State Bank v. House

Redick, District Judge. This is an action upon a promissory note given by the defendant for the first premium upon a policy of insurance. The note was dated October 9, 1919, due April 1, 1920, payable to one George Fowler, for $177.04, and was sold the same day to plaintiff for full value. Defendant admits the execution of the note, but alleges want of consideration and fraud, and denies that plaintiff purchased the same in good faith. The facts are not in dispute. Fowler secured from defendant an application for life insurance, took the note in suit in payment of the first premium, and on the same day sold it to plaintiff; the application was never forwarded to the insurance company and the policy never issued; in fact, the whole transaction was a fraud on the part of Fowler. The note was purchased by plaintiff bank under [682] the following circumstances: Earlier in the day Fowler had procured at the bank a blank note, and late in the afternoon returned with it duly executed, and offered it for sale to the bank. The cashier of the bank asked what the note had been given for, and was told for life insurance premium. He then asked if the policy had been delivered, and was told that it had been. Without further inquiry or investigation he purchased the note for the bank, paying full value. The cashier had seen Fowler before, but had no acquaintance or conversation with him until the purchase of the note. The maker was a well-to-do farmer living five miles from town, had a telephone in his house, and the cashier had known him about 15 years. Upon the evidence the trial judge directed a verdict for plaintiff, and from a judgment thereon defendant appeals. The statutes provide that it shall be unlawful to sell or dispose of a promissory note given in payment of a-premium on a policy of insurance prior to the delivery of the policy. Comp. St. 1922, sec. 7898. A holder 'in due course is defined as one who took the note in good faith, and for value, without notice of any defect in the title of the person negotiating it (section 4663) ; and when the title is shown to be defective the burden is upon the purchaser to prove that he acquired title as a holder in due course (section' 4670). Considering these provisions, did the learned district judge err in directing a verdict for plaintiff? The burden being upon the plaintiff to establish good faith, it was at least a question for the jury whether that burden had been sustained under the circumstances shown, if the evidence justifies an inference either of good or bad faith, and it is inaccurate to say that the intervention of a jury is required only when questions of facts are controverted, for different •inferences may sometimes be drawn by reasonable minds from conceded facts. If however only one inference is proper, it is a question of law for the court. In Riverton State Bank v. Walker, 113 Neb. 718, following Norwood v. Bank, 77 Neb. 205, we held: “It is not sufficient to show that it was taken under circumstances [683] which might excite suspicion in the mind of a prudent man, but it must be shown that the indorsee took the paper under circumstances showing bad faith or want of honesty-on his part.” Stated differently, and in View of the burden resting upon the plaintiff, it is sufficient if there is lack of evidence showing good faith. Or, again, before plaintiff may recover in such case, it must affirmatively appear that he acted in good faith. The plaintiff knew that this note could not be lawfully transferred unless the policy had been delivered. If he had purchased without any effort to ascertain that fact, he would not be protected. Therefore, it was incumbent upon him to make a bona fide attempt to ascertain the truth. The evidence of good faith offered by plaintiff is that he purchased for value, before maturity, and that, knowing the note was for an insurance premium, and that it could not be lawfully transferred before delivery of the policy, he asked the payee, a perfect stranger, if such delivery had taken place, and relied upon his affirmative answer without further inquiry. Is this sufficient evidence of good faith to authorize á judgment which would allow the consummation of a fraud? We think not. It has been said: “Good faith in interpretation means that we conscientiously desire to arrive at the truth, that we honestly use all means to do so,” quoted in Hilleary v. Skookum Root Hair Grower Co., 4 Misc. (N. Y.) 127. Does one who is honestly seeking the.truth apply to a person who, if the truth were known, would be defeated in the transaction? Would he be justified in relying upon information obtained from such a source? And, finally, may we honestly refrain from using the means at hand and known to him, viz., inquiry of the maker? These propositions all demand negative answers. If such conduct is sufficient to warrant an inference of good faith, the requirement of the statute might as well be dispensed with. It rather justifies and requires the contrary. Not only is there a lack of evidence to show good faith, but such gross negligence appears as to permit an inference [684] of bad faith. The expectation that pure water may be obtained from a polluted source is doomed to disappointment and neglect of known sources of truth is no excuse for ignorance. “Every one must conduct himself honestly in respect to the antecedent party when he takes negotiable paper, in order to acquire a title which will shield him against prior equities. While he is not obliged to make inquiries, he must not wilfully shut his eyes to the means of.knowledge which he knows are at hand * * * for the reason that such conduct, whether equivalent to notice or not, would be plenary evidence of bad faith.” It follows that the court erred in directing a verdict for plaintiff, and the judgment must be reversed and case dismissed. Reversed and dismissed.