Norton v. Bankers Fire Insurance

Rose, J. This is an action to recover damages for the conversion of a note and mortgage for $10,200. The note was dated March 1, 1918. It bore annual interest from date at 7 per cent, and was secured by a first mortgage on 640 acres of land in Yuma county, Colorado. Both instruments were executed and delivered by Ralph O. Hesp and Earl Hesp, makers and mortgagors, and were payable to Delmer D. Norton, plaintiff, who formerly owned the mortgaged land. The defendant is the Bankers Fire Insurance Company, a corporation claiming to be the bona tide holder of the note and mortgage through valid transfers from — 500 — plaintiff. The theory of plaintiff is that a trio of conspirators, called “Kline, Ferguson, and McCord,” assisted by a fourth conspirator named “Schmutzer,” who represented himself to plaintiff as agent for defendant, cheated plaintiff out of his note and mortgage. Plaintiff pleaded, among other things, that the trio falsely stated to him that they had organized the Bankers Trust Company, hereinafter called the “trust company,” saying it was a going corporation with authorized capital stock of $1,000,000; that they represented the trust company and had authority to sell its stock; that the trust company owned a building in Lincoln at the southwest corner of Fifteenth and N streets and needed money to apply on the purchase and to complete its title; that for the purpose mentioned it could use plaintiff’s note and mortgage the same as money and would accept them at par for trust company stock of the actual value of $140 a share, but of the face value of $100 a share; that plaintiff agreed to purchase 200 shares for $28,000 and in part payment delivered to the trio his unindorsed note and unassigned mortgage; that Ferguson and McCord engaged Schmutzer, who had knowledge of the facts and of the fraudulent purpose of the trio, to negotiate the note and mortgage; that Schmutzer, pursuant to the conspiracy, presented the note and mortgage to Charles Maixner, treasurer and active manager of defendant, who agreed to purchase for the latter the note and mortgage for $8,300 in Liberty bonds, worth less than their .face value, and $2,000 in the stock of defendant; that McCord, Ferguson and Schmutzer had no authority to exchange the note and mortgage for anything but money to ¿pply on the trust company building, but after plaintiff indorsed those instruments for that purpose, they were delivered to defendant for the Liberty bonds and the stock; that the trust company had no corporate existence and did not own ¿ny building, and plaintiff did not receive any stock issued by the trust company or any of the stock of the Bankers Fire Insurance Company, defendant, or any proceeds of the note and mortgage or anything of value; that defendant, — 501 — in exchange for the note and mortgage, with knowledge of the fraud, turned over to Ferguson and McCord Liberty bonds of the face value of $8,300 and stock of defendant in the sum of $2,000; that the representations of the trio were false and plaintiff believed and relied on them; that the note and mortgage were worth their face value; that defendant knowingly participated in the fraud through which plaintiff was cheated. The facts outlined were pleaded in detail. A demurrer to the petition was overruled. Defendant’s answer was a general denial. Upon a trial of the issues the jury rendered a verdict in favor of plaintiff for the full amount of his claim and interest — $15,376.50. From a judgment therefor defendant appealed. The overruling of the demurrer is challenged as erroneous, but it is fairly shown by the petition that plaintiff was cheated out of his note and mortgage by the four wrongdoers named and that defendant knowingly participated in the fraud. '' The principal argument of defendant was directed to the proposition that the evidence was insufficient to sustain the verdict in favor of plaintiff. It was vigorously contended that there was no evidence connecting defendant with the fraud perpetrated by Kline, Ferguson, McCord and Schmutzer. Maixner, who conducted for defendant the negotiations resulting in the transfer and acceptance of plaintiff’s paper, testified in effect that he then had no knowledge of the fraud, and that in good faith he purchased and paid for it, and that in his negotiations he dealt alone with the agents of plaintiff who indorsed the paper and intrusted the wrongdoers with it. Testimony by the holder of a note that he purchased it in good faith for value before maturity without knowledge that it was procured from the payee by the fraud of others may be overcome by circumstantial evidence to the contrary. This in effect was the holding on a former appeal; similar proofs being considered sufficient to take the case to the jury. Norton v. Bankers Fire Ins. Co., 115 Neb. 490. — 502 — The following facts were established beyond controversy: Plaintiff was originally the owner of the paper. It was worth its face. He never received anything for it. He lost it by means of the fraud pleaded. The representations by which he was deceived into making the transfers were false and he relied on them. Following the fraudulent transactions and the consummation of the swindle Kline left for Florida and Ferguson for Iowa. McCord died within a year. • The fraud of the trio was denounced in argument with equal vehemence by both plaintiff and defendant. Circumstances surrounding the transactions were disclosed by the evidence. Did they show bad faith on the part of defendant? When the trio first got the paper it was not indorsed or assigned. In that form it showed they did not have the title to it and that in attempting to negotiate it they necessarily represented the owner and not themselves. The swindlers who procured the paper and mortgage by false pretenses engaged to make the sale the man named “Schmutzer,” a resident of Iowa, who said on the witness-stand that he had been an insurance broker. A purchaser had not yet been found in Lincoln or Omaha. Schmutzer, offering for sale the unindorsed and unassigned note and mortgage of plaintiff, went to Maixner, who, while testifying in this case, volunteered a reference to his service in the penitentiary. At the time the paper was presented to Maixner, he was in the Lincoln office of the Bankers Fire Insurance Company, defendant, acting there as its managing officer. Without inquiring of plaintiff whether Schmutzer or any one else had authority to sell the note for plaintiff or whether plaintiff as owner was willing to exchange it for depreciated Liberty bonds at their face value and stock of the insurance company, Maixner agreed to buy the paper on terms that did not require payment of any money whatever. As conditions of the purchase plaintiff’s indorsement of the note and assignment of the mortgage were required in addition to entries bringing the abstract of the mortgaged land down to date. Schmut — 503 — zer did not report to plaintiff but reported to the trio of conspirators the terms offered by Maixner. One of the trio hurried to Colorado and had the abstract brought down to date, returned and afterward plaintiff was induced by the wrongdoers to indorse the note, assign the mortgage and part with his possession. Both papers were promptly delivered to defendant. Plaintiff testified in effect that he never learned the terms of the sale until the facts came out on the trial. While causing a delay of nearly a week and exacting writings and terms from persons who had possession of the paper without authority to transfer it, neither Maixner nor any one else acting for defendant asked plaintiff if he owned it and if so who was authorized to sell it and if the consideration in bonds and stock, without any money, would be satisfactory. The evidence indicates the answer to such inquiries would have been that the sole purpose of the sale was to procure money to apply on the trust company building and that nothing but money would be accepted, plaintiff at the time being in Lincoln, where information was available. The situation was not only sufficient to arouse suspicion but it called for inquiry at the source of knowledge. Schmutzer himself was a witness for defendant and testified that he went to see Maixner, whom he had never before met, and asked if the Bankers Fire Insurance Company did not want to buy a first class mortgage for $10,000. Maixner, knowingly negotiating for “a first class mortgage,” presented by a stranger who assumed to represent the owner without any written authority and without power to bind his principal by his own declarations of agency, proceeded to enter into a contract of purchase without putting into the agent’s hands anything that could be turned over at its face value to the owner of the mortgage. A thief trying to dispose of stolen property might have taken the course pursued by Schmutzer. In consummation of the purchasing contract Maixner turned over to one or more of the conspirators $8,300 in Liberty bonds below par and corporate stock of the Bankers Fire Insurance Company, defendant, in the sum of — 504 — $5,000, upon the sale of which a credit of $2,000 was given. This credit with the $8,300 in bonds aggregated $10,300— the face of the mortgage without interest and $100 in addition. Referring to Ferguson and McCord, Maixner testified: “They agreed to purchase some stock in the Bankers Fire Insurance Company for mutual benefit, somehow, and that was the result of the transaction.” Maixner testified also that two notes aggregating $5,000 were accepted by defendant for the stock, but that he did not recollect whether they were signed jointly by Ferguson and McCord. He credited on one of the notes “the difference between the amount paid for the mortgage and the face of the mortgage.” It thus appears that defendant, knowing he was dealing with Ferguson and McCord in a representative capacity without legal evidence of their agency, entered into a contract to pay to them individually in stock $2,000 in proceeds belonging to plaintiff. After entering into the contract to purchase the note and mortgage Maixner, for the protection of defendant, commissioned Ferguson and McCord to procure from plaintiff a receipt for $10,200, reciting that the payment was in full settlement of the mortgage on the Colorado land, knowing that $2,000 of the stipulated price was payable to them individually. There is a view of the- circumstances warranting the inference that defendant participated in the fraud o'f the conspirators, paying to Ferguson and McCord, personally, a portion of the proceeds of the note and enabling them to defraud plaintiff. In this view of the record defendant was not a purchaser in good faith. The evidence therefor was sufficient to. sustain the verdict. . Defendant complains that the trial, court in the instructions erred in defining the term “holder in due course” and in otherwise directing the jury in regard to the negotiable instruments law. That law did not apply to the case. The action was one to recover damages for the conversion of a note and a mortgage belonging to plaintiff. The makers and mortgagors were not parties to the action and — 505 — there was nothing in the pleadings or proofs to indicate a defense to the note or to the mortgage. Defendant, however, was not prejudiced by the instructions relating to the negotiable instruments law, since the charge as a whole required a verdict against plaintiff, if he failed to prove by a preponderance of the evidence that defendant participated in the fraud. Affirmed.