184 Iowa 907 | Iowa | 1918
Lead Opinion
The last-named contention is disposed of by Des Moines Sav. Bank v. Arthur, 163 Iowa 205, 211, and no further attention need be given to it. The other two issues may be considered together. The record leaves no doubt that Hamilton procured the note and mortgage without parting with any consideration, and with the fraudulent purpose of depriving the plaintiff of said note and mortgage and appropriating the same to his own use, though inducing the plaintiff to rely on what he did in handling the note and mortgage as in her interest, and with the design of turning over the money to her. This is clearly within the allegation of the petition, though it alleged that Price and Hamilton entered into a fraudulent combination to accomplish this, and so did. The evidence did not warrant the inference of such combination with fraudulent purpose, but did justify the inference that Hamilton had fraudulently procured and appropriated the note and mortgage.
Mrs. Lundean had been engaged in dressmaking, first for herself and later as an employee of John Beno Company, since the death of her husband, some 15 years ago, except
“I know' your time is very limited, and all we will ask you to do is to sign this paper. You will have to sign this paper before your money can come, and it will come through the bank.”
She then described how they were sitting, — Price at his desk and Hamilton across the aisle in a small room; that,
In the first place, he pretended to be obtaining the loan through a Kansas City firm, when, in fact, he prepared the papers with his own name inserted as payee and mortgagee, without so informing her, or drew them in blank, and after-wards inserted his name. ' Of course, she could read; but he so planned the signing and acknowledgment of the papers that she would not be likely to read, and did not. In this way he procured the papers to be drawn to himself and to be left in his custody, in order to obtain and appropriate the proceeds of the loan, rather than to obtain a loan for the plaintiff. That such a transaction is fraudulent re
Having so shown, the plaintiff was entitled to a decree as prayed, unless defendant should be able to establish, by a preponderance of evidence, that the defendant bank acquired the papers without notice of such defect. Had suit been brought on the note, and fraud as here proven been interposed as a defense, this would have been the result. Keegan v. Rock, 128 Iowa 39; McNight v. Parsons, 136 Iowa 390; Arnd v. Aylesworth, 145 Iowa 185; Farmers & Merch. St. Bank v. Shaffer, 172 Iowa 173; German Am. Nat. Bank v. Kelley, 183 Iowa 269. The proof was such that, had the action been on the note, the petition must have been dismissed. If the proof would have been sufficient to establish a complete defense in an action on the note, certainly it was sufficient to justify a court of equity in cancelling such a note, with the mortgage securing its payment. Section 3060-a59 declares that:
“Every-holder is deemed prima facie to be 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 a holder in due course. But the last-mentioned rule does not apply in favor of a party who became bound on the instrument prior to the acquisition of such defective title.”
“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.” Section 3060-a56, Code Supplement, 1913.
The transaction in behalf of the bank was through Price, then president thereof. He had known Hamilton for about two years, though not intimately, with the understanding that he was engaged in the real estate and loan business in Council Bluffs. He had had no personal transactions with him, nor for the bank, prior to this time, but seems to have been sufficiently familiar with Hamilton’s personality to enable him to make a fair estimate of his character; for, according to the testimony of Mrs. Lundean, undisputed, Price remarked to her, shortly after she had been informed of the hypothecation of the note and mortgage with the defendant bank, that he “always knew he was a scoundrel and a rascal.” Hamilton had borrowed $500 of the bank through the.cashier, Konigmaeker, about three months previous, with the names of his wife and one Solomon as sureties. The cashier testified that the bank had considered Solomon good security, but was unable to assign any reason for so thinking; and, when Hamilton applied for an additional loan on the same security, he
Nor could the fact that the face of the note was $100 in excess of the value of the property covered by the mortgage securing its payment well have escaped their attention; and it did not. Schnoor, called by defendant, estimated the value of the property at $3,500, though saying it might be worth as much as $3,800; and there was no other evidence on the subject; and Price wás so informed by him before the loan was made to Hamilton. This situation quite naturally would excite inquiry as to how the loan came to be so large, as compared with the security, and whether the maker of the note was otherwise responsible. Nor would such paper ordinarily be regarded as sufficient for a loan of $2,800, save to accomplish some ulterior object, such as collecting a doubtful debt. But no inquiries such as are suggested were made, nor as to whether the premises were occupied, or constituted a homestead, or were productive in rentals. Again, if the plaintiff is to be believed, Price was aware that she signed the mortgage without reading it, and that she was advised, by what Hamilton said at the time, that the proceeds of the loan were to come to her through the defendant bank. She testified that the
We are inclined to accept her version of the transaction,- — especially as this is in harmony with the finding of the district court, who heard the witnesses, — to the extent that she came to the bank at the instance of Hamilton, and There signed and acknowledged the mortgage, and left it Avith them, as she testified. Possibly Hamilton made the statement as to the money’s coming through the bank; but, if so, the expression may not have been of a matter concerning which Price was then interested; and if not, what was said was hardly specific enough to advise him that the proceeds were to go directly to Mrs. Lundean. It is not to be overlooked, hoivever, that the application of Hamilton for an increased loan, and his promise to bring in mortgage security for collateral, the signing and acknowl
Price testified that Hamilton first spoke to him about the note and mortgage “about the time that I took the acknowledgment to the mortgage — I say about the time, but it may have been a day or two later, — I don’t know. It was within a few days after that;” and that Hamilton brought the papers in; and also that he talked matters over with the cashier. The inference that the talk concerning the new loan between Hamilton and the cashier was prior to the date of acknowledgment is strengthened by the circumstance that the mortgage and note wer^ dated about a month earlier; and this fact certainly must have been known to the cashier when he counseled with Price concerning the propriety of making the loan, whether before or after the mortgage was acknowledged. At any rate, all these matters happened so near the same time that the bank cannot avoid being charged with knowledge of what its officers ascertained, or responsibility for Avhatever they
That Price was not content further appears from the circumstance that, after Hamilton had submitted the note and mortgage, Price called on Mrs. Lundean at the Beno Company’s establishment, and asked her if she was Mrs. Lundean; and, on being informed by her that she was, either remarked that he wished to be sure he knew who she was, and walked away, as she testified, or asked her if she was the person who signed or acknowledged the mortgage or instrument, and left, as he testified; though he was unable to say whether he used the word “signed” or “acknowledged,” or “mortgage” or “instrument.” But he was certain that he had the mortgage in his hand and did not show it to her, and does not deny that he had known her by sight a long time, and that he had learned her name when he took her acknowledgment as “Mary Lundean,” and that he knew that the paper Hamilton brought in was the one acknowledged by her before him. Why he did not exhibit the mortgage to' her, and directly inquire whether she.was the person whose name was attached, and who had acknowledged it, is not explained; nor does he give an intelligent explanation of this call on her. Asked how he happened to do so, he responded: “Oh, just in a general way, — taking all precautions possible.” A more plausible response would have been that he went up to inquire about the mortgage, in connection with the matters heretofore mentioned. This was the natural thing for him to have done when talking to her; and, as he had the mortgage in his hand, why did he not do so? There is only one reasonable response, and that is that he feared he might learn of infirmities inhering in the paper. Counsel say that he made no other inquiries, for that to do so would not have been “good banking.” This may have been true, as to the propriety of making any inquiry whatever of' the maker of
It is not enough that the purchaser be put on inquiry merely. The facts within his knowledge must be of such a character as to warrant the conclusion that he either actually knows of the infirmity, or, if he does not know,
With reference to the pleas of estoppel interposed, it is enough to say, as to the first, that, as we have assumed that plaintiff signed the note and mortgage, the plea based on the theory that plaintiff supposed she was signing an application for a loan, instead of these instruments, requires no attention; and, as to the second, that, if defendants obtained the instruments in bad faith, she would owe them no duty either of discovering their wrong or of saving them harmless. Even had she been as vigilant as it is claimed she should have been, the record warrants the conclusion that nothing could have been saved, through recovery from Hamilton, for either party. We are content with the decree of the trial court, and it is — Affirmed.
Dissenting Opinion
(dissenting). Where the maker defends at law, and has evidence that the title of the payee is defective, the endorsee must show good faith. The question is whether that is the rule where the maker is plaintiff, and seeks the affirmative equitable relief of cancellation. The majority says the burden is assigned by the statute, and that the Negotiable Instruments Act is concerned with neither form nor forum, but lays down a general rule. It seems to me this may be well answered in two ways:
(a) The evidence rule in question is not statutory; is but declarative of the common law. Green v. Wilkie, 98 Iowa 74, 87; Voss v. Chamberlain, 139 Iowa 569. Therefore, decisions on this point are applicable, even if made where there is no negotiable instrument statute. I submit it has been held that, even if the maker stops-short of asking affirmative equitable relief, and but asks the opening
(b) Buies of evidence found in negotiable instrument statutes apply only if a negotiable instrument be involved. The petition at first declared such an instrument existed. This declaration was expressly withdrawn by amendment alleging that the original declaration was put in under a misapprehension of both fact and law. It was also withdrawn because of allegation that plaintiff was tricked into signing negotiable instruments, under the belief she was signing nothing but an application for a. loan. Inconsistency is permitted as to defenses only. Where an amendment to petition is inconsistent with the petition, the amendment becomes the basis of the suit. It follows that the amendment changed the suit into one to cancel because assent was lacking. If that be her suit, she cannot avail herself of evidence rules that apply to negotiable paper only; because it is overwhelmingly settled that, when one is tricked into signing what proves a negotiable instrument, he does not create negotiable paper.
“Negotiability * * * presupposes the existence of the instrument as having been made by the party whose name is subscribed; for, until it has been so made, ánd has such actual legal existence, it is absurd to talk about a negotiation, or transfer, or bqjpa-fide holder of it, within the meaning of the law merchant.” Walker v. Ebert, 29 Wis. 194; Kellogg v. Steiner, 29 Wis. 626; Butler v. Carns, 37 Wis. 61; Kagel v. Totten, 59 Md. 447.
It is only when the party sought to be charged intended to bind himself by some obligation in writing that a negotiable instrument toiay be created by him, and no negotiable instrument exists where there was no intention to create one. No contract can come into existence unless
1a
Since plaintiff seeks cancellation, and since she pleads that no negotiable instrument is in existence, it would seem to follow that she may not invoke .a rule of evidence applicable to negotiable instruments only, and to follow, in turn, that plaintiff has the burden of proof on bad faith. If, then, the witnesses are of equal credibility, the plaintiff should fail. But, were the burden of the issue on defendants, still they should prevail, if their testimony' be the more credible.
The majority holds that nothing in the record indicates one party to be a more credible witness than the other. What is the record?
(a) Plaintiff swore, in pleading, over and again, that she executed a note and mortgage. She testifies, in effect, that she signed no note. She knows, and the majority holds, she signed it.
(c) She swears, in pleading, that Price knew Hamilton well, and the two had been associated in various enterprises; that she knew nothing of Hamilton, and trusted Price. The undisputed testimony, including her own, is that she knew Hamilton well; had had dealings with him before; relied on him implicitly; that she knew nothing of Price beyond knowing his name; and that Price had not been an associate of Hamilton’s. In the face of this, she testifies she relied on Price.
(d) She admits she went into a deal with Hamilton which “did not look straight,” and that she told Hamilton so.
(e) Plaintiff testifies that, though she in fact signed a note and mortgage, she believed she was signing an application to a loan agency in Kansas City. Plaintiff wants it believed, first, that she did not knoAV, and had not experience enough to know, though an experienced business woman, that she was signing a mortgage; second, and still more incredible, that she did not know she was signing a note ;-third, that she believed what she signed, — to wit, a mere application for a loan, to a concern that had no relations with defendant bank, — would enable her to go to that bank and get her money.
No matter who has the burden of proof, the testimony for plaintiff is the less credible; and this is so though the trial judge saw the witnesses. The majority treats that advantage possessed below as is done concerning a finding ou the law side. It has but little effect on hearing de novo, or it would not be a hearing de novo. Even on the law side, that advantage would count for little against such im
II. I fail to understand why the majority cites cases such as McNight, v. Parsons, 136 Iowa 390. They deal with what is enough to send bad faith of an endorsee to a jury. The question here is whether bad faith may be found on review de novo.
Since this suit no longer involves a negotiable instrument, the statute rule on proof of bad faith has no application. If that be passed, there is no evidence of bad faith.
The majority rightly concedes that many things are no evidence of bad faith. It bases its decision on Lehman v. Press, 106 Iowa 389; Knowlton v. Schultz, 6 N. D. 417 (71 N. W. 550); Schmueckle v. Waters, 125 Ind. 265 (25 N. E. 281); Bowman v. Metzger, 27 Ore. 23 (39 Pac. 3), and Tourtelot v. Reed, 62 Minn. 384 (64 N. W. 928), — all holding that one who has his suspicions aroused, so that he is afraid to investigate, may not cautiously close his eyes and act in the dark for the bad-faith purpose of making himself “an innocent purchaser:” that a purposed abstention from inquiry or further inquiry, in the belief that its making or pursuit would reveal an infirmity, may taint the purchase. Of course, I have no quarrel with this law, but find no facts upon which to apply it. All the evidence is this:
(a) There is a failure to prove that the suspicions of Price were not aroused by the fact that he was called upon as a notary to acknowledge the mortgage which Hamilton had offered defendant bank’s cashier as collateral for a loan. The trouble is: (1) There is no evidence that the mortgage acknowledged was the one offered the cashier; (2) if it was the one, there is no evidence that Price knew it, and the majority finds that' his acknowledging was a perfunctory act, that made no impression on Price, which finding is supported by undisputed evidence that Price would not know such a mortgage existed, were he not shown his
(b) It is said that it is evidence of bad faith that a loan of $2,800 was made on this mortgage, which was for $3,600, and is said to be for $100 more than the mortgaged property was worth, and that reasonable inquiry would have disclosed this fact. I have to say: First, that the foundation of this argument is that a witness put the value at $3,500, adding that it might be worth $3,800; second, failure to make the inquiry is no evidence of bad faith; third, inquiry was made, and disclosed that the property was worth $1,200 or $1,300 more than the loan sought; fourth, in the view of the majority, plaintiff is not impeached for believing that this property was good for a loan of $3,500, and having attempted to make such loan, yet the bank is said to have acted in bad faith for treating the same property as good for $2,800.
(c) Another claim is that the bank loaned, and closed its eyes in doing it, because it feared to lose a $500 note made it by Hamilton, which was paid it out of said new loan. The major premise is not sustained by, and is contrary to, the evidence. The $500 note had sureties. Assume the presumption that all were solvent is overcome as to Hamilton, it still exists for his sureties. Both this presumption and affirmative undisputed evidence that the note was good, and that defendants considered it so, are swept aside on no more than the fact that the cashier was “unable to assign any reason” for thinking the note was good. It is also pointed out that the bank declined to make the $2,800 loan on the signers to the $500 note. I cannot understand how the fact that signers are declined on a note for $2,800 dis
(d) The next “evidence” of bad faith is that Price must have noticed that Hamilton had “forged” the name of Price as a witness to the mortgage. I think the record exhibits no “forgery;” beyond all question, Price did not notice it, if it existed, — and it requires more imagination than I possess to understand why one should want to forge the signature of Price to a paper as a witness, which Price had acknowledged as a notary.
(e) The main ground upon which the majority places itself is that Price, for some reason, went to plaintiff, with the mortgage in his hand, and asked her whether she was the person who had executed same, but did not show her the mortgage. As to this, I have to say: (1) That the failure to show her the mortgage is an immaterial matter, because, if plaintiff can have any relief, it must be done by holding — as the majority does hold — that she knowingly executed note and mortgage, which would estop her to deny that she did not know what was in what she signed. Therefore, showing her the mortgage would but have disclosed what both she and Price knew, as matter of law. (2) For all that appears, the mortgage had already been bought. (3) Pass all that, and still it could not have been the purpose of Price to refrain from inquiry, and so make an “innocent purchase;” for, if that had been his bad-faith purpose, he would have made sure by keeping away altogether.
If statute “bad faith” were involved, it is not proved.
III. The charge in the petition is- that the defendants
IV. If it be conceded to be immaterial that this is a suit to cancel, instead of a defense asserting a bad-faith purchase; if it be, therefore, conceded that defendant has the burden of proof on good faith; if it be conceded that this is a suit involving the purchase of a negotiable instrument: yet all these concessions are immaterial, because plaintiff is seeking affirmative relief in equity. And she may not have such relief, if she negligently refrained from reading before she signed. Such negligence will bar such relief, even between the parties. She may not have the relief even against Hamilton. Therefore, she surely cannot have it against an endorsee who is not an actual participant in the fraud. If it was negligent not to read, equity will
“We do not overlook the fact that many cases hold a contrary rule upon the theory that it is no defense for one guilty of a fraud to say that the other party was negligent in believing him. * * But we have so long adhered to the doctrine just stated that we are not justified in departing from it now.”
Quite a proportion of the cases involve innocent endorsees. But that malíes no difference. For, as has been seen, when affirmative relief is sought in equity, even the one who is charged with having committed the fraud may say that the maker is, by negligence, barred from relief.
All that the opinion claims is that plaintiff came to the bank at the instance of a telephone message from Hamilton. When she arrived, Price was at his desk in a small room, and Hamilton, across the aisle. Hamilton said:
“I know your time is limited, and all we will ask you to do is to sign this paper. You will have to sign this paper before your money can come, and it will come through the bank.”
As she sat down at the desk, Price, who was standing, remarked, “Sign your name on this line, Mrs. Lundean,”— pointing to the line. Then Hamilton requested that she sign her name “Mary,” because it appeared that way in the abstract. After so signing, she inquired if there was anything further, and was told by Hamilton that the paper
The majority has absolutely nothing to say against all this, unless it be the perfectly immaterial statement that the case is one in which it holds that plaintiff made a negotiable instrument, which Hamilton could not collect, and that the bank could not collect, because it had notice of the infirmity. As said, this is an immaterial statement: First, because, by amendment to petition, the plaintiff settled that there was no negotiable instrument, and the court may not act in disregard of this allegation, and for her benefit hold that she made a negotiable instrument; second, failure of the evidence to prove good faith is utterly immaterial, where the maker seeks affirmative relief in equity, and was negligent in signing without reading. As seen, this is so if Hamilton himself were defending this suit. Surely, what is true of a party to the fraud must be true of one whom the majority finds was not a party to the fraud. Surely,
V. But assume that, in fact, there was no negligence, or that it is, in fact, excusable negligence. Defendants pleaded that certain things do constitute negligence that estops the plaintiff to claim what her claim finally became: to wit, that the two instruments should be cancelled, because she had been tricked into signing them, and into the belief that she was signing an application for a loan. This plea of the defendants’ was in no manner attacked.
“Under familiar rules, if matter pleaded as a defense is not attacked by motion or demurrer, and there is testimony to sustain it, it will defeat the action, although it may not have amounted to a legal defense.” First Nat. Bank v. Zeims, 93 Iowa 140, at 143 (citing Conger v. Crabtree, 88 Iowa 536; Linden v. Green, 81 Iowa 365; Benjamin v. Vieth, 80 Iowa 149). And see Enix v. Iowa Cent. R. Co., 114 Iowa 508; Ormsby v. Graham, 123 Iowa 202, at 211; Heiman v. Felder, 178 Iowa 740, at 751; Boyd & Williams v. Watson & Co., 101 Iowa 214, at 222; Lacy v. County of Kossuth, 106 Iowa 16. So it becomes the controlling question just what defendants asserted created such estoppel, and whether that assertion ivas proved. If the facts relied on for the' estoppel in said unchallenged plea are established, there is an estoppel, though the facts pleaded do not, in truth, create such estoppel.
By adopting all allegations of the original answer, an amendment to answer repeats a denial of the bad faith charged in the petition, worked by declaring that the purchase was made in good faith. To say at this point that defendants proved good faith would beg the question. Therefore, T content myself with saying that the plea of good faith ivas an immaterial one, and need not be proved. For, in a suit for affirmative equitable relief, a defendant ivho is not an innocent, has as much defensive standing
The only answer by the majority is that there was not, in fact, a good plea of estoppel, because the case is dealt with as a claim that one who knowingly signed a note was defrauded. First, it may not so be dealt with because the petition makes the suit one in which no paper knowingly signed is involved. Second, even if the plea of estoppel be not, in fact, good, failure to attack makes it good. This last, the majority leaves untouched.
5a
Still another estoppel is pleaded; and it, too, seems not to have had any consideration. It does not inject good or bad faith, at all; and, of course, this made it unnecessary, in. aid of the estoppel, to prove good faith, even if good faith were material. It is based upon allegations that plaintiff is estopped by laches, because she made no inquiry whether her money had come, and remained silent until Hamilton withdrew his money from defendant bank, and absconded. Every word pleaded was proved. This state of pleading and proof is alone a warrant for reversal.
Of this plea, nothing is said, except that Hamilton was financially worthless, and that plaintiff owed no duty to warn these who had bought by bad faith. Assume this