De Lashmutt & Oatman v. Everson

By the Court, Kelly, C. J.: This was a suit to foreclose a mortgage given by respondents, W. B. and Margaret Everson, to secure the payment of a note dated October 9, 1876, made by W. B. Everson to L. L. Leathers, for three thousand dollars, and made payable to L. L. Leathers, or bearer, one year after date, with interest at the rate of ten per centum per annum. — 217 — Tbe complaint is in the usual form in foreclosure cases, and, among other things, it is averred that before the note became due the said Leathers, for a valuable consideration to him paid, indorsed the note and passed it to the appellants, who were then the owners and holders thereof. Respondents, W. R. and Margaret Everson, in their answer, allege that there was no valuable consideration received by W. R. Everson for making said note; that at the time it was made Leathers represented to him that he was the owner of a patent process for manufacturing artificial stone, and that by a recipe given in and with said patent, durable and valuable building stone could be manufactured; that he (Everson) believed said representations, and said Leathers assigned his interest in said patent for Missouri and West Yirginia, which assignment was the only consideration for making said note. Respondents then allege that the patent was entirely worthless, and that the process by said recipe would not make building or any other kind of stone of any value whatever; that the compound made by the recipe is brittle and soft, and utterly worthless; that Leathers, when he received the note and made the assignment, knew all this, and that he falsely, fraudulently and deceitfully, and for the purpose of cheating said Everson, represented to him that the patent was valuable and would produce valuable building stone. The answer also alleges that the appellants, at the time they took said note from Leathers, knew that it was for no other consideration than the assignment of the said patent right; that they knew at the time that it was utterly valueless and that it would not make stone of any value; that they knew that Leathers had falsely represented to said Everson that the patent was valuable, and that he had fraudulently procured him to make the note, and that there was no valuable consideration therefor. The appellants, in their replication, denied these allegations in the answer, and alleged that before maturity thereof they purchased said note, paying therefor one thousand five hundred dollars; that before purchasing the same they inquired of Everson as to the validity of said note, and he rep — 218 — resented to them that the note was genuine, and relying upon such representations they purchased it, with the full knowledge and approval of Everson. After the issues were made the court appointed a referee to take and report the testimony, and when the case was called for trial, on motion of respondent’s counsel, the court submitted the following questions to a jury: 1. Was there a bona fide and valuable consideration for the note sued on in the case ? 2. Did the payee named in said note procure the payor thereof to execute the same by fraud or deceit ? If yea, 8. Did the plaintiffs, or any of them, have.notice that the note had been so obtained, or was without a bona fide or valuable consideration before or at the time it was transferred to them ? And it was ordered that a jury be formed to inquire of the same. A jury having been impaneled and sworn, and. having heard the evidence adduced, the arguments of counsel and charge of the court, returned the following verdict: “To the first question the jury say that they find and make answer that there was no valuable consideration for the note sued on in this case. To the second question the jury say they find and make answer there was fraud and deceit in procuring the note. To the third question the jury say and find and make answer that the plaintiffs had notice that said note was obtained by fraud and deceit, and was without a bona fide and valuable consideration before or at the time it was transferred to them.” ' The court also submitted the following question to the jury: “Did William Connell hold and own the note sued on in this suit before it came to the ownership and possession of the plaintiffs ?” To this question the jury answered “No.” In the case of Swegle v. Wells, decided at the present term of this court, we had occasion to consider under what circumstances it is proper to submit questions of fact arising in a suit in equity to the determination of a jury. It was there held that as section 392, page 192 of the code, did not provide in what cases it became necessary or proper to inquire of a fact by the verdict of a jury, courts of equity — 219 — must be governed in this respect by the general equity practice; and that when the facts in a case were strongly controverted and the evidence nearly equally balanced, it was proper to submit these controverted facts for their determination. This court further held that where a verdict has been taken in such cases in the court below it comes up with the transcript on appeal and may be read in evidence, and while not conclusive upon the court should not be disregarded unless clearly against the evidence.” The decision in that case must govern us in the determination of this. Whether artificial stone fit for building or other purposes could or could not be made by the process set forth in the Leathers patent was a fact strongly controverted in the evidence, and we think the weight of testimony decidedly is that it could not. If stone of a good quality could be made by' this patented process as cheaply as represented, it is somewhat singular that no one of the many who, as it appears from the evidence, became purchasers of the patent right, has ever considered it worth while to manufacture the stone, or has ever deemed his investment in the Leathers patent to be of the least value. The jury necessarily came to this conclusion when they found that there was no valuable consideration given for the note of respondent. The second finding of the jury that there was fraud and deceit on the part of Leathers in procuring the note from Everson is in accordance with the evidence in the case. As the patented process was worthless this fact must have been known to Leathers, and it follows, as a matter of course, that he perpetrated a fraud in obtaining the note in question for the transfer of a thing that was of no value whatever. The third finding of the jury is that the plaintiffs had notice before they purchased the note that it was obtained through fraud and deceit on the part of Leathers, and that there was no valuable consideration given by him for it. This averment in the answer was the most strongly controverted of any in the case. The testimony upon it is voluminous; some of it is irrelevant, and much of it bears but remotely upon the question at issue, and were it left to the — 220 — court in the first instance to determine on which side was the preponderance of testimony upon this point, it would be a matter of some difficulty to reach a correct conclusion. As this point was strongly controverted, the evidence conflicting and nearly evenly balanced, it was, as stated in the case of Swegle v. Wells, a proper matter to be submitted by the court to a jury to determine the disputed facts, and their verdict should not be disregarded by the court unless it was clearly against the weight of the evidence. We regard their finding as conclusive upon the court. These facts having been found by the jury, the conclusions of law arising upon them are easily determined. It is undoubtedly well settled that a bona fide holder of a negotiable note for a valuable consideration, without notice of facts which would impeach its validity between former parties, if he takes it under an indorsement made before the note becomes due, holds the title unaffected by these facts, and he may recover thereon, although as between the antecedent parties the transaction may be without any legal validity. It is equally well settled that where a negotiable note has been obtained from the maker through fraud, or without any consideration, and the payer has transferred it by indorsement before becoming due, to a holder who had notice before taking it that the note was procured through fraud or without any consideration, such holder will take it subject to all the equities and all the defenses which would exist between the original parties to the note. It is insisted, however, by appellants, thatEverson is estopped from making any defense to the payment of the note, because Thomas Connell, one of the appellants, before purchasing it, asked him whether he had any objection to their buying the note from Leathers, when respondent replied that he had not— that he would rather that appellants should have it than Leathers. This would be a good defense if appellants were not aware that the note had been obtained from the maker by fraud and without consideration; and at the same time the respondent, when he made this statement, was fully informed of these defects in regard to it. But the jury in — 221 — their verdict say that the appellants had notice that the note was obtained by fraud and deceit and without consideration before they purchased it, and therefore this defense can not be allowed. This was the exact point decided by the supreme court of Ohio in Sackett v. Kellar, 22 Ohio St. 554. In that case the court declared that the holder of a negotiable promissory note, purchased before maturity and for value, but with notice that it had been obtained from the maker by fraud and without consideration, can not by way of estoppel prevent the maker from setting up such defenses as against him by showing that the maker, before the purchase, had informed him that the note was all right and would be paid at maturity if it appear that at the time such declarations were made the maker was ignorant of such fraud and want of consideration, and that the holder at the time believed him ignorant thereof, unless he also show that he informed the maker of the facts which had previously come to his knowledge affecting the validity of the note. This case in Ohio was similar in all respects to the one under consideration, and we think the principles there held were correct and should be adopted here. It is further insisted by the appellants that the defense interposed by the respondents ought not to be allowed, because they took the note from William Connell, who first purchased it from Leathers, and who was an innocent holder, having bought it without any notice of the equities existing between the original parties. It is a sufficient answer to say that this defense is not made in the pleadings of the parties. In the complaint it is alleged that for a valuable consideration to him paid, Leathers indorsed and transferred the note to the appellants, and the answer admits that they took it from Leathers. If the complaint had been amended, as was done in the case of Mornyer v. Cooper, 35 Iowa, 258, cited by counsel in support of the position, then evidence of the fact that William Connell was a purchaser without notice of any defects in the note would have been proper. As it was, that evidence was irrelevant to any issue made by the pleadings, — 222 — and inadmissible to show that William Connell was an innocent bolder of the note. Not being made an issue in the case, the defendant was not expected to be prepared to disprove it. This disposes of all the questions raised on the appeal, and we think the deeree of the court below should be affirmed. Decree affirmed.