Tabor v. Merchants National Bank

Cockbill, C. J. The Merchants National Bank sued the appellees upon a note signed by them and one Jerre Wolf, who was not sued. The note was made payable to the order of the German Insurance Company of Freeport, 111., and was indorsed in blank. The appellants filed an ailswer, in which it was alleged that they signed the note “as sureties for Wolf in payment of an antecedent indebtedness then owing by said Wolf to the German Insurance Company,” upon the express agreement that Wolf should not deliver the note to the payee until W. L. Taylor and Alvie Smith had signed it with them, but that in violation of the agreement Wolf delivered the note to the payee, and that the bank knew the facts when the note was indorsed to it, and denied that the indorsement was made before maturity. A jury was waived, and the court made the following finding of facts, viz.: First — That the note sued on was signed by E. A. Tabor, Jesse Turner, Jr., and O. P. Brown, at the instance and request of Jerre Wolf, one of the makers, with the understanding and agreement that'the same was not to be delivered to the German Insurance Company, to which the said Wolf was indebted, until W. L. Taylor and Alvie Smith should sign it as sureties with them; that said note was delivered to the German Insurance Company without the signatures of Taylor and Smith, and that the insurance company had no knowledge of the manner in which the signatures of the above named parties had been obtained. Second — That the said note was assigned to the plaintiff before maturity in regular course of business, and judgment was entered for the plaintiff’. The appellants contend that the finding is not sustained by the evidence, in so far as it relates to the insurance company’s want of knowledge of the condition upon which the appellants’ signatures were obtained by Wolf. As to that point it is only necessary to say that no testimony was offered by either side. It is argued, however, that the facts found are not sufficient to sustain the judgment. The contention is that the proof that the note was put in circulation by Wolf in violation of the agreement with the appellants, cast upon the plaintiff the onus of proving, not only that the note-had been indorsed to it before maturity, but also that it was acquired upon a valuable consideration. There was no proof of the consideration paid by the plaintiff. The fact of indorsement by the insurance company to the plaintiff was not put in issue, as counsel seem to suppose. The complaint alleged that the indorsement was made before maturity for a valuable consideration, and the answer avers that the note “was not assigned to the plaintiff before maturity, but, in truth and in fact, that the assignment was made long after maturity, and that the assignment was not made for a valuable consideration.” The defendants had previousiy undertaken to test the sufficiency of the indorsement by demurrer, but the demurrer was overruled, and by pleading over to the merits they waived all objection to the ruling of the court in that respect (Chapline v. Robertson, 44 Ark., 202; Jones v. Terry, 43 ib., 230), and did not renew the objection in any other form. 1. Pleading over after dera u r r e r overruled. The answer, so far from containing a denial of the assignment (See Mcrnsf. Dig., see. Ifl7), is an admission of its validity, and when the plaintiff proved, as was done, that the assignment was, in fact, riiade before the maturity of the instrument, the statutory rule that a blank assignment shall be taken to have been made at a date most to the advantage of the defendant, was overcome. (Trader v. Chidester, 41 Ark., 242.) 2. Bills and Notes Presumption as to date of blank assignment. 3. same: in blank, pres u jjj p, tions. The production of the note and proof that the indorsement was made before maturity raised the presumption “ ^ ^ that the plaintiff had paid value for the note, that it was an innocent holder and had acquired it in due course of business; but if the proof subsequently offered by the defendants to establish their defense shows that the note, in its inception, was so infected by fraud as to destroy the title of the original holder, the presumption of the payment of value was thereby overcome, and the burden of proof was shifted to the plaintiff to show that value was given for the note. 1 Daniels Neg. Inst., sec. 814; Benj. Chalmer’s Dig., p. 109, art. 97; 2 Greenl. Ev., sec. 172; Commissioners v. Clarke, 94, U. S., 277, 285; Collins v. Gilbert, ib., 753; Nickerson v. Roger, 76 N. Y., 279; National Bank v. Green, 43 ib., 298; Kellogg v. Curtis, 69 Me., 212; Grays, Admr., v. Bank, 29 Pa. St., 365. The reason assigned for this rule is, that “where there is fraud, the presumption is that he who is guilty will part with the note for the purpose of enabling Borne third party to recover upon it, and such presumption operates against-the holder, and it devolves upon him to show that he gave value for it.” Bailey v. Bidwall, 13 Mees & Wes., 73; Collins v. Gilbert, sup. i. Same: s uBrsft°y I nrolcde n't If, therefore, the evidence, shows that the note was invalid in the hands of the insurance company, by reason of the fraud practiced upon the appellants by their principal, Wolf, then the plaintiff, who is the indorsee, having failed to rebut the presumption of invalidity that is raised against it, was not entitled to recover. But when we come to the consideration of that question we find no allegation in the answer, and there is no proof to show, that the insurance company had notice of the condition upon which the appellants had signed the note. It was complete in form; there was nothing on- its face to arouse suspicion, and the answer alleges that it was give» in payment of a debt due from "Wolf to the insurance company. The inquiry is, therefore, was the insurance company, under these circumstances, affected by the fraud practiced by Wolf upon his sureties ? It was ruled by this court at the present term that the delivery of an official bond by a surety to the principal obligor, upon the condition that it should not be delivered until signed by other parties, did not have the effect of constituting it an escrow as when delivered under like-circumstances to a stranger. (State v. Churchill, ante.} While there is some conflict in the authorities, upon this point as to non-negotiable instruments, we are aware of no-ease which holds that such an effect is given where a negotiable instrument, perfect in form, is delivered to the maker. In such cases where the question arises between the injured party to the note and a payee who has taken it for value without notice of the condition, the former having executed it and entrusted it to a maker, is regarded as having constituted him his agent to negotiate it; and having clothed him with the means of perpetrating the fraud, must bear the loss. Passumpsic Bank v. Goss, 31 Vt., 315; F. & M. Bank v. Humphrey, 36 ib., 354; Ayres v. Milroy, 53 Mo., 516; Bank v. Phillips, 17 ib., 29; Smith v. Moberly, 10 B. Mon., 266; Merriam v. Rockwood, 47 N. H., 81; Gage v. Sharp, 24 Iowa, 15; Daniels v. Grover, 54 ib., 319; Steaver v. Weld, 61 ib., 704; Deardorf v. Forceman, 24 Ind., 481; Clark v. Brice, 64 Ga., 486; Stoddard v. Kimball, 6 Cush., 469; Clark v. Thayer, 105 Mass., 216; 1 Daniel Neg. Inst., sec. 854. The insurance company had the right, then, to assume that the appellants had authorized Wolf to deliver the note to it for them, and as it is not shown that the company had notice of the violated condition, or any reason to suspect its existence, the appellants have failed to connect it with the fraud, or to establish a prima facie case against it, if value was paid by it for the note. Cases sup. 5. same: antecedent n o o é n t In the case of Bertrand v. Barkman, IS Ark., 150, it was ruled that one who takes negotiable paper in payment of an antecedent debt, before maturity and without notice, actual or otherwise, of any defect thereto, receives it in due course of business, and becomes, within the meaning of the commercial law; a holder for value, entitled to enforce payment without regard to the defenses that may exist between the other parties to the paper; and this is in accord with the very general concurrence of judicial authority. 1 Daniel Neg. Inst., sec. 832; Harrell v. Tenant, 30 Ark., 684; Railroad v. National Bank, 102 U. S., 14; Oates v. National Bank, 100 U. S., 239; Stoddard v. Kimball, sup.; Bank v. Phillips, sup. It follows then that the appellants, having failed to establish the invalidity of the note in the hands of the first holder, the necessity of proving .the payment of value for the indorsement was not cast upon the bank, and it was entitled to recover. Affirm.