Merchants & Farmers Bank v. Bank of Winona

Cook, J., delivered the opinion of the court. E. B-. Blaekston was engaged in the mercantile business, in the town of Winona, under the name of the Blaek-ston Mercantile Company. The Blaekston Mercantile Company was indebted to the Bank of Winona, of which bank E. B,. Blaekston was vice president. The record discloses that the Blaekston Mercantile Company’s overdraft with the Bank of Winona was very large, and Blaek-ston was making every effort to secure this overdraft, so as to avert financial disaster. Blaekston was also a stockholder of the Merchants’ & Farmers’ Bank, of Yaiden. In May, 1910, Blaekston casually approached the vice president of the Merchants’ & Farmers’ Bank, and told — 484 — Mm, if Ms bank needed any money, be could get tbe money for tbem. He was informed that tbe Merchants’ & Farmers’ Bank would probably need some money. Black-ston asked tbe vice president to have bis bank send bim a statement, as be was going to St. Louis to borrow some .money for tbe Bank of Winona, and would at tbe same time secure tbe money for tbe Merchants’ & Farmers’ Bank. This conversation between Blackston and tbe vice president of tbe Merchants’ & Farmers’ Bank occurred in Winona. Tbe next day after tbe interview Blackston went to Vaiden and repeated bis offer to borrow money tb tbe cashier of tbe Merchants’ & Farmers’ Bank, and was told that tbe bank would need from ten thousand to fifteen thousand dollars. A few days thereafter tbe bank received several letters from correspondent banks, stating that Mr. Blackston bad informed tbem that tbe bank desired to borrow money, and offering to make tbe loans on paper signed by tbe officers of tbe bank, or indorsed by Blackston. Among tbe banks beard from was tbe Boatmen’s Bank of St. Louis. About May 17, 1910, tbe Merchants’ & Farmers’ bank made a note to tbe Boatmen’s Bank for ten thousand dollars, payable December 1, 1910, with Blackston as indorser, and got tbe money. About June 21, 1910, it made another note to tbe Boatmen’s Bank indorsed by Blackston, for five thousand dollars, payable October 15, 1910, and secured this sum of money. Blackston then went to tbe cashier of tbe Merchants ’ & Farmers’ Bank and told bim that bis lawyer bad advised bim that be ought to be secured by collaterals on bis indorsements. The cashier refused to give bim tbe security, because be was not authorized to do so. Blackston left tbe bank, and, coming back, falsely told tbe cashier that be bad seen tbe president of the bank, and the president bad authorized bim to instruct tbe cashier to execute notes payable to bearer with collaterals attached, to secure Blackston’s indorsements on tbe Boat — 485 — men’s Bank notes, which was done by the cashier, executing two notes of the bank for fonr thousand five hundred and three thousand five hundred dollars, respectively, payable to E. R. Blackston, or bearer. It was understood and agreed that these notes would be held in trust by Blackston to secure his indorsement and returned to the bank when the bank paid the Boatmen’s notes. The notes were paid at maturity. In violation of this trust, Blackston delivered the notes to the Bank of Win-ona, either to secure his pre-existing indebtedness to that bank, or as collateral security for advances to be made by the bank to him. When these transactions between Blackston and the Merchants’ & Farmers’ Bank took place, subsequent developments show that Blackston was on the ragged edge of financial despair, and the possession of collateral was a matter of dire necessity. On October 15, 1910, the date when the first note was due, the Bank of Winona notified the Merchants’ & Farmers’ Bank that it was the owner of the note, and demanded payment. The Merchants’ & Farmers’ Bank refused to pay both notes, because they were obtained by fraud, and because they had paid the Boatmen’s Bank notes when due, and, having done so, the notes were without consideration, and under the agreement they were to be returned to defendant. Suit was brought on the notes by the Bank of Winona. At the trial the. notes were introduced in evidence, their execution proven, and the plaintiff rested. The Merchants’ & Farmers’ Bank offered to make proof of the facts above detailed. The evidence was heard by the presiding judge, in the absence of the jury, and, after hearing same, the record discloses that all of it was excluded from the consideration of the jury, and the jury was peremptorily instructed to find for the plaintiff. It is the contention of defendant below, appellant here, that the evidence offered would authorize a jury to believe that Blackston obtained the notes by fraud, and, this be — 486 — ing true, the burden was then shifted to the plaintiff to prove that it was a bona fide purchaser for value, without notice of the fraud. The Bank of "Winona says the notes were made payable to bearer, and they have passed to us by delivery. The law will presume that we are bona fide purchasers for value. It is no concern of the bank that the notes were obtained by fraud and misrepresentation. We understand that the bank relies solely upon the production of the notes, payable to bearer, for a verdict, and assumes that the fraud of the person to whom the notes were delivered in no way casts any burden upon the bank to satisfy the jury that the bank is in fact a bona fide purchaser, without notice of the fraud. This is evidently the theory adopted by the trial court. This, we think, is a total misconception of the law of this state. “The holder of negotiable paper is presumed to be a bona fide holder for valuable consideration until something be shown in disparagement of his title; and he is not bound to show that he has given value for the paper, or that he took it before maturity, until the adverse party has shown the want, or failure, or illegality of the consideration, or that it was lost or stolen from the rightful holder, or that the holder came to the possession of it fraudulently.” Emanuel & Barnett v. White, 34 Miss. 56, 69 Am. Dec. 385. In the present case the evidence tends to show that the holder came to the possession of the notes fraudulently, and also that the Bank of Winona took the notes under suspicious circumstances'. “There are two classes of suits at law so nearly analogous to suits by creditors to subject property fraudu-' lently conveyed that it is difficult to draw a distinction •between them sufficient to warrant the application of different rules of procedure. These are suits by one whose property has been secured by the fraud of the vendee, and who sues to recover it from another claiming under the — 487 — fraudulent vendee, and suits by an indorsee of a bill or note' against tbe maker, who defends upon tbe ground tbat tbe instrument was secured by tbe fraud of tbe payee. In these cases it bas been uniformly beld tbat proof of tbe fraud of tbe vendee of tbe property, or' payee of tbe note, imposes upon tbe party claiming under bim tbe duty of showing tbat be is a purchaser for value, and in good faith. Bailey v. Bidwell, 13 Mees. & W. 73; Fitch v. Jones, 32 Eng. Law & Eq. 134; Paton v. Coit, 5 Mich. 505, 72 Am. Dec. 58; Clark v. Pease, 41 N. H. 414; Bigelow, Fraud, 132; Spira v. Hornthall, 77 Ala. 137; Easter v. Allen, 8 Allen (Mass.), 7; Morgan v. Morse, 13 Gray (Mass.), 150; Haskins v. Warren, 115 Mass. 514.” Richards v. Vaccaro, 67 Miss. 516, 7 So. 506, 19 Am. St. Rep. 322. It seems to be tbe view of appellee tbat tbe note being payable to bearer gives it some sanctity which exempts it .from tbe burden imposed upon tbe holders of other kinds of property, when tbe facts are given in evidence showing tbat the bolder of tbe property obtained it from a party who fraudulently came into possession thereof. Tbe title to a note payable to bearer may be conveyed by a delivery of tbe note, and one in possession of such a paper is prima facie tbe owner of same — and prima facie the bolder is an innocent purchaser for value — but, when circumstances in evidence show tbat tbe payee, from whom tbe bolder claims, came into possession of tbe note by fraud upon tbe maker, then tbe bolder must show bis good faith. We think tbe evidence offered by appellant might be so construed as to raise an inference tbat Blackston delivered these notes to tbe Bank of Winona as a security for pre-existing indebtedness. All of tbe facts given in evidence were pertinent to enable tbe jury in reaching a correct conclusion upon tbe issues presented by tbe pleadings. Receiving property merely as security for a pre-ex-isting debt does not constitute tbe bolder a purchaser — 488 — for value, and, by reason of onr noncommercial statute, the same rule applies to bills of exchange and notes taken as security for a debt. First Nat. Bank v. Strauss, 66 Miss. 479, 6 So. 232, 14 Am. St. Rep. 579. The second special plea to the plaintiff’s declaration sets up the defense that the notes in question were assigned to the Bank of Winona as security for a pre-exist-ing indebtedness of Blackston to said bank. The. Bank of Winona, replying to this plea, merely says that the notes were purchased by it in the usual course of business, and that it was a bona -fide purchaser for value, without notice. The defendant, appellant here, made a motion to strike this replication from the files, because the same was not responsive to the plea, which motion was overruled. The plea sets up facts which, if true, would establish that the Bank of Winona was not a bona fide purchaser for value. The replication does not deny the facts, but simply pleads a conclusion of law. We think the motion to strike the replication from the files should have been sustained. In conclusion, we are of opinion that the facts disclosed by the record and excluded from the jury puts the plaintiff to proof of its good faith, and it should be required to produce evidence to show that the Bank of Winona was a bona fide purchaser for value. Reversed and remanded.