on, if there existed any, and there is a total failure of proof to show that its officers at the time it purchased the bond had knowledge of any facts aliunde the bond which would in the least impose upon them the duty to investigate even though they were required to exercise prudence in doing so. The purchase was made from L. B. Caudill, who had the bond in his possession at the time, with all coupons maturing prior to that time detached, indicating — at least to some extent — that they had been duly discharged. Caudill’s father lived in the town where plaintiff bank was located, and so far as the record shows was an honorable man, well known by the officers of the bank. His son had been deputy sheriff of Johnson county and was introduced to the bank’s officers. The cashier, on being offered the bond, submitted it to the bank’s president, it appearing upon its face to be regular, and nothing appearing in the actions or conduct of the seller indicating fraud or any character of wrongdoing, and plaintiff’s officers being informed as to the genuineness of the bond, &c., it was finally concluded by them to purchase it, which was done, the seller endorsing his name upon the back thereof. There certainly can be found nothing in this transaction to indicate either remotely or indirectly anything smacking of actual notice so as to convert the transaction into one of bad faith on the part of the bank.
This leaves for consideration the contention made by counsel for the county that the bond and the coupons bear upon their faces sufficient evidence of alterations,
At the outset it may be said that the same standard measuring the good or bad faith of the purchaser applies when he acts upon evidence furnished by the face of the paper as when he is governed by facts aliunde the paper. In each instance, as we have seen, his conduct must be of such a nature as to make his act in taking the instrument one of bad faith. Blakey v. Johnson, 13 Bush 197, and Woolfolk v. Bank of America, supra.
In 8 Corpus Juris, pages 496, 1063, it is stated that when the facts are to be determined from the face of the instrument the issue presents a question of law for the determination of the court, the text on the last page referred to saying: “And where the question is whether notice is imputable from the face of the instrument itself, the question is one of law for the court.” This excerpt is supported by cases from a number of courts, including some from the Supreme Court of the United States.
But whether we adopt this rule or not, the further rule prevails with this and all courts that if the evidence be such as that reasonable men would not draw different conclusions therefrom, it is the duty of the court to direct the jury accordingly. This rule has been so frequently announced by this court as not to need substantiation by a citation of cases.
Every member of this court has closely and painstakingly examined the face of the bond sued on, as well as'the coupons, and we fail to discover anything therein which would be calculated to arouse the suspicions of an ordinarily prudent man in purchasing it. True it is that on the face of the bond there appear some very faint and indistinct traces of some reddish substance in a few spots here and there, but nothing to indicate how or for what purpose this condition was brought about or produced, much less that it was the result of any fraudulent act. The coupons are practically in the same condition, except that the coloring of the spots thereon is if anything slightly more apparent than it is upon the
But at this point it is urged that an inspection of the bond and coupons shows that the numbers on them iiave been altered, that the signature of the county court clerk to the coupons has been retraced, and that these alleged fraudulent acts not only vitiate the paper, but were sufficiently plain to have been detected by the officers of the bank and to have required them to investigate the title of the holder from whom they purchased it. In the first place we can not agree with counsel that an inspection of the bond and coupons reveals evidence of alterations in the respects complained of, especially are they, not discernible by an ordinarily casual inspection; although it might be admitted that by a close and minute inspection, upon attention first being called to the fact, some slight evidences of the matters complained of are discoverable. But we are convinced that without special attention being called to the fact, and without very close and minute inspection, the discovery would not be made, by any ordinarily prudent man. But, however this may be, a fraudulent alteration, in order to defeat the rights of a holder of commercial paper in due course, must among other essentials be a material one. 8 Corpus Juris, 728; Tierry v. Hazelwood, 1 Duv. 104; Smith v. Lochridge, 8 Bush 423; Tranter v. Hibbard, 108 Ky. 265; Lisle v. Rogers, 18 B. M. 528, and Duker v. Franz, 7 Bush 275.
What has been said with reference to the number of the bond and coupons applies with equal force to the contention with reference to the retracing of the name of the county clerk on the coupons, conceding that such retracing sufficiently appeared upon inspection. Upon this point the clerk himself when examined as a witness acknowledged having signed the coupons at the beginning, but was unable to say that his name had been retraced. However, such retracing is not placed by the law upon a par with forgery, since the person doing the retracing is not attempting to give validity to a thing which never had any, but rather to preserve that which did have validity.
In 2 Corpus Juris, 1220, the text says: “To retrace words already written is not of itself sufficient to vary the legal effect of the instrument, as where pencil writing is retraced with ink, and constitutes no alteration.” This text is supported by Reed v. Roark, 14 Tex. 329, 65 Amer. Dec. 127; Dunn v. Clements, 52 N. C. 58, and Tutwilder v. Burns, 160 Ala. 386. Besides, sec. 125 of our negotiable instruments law, which, is largely declarative of the common law upon the subject, does not include the character of alterations here complained of as material ones. Wé therefore conclude that defendant’s contention in these respects can not be upheld.
Lastly, it is insisted that if the bond sued on was discharged and canceled, or if never issued was canceled and afterwards fraudulently procured and the can
The question attempted to be raised and argued by counsel is one of such seriousness and importance as that we do not feel inclined to determine it, in the absence of facts clearly and directly ¡presenting it. For to do so now, under the condition of this record, would convert this part of the opinion from judicial utterance to dictum. We therefore refrain from a discussion of this contention.
Upon the whole case we are convinced that the plaintiff was entitled to a directed verdict in its favor, and the judgment is reversed for a new trial and for proceedings in accordance herewith.