Engen v. Matthys

Bikdzkix, I. This is an action on -a promissory note for $3,000 executed December 20, 3 919, payable to the order of F. B. "Wood and by him transferred to the Scandinavian American Bank of Fargo. The — 490 — ease; was tried in tlie district court of Cass county where judgment was rendered upon a verdict in favor of the plaintiff. A motion for new trial was later made and denied. The defendant has appealed, both from the judgment and from the order denying the motion for a new trial. The facts may be briefly stated as follows: During the latter part of September and including the first day of October, 191!), the Scandinavian American Dank of Fargo was subjected to an examination by a deputy bank examiner acting under the direction of a, majority of the members of the state hanking board. The. bank was found to contain a large amount of objectionable loans and assets and was closed by the banking board. While thus closed, an original proceeding was brought in this court, for the purpose of enjoining the majority of the members of the banking board (the attorney general and secretary of state'.) and the agents of the board from interfering with the control of the bank by the public examine,]’. An ex parte order was issued placing the public examiner in charge and restraining interference with his control. An order to show cause was returnable in the matter on October 15, 1919. Between the date of obtaining this order and its return the defendant ALitthys was called to the bank. On October 11th, in the back room of the bank he conferred with William Lemke, who was acting as attorney for the public examiner, A. O. Townlev, who was prominently identified with - the Nonpartisan League, and Spurgeon O’Dell, a vice president of the, Scandinavian American Bank. Lemke called the defendant’s attention to an itemized statement of $153,000 of assets in the bank that were objectionable to Danger, the attorney general, and explained that these assets consisted largely of postdated checks and small notes given by farmers. Die stated that it was desired to have additional security to support these assets and that they wanted to get, quoting the defendant’s testimony, “some good fanners’ notes for larger amounts, so we can show the supreme court, that this item is adequate security.” Lemke also assured him that he would never have to pay it; that it, would not be used as a note and that they might not have to show it, but he wanted it so he would have it to make an impression upon the court. Townley stated, in that same connection, that he, the defendant, didn’t understand, and he explained that the League had been financed on accommodation note's from the beginning; that no one — 491 — ever liad to pay tliom or lose a penny on them, so he, the defendant, Avon Id never have to pay but would soon have the note bach. O’Dell sat at a table and had one of the packages of notes in front of him. The defendant knew O’Dell as an officer of the hank, and the latter stated that the hank Avas sound and all right; that if it had not heen for the small note's and postdated checks, it wouldn’t have been closed; that the' defendant would never have to pay it and that they would not use it as a note. Thereupon he executed a note in the sum of $5,000 payable to the hank. The manner in which this note was carried or used between October 11th and November 6th does not appear in the record, bui it does appear that it Avas entered on the note register on November 6th as an asset of the bank and that the bank had paid for it the sum of $2,-182.62. This amount represented an overdraft of the League Exchange then in the hank. On the lYth day of November this overdraft Avas paid and the $5,000 note surrendered prior to its maturity to E. L. AYood. The defendant Avas later (about December 20th) called to Eargo and met Lemke and AAffiod at the League headquarters in the Pioneer Life Building. He Avas informed that they no longer needed his note for $5,000 hut that the $3,000 note would he sufficient, that they Avould return to him the note for $5,000, and that they desired him to execute a $3,000 note as a continuation. According to the defendant’s testimony, Lemke said to him “we are going to give you your $5,000 note back to you, and I will ask you to replace it with a smaller one, as a continuation of the larger one. I said to him 'what is the idea of giving me back the larger one and Avanting me now on a smaller one V Mr. Lemke said that they didn’t need me now on any larger one than necessary. They Avere reducing them all. Mr. AYood spoke and said that they had collectors out all the time and Avere collecting money right along, and I would soon have it back. It Avas the same purpose and the same need — they would never use it as a note.” The purpose, he explained, Avas to show the supreme court, to put it in the Scandinavian American Bank and not use it as a note, and just keep it to show; so he signed the note and that was all there was to it, and he “just Avent out and went, avray.” The note he signed was a $3,000 note dated December 20, 1919, payable six months after date to the order of E. B. AYood, Avitli interest at S per cent per annum. Wood, within íavo days of its date, took the — 492 — note to the Scandinavian American Bank, indorsed it and took in exchange for it a cashier’s check for $3,000 payable to himself. This cashier’s check is both dated and stamped “Paid” December 22, 1919, .and the amount of it was credited on the books of the bank to the Publishers’ National Service Bureau, a Nonpartisan League enterprise. The appellants contend that the lower court erred in sustaining •objections to certain testimony which they claim had a direct tendency to prove a conspiracy. Through these rulings the defendant was prevented from showing that Wood and other officers of the League Exchange had misused notes similar to the iiat-thys’ notes. It is argued that the defendant should have bc-en permitted to introduce evidence to prove a general conspiracy to defraud those from whom it was possible to obtain notes such as the Alatthys’ notes — the fraud consisting in the obtaining of the notes for an ostensible purpose which would appeal to an adherent of the league and, after obtaining them, using them for the purpose of giving credit to some one of the various league enterprises. The record discloses that the fullest inquiry was permitted into all the transactions between the bank and the defendant, •which resulted in the giving of the note in question. It appears from the defendant’s own testimony that he gave the original note for the purpose of strengthening the showing of the bank’s assets, which were weakened or at least objectionable on account of comprising a large amount of small notes and postdated checks originating in Nonpartisan League enterprises of one sort and another. The reasonable interpretation of his testimony is, then, that his note was to be used as ostensibly supporting those assets; that, if necessary, it was to be shown to the supreme court as so supporting them. Obviously, it could not be thus used without appearing as an asset of the bank (First Nat. Bank v. Davidson) 48 N. D. 944, 188 N. W. 194, which the bank either owned or which it could enforce as collateral. It does appear that the $5,000 note was used directly for the purpose of wiping off the books of the bank an overdraft of the League Exchange for $2,482.62, which was later paid, and that the $3,000 note was used indirectly in behalf of the Publishers’ National Service Bureau. But it is not the circumstance of such a note being- so used or misused that renders the maker liable thereon in a suit such as the present; hence the fraud, if — 493 — any, in so using it results in no prejudice to the maker. We have held in the case of Vallely v. Devaney, 49 N. D. 1107, 194 N. W. 903, that one giving a note to a bank for the purpose of enabling it to pass an examination is, in case of the subsequent failure of the bank, estopped to assert the defense of accommodation when sued by the receiver; and that likewise he is precluded from asserting fraud inducing the giving of the instrument where to permit him to rely upon the fraud as a defense would, in effect, he to aid him in the perpetration of a fraud upon others. He can not he allowed to take advantage of his own wrong. Where such principles of estoppel are applicable, the liability of the defendant and the maker of a note, it will he seen, is in nowise dependent upon the giving of any value for the note by the bank, and wc can see no reason for depriving the receiver, as a representative of the creditors, of the right to invoke the estoppel on account of the fact that the bank actually did advance money to third parties on the strength of the note contrary to the understanding with the maker. In other words, if the receiver could enforce the instrument, though given solely for the accommodation of the bank, be should be equally able to enforce it although the hank has actually used the instrument as security for subsequent advances to third parties. Since the defendant testified that the note in suit was a continuation of the $5,000 note and was given for the same purpose, it must follow that it was given in lieu of the larger note and to he equally binding. Hence, any estoppel applicable to defenses to the former is equally applicable to the latter. Dor these reasons wc are satisfied that the defendant was not prejudiced by any restrictions affecting the proof of a conspiracy such as that pleaded and relied upon. We do not deem it necessary to comment at length upon the various assignments of error that are argued in the brief. Suffice it to say that they are disposed of in what has been said above, as it must be apparent,, in the view we take of the appellant’s liability, that he could not be: prejudiced by the rulings on evidence complained of, nor by the instructions concerning the burden of proof as between a bolder in due course and a maker, nor by the statement of the trial court regarding conspiracy. AYc deem it proper to say, however, -that this case was tried in the lower court and the appeal to this court prepared for submission before the announcement of the decision in Vallely v. Devaney, — 494 — supra. The principles therein ann'ouneetl and applied are practically decisive of this case. The judgment and order appealed from are affirmed. Bronson, Ch. J., and Nuesstie and Christianson, JJ., and Jansonils, Dist. J., concur. Johnson, J., being disqualified, did not participate; Honorable Fred Jansonius, Judge of the Fourth Judicial District, sitting in his stead.