96 Vt. 438 | Vt. | 1923
This is an action of contract on a promissory note signed by the defendant Graham Wilson and payable to the orden of the plaintiff. The answer was a general denial. The trial was by jury, and, at the close of the evidence, a verdict was directed for the plaintiff. The case is here on the defendant’s exceptions to the direction of a verdict and to the judgment
The note in suit was executed and delivered to the plaintiff September 19, 1919, and was payable on demand with interest. Interest was indorsed thereon to January 1, 1920. The plaintiff introduced the note in evidence, proved defendant AYilson’s signature thereto, the issue to him of a cashier’s check for the amount of the note, the subsequent payment of the cheek when presented therefor, and the amount due on the note to the time of trial. A¥ith this the plaintiff rested. The defense relied upon was that the note was given solely for the accommodation of one Frank AY Elliott, the then acting president and managing director of the plaintiff bank, that the note was procured by Elliott through- fraud, and that the note went to the benefit of the plaintiff, as' its proceeds were used to cover Elliott’s overdrafts at the bank. Evidence offered by the defendant in support of his claims was not objected to as being outside the issues made by the pleadings. The course of the tri'al indicates that the defense was supposed to be available under the general denial, as it doubtless would have been under the general issue prior to the adoption of the Practice Act (G. L. 1789 et seq.). See Limerick Bank v. Adams, 70 Vt. 132, 40 Atl. 166. It is now necessary that all matters relied upon as an affirmative defense should be specially pleaded, when the statute does not provide otherwise. Dernier v. Rutland Ry., etc., Co., 94 Vt. 187, 110 Atl. 4; Burlington Grocery Co. v. Lines, 96 Vt. 405, 120 Atl. 169; McAllister v. Benjamin, 96 Vt. 475, 121 Atl. 263. As a general rule eases are tried in court upon the issues made by the pleadings. But counsel may, by conduct or agreement, limit or enlarge the issues. Dernier v. Rutland Ry., etc., Co., supra; Brown v. Aitken, 90 Vt. 569, 99 Atl. 265; Probate Court v. Enright, 79 Vt. 416, 65 Atl. 530; Poole v. Mass. Mut. Acc. Assn., 75 Vt. 85, 53 Atl. 331. So it is held that the course of the trial may be such as to constitute a waiver of any question respecting the sufficiency of the pleadings to make available a defense not properly pleaded. Bradley v. Blandin, 91 Vt. 472, 475, 100 Atl. 920. It should "be held in the circumstances attending the trial that the case at bar is within the exception to the general rule, and should be treated as though the necessary pleadings had been
The defendant’s evidence tended to show the following facts: During all the time material Elliott was acting president of the bank and had general oversight and management of its affairs. He was also interested in a lumber business conducted as the W. E. Elliott Lumber Company and acted as its treasurer. He had two check accounts with the plaintiff bank, one his personal account and the other 'an account as treasurer of the Lumber Company. He also had a check account of the Lumber Company with the Waterbury Savings Bank and Trust Company of Waterbury, Vermont, hereinafter referred to as the Waterbury Bank. From July 6, 1919, to September 18, 1919, his personal account with the plaintiff was overdrawn in increasing amounts, until on the latter date the overdraft as shown by the books of the bank amounted to $14,594.14. On the matter being brought to the attention of some of the other directors, they called on Elliott to take care of the overdraft. An arrangement was entered into by which the plaintiff made a loan to the Lumber Company which was deposited in its account with the plaintiff, and Elliott transferred $14,750 from this to his personal account, leaving a balance to his credit of $155.86. On September 15, Elliott had drawn a cheek on his personal account for $10,000 which had not been returned to the bank when this adjustment was made. To cover this check when returned, he drew a check to himself on the Waterbury Bank for a like amount, which he deposited in his personal account. This overdrew the Lumber Company’s account at the'Waterbury Bank about $8,700. There was no evidence that any one other than Elliott knew of this situation at the time the note in question was given. In fact, the contrary fairly appeared so far as any representative of the bank was concerned. On the day the note was given, the defendant called at the plaintiff bank on business which was transacted with Elliott in the directors’ room. In the course of the interview Elliott procured the defendant to sign the note for his (Elliott’s) accommodation. It is unncessary to detail the representations made to induce the defendant to sign the note. No question is made but that they were false and fraudulent. The note was executed, and Elliott took it out into the bank and directed the assistant cashier to make a cashier’s check in favor of
The defendant relies upon the claim that the evidence made a question for the jury whether the plaintiff took the note subject to the defenses of fraud and failure of consideration. It is insisted that the plaintiff, being the payee of the note, is not a holder in due course as a matter of law; and that, in any event, in the circumstances of the case, this was a question, of fact. As we shall see, this position is neither wholly right nor wholly wrong. Section 52 of the Uniform Negotiable Instruments Act (G-. L. 2921), defines “a holder in due course” as a holder who has taken the instrument under the following conditions :
(1) That it is complete and regular upon its face; (2) that he became a holder of it before it was overdue and without notice that it had been previously dishonored, if such was the fact; (3) that he took it in good faith and for value; (4) that, at the time it was negotiated to him, he did not have notice of any infirmity in the instrument or defect in the title of the person negotiating it.
It is at once apparent that the delivery of the note to the plaintiff made it a “holder” thereof in contemplation of the Negotiable Instruments Act. It is insisted, however, that the payee of a negotiable instrument is not ‘ ‘ a holder in due course ’ ’ under the Act and certain decisions in other states are relied upon in support of the claim, of which Vander Ploeg v. Van Zuuk, 135 Iowa 350, 112 N. W. 807, 13 L. R. A. (N. S.) 490, 124 A. S. R. 275, is perhaps the leading case. The theory of these decisions is that, under the Uniform Negotiable Instruments Act, a holder in due course is a person to whom after completion and delivery an instrument has been “negotiated” — one who has taken by negotiation and not as an original party. “Negotiated” is construed as meaning “transferred from one holder to an
The trend of judicial decision is thus clearly indicated and would seem to promise most in favor in uniformity. But this consideration aside, we think the fair construction of the whole Act leads to no other conclusion. That a payee is capable of being a holder in due course at common law has been held almost without dissent. This is the well recognized doctrine of our own cases. Passumpsic Bank v. Goss, 31 Vt. 315; Dixon v. Dixon, 31 Vt. 450, 76 A. D. 128; Farmers & Mechanics Bk. v. Humphrey, 36 Vt. 554, 558, 86 A. D. 671; Quinn v. Hard, 43 Vt. 376, 5 A. R. 284. The cardinal purpose of the principles developed in the law merchant has been the protection of a bona fide holder for value who has acquired a negotiable instrument in the due course of trade or business. Commercial paper serves as common currency. Its unhampered use is indispensable to the business of the modern world. Any medium of exchange cannot have free currency without confidence; and experience has taught that it is dangerous to cast doubt even upon a payee’s right to recover when he has taken commercial paper complete and regular on its face, honestly and for value. The codification of commercial law into a Uniform Negotiable Instruments Act has been accomplished, not for the purpose of changing any of its essential principles, certainly not for weakening or destroying the cardinal principle, but for the purpose of harmonizing certain minor differences existing in the various jurisdictions. Ex parte Goldberg, supra. The only provision of the Act even suggesting that it was intended to exclude a payee in every ease from the status of a holder in due course is found in Section 52, subd. 4 (G. L. 2921) ; but such is not its necessary implication. The question turns on the meaning of “negotiated” as employed in this section. Its common legal significance is “concluded by bargain or agreement.” So, a promissory note, complete as to form and payable to a named person may be negotiated to that person by being sold to him or taken by him for value. Such was the sense in which the term was used in the law merchant, and its
This view is confirmed by the definition of “negotiation” found in Section 30 of the Act (G. L. 2900), which provides that an instrument is negotiated when it is transferred from one person to another in such a manner as to constitute the transferee the holder thereof. As said in the case last cited, the remaining sentence of the section, “if payable to bearer it is negotiated by delivery; if payable to order it is negotiated by the indorsement of the holder completed by delivery,” was not intended to include all the ways in which an instrument might be negotiated, nor to restrict the comprehensive terms of the preceding sentence. The subject in all its phases is exhaustively treated by Mr. Brannan in his work on Negotiable Instruments Law, third edition, where the cases then available are reviewed. Among other things he says: “ If a pajree cannot be a holder in due course, the universal mercantile custom and the overwhelming weight of authority have been upset by the act and the bona fide payee of a bill of exchange remitted to him by a buyer of goods cannot recover against the drawer if the remitter has procured the bill from the drawer by fraud. But no such construction of the act is warranted.” Brannan on Neg. Ins. Law (3rd ed.) 51. See, also, pages 49-56, 162-176. The opposing theories are discussed in an extended note to Merchants Nat. Bk. v. Smith, 15 A. L. R. 437-446. See, also, note 21 A. L. R. 1365. We hold that the plaintiff may be entitled to the protection afforded a holder in due course under the Negotiable Instruments Act, regardless of the fact that .its status is that of payee.
Did the evidence make a jury question whether the plaintiff was a holder of the note in due course ? No question is made but that the note was complete and regular on its face,, that the plaintiff became the holder before the note was overdue, and that the note was taken for value. The only material conditions controverted relate to the circumstances of the taking — whether it was in good faith and without notice of any infirmity of the instrument. Section 52 (G. L. 2921), subds. 3 and 4. It is not claimed that Elliott represented the plaintiff in the negotiations leading up to the signing of the note, nor that his fraud was imputable to the plaintiff; and counsel in argument expressly disavowed any claim in the circumstances that the plaintiff had
We start with the presumption that the plaintiff is a holder in due course. Section 59 of the Act (G. L. 2928), provides: “Every holder is deemed prima facie a holder in due course; but when it is shown that the title of any person who has negotiated the instrument was defective, the burden is on the holder to prove that' he or some person under whom he claims acquired the title as holder in due course, ’ ’ etc. While the case does not come within the last provision of the rule, it helps to determine where the burden of proof is when fraud in procuring the execution of the instrument is relied upon as a defense, which is the important question in the case as presented on review. Other provisions affecting the question of burden of proof and what is necessary to be shown to qualify the holder of a negotiable instrument as a holder in due course are found in Sections 55 to 58 inclusive of the Act (G. L. 2924 to 2927). In the hands of any holder other than a holder in due course the instrument is subject to the same defenses as if it were non-negotiable. Section 58. A holder in due course holds the instrument free from any
To avoid possible misunderstanding, it should be observed that the case does not involve the question of failure of consideration. Some courts make a distinction respecting the burden of proof between such a defense and one of fraud, holding that under Section 28 of the Act (G. L. 2898), the burden of proving failure of consideration is on the defendant. See Title Guar. & Tr. Co. v. Pam, 232 N. Y. 441, 134 N. E. 525; Piner v. Brittain, 165 N. C. 401, 81 S. E. 462; McCormack v. Williams, 88 N. J. Law 170, 95 Atl. 978, L. R. A. 1917E, 535; Rhodes v. Guhman, 156 Mo. App. 344, 137 S. W. 88; Brannan on Neg. Ins. Law, 114. We have occasion to consider only where the burden rests when the defense is fraud in the inception of the instrument. The provision of the Act, “every holder is deemed-a holder in due course, ’ ’ does not change the common law rule respecting the burden of proof where such fraud is shown, The section of which it forms a part is merely declaratory of the common law. Brannan on Neg. Ins. Law, 211. This is so recognized in a long line of cases collected in a note found in 18 A. L. E. 26-29. Among the cases where it has been expressly stated are Deshazo v. Lamar, 17 Ala. App. 392, 85 So. 586; Parsons v. Utica Cement Mfg. Co., 82 Conn. 333, 73 Atl. 785, 135 A. S. R. 278; Campbell v. Fourth Nat. Bk., 137 Ky. 555, 126 S. W. 114; Downs v. Horton (Mo. App.), 209 S. W. 595; Mechanics Sav. Bk. v. Feeney, 79 N. H. 267, 108 Atl. 295. Unless and until the defendant adduced evidence in support of the defense of fraud, the presumption secured to the plaintiff the rights of a holder in
There is some diversity of opinion as to what is necessary to be shown by a plaintiff to discharge this burden. Prior to the Negotiable Instruments Act two lines of decisions existed. According to one line the holder need not prove that he had no notice of defenses, but he satisfied the burden by showing that he took for value before maturity and under circumstances which did not operate to charge him with notice of the defense. According to the other line, he was required to show affirmatively that he had no notice of the defense. It is said in the note last cited that there has been quite a uniform tendency under the Negotiable Instruments Act to adopt the latter theory, and an examination of the eases seems to support this conclusion. It has been objected that the rule requires a party to prove a negative; but even so, it merely puts the burden of proof upon one who knows the facts. Pierson v. Huntington, 82 Vt. at p. 487, 74 Atl. 88, 29 L. R. A. (N. S.) 695, 137 A. S. R. 1029. While it might frequently occur that a defendant would be powerless to prove knowledge of the fraud in the plaintiff where they were not the immediate parties to the transaction, it would rarely, if ever, be a hardship upon the plaintiff to require him to show good faith by proving the circumstances under which he became the holder of the instrument sued on — facts peculiarly within his own knowledge; The rule formulated in the Act requires a holder who claims the rights of a holder in due course to show that he did not have actual knowledge of the infirmity or defect relied upon in defense nor knowledge of such facts that his action in taking the instrument would amount to bad faith. What
Prior to the Negotiable Instruments Act two distinct lines of cases had developed in this country. The first had its origin in Gill v. Cubitt, 3 B. & C. 466, 10 E. C. L. 215, where the rule was distinctly laid down by the court of King’s Bench that the purchaser of negotiable paper must exercise reasonable prudence and caution, and that if the circumstances were such as ought to have excited the suspicion of a prudent and careful man, and he made no inquiry, he did not stand in the legal position of a bona -fide holder. The rule was adopted by the courts of this country generally and seems to have become a fixed rule in the law of negotiable paper. Later in Goodman v. Harvey, 4 A. & E. 870, 31 E. C. L. 381, the English court abandoned its former position and adopted the rule that nothing short of actual bad faith or fraud in the purchaser would deprive him of the character of a bona -fide purchaser and let in defenses existing between prior parties; that no circumstances of suspicion merely, or want of proper caution in the purchaser, would have this effect; and that even gross negligence would have no effect, except as evidence tending to establish bad faith or fraud. Some of the American courts adhered to the earlier rule, while others followed the change inaugurated in Goodman v. Harvey. The question was before this Court in Roth v. Colvin, 32 Vt. 125, and on full consideration of the question a rule was adopted in harmony with that announced in Gill v. Cubitt, which has been adhered to in subsequent cases, including those cited above. Stated briefly, one line of cases including our own, had adopted the test of the reasonably prudent man and the other that of actual good faith. It would seem that it was the intent of the Negotiable Instruments Act to harmonize this disagreement by adopting the latter test. That such is the view generally accepted by the courts appears from a recent review of the cases concerning what constitutes notice of defect. Brannan on Neg. Ins. Law, 187-201. To effectuate the general purpose of the Act to make uniform the negotiable instruments law of those states which should enact it, we are constrained to hold (contrary to the rule adopted in our former decisions) that negligence on the part of the plaintiff, or suspicious circumstances sufficient to put
It comes to this then: "When the case has taken such shape that the plaintiff is called upon to prove himself a holder in due course to be entitled to recover, he is required to establish the conditions entitling him to standing as such, including good faith in taking the instrument. It devolves upon him to disclose the facts and circumstances attending the transfer, from which good or bad faith in the transaction may be inferred. The question is generally one of fact for the jury. There is this exception, however, where the evidence of the plaintiff ’s good faith is undisputed and is not only consistent therewith but is so conclusive that fair-minded men could draw no different inference, it is the duty of the court to decide the question as a matter of law and instruct the jury accordingly. Spaulding v. Mutual Life Ins. Co., 94 Vt. 42, 58, 109 Atl. 22. The Act makes no change in the rule respecting such matters. Mechanics’ Savings Bk. v. Feeney, 79 N. H. 267, 108 Atl. 295. It has been applied in Van Slyke v. Rooks, 181 Mich. 88, 147 N. W. 579; German-American Nat. Bk. v. Kelley, 183 Iowa 269, 166 N. W. 1053; Miller v. Marks, 46 Utah 257, 148 Pac. 412.
It remains to consider whether on the evidence ? reasonable man might think that good faith on plaintiff’s part in taking the note was not shown. It could not well be claimed that there was any evidence tending to show actual notice on the part of any one connected with the bank, except Elliott, that the note was tainted with fraud; and, as we have already seen, his knowledge was not imputed to the plaintiff. To show knowledge of such facts that the taking would amount to bad faith it is not necessary that representatives of the bank should know the exact fraud that was practiced upon the defendant, but the defense would be available if the facts within their knowledge tended to show there was something wrong with the transaction. Paika v. Perry, 225 Mass. 563, 114 N. E. 830. To support a verdict for the defendant there would have to be evidence of circumstances attending the taking of the note, known at the time to the representatives of the bank having to do with the taking, at least sufficient to occasion suspicion of wrong doing. Short of this,
The evidence was uncontradicted that Elliott had authority and was accustomed to approve and direct loans as this loan was approved and directed and that the defendant was a regular customer of the bank. Assuming that the evidence had the tendency claimed for it, we are at a loss to see how in the circumstances it can be thought that the cashier had any reason to suspect fraud in the inception of the note or any wrong doing in the transaction. The note was taken in usual course, for full value and without circumstances calling for or warranting inquiry respecting the occasion for giving it. This being so, it cannot be conceived how a reasonable man could think that the
Judgment affirmed and cause remanded for further proceedings respecting the liability of the trustee.
Note: — Miles, J., having retired took no part in the disposition of the case.