Case ID: iowa_131/html/0097-01.html
Source: Caselaw Access Project
Author: {"author": "Deemer, J.—", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

Cora M. Henry, et al., Appellees, v. State Bank of Laurens and the Fidelity Savings Bank, Intervener, Appellants.
    Negotiable instruments: consideration. A note given by one 1 claimed to be a defaulter, for the amount due, and a ' collateral note given by another to secure the payment of the same debt are both supported by a sufficient consideration, in the absence of evidence to the contrary.
    Cancellation of instruments: duress: proof. In an action to 3cancel an instrument given as security for the defalcation of another, on the ground of duress and threats to prosecute the one for whose benefit it was given, a criminal liability of the principal debtor need not be shown, nor will his innocence relieve the payee from the effect of his conduct.
    Execution of instruments: duress: ratification. An instrument 3 which is void as contrary to public policy, because executed under dur.ess, is not rendered valid by its delivery with the maker’s consent.
    Mortgages: illegal consideration: enforcement. The assignee 4 of a nonnegotiable note, or one so indorsed as not to be within the law merchant, cannot enforce a deed given to secure the same which is void because of an unlawful consideration.
    Notes: illegal consideration: bona fide holder. The innocent 5 purchaser of a note given for an illegal consideration may enforce the same, in the absence of a statute to the contrary.
    
      Appeal •from Madison District Court. ■ gate, Judge. •Hon. J. H. Apple-
    Tuesday, June 12, 1906.
    Suit in equity to cancel a note and a deed to a certain house and lot made as security for the note. Trial to the court, decree for plaintiffs, and defendants appeal. —
    Affirmed.
    
    
      
      J. J. Orossley and F. O. Gilchrist, for appellants.
    
      Wilkinson & Wilkinson and J. E. Tidrick, for appellees.
   Deemer, J.—

July 21, 1902, plaintiff, Cora Henry, executed to the State Bank of Laurens her note for the sum of $4,434.61, payable in five yearly installments. To secure this note she at the same time executed a deed for a house and lot owned by her in Winterset, Iowa, and the bank at the same time gave plaintiff a written statement that said deed was held as security for the note; plaintiff to pay taxes, insurance, and interest on another loan. This action is to cancel the note and the deed upon the ground that the same were secured through duress and threats made by the president of the defendant bank. The Fidelity Savings Bank intervened in the action, claiming to be the owner of the note and the deed to secure the same, and asking judgment for the amount of said note and a foreclosure of plaintiff’s equity of redemption under the deed. Th.e original defendant denied the duress and threats, and answered that it sold the note, and assigned the deed before the maturity of the note to the aforesaid intervener. Plaintiff in reply denied the transfer of the note and deed, and pleaded that the same was without consideration and in bad faith. She also averred that nothing passed by the assignment of the deed to intervener. Plaintiff pleaded practically the same matter in defense to the petition of intervention. In'reply to plaintiff’s answer to the petition of intervention, intervener pleaded confirmation and ratification of the note and mortgage, and an estoppel upon plaintiff from denying' the validity thereof. Upon these issues the case was tried, resulting in a decree canceling both note and deed, and dismissing the petition of intervention. Defendant and intervener each appeal.

The exact claims made by plaintiff are that the note was given by reason of threats made by the president of defendant bank to prosecute her brother, who had been an employé of the bank and who it was claimed was a defaulter, for the crime of embezzlement; that the note was witho'ut any other consideration than an agreement to compound the brother’s felony; and that but for threats to prosecute him for his offense and the promise to compound she would not have executed the papers. Defendants deny each and,all of these allegations, say that the papers were executed to secure a' debt of defendant’s brother without duress or threats; that the brother was not in fact guilty of any crime, and, even if he were that they had the right to take security for the money he had abstracted from the bank; that plaintiffs ratified and confirmed the instruments, and are now estopped from denying their legality. Intervener also contends that it is an innocent holder of the instruments for value and be1 fore maturity, and is entitled to its judgment and decree of foreclosure..

The making of the note and defeasance are admitted. But it appears that at the same time and as a part of the .same transaction J. A., W. J., and W. C. Henry executed a note for the same amount and with the same terms as the one in controversy, save that the latter has this statement: “ This note is held as collateral security of the payment of a note executed by J. A. Henry as principal, and W. J. Henry and W. 'C. Henry and others as security, for above amount, a true copy of which this is. This note is voluntarily given and for a valuable consideration.” J. A. Henry, one of the signers of the note referred to, is the brother above mentioned. He goes by the name of Allie,” and this he will hereafter be called in this opinion.

It appears that Allie was either a defaulter, or that he owed the bank for which he had been working the sum mentioned in these notes. In the absence of proof to the contrary, there ' was a sufficient consideration for both notes. Sac Co. v. Hobbs, 12 Iowa, 69. So that, unless the issue of duress, threats, or of an agreément to compound a felony be sustained, the decree of the trial court is wrong. These are purely questions of fact, the law being well settled and equally well understood. Kennedy v. Roberts, 105 Iowa, 521; Foote v. De Poy, 126 Iowa, 366; Pierce v. Brown, 74 U. S. 205 (19 L. Ed. 134); Peed v. McKee, 42 Iowa, 689; Smith v. Steely, 80 Iowa, 738; Town of Hinesburgh v. Sumner, 9 Vt. 23 (31 Am. Dec. 599), and note.

„ _ ments™duress proof-It is not true, as appellants contend, that to establish these issues it must affirmatively appear that the person accused was in fact guilty, or that his innocence ¡relieves the party charged from the effect of his conduct. Smith v. Steely, supra. The defense of ratification we shall hereafter notice.

Coming back, now, to the facts, we think the trial court was justified in finding, and we adopt its conclusion in this respect, that the note and deed were obtained because of threats made by an officer of defendant bank to prosecute the brother “ Allie ” ■ and to send him to the penitentiary, and because of a promise by this officer not to prosecute him if plaintiff would sign the papers in controversy. There is a dispute, of course, as to the facts, these charges being de-‘ nied; but the trial court had the witnesses before it and had this advantage over us. Moreover the weight of the testimony on the printed page seems to be with plaintiff. There was certainly no other inducement for plaintiffs making the instruments in suit, and she testified that she would not have done so but for the statements made by the officer of the bank. The case in this respect is a simple one, and in its facts as to duress much like Sharon v. Gager, 46 Conn. 186, where a mortgage was set aside because of threats to prosecute which were held sufficient to avoid the same.

II. The plea of ratification is not established. All that is shown is that delivery of the instruments was postponed for a few days by agreement, and that they were finally delivered with plaintiff’s consent. They were delivered at a time when the influence of the threats and. duress were presumed to continue, and there is no evidence to overcome this presumption. Moreover, if the note and deed were void because contrary to public policy, their delivery even without duress would not make them valid. This is horn-book law requiring no citation of authorities in its support.

III. While something is said in argument about intervener being an innocent holder of the note, little is made of it; and the reason for tips appears to he that the note is a Ron-negotiable one, or, if negotiable, was not s0^ or indorsed, so 'as to be brought under the law merchant. Moreover, while the defense of duress would not, perhaps, be a defense against a holder in due course, although First National Bank v. Bryan, 62 Iowa, 42, seems in some respect to be the contrary; yet if the deed is void because of illegality of consideration it cannot be enforced, for the intervener cannot be an innocent holdek of the deed given as security for the note.

The note itself would be valid in the hands of an innocent holder, provided it came under the law merchant. But that does not appear in this case. The true rule is anRounced in Vallet v. Parker, 6 Wend. (N. Y.) 615, to the effect that a note even if founded upon an illegal and immoral consideration is valid in the hands of a good-faith holder, unless there be a positive statute declaring such instruments void. See, also, Bacon v. Lee, 4 Clarke (Iowa) 490.

The decree of the trial court seemes to be correct, and it is affirmed.