Landauer v. Sublett

MASON, V. C. J. Sometime in the year 1921, the defendant in error T. B. Sublett bought a farm in Garvin county from J. T. Hopkins, subject to an outstanding mortgage in th'e sum of $2,500 which was held by the Augustanna College and Theological Seminary. Sublett thereafter, being desirous of paying this $2,500 mortgage, which was about due. made a new mortgage on said lands ■ in the principal sum of $3,500 to the Conservative Loan & Trust Company. Said company paid Sublett approximately $700. and, at Sublett’s request, was to pay taxes and other expenses amounting to approximately $300, and was to pay the $2,500 mortgage held by the afor'esaid college. The Conservative Loan & Trust Company sold its $3,500 note and mortgage securing the same to Mrs. Samuel Landauer, but the $2,500 mortgage was never paid by said company and released of record. Thereafter, on December 29, 1923, Sublett and his wife commenced an action in the district court of Garvin county against the CShservative Loan & Trust Company, Mrs. Samuel Lan-dauer, and others to cancel the $3,500 mort-gag'e and tendered back the $700 he had received. After that suit was brought, the •Augustanna College and Theological Seminary brought suit to foreclose its mortgage, and Mrs. Landauer .filled’ an answer and cross-petition se'eking to foreclose the $3,500 mortgage, alleging that she was the holder in due course of said note and mortgage. The two causes were consolidated and came on for trial on December 2. 1025, and the court sustained a motion for judgment on the pleadings and rendered judgment for the Augustanna College and Theological Seminary foreclosing its mortgag'e of $2,500 as a first mortgage on said lands. Sublett admitted the execution of the $3,500 note and mortgage, and the issue of whether or not Mrs. Landauer was a holder thereof in due course was submitted to a jury. For convenience, the Subletts will hereinafter be referred to as th'e plaintiffs, and Mrs. Landauer will be referred to as the cross-petitioner. After the cross-petitioner introduced said $3,500 note and mortgage and rested, the plaintiff T. B. Sublett, as a witness, admitted purchasing said land subject to the $2,-500 mortgage above referred to, and that he and his wife later executed the $3,500 note and mortgage. He further testified that it was 'executed for the purpose of taking up the $2,500 mortgage, which was almost due, and that the Conservative Loan & Trust Company was to pay taxes amounting to approximately $300, and that the remaining $700 was paid to him; that he received no other consideration for said- note and that the Conservative Loan & Trust Company never paid the first loan of $2,500. This is all the evidence offered by the plaintiffs. This was sufficient to show a failure of consideration for the $3,500 note and mortgage delivered to the Conservative Loan & Trust Company, and under section 7729, C. O. S. 1921. the burden was on Mrs. Lan-dauer to prove that she acquired the title thereto as a holder in due course. A holder in due course is defined by section 7722. C. O. S. 1921, as a holder who has taken the instrument under the following conditions: (1) That it is complete and legal upon its face; (2) that he became the holder of it before it was overdue and without notice that it had been previously dishonored, if such was the fact; (3) that he look it in good faith and for value; (4) that at the time it was negotiated to him he had no notice of any infirmity in the instrument or defect in the title of th'e person negotiating it. The evidence on behalf of cross-petitioner was substantially as follows: Samuel Landauer testified that he was the husband of cross-petitioner; that he was in the dry goods business in Medina, N. Y.; that it was his custom to invest part of his funds for the benefit of his wife and to take the security in her name; that theretofore *187 lie and many other persons in that neighborhood had inv'ested in Oklahoma farm loans; that he had no knowledge of any trouble with such loans; that he purchased the $3,500' note and mortgage involved herein from Mr. Vincent White, a local agent who was Selling loans for the Conservative Loan & Trust Company; that he paid $3,520 for the same, being $3,500 principal and the accrued interest; that he had no knowledge of anything which would cause him to suspect that the Conservative Loan & Trust Company had not paid out on the loan; that he received an assignment of the note and mortgage, which was made out to his wife; that she had knowledge of such transaction; that before consummating, said transaction he made an investigation of the Conservative Loan & Trust Company and found that it had a good reputation and was an old established farm loan company. Vincent White testified that he was a security salesman and had been selling Mr. Landauer Oklahoma farm mortgages of Gum Brothers of Oklahoma City for a number of years; that Mr. Landauer purchased th’e note and mortgage involved herein through him: that Mr. Landauer came to him for a Gum Brothers loan, but he did not have any at that time; that he kn'ew different concerns in the neighborhood who were selling loans for the Conservative Loan & Trust Company; that he had confidence in their judgment and knew that they had been selling these loans for several years and had not had any trouble with the same; that, therefore, he negotiated the transaction wh'ereby Mr. Landauer purchased the note and mortgage involved herein. Mrs. Samuel Landauer testified to facts substantiajUy the same as that of her husband relative to purchasing other loans as well as th’e one involved herein, and that she was the present owner of said note and mortgage and that sh'e had no knowledge that the Conservative Loan & Trust Company had not paid the Subl'etts the full consideration for the same. Frederick M. Thompson testified that he had been an agent for the sa’e of loans of the Conservative Loan & Trust Company in the neighborhood of Medina and Albion, N. V. for a number of years, and that he had never known of any trouble in connection with any of the said loans, and that a great many ,of said loans had been sold in that community for a number of years, and that they were regarded as a good investment by the people of that neighborhood. At the close of all the evidence in the case, the cross-petitioner moved for an instructed verdict, which the court denied, after which the case was submitted to the jury, which returned a verdict for the cross-petitioner, Mrs. Samuel Landauer, for $700, upon which the court rendered judgment, and from which the cross-p'etitioner appeals. Since the filing of the appeal in this court, the defendant in error, T. B. Sublett, departed this life and the cause has been revived against Sallie May Sublett, admin-istratrix, and Sallie May Sublett, W. T. Sublett, H. H. Sublett, and E. D. Sublett, as heirs of T. B. Sublett, deceased. For reversal, it is first urged that the trial court erred in refusing the request of plaintiff in error for a peremptory instruction at the clos’e of all the evidence. This court, in defining an innocent purchaser regarding defect of title, has announced the following rule: “Suspicion of defect of title of the kno\yPr 'edge of circumstances which would excite suspicion in the mind of a prudent man, or of circumstances sufficient to put him upon inquiry, will not defeat his titl'e; that result can he produced only by bad faith on h's part.” See McPherrin v. Tittle, 36 Okla. 510, 129 Pac. 721; Forbes v. First Nat. Bank of Enid, 21 Okla. 206, 95 Pac. 785; Fleming v. Drew, 88 Okla. 100, 212 Pac. 306. Defendants in error insist that, although they introduced no evidence in support of their allegation that the plaintiff in error was not a holder in due course, yet the trial court properly submitted the issue to the jury, and in support of such contention cite Continental Ins. Co. v. Chance, 48 Okla. 324, 150 Pac. 114, wherein the following rule is announced; “Even though the defendant offers no evidence in rebuttal, where defendant has denied plaintiff’s case, and the evidence introduced on the part of the plaintiff to prove his ease was of such a nature that men of ordinary intelligence might draw different conclusions therefrom, it would be error for the court to instruct a verdict.” It is their contention that the fact that the $2,500 mortgage was outstanding and unr'eleased of record against said property at the time the note and mortgage was purchased by Mrs. Landauer was a sufficient circumstance from which the bad faith of the purchaser might be inferred. The rule is well settled by repeated decisions of this court that where a mortgage is given to secure a negotiable promis- *188 ■sary note, the note imparts its negotiable character to the mortgage, and both are brought within the purview of the statutes ■dealing with commercial paper, and that the mortgage is a mere incident to the note. The doctrine of constructive notice is applicable only to a person who is dealing with the land itself, and since the purchaser of .a negotiable promissory note, secured by a mortgage, is not dealing in land, there is no field for the operation of the registry laws in cases of this kind. Foster v. Augustanna College and Theological Seminary, 92 Okla. 96, 218 Pac. 355. The doctrine of constructive notice has never been applied to commercial paper, but the true test as to negotiable paper is that of good or bad faith. Section 7726, C. O. S. 1921, provides: “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.” In our opinion, there was no sufficient "evidence to submit the question of innocent purchaser to the jury, because the evidence was not improbable, nor were there any circumstances or facts taken in ;c!onn'ection with the purchase of said note and mortgage that wou’d impute knowledge to the cross-petition'er that the note had not been paid out by the Conservative Loan & Trust Company. Therefore, it was error for the court to submit this question to th'e jury. The jury should have been advised that the evidence of the cross-petitioner was uncontradicted and conclusive and that it was their duty to so find and return a verdict for the cross-Ijetitioner. For the reasons stated, the judgment is r'eversed and remanded, with directions to enter judgment for the cross-petitioner, as no defense is disclosed from th’e evidence. • BRANSON, C. J.. and HARRISON, PHELPS, LESTER, HUNT, CLARK, RILEY, and HEENER, JJ., concur.