195 Iowa 1267 | Iowa | 1923
The pleadings are voluminous and complicated, though the salient facts are few. A preliminary statement of the facts will simplify the statement of the issues.
The plaintiff, being induced by fraudulent representations, contracted to purchase 250 shares of capital stock in the Midland Packing Company at par value of $100 per share. Under the contract, he was to pay one fourth the contract price in cash and to give his notes for the balance. In lieu .of the cash payment, however, he executed and delivered to the packing com
“Wherefore plaintiff demands judgment against the defendant for the immediate possession of the said two promissory notes, or for the value thereof, and costs.”
Though several later amendments to the petition were filed, this prayer was never amended. Up to this point, the action was in the form of detinue, and was pending at law. Thereupon, the Emmetsburg National Bank, being at that time the only defendant which had been served with notice, filed its answer and cross-petition, wherein it alleged its purchase in good faith and owner
This is a companion ease to that of Frink v. Commercial Bank of Emmetsburg, and appears to have been tried at or about the same time, and under the momentum of the trial of that case. We have had occasion to consider that case on appeal. Frink v. Commercial Bank of Emmetsburg, 195 Iowa 1011. The case involved largely the saíne legal questions, and our discussion in the Frink case has much application to the present one. We shall avoid, as far as may be, undue repetition herein of the discussion therein.
On the other hand, if the Emmetsburg National Bank was a holder in due course, and was, therefore, not subject to the maker’s defense thereto, then the plaintiff was entitled in equity to impress a trust upon the certificate of deposit, as a part of the fruit of the fraud perpetrated upon him, provided he could find such certificate in the hands of the alleged payee, or could trace it into the hands of another who had notice of his equity and was not an innocent purchaser for value. This question is fully discussed in the Frink case, supra. The plaintiff did not, by any allegation in any of his pleadings, charge the Emmetsburg National Bank wdth any notice of his defense. It is also a perplexing omission from plaintiff’s pleadings that he does not claim to impress any trust upon such certificate in his own behalf. The following are the allegations of his petition as against the Continental National Bank:
“That the Emmetsburg National Bank and the said Bernard Ulrich, as receiver, claim to hold the said certificate of deposit because of an alleged claim by the defendant, the Continental National Bank of Sioux City, Iowa, that it is the owner and holder of the said certificate of deposit; but plaintiff alleges that, by reason of the premises, the Continental National Bank of Sioux City, Iowa, is not entitled to any funds or deposit pur*1272 porting to be represented by said certificate, and the said certificate does not, in fact, represent any deposit of funds, but the said promissory notes or any alleged proceeds thereof or any liability represented by said certificates are not the property of the said Continental National Bank, and it has no right, title, or interest whatsoever in the premises against the Emmetsburg National Bank or the said Bernard Ulrich, as receiver, or this plaintiff, and the said certificate of deposit is wholly void in its hands. That the plaintiff’s interest in the said promissory notes is the full ownership thereof, and that the value of the said promissory notes, because of their possible misuse and as evidenced, is, to wit, a sum equal to their face, with interest; that said promissory notes were neither taken on the order or judgment of a court against the plaintiff or under an execution, or attachment against him or against the property. That the Continental National Bank of Sioux City, Iowa, is, by reason of the premises, indirectly claiming an interest in the said promissory notes, but it in fact has no interest, direct or indirect, therein. Wherefore, plaintiff demands judgment against the defendant for the immediate possession of the said two promissory notes, o.r for the value thereof, and costs.”
No other allegations are made as against the Continental National Bank, nor does the prayer pray that a trust be impressed upon the certificate, but only that the notes be canceled. So far, therefore, as the pleadings are concerned, the Continental National Bank is before us with its cross-petition, whereby it asked judgment upon the certificate against the Emmetsburg National Bank. No defense was pleaded by the maker, nor any defense to it proved by any evidence. What ground, therefore, was there, either in the pleadings or the evidence, for the cancellation of the certificate ? The only defense to it purported to be made in the pleading was by the plaintiff in his reply. This was, in effect, a general denial. Such denial was a mere formality. It had no support in the evidence. The instrument was valid, as against the Emmetsburg National Bank. It is not claimed by anyone that any fraud was perpetrated upon it, even by the Midland Packing Company. The certificate was issued, and it was transferred for value to the Continental National Bank. The issuing bank had no defense thereto. The plaintiff
Plaintiff’s argument, as against the Continental National Bank, is predicated largely upon the proposition that it was not a holder in due course of the instrument, because the instrument was drawn payable in “current funds,” and because it was negotiated by agents other than the •(;reasurer_ This argument is available only to the issuing bank, and is available to it only in support of an actual defense to the instrument. Inasmuch as it made no defense, and has none, the question of the negotiability of the instrument is not material. If the plaintiff were tracing this asset as a fruit of the fraud practiced on him, and were asking to-impress a trust thereon, he could not have such relief, as against an innocent purchaser for value. In such a case, the question whether a purchaser was innocent would not depend upon the negotiability of the instrument. The protection afforded to innocent purchasers of property of whatever kind against the impressment of a trust because' of hidden equities is independent of the Negotiable Instrument Act, and will operate in favor of a nonnegotiable instrument, as well as in favor of a negotiable one. Before the plaintiff could be entitled to impress a trust upon such certificate in his own favor, it was incumbent upon him to show, either directly or circumstantially, that the taker of the certificate had notice of an adverse equitable claim to that certificate. We do not find in the record any evidence whatever that has any tendency to prove notice to such bank that any person other than the issuing bank and the payee had any claim upon or interest in the certificate in question. If, therefore, the plaintiff had asked to impress a trust in his favor upon such certificate, it would have to be denied, for want of proof of notice. Such notice is not proved by the mere nonnegotiability of the instrument.
It is earnestly urged in argument that no contractual relation had, in fact, been entered into between the plaintiff and the Midland Packing Company, and that, therefore, the notes were
We see no way, therefore, .to sustain the decree as against the Continental National Bank; nor can we discover any reason why, upon the undisputed evidence, as well as upon the pleadings, judgment should not have been rendered in its favor against the issuing bank. We ought to note at this point that, while this action was pending, the Emmetsburg -National Bank went into the hands of a receiver, and that it is now represented herein by the receiver. What is said in this discussion is not intended to establish any preference in favor of the Continental National Bank as against the receiver, nor to adjudicate in any manner the question of the distribution of the funds in the hands of the receiver.
The final facts upon which the plaintiff here rests the weight of his argument were first pleaded by him in certain amendments filed in the course of the trial, which facts were unknown to him, according to his allegations, prior to the trial.
In another division hereof, we shall deal in more detail with the pleadings and with certain salient features of the evidence. We omit such details at this point.
One point urged pursuant to such amendments is that the Midland Packing Company never received title to the notes, because no contractual relation was ever consummated between it and the plaintiff. As will be seen later, the evidence is against the plaintiff on this point.
Another point urged pursuant to the same amendment is
III. We purpose in this division to set forth in more detail some features of the pleadings and of the evidence upon which special emphasis is laid by the appellee. Upon the trial of the case, he filed two amendments to his petition, which we will denominate herein as A and B, « -,¶ as follows:
A. “Plaintiff amends his substituted petition by stating that there never was any contract or subscription between the plaintiff and the Midland Packing Company, and plaintiff did*1277 not discover that the defendant Emmetsburg National Bank was not the bona-fide owner or holder of the said promissory notes, or that, as plaintiff now avers, it had no title thereto, or that the purported indorsements thereon, as plaintiff has since found and now avers, were not the indorsements of the Midland Packing Company, until long after this action was begun; and this, plaintiff says that, by reason of the premises, there never was any contract between the plaintiff and the Midland Packing Company, and the said promissory notes never became the promissory notes of the Midland Packing Company, and were never its property, and the said certificate of deposit never represented any actual funds deposited, and the Continental National Bank never acquired any certificate of deposit or funds represented thereby. That, while the plaintiff, prior to the commencement of this action, offered to pay the defendant National Bank the difference between the amount of the said deposit and amount of said funds, the said offer was made by mistake, and in ignorance of the facts and of the plaintiff’s rights in the premises.”
B. “Plaintiff amends his substituted petition by stating that the purported subscription to stock and promissory notes signed by this plaintiff, as set forth in his substituted petition, were and are illegal and void and without consideration, in that, by certain fraudulent arrangements between the Midland Packing Company and its promoters, organizers, and controllers, the stock of the Midland Packing Company had, unknown to this plaintiff, been so manipulated, and such arrangements had been made between them, that the Midland Packing Company would not receive and was not to receive the par value of the stock so pretended to have been sold to this plaintiff, but that at least one fourth of the par value thereof was to be, and was in fact, appropriated to the private use of the exploiters, promoters, organizers, and controllers of said corporation, and thereby the said company was, by the said purported agreements in reference to the stock so purported to have been purchased by this plaintiff, to issue stock to this plaintiff when the amount of the par value to be paid by him therefor was paid, notwithstanding that the said company would not receive and was not to receive such par value. ’ ’
It will be noted that, by Amendment A, plaintiff avers “that
“Subscription Contract to (Capital Stock.
“No. 10114. No. Shares
“Midland Packing Company,
“Sioux City, Iowa.
“Authorized Capital Stock $8,000,000.00.
“ (Incorporated under the laws of the State of Iowa)
“Par Value $100.00 Per Share. Fully paid and Nonassessable
“I hereby subscribe for 250 shares of the capital stock of the Midland Packing Company, Sioux City, Iowa, and agree to pay therefor, One Hundred ($100.00) Dollars per share, payable as follows: Not less than one fourth cash, accompanying this application, and the balance thereof, as evidenced by my promissory note of this date, with interest at six per cent.
‘ ‘ This subscription contract is entered into with the understanding that the capital stock of said corporation is composed of cumulative participating preferred stock and common stock; that the stock hereby subscribed for is preferred stock, and the preferred stock is guaranteed seven (7 per cent) per cent dividend for each year, after said preferred stock receives seven (7 per cent) per cent. Dividends for the current year any accumulation thereon. The common stock shall receive seven (7 per cent) per cent for the current year. Any additional dividends paid in that year shall be paid at the same rate on all stock, both preferred and common, without distinction as to class.
“This contract is entered into with the further understanding that the voting power at all stockholders’ meetings is lodged in the holders of common stock.
*1279 “It is expressly agreed that no stock is to be issued until the amount of this subscription and note given therefor is paid in full in cash, and any payment becoming due on the stock hereby subscribed for or any note given therefor, not paid within sixty days after due, shall at the option of the corporation cause this subscription and any note or notes given herefor, to become null and void, and all payments made on this subscription by the subscriber shall become the property of the corporation absolutely as liquidated damages for the failure of the subscriber to carry out this contract.
“The company may reject this application by refunding all moneys paid thereon.
“This subscription contract contains the entire contract between the subscriber and the company, and no agent or representative of the company or any other person has any power to change or alter the terms of this subscription.
“I hereby agree that before selling or agreeing to sell the stock hereby subscribed for, that I will first offer same to the Midland Packing Company.
“All payments will be made payable to the Midland Packing Company at Sioux City, Iowa.
“Dated this... .day of.........., 1919.
“Henry Wegener,
‘ ‘ Subscriber. ’ ’
It appears also that, when this contract was filed by the company, a memorandum was stamped thereon with a rubber stamp, as follows:
“Stock upon this application was subscribed upon the request of T. G-. Taylor transferred from subscription No. 8580 subscribed for on the......day of............1918.”
The explanation of this memorandum made in the evidence is that Taylor was to obtain credit for this subscription, and that the same was to apply as a credit of 250 shares upon a certain contract of subscription previously made by him. The evidence also shows that the promoters of the corporation received as their commissions 25 per cent of all subscriptions. Do these facts sustain the plaintiff’s allegation that there was never any contract between him and the Midland Packing Company?
It must be said, therefore, that there was a contract, if that he a material fact in this case.. But the really material question is, Did the plaintiff execute and deliver his negotiable promissory notes to the Packing Company ? If so, they implied a consideration, and the holder in due course had a right to rely thereon as such, regardless of whether there was a consideration in fact or not. And this answers likewise the contention of the plaintiff that the rubber stamp memorandum put upon his contract at the home office was an alteration of his contract, or was a conditional acceptance thereof, to which the plaintiff had never consented. If all this were true, it would not affect the validity of plaintiff’s negotiable promissory notes in the hands of an innocent purchaser. But, in fact, the memorandum in question had no legal effect whatever upon plaintiff’s rights under his contract. Whatever rights the plaintiff had against the corporation under his subscription contract before the memorandum was made, he had no less thereafter.
Counsel argue at this point that the notes were part of the contract, and that, therefore, they could not circulate except as
“That it would be taken care of by someone else, paying a higher figure; and it was this statement that he was going to resell the stock that induced me to buy it; and I felt that he could sell it for $125 per share, and that he would divide the $25, and I would make a profit of $12.50 per share out of it, and that I would never have to pay the notes, because my stock would be resold. He said the notes would take care of themselves, out of the profits. I relief upon his statement that he would go out and sell the stock. ;
“Q. Wasn’t that the thing that induced you to make the subscription? A. Yes, sir. Q. You spoke to Mr. Morling about these agents’ telling you other things at the time you made this last purchdse of stock; but the fact is, you wouldn’t have made the purchase if you hadn’t believed the stock was going to be resold, would you, Mr. Wegener? A. No, sir. Q. You depended upon the agent’s statement, then, that he was*1282 going to resell the stock, as the real thing that induced you to take the stock? A. Yes, sir.”
This evidence has an important bearing upon two features of the case. If O’Donnell had sold this stock at a profit, the plaintiff would have been entitled to his profits, and this right would arise to him under his existing contract of purchase. The evidence is important, also, as bearing upon the question of notice to his associate bank officials, who purchased the notes. Plaintiff assured them that the notes were all right, and would be paid. He did not claim that they had been negotiated in breach of faith. He was expecting to resell the stock. He so informed his associates. This was his attitude for the period of one year. He was not expecting to defraud any purchaser in making such sale. He had been familiar with the operations of this company for a couple of years. He had been at its headquarters two ox-three times. He had ixxspected the plant. He had aided the promoting agents in their canvass for purchasers among his neighbors. These acts showed his confidence ixx the integrity of the corporation and its agexits. If, therefore, there was anything in the circumstances that put his co-officials upon inquiry, to what better source coxxld they have properly axxd naturally put their inquix-y and their search for information thaxx to the plaixxtiff himself? There is nothing in the evidence that would warraxxt the slightest suspicion that the bank officials who purchased the notes knew axxything that would suggest any right of defense thereto. Such is their testixnoxxy. The plaintiff knew more about the corporation axxd his transactioxxs therewith than they did. They kxxew that he was satisfied. We see no room for sayiixg, upoxx this x-ecord, that these bank officials had knowledge of any fact which put them upon other inquiry than from the plaintiff himself. The evidence of the plaintiff himself is coixelusive that such axx inquiry, if it had been formally made in advance of the pux-chase, would have disclosed no impeachment of the xxotes or of their negotiation.
IV. We have engaged ixx the foregoixxg somewhat prolix discussioxx of the evidence because of the grave importance of the case and of the zealous coxxtention and maxxifest conviction of plaintiff’s distinguished counsel that the record sustains the decree in his favor, and because our conclusion upon the record
What we have already said indicates our conclusion that the Continental National Bank was a good-faith purchaser of the certificate for value, and that the Emmetsburg National Bank was likewise a good-faith purchaser of the notes, and was a holder in due course thereof. The decree entered below must, accordingly, be reversed. — Reversed.