Case ID: ohio-cc-dec_24/html/0214-01.html
Source: Caselaw Access Project
Author: {"author": "NORRIS, J.", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

BILLS AND NOTES.
    [Geauga (7th) Court of Appeals,
    April Term, 1913.]
    Metcalfe, Norris and Pollock, JJ.
    James P. Ragan v. C. C. Sherman.
    ¡Burden on Endorsee from Original Holder to Prove Title Acquired as Holder in Due Course, when Original Holder Acquired Title by Fraud.
    By virtue of Gen. Code 8157 and 8164 in an action on a promissory note by an endorsee who acquired title from the original holder, when it is shown that the title of the original holder was defective by reason of misrepresentation and fraud in procuring the note and failure of consideration therefor, the burden is on the holder to prove that he acquired the title as a holder in due course.
    '[Syllabus by the court.]
    Error to common pleas court.
    
      G. A. Wilmot, for plaintiff in error.
    
      H. O. Bostwick, for defendant in error.
   NORRIS, J.

The plaintiff in error was plaintiff below, and in his petition the plaintiff sought to recover from the defendant, Sherman, on three promisory notes of $300 each, and the foreclosure •of a mortgage securing those notes. These three notes were .given to the Morning Star Manufacturing Company. The plaintiff in his petition alleges that he is the holder in due course of these notes before due, and seeks to recover judgment on these three causes of action and a foreclosure of the mortgage.

The defendant, in his answer, admits the execution of the notes but says they were given to the Morning Star Manufacturing Company for a threshing machine, and that it was represented to him at the time of purchase of this threshing machine that it was a first class machine in every way, better than any other on the market, and would do better work and had no superior for the separation of grain from the straw under all conditions; and that there was a warranty; also that the machine was of that character; and that relying upon these representations and this warranty and trusting the representations of the company in that respect he took the machine and executed these notes. That it turned out that the machine was utterly worthless, the representations were not true, and there was a breach of the warranty. The machine would not do any work and they tendered it back to the company and the company failed and refused to make a good machine, or make their warranty good, and failed to furnish another machine, and by reason of these facts there was an entire failure of consideration for these three notes.

The case went to trial to a jury on the first three causes of action, but it appeared as to the first note, by the plaintiff’s testimony that he acquired that after its maturity, the other two he claims to have acquired before maturity. Testimony was offered by,the plaintiff tending to show that he, at a certain time, and before the maturity of the second and third notes acquired them before due. These notes, with a lot of other notes were given to him, and he took them to a bank in Napoleon, perhaps the.one where this manfacturing company did business, and deposited them for collateral security to his note for $6000, which he took and gave to the manufacturing company and took no note back. That subsequently he was compelled to pay the note to the bank and took up these notes with others; and that at that time and previous thereto the company had gone into bankruptcy. When he took them first they were, indorsed by the manufacturing company through its secretary.

On the trial of the case the defendant offered proof tending-to establish the allegations of the answer, and we think the-testimony very clearly does establish the truth of those allegations. That is, that the machine was worthless, that the representations were made as claimed and that it was tendered back, and the various other allegations in the answer there is proof tending to support.

Complaint is made of refusal to charge as requested, and the admission of certain testimony. A verdict was returned for the defendant. It is claimed here that the court erred in refusing to charge two requests, and first was a request for the-direction of a verdict in favor of the plaintiff as to the second cause of action. And the other was a request to direct a verdict as to the third cause of action.

There was no evidence in this ease on the part of the defendant tending’ to prove that the plaintiff at the time he acquired these notes had knowledge of their infirmity, that is that they were given for a worthless machine, and. that the consideration therefor had failed, and the misrepresentations with reference to this machine, and a determination whether under a case under the law as it now stands it was required of the defendant is a determination of all the questions in this ease.

General Code 8164 as to commercial paper reads as follows :

“Every holder is deemed prima facie to be a holder in due-course ; but when it is shown that the title' of any person who negotiated the instrument was defective, the burden is on the holder to prove that he or some other person under whom he; claims acquired the title as a holder in due course.”

General Code 8157 states what the plaintiff must prove-to show he is a holder in due course.

“One is a holder in due course who has taken the instrument under the following conditions: That it is complete and regular on its face. That he became the holder of it. before it.was overdue, and without notice that it previously had been dishonored, if such was the fact. That he took it in good faith and for value. That at the time it was negotiated to him he had no notice of any infirmity in the instrument or defect in the title of the person negotiating it.”

Plaintiff offered proof to show he was the owner of the note. Defendant offered proof tending clearly to establish under this section of the statute, an infirmity in this instrument, that he had a defense to it as against the payee of the note, and this question arises, was the plaintiff under this statute under those circumstances required to prove that he became the holder of it without notice of any infirmity in the instrument? The plain reading of this statute would seem to us to so indicate, and this statute has been before the circuit court and received a construction. The case of Thompson v. Bank, 32 O. C. C. 131 (13 N. S. 515), the second proposition of the syllabus reads as follows:

“Under Gen. Code 8110, in an action on a note by an endorsee, when a defense is established against the original payee, the burden is upon the holder to show that he or someone under whom he claims acquired the title as a holder in due course.”'

And the court, by Judge Wildman in that case after reciting these statutes and referring to the old rule of the common law which perhaps put the burden of showing that fact upon, the defendant, uses this language in his opinion:

“In other words, if a defense is established against the' original payee, then the holder who claims to be the holder in due course, in order to substantiate that claim, must prove' the fourth condition to which I have referred as embodied in Gen. Code 8157; that is, that at the time it was negotiated to-him he had no notice of any infirmity in the instrument or defect in the title of the person negotiating it. Taking the sections together, the burden, after the establishing of a defense against the original payee, is shifted to the holder of the instrument to prove as a negative fact lack of knowledge of any infirmity in the instrument or defect of the title of the person. negotiating it. He must show that he has no knowledge of the defense so established.”

Applying that rule to this case: The defendant did show, as we think, a complete defense against the payee of this note and that thereby under these statutes and this ruling with respect to them, the burden was shifted to the plaintiff then to prove that he was an innocent holder of the note in due course and had no notice of any infirmity in it. No such evidence was offered in the case as shown by this record. Now of course if that burden was upon the plaintiff then the requests to charge to direct a verdict in favor of the plaintiff was not proper and there was no error in refusing them. Again we think the court erred in admitting exhibits A and B, letters addressed to Mr. Durfee, if I remember the name. I cannot see how those letters were competent evidence in any way, ¡but there was abundant evidence to show that this machine was worthless without them, so they were not prejudicial to the plaintiff in error. The view we have taken of this ease is that the judgment of the court below should be affirmed.

Metcalfe and Pollock, JJ., concur.