Murray v. Metropolitan Trust & Savings Bank

Mr. Justice Brown delivered the opinion of the court. The full statement prefixed to this opinion shows that no question is made in this appeal concerning that portion of the decree in this cause which holds valid the Howes note for $2,500 (with its accompanying coupon) owned by Anderson and orders the foreclosure of the appellant’s property on the same. The decree was plainly right in this respect and is not appealed from. We think it was also right under the evidence, in those findings which are appealed from, that declare that Lillie B. Murray executed the trust deed dated June 27,1903, and the note for $2,500 of that date, with its accompanying interest coupons, without any consideration (if it be assumed that she executed them at all), and that the said trust deed is consequently null and void and should be cancelled and released, and also right therefore in ordering the cross-bill of the appellant dismissed with costs. But the decree goes further. Although the appellant, The Metropolitan Trust & Savings Bank, is a holder for value and presumably an innocent holder of the note and coupon in question, the decree, after finding that Lillie B. Murray did actually execute them, orders that they be held null and void and be delivered up by the appellant Bank to said Lillie B. Murray for cancellation. This order is based on the findings quoted at length in the statement prefixed to this opinion. It is not necessary to discuss whether these findings in themselves can be construed as sufficient- to support the order of which they form the basis, because if a construction be given them which would make them so sufficient, they are unsupported by the evidence. It is clear that although executed without consideration these notes, if genuine, are good against the maker in the hands of an innocent purchaser for value (and this although the failure of consideration is fatal to the security), unless they are rendered void in such hands by falling under the provisions of section 10 of the Act of March 18,1874, revising the law in relation to negotiable paper, which section re-enacted an already existing provision of the statutes of Illinois dating at least from 1827. The provision is: “If any fraud or circumvention be used in obtaining the making or executing of any of the instruments aforesaid, such fraud or circumvention may be pleaded in bar to any action to be brought on any such instrument so obtained, whether such action be brought by the party committing such fraud or circumvention or by any assignee of such instrument.” To sustain the usefulness of negotiable instruments, so important in the commercial world, the Supreme Court of Illinois, early adopted and has constantly held to a strict construction of the defense thus given against innocent holders of notes originally tainted with fraud. It held in Woods v. Hynes, 1 Scam. 103, in 1833, that fraud in relation to the consideration or to the contract would not be such a defense, and repeated the holding in Mulford v. Shepard, 1 Scam. 583. In Latham v. Smith, 45 Ill. 25, the court held that misrepresentations relating to the legal effect of an instrument and not to its form or character, were not a sufficient ground of defense, and that if the maker of the note involved could read, the presumption must be indulged that he read it before he attached his signature to it. In Shipley v. Carroll, 45 Ill. 285, the maker of a note was held to be liable to an innocent holder for value, although the possession of it after it was made was secured by “stealth which no doubt embraced fraud.” In Elliott v. Levings, 54 Ill. 213, it was held that a maker would be liable who did not know he was signing such a note as actually was made, but thought it was only to be paid on a contingency, which did not occur. In Clarke v. Johnson, 54 Ill. 296, it was held that the stealing of a note from the maker after it was made and before it was delivered, would not prevent its being good in the hands of an innocent holder for value. And to the same general purport are numerous other cases, such as Adams v. Wooldridge, 3 Scam. 255; Easter v. Minard, 26 Ill. 495, and Martina v. Muhlke, 186 Ill. 327. In this last case the notes secured by a trust deed, although given without consideration, were held good, while the trust deed was ordered canceled. And reasonable care must be exercised by the maker in the transaction which results in the note, or the defense of fraud and circumvention is not allowed him as against an innocent holder. Taylor v. Atchison, 54 Ill. 196; Leach v. Nichols, 55 Ill. 273; Mead v. Munson, 60 Ill. 49; Swannell v. Watson, 71 Ill. 456; Homes v. Hale, 71 Ill. 552. In Mead v. Munson the court said: “Under the proof we cannot infer the fraud and circumvention intended by the statute which shall void the note. To do so would be to offer a premium for gross negligence. “The maker of the note could read and write with facility and could not have been imposed upon if he had exercised the most ordinary prudence.” The defense of “fraud and circumvention” to negotiable paper is a purely legal and statutory one. Had there not been the matter of security involved in the case at bar it would not have been within the ordinary equitable jurisdiction of the court at all. It is true that once having taken cognizance of the cause, it was within the power of a court of equity to go on and adjust the rights of all parties to the controversy. But it was not in this case obligatory on it to do so; and in view of the extremely meagre and unsatisfactory evidence concerning the execution of the notes in question, presented by either party in the case at bar, we do not think it was desirable or proper for it to do so. For the same meagre and unsatisfactory evidence is relied on by the appellant to justify its demand for a money decree on these notes in its favor. It is true that in a suit at law, the presentation of the notes (and proof of signature, if denied) would make a prima facie case, and place on the defendant the burden of proving her defense. But the cross-bill of the appellant under the record in this case in equity was, we hold, properly dismissed. Its equitable justification was the claim of right to foreclose the security involved, That right was shown not to exist. We think, in view of the record in this case, that with the denial of the validity of the trust deed held by the Bank and the disT missal of its bill, the chancellor should have ended his adjudication of rights between the Metropolitan Trust & Savings Bank and Lillie B. Murray, leaving to the former the right to prosecute at law any claim that it may have been advised it had on the notes in question, and to the latter the right to resist the claim on the ground either of forgery, of fraud and circumvention, or of any other defense which she in her turn may have been advised was available to her. In such a litigation the questions of fact involved would be submitted to a jury, we might hope with greater precision and more enlightening evidence. The burden of proof would then, too, be properly distributed. We have modified the decree in this case by changes which adjudicate somewhat differently the relative rights of appellant and appellee herein, in accordance with the views above expressed. The other provisions of the decree are of course unchanged. The form of the decree after modification is filed by us contemporaneously herewith. As thus modified the decree of the Circuit Court is affirmed. In this court the costs are to be taxed against appellee, however. t Decree modified and affirmed. This case was considered and decided before Me. Justice Smith took his seat in the court, and he took no part therein.