Grinnell Savings Bank v. Gordon

Evans, J. The payee of the note in suit was L. L. Duffus. The maker was the defendant, Gordon. The note bore date November 8, 1919, and was for $3,000, and was and is regular upon its face. On November 10, 1919, it was transferred by indorsement, and for full value, to Spaulding and Jackson. On December 10th following, it was likewise transferred by Spaulding and Jackson to the plaintiff. The defense pleaded was that the note was given pursuant to a contract for the purchase of a certain real estate by the defendant from Duffus, whereby Duffus was to convey said real estate to the defendant on March 1, 1920, and to give good and sufficient title thereto; that, at the time of entering into said contract, Duffus was' insolvent, and knew that he could not perform said contract, and had no intention [210] of complying therewith; that he thereby obtained the note fraudulently; that Spaulding and Jackson, the transferees, knew all the facts, and took the note wijth intent to defraud the defendant; that the plaintiff, as a' transferee from Spaulding and Jackson, took the note with knowledge that it had been obtained by fraud; and that it took the same fraudulently. This was the issue tendered, and trial was had thereon. The evidence is brief, and without substantial dispute. It appears therefrom that, in August, 1919, Spaulding and Jackson sold by executory contract a certain farm of 280 acres to Duffus, for an agreed consideration of $93,000. Performance of the con* tract was to be had on March 1, 1920. One of its provisions was that $2,000 should be paid by Duffus on November 1, 1919. Duffus was to take the land subject to a mortgage of $44,000, and was to execute second and third mortgages for $18,000 and $6,800 respectively. The balance was to be paid on March 1st. On November 8, 1919, Duffus sold the land by executory contract to the defendant, Gordon, for an agreed consideration of $98,000. In this contract, Gordon assumed the payment of the three purported mortgages for $44,000, $18,000, and $6,800, respectively. This contract also involved an exchange, whereby Duffus agreed to purchase the farm of Gordon at an agreed price, and subject to a certain mortgage which Duffus assumed. Under this contract, the balancing of equities of the respective parties over and above incumbrances left a margin of over $10,000 in» favor of Duffus, which sum Gordon agreed to pay. The note -in suit was given as part payment of such margin. On March 1st, Duffus failed to perform, so that the consideration for the note failed. It may be implied from the record that the reason of Duffus’s failure to perform was that he was unable to make the payment necessary to obtain a conveyance of the 280-acre farm from Spaulding and Jackson, in accordance with the first contract. On November 10th, Duffus transferred the note to Spaulding and Jackson, in satisfaction of his obligation under his contract to pay $2,000 on the first of November, and. received back from Spaulding and Jackson the difference between such amount and the amount of the note. On December 10th, Spaulding and Jackson transferred the note by indorsement to the plaintiff bank for full value, and in due course of business. [211] The evidence developed the fact that, at the time Duffus received the note, no revenue stamps had been placed upon it, and that such was its condition when he negotiated the transfer thereof toSpaulding and Jackson. In this negotiation of transfer, Spaulding and Jackson were represented by Patton, who receivéd the note from Duffus. Patton immediately placed' the proper revenue stamps upon the note, at the time of his purchase. At the time of the purchase by the plaintiff bank, the note carried the .same revenue stamps which Patton had placed thereon. At the time of the trial, only a 50-cent stamp appeared thereon. Although there was no allegation in any pleading that the note was not in all respects regular upon its face at the time of the transfer thereof both to the bank and to Spaulding and Jackson, yet, upon the evidence here indicated, the question of revenue stamps became a decisive one. The trial court instructed the jury that there was no evidence of any fraud by Duffus in the procuring of the note. But it instructed further that the jury might find fraud in the negotiation of the note by Duffus, in that if, when he negotiated it, he knew that he could not perform his contract on March 1st, then it was a fraud for him to transfer the note, and that the burden would be upon the plaintiff to show that it took the note- without notice of such fraud. It also instructed the jury that Spaulding and Jackson could not be deemed holders in due course, because revenue stamps had not been affixed to the note up to the time of their purchase; and that the plaintiff could not be deemed a holder in due course unless it had proved that, at the titne of its purchase, it bore on its face revenue stamps to the amount of 60 cents. In a word, the trial court submitted to the jury two defensive theories: (1) That, if the defendant had proved fraud in the negotiation of the note to Spaulding and Jackson, then the defendant must prevail, unless the plaintiff had proved that it had no notice of such fraud. (2) That the defendant should prevail as a matter of law unless the plaintiff had proved that, at the time of its purchase, the note bore revenue stamps to the amount of 60 cents. [212] 1.BillsandNotes:negotiability:omissionofrevenuestamps, [211] That stress should have been laid in the instructions upon the effect upon its negotiability of a failure to stamp the note' [212] was a very pardonable error; because tbe court was led into it by our former bolding in Lutton v. Baker, 187 Iowa 753. We later corrected the error by ©verruling tbe Lutton case. Farmers’Savings Bank v. Neel, 193 Iowa 685. But the case at bar was tried before tbe publication of tbe Fanners’ Savings Bank case. It is true, therefore, that tbe only guide before tbe court and tbe parties litigant at tbe time of tbe trial was tbe Lutton case. Appellee urges tbe point that tbe case was tried upon the theory of law announced in tbe Lutton case, and that tbe appellant saved no exceptions which challenged tbe instructions of tbe court, in , that respect. Tbe point has its merit; but, for reasons hereinafter appearing, we shall have no occasion to pass upon it. 2. Ti~iAL: taking case from jm~y: directed. verdict on note. One unique feature of this record is that, of tbe distinct defenses submitted by tbe court to tbe jury, the answer of tbe defendant did not specifically plead either one. As to tbe first defense, tbe answer did plead fraud in procuring ^Ie n°te- H that allegation bad been proved, it would necessarily follow that a negotiation of tbe note would be tainted with tbe same fraud on tbe part of tbe payee. But that allegation was not proved, and tbe court so instructed. It would have been competent for tbe answer to plead that, though there was no fraud in tbe procuring of tbe note, yet there was fraud in tbe negotiation thereof, in that it was negotiated in breach of faith, and under circumstances amounting to fraud.. Code Section 3060-a55. Such allegation, however, must necessarily have related to facts transpiring subsequent to tbe procuring of tbe note, if such procurement was without fraud. As to tbe second defense submitted by tbe instructions, tbe only issue presented was whether tbe note was irregular upon its face because of a lack of revenue stamps. No claim of such irregularity was made by any allegation of tbe answer nor was tbe regularity of tbe form of tbe note in any manner challenged though the note itself was set forth in tbe petition. This feature of tbe record would have to be taken account of by us, if we were to pass upon tbe sufficiency of tbe exceptions to tbe instructions to raise tbe point of error involving tbe rule of the Lutton case; because the exceptions were sufficient [213] to raise the question whether certain instructions should have been given at all, under the issues and the evidence. [214] 3. Bills and Notes: holdership on due course: note as part of executory agreement. [213] At the close of the evidence, the plaintiff moved for a directed verdict, on the broad ground that the evidence in its favor was. conclusive. .This motion was overruled, and an exception was duly saved to such ruling. This motion and this exception were sufficient to bring the whole case before us on its merits, as to the sufficiency of the evidence. There was no evidence of any fraud or bad faith by Duffus in the procuring of the note. The court so instructed. There was no more evidence (to say nothing of want of issue) of any subsequent fraud in the negotiation of the note to Spaulding and Jackson. No evidence was offered of any fact transpiring between November 8th and November 10th whereby the good or bad faith of Duffus could be differentiated between the two dates. It does appear that Spaulding and Jackson had sued Duffus for the $2,000 payment due, and had sued out an attachment. "When this suit was begun, does not appear. There is no claim that Gordon did not understand the nature of Duffus ’s ownership of the farm, and that he held it under executory contract from Spaulding and Jackson. He was not only under obligation to Spaulding and Jackson, under his contract, to make payment of the purchase price, but he was under obligation to Gordon to do the same thing. His act, therefore, was strictly in accord with his obligation to both parties. The only evidence offered is the subsequent inability of Duffus to perform the contract on March 1, 1920. It also appears that, sometime before that date, he had notified Gordon that he could not perform. Such notification, however, was long after the transfer of the note, both to Spaulding and Jackson and to the plaintiff bank. Such fact of itself was not evidence that he knew on November 8th or 10th that he could not perform his contract. He was attempting to perform it when he paid the first installment to Spaulding and Jackson. By the contract between Duffus and Gordon, Duffus was making a profit of $5,000. If this were all, then his contract with Gordon would itself have been a guaranty of his ability to perform his contract with Spaulding and Jackson. But he was under obligation to buy Gordon’s farm. This part of the consideration to be received by him was not available to [214] Mm as payment to Spaulding and Jackson. The epoch of time between November 8, 1919, and March 1, 1920, is not without its significance. It has figured so largely in the records of the courts in recent time that we may well be deemed to take judicial notice of it as a time of deflation and liquidation which overturned the most hopeful, and sometimes even the most careful. The fact that the note was given pursuant to. an unperformed executory agreement did not affect its regularity or its negotiability, and the knowledge of such fact by any transferee did not charge him with notice any ^rail<l or bad faith. McNight v. Parsons, 136 Iowa 390. So far, therefore, as any defense on the merits of the issue is concerned, the evidence wholly failed to show that the defendant had any grievance as of November 10, 1919. There had been no breach of the contract and no antecedent fraud. This is entirely consistent with the fact that he did later have, as against Duffus, a good defense for failure of consideration. It follows that, under the evidence and issues, the plaintiff’s motion for a directed verdict should have been sustained. For the same reason, the motion for a new trial should have been sustained- We have no occasion, therefore, to consider the sufficiency of the exceptions as pertaining to the revenue stamps. For the reasons here indicated, the judgment below is reversed and the cause is remanded. — Reversed and remanded. Preston, C. J., Arthur and Faville, JJ., concur.