Bank of Monette v. Hale

Kirby, J., (after stating the facts). It is contended that the bank is an innocent holder of the paper without regard to the circumstances under which it was executed, and therefore entitled to recover. “A bona fide holder takes negotiable paper free from all equitable defenses, that is, all those defenses- that do not appear on the face of the paper and by which the paper is not declared invalid by statute. But, before one can become a bona fide holder of a negotiable instrument, he must take it (1) bona fide, (2) for a valuable consideration, (3) in the usual course of business, (4) before maturity, and (5) without notice of any existing defense and of dishonor thereof. If the purchaser can be charged with notice of the defense or defect of title, he is not a bona fide holder of the instrument; such notice, of course, must exist at the time the paper is transferred to him or before he paid for it.” Hogg v. Thurman, 90 Ark. 97. In Bothell v. Fletcher, 94 Ark. 102, the court said: “The bona fide character of a holder of negotiable paper can be destroyed only by proof of his knowledge (or facts of which he would have to take notice) of some defects or fraud in connection with the execution of the instrument, rendering same invalid in the hands of the payee and of his purchase thereof notwithstanding such knowledge. In such case he would not be an innocent holder, even if he paid value and had the instrument transferred to him before maturity.” The maker of a negotiable note can not avail of the defense that it was procured through fraud or mistake, when sued on by an innocent holder thereof. Lanier v. Mortgage Co., 64 Ark. 39; Southern Sand & Material Co. v. People’s Savings Bank & Trust Co., 101 Ark. 266. Now, it is undisputed that the bank purchased in the usual course of business the twelve months’ note, by its terms negotiable, on the next day after it was executed, and paid therefor its full face value, without any knowledge on the part of the cashier of the bank, who made the purchase, of any existing defense thereto and without notice of any fact that should have put him upon inquiry. It is true appellee testified he called at the bank the day after its execution and told the president and cashier that he had ascertained that the shares of stock of the insurance company were only $25 each; that it whs misrepresented to him, and he did not want the stock, and would not pay for it, and said to Mr. Blankenship: “You can pay that note and take it off my hands.” That he asked where the agents of the insurance company were, and was told they were at Manila. But the president and cashier of the bank both, however, deny that any such conversation occurred on the next day, the day the note was purchased, and the burden of proof was on appellee to show that the bank had actual knowledge of his defense when it bought the note, or notice of such facts indicating that its action in the purchase thereof amounted to bad faith. Old Nat. Bank v. Marcy, 79 Ark. 153; Thompson v. Love, 61 Ark. 87. And, if the conversation did occur as appellee states it did, it does not contradict the cashier’s statement that the note was already purchased and paid for at the time, before the train left for Manila, and we are of the opinion that there is no testimony showing bad faith on the part of the bank in the purchase of the note, and that it became a bona fide holder by such purchase. The testimony shows that those at Monette who purchased the stock of the life insurance company did so under the belief that they were getting shares of stock of the face value of $100 for $75. The agents represented that the stock was worth $75 per share at the time, and would soon be worth $100. The shares of stock were of the face value of $25 each, and were sold for $3 for each $1 of the face value by the agents of the insurance company in its organization. But there is no evidence that Blankenship, the president of the bank, had any knowledge whatever that the stock was other than the agents represented it to be, nor that he represented that it was of the face value of $100 per share; while it is true that he and all others to whom he suggested that it was a good investment purchased it and paid therefor the full amount of three for one, x having in mind at the time that they were getting hundred dollar shares of stock for seventy-five dollars, but without any specific representation made by any one that such was the case. There was no testimony showing that he received any consideration or benefit from the sale of the stock nor that he recommended it otherwise than because he thought it a good investment. He made no false representation, knowing it to be false, to secure the execution of the note by appellee, nor did he, not knowing, assert any representation to be true, with the intent to have appellee act upon it to his injury, and the fact that he and his friends took and paid for the stock as agreed conduces strongly to show that he acted in entire .good faith in the representation made by him. -Representations, to be fraudulent in law, must be material to the contract or transaction which is to be avoided, and “must be made by one who either knows them to be false, or else, not knowing, asserts them to be true, and made with the intent to have the other party act upon them to his injury, and such must be their effect.” Evatt v. Hudson, 97 Ark. 268; Jaratt v. Langston, 99 Ark. 438; Brown v. LeMay, 101 Ark. 95. Blankenship, the president of the bank, so far as the testimony shows, had no knowledge of any false representations having been made by any one, if same were made at the time of the execution of the note and its purchase by the bank, nor of any defense to or infirmity in the note, nor any notice which would deprive the bank of the defense of a bona fide purchaser for value at the time the note was acquired by it, even conceding that his knowledge of the facts relating to the transaction would be chargeable to the bank in the purchase of the note. The instructions given by the court did not fairly submit the issues to the jury in accordance with the law as declared herein, and the judgment is reversed and the cause remanded for a new trial.