Case Name: PETERSON, Appellant, v. HOFTIEZER, Respondent
Court: South Dakota Supreme Court
Jurisdiction: South Dakota
Decision Date: 1915-02-03
Citations: 35 S.D. 101
Docket Number: File No. 3653
Parties: PETERSON, Appellant, v. HOFTIEZER, Respondent.
Judges: 
Reporter: South Dakota Reports
Volume: 35
Pages: 101–107

Head Matter:
PETERSON, Appellant, v. HOFTIEZER, Respondent.
(150 N. W. 934.)
(File No. 3653.
Opinion filed February 3, 1915.)
1.. Corporations — Foreign Corporations — Engaging in “Interstate Commerce” — State Statute, Invalidity of.
A corporation of Minnesota, which, through canvassing agents, took applications in this state for service contracts to be issued by the company, pursuant to which, if accepted and approved, contracts were issued which provide for giving of. veterinary advice and prescriptions, the benefit of its purchasing department in securing merchandise from manufacturers, etc., of its stock department in the purchase of stock, and of its selling department in selling produce consigned to it, and its assistance in hiring help, etc., held, to he engaged in “interstate commerce,” and therefore that, as applied to such corporations, Civ. Code, Secs. 883 and 885, concerning the carrying on of business in this state by foreign corporations, are invalid.
2. Negotiable Instruments — Defenses, Failure of Consideration, Fraud — Innocent Purchaser, Immaterial Issue.
In a suit by an indorsee of a promissory note, held, that, unless defendant shows failure of consideration, or fraud, in its inception, the issue of whether plaintiff was an innocent purchaser for value is immaterial, as affecting defendant’s right to plead and prove said defenses.
3. Same — Defenses, Fraud, Failure of Consideration — Burden of Proof.
Where a maker of a promissory note, sued by an indorsee, pleads failure of consideration, and fraud, as defenses, he assumes the burden of proving that the contract, in consideration of which the note was given, was procured ¡by fraudulent representations of such character that a man of ordinary intelligence was entitled to rely thereon.
4. Same — Defenses—Fraud, False Representations — Sufficiency of Evidence.
In a suit on a promissory note, held, that the evidence as to fraud and false representations, alleged to have induced execution of a contract in connection with which the note was given, was insufficient.
5. Contracts — fraudulent Representations — Unreasonableness of Representations, Right to Rely on.
Where, in defense to a suit upon a note executed pursuant to an existing contract, defendant, to show false representations as an inducement to execution of the contract, testified that the agent of the other party thereto, told him he could get 30 cents per bushel more for his wheat !by consigning it to the agent’s principal than by selling it at home, but offered no evidence to show the falsity of the statement, held, that, if the court could assume i-ts falsity, i't was not a statement upon which defendant, as a man of ordinary intelligence, could rely as fraudulent.
Appeal from Circuit Court, Hamlin County. Hon. Carr G. Sherwood, Judge.
Action by F. H. Peterson against C. J. Hoftiezer, upon d promissory note executed in consideration of a contract between defendant and plaintiff’s assignor. From a judgment for defendant, and from an order denying a new trial, plaintiff appeals.
Reversed and remanded.
M. J. Russell, for Appellant.
W. M. Skinner, and Hanten & Hanten, for Respondent.
(i) Under point one of the opinion, Appellant cited: Sioux Remedy Co. v. Cope et al., (S. D.) 133 N. W. 683.
(4) Under point four of the opinion, Respondent cited: 'Walters v. Rock, 18 N. D. 45, 115 N. W. 511.

Opinion:
SMITH, J.
On April 29, 1911, defendant executed and delivered to a Minnesota corporation, the Farmers' General Service Company of Minneapolis, a promissory note for $107.50 due on or before October 1, 1911, which note was indorsed:
"Without recourse
Farmers' General Service Company.
By S. P. Lesselyoung, Pres.
$21.50, May 6th, 1911."
Plaintiff Peterson brings action on this note, alleging that he is an innocent purchaser for value before maturity.
The answer puts the latter allegation in issue, and as an affirmative defense alleges failure of consideration and fraud in the inception of the note, and that the Farmers' General Service Company is a foreign corporation and has failed to comply with the provisions of sections 883 and'885 of the Civil Code. There was a jury trial and a verdict for defendant. Plaintiff ap peals from the judgment and the order overruling motion for a new trial. At the trial plaintiff produced and offered the note in evidence. The undisputed evidence shows that it was indorsed in the form above set forth prior to the beginning of the action. Whether it was delivered to plaintiff for value before maturity, and whether plaintiff was an innocent purchaser, were issues presented to the jury at the trial and -decided adversely -to -plaintiff. Tlie sufficiency of the evidence to sustain the verdict is one of the questions presented on this appeal. I-t is admitted upon the recor-d that the Farmers's- General Service Company was foreign •to this state, and had not complied with the statutes relating to foreign corporations. It is respondent's contention that the Farmers' General Service Company, at the tim-e this transaction was had and the note in suit executed and delivered, was engaged in the transaction- of business within this state, in violation of section - A of the -Civil Code, -an'd that, its transaction of business i" dus state being unlawful, the note was without 'consideration-. If the transaction between the Farmers' General Service Company and the defendant constituted intrastate business, its failure to comply with the statutes of this state rendered its acts unlawful and precluded it or its -assignee- from maintaining an action in the courts of -this state. On the other hand-, if -the Farmers' General Service Company, in the transaction of its business through its contract with -defendant, was engaged in interstate commerce, the statutes of this state are controlled by the Interstate Commerce Act, and such defense would not be -available as against the corporation. The corporation itself not -being plaintiff in the action, section 885, Civil Code, is n-ot applicable. Citizens' Bank v. Corkings, 9 S. D. 614, 70 N. W. 1059, 62 Am. St. Rep. 891; Dewey, v. Komar, 21 S. D. 117, 110 N. W. 90. The Farmers' General Service Company in -the transaction o-f its business employed canvass-ing agents in -this and other Northwestern- States, who took applications for service contracts to be issued by the company, and who were authorized to receive money or no-tes from applicants to be forwarded t-o the -company, -and-, if -the applications were accepted and approved, contracts were issued in accordance with -the -application. The evidence shows that at least a dozen of these applications were taken by the canvassing agent in the vicinity of defendant's residence in this state, and contracts issued thereon. Briefly stated, the application and contract provide that the holder of tíre contract shall be entitled to receive advice through -the company' veterinary department, and to receive prescriptions found necessary by the veterinary staff; to receive the benefit of its purchasing, department in securing merchandise from manufacturers, brokers, and wholesale jobbers, eliminating' middlemen and dealers; to receive the benefit of its stock department in the purchase of stock for feeders, breeders, etc.; that tlie company shall act as commission and sales agent for farm produce consigned to it; shall assist in hiring help required by the contract holder, when requested by letter or personal visit; shall furnish all information, upon request relating to scientific farming, horticulture, etc., from the company's staff of assistants and - correspondents; and provides that the contract holder may purchase remedies from the company for himself, and for others not contract holders, and may use such remedies for treatment of ailments- o-f stock other than his own. It seems entirely clear that, under these facts, the company was engaged in transacting business in this state within the meaning o-f our statute. It seems equally clear that under the views of this court in Sioux Remedy Co. v. Cope, 28 S. D. 397, 133 N. W. 683, and of the Supreme Court of the United States in International Text-Book Co. v. Pigg, 217 U. S. 91, 30 Sup. Ct. 481, 54 L. Ed. 678, 27 L. R. A. (N. S.) 493, 18 Ann. Cas. 1103, the parties to this contract were engaged in interstate commerce, and that as applied to such corporation sections 883 and 885 of the Civil Code are invalid. The Pigg Case overrules many decisions of state courts upon identical or similar facts. See note 18 Ann. Cas. 1109. This defense must therefore fail.
At the trial, plaintiff produced and offered the note in evidence. The answer admits its execution. The evidence tends to show that it was indorsed prior to the beginning of the action. Whether plaintiff was an innocent holder and purchaser for value before maturity is material only so far as it affects defendant's right to plead and prove failure of consideration and fraud. The issue is immaterial, unless defendant has shown failure of consideration or fraud in the inception of the note.
Appellant assigns as error insufficiency of the evidence to sustain the verdict upon this issue. The evidence in the record shows that the Farmers' General Service 'Company is a Minnesota corporation, having its 'offices at the city of Minneapolis, and is engaged in the business of selling, in various Western States, to farmers, stockmen, livery keepers, and others, contracts entitling the purchasers 'to receive advice through the company's veterinary department; to receive the -benefit of the company's purchasing department, in -the purchase of live stock and merchandise; the benefit of the company's employment service, in securing laborers; .the benefit of information- on scientific fanning and horticulture — all in the manner and under the conditions provided in the contract.
The defendant was a -purchaser of one of these contracts, ¡in- -consideration of which -the note in suit was given. The service corporation employed one Lesselyo-ung as its traveling salesman to solicit applications for -these co-ntraots, which cover a period of five years from- the date thereof. The application specifies, in a general way, the kind and mode of service to be rendered under the proposed contract, and provides that the contract, with certain premiums, will be sent -to the applicant on 60 days' free trial, and, if satisfactory, the applicant agrees to pay the Farmers' General Service Company at the rate of $21.50 a year, for five years, aggregating $107.50. Defendant's application was taken by Lesselyo-ung ¡and was accepted by -the General Service Company, and a contract executed and delivered to him, the latter part of April, 1911. The contract itself is in strict conformity to, and -embodies, every specification contained in the ap plication, which is made a part -of the contract. The application signed by defendant covers- something -over fo-ur printed page-s of brief, and the contract itself covers about -five -printed pages. The answer alleges -that the agent of the service company, through whom 'the defendant made the application and -purchased the contract, represented to the .defendant that the defendant would receive service and information from the company through -the company's veterinary department, purchasing department, stock department, general information department, employment service department, and scientific farming and horticulture department, and alleges that at no time since the date thereof has the service company been able, ready, and willing -to comply with the provisions of the -service contract; that -the representation that the service company could and would render such, services to defendant were not true, and that the agent of the company did not believe them to be true, and that the contract was entered into without any intention on the part of the service company to- render such services; that said representations and promises were made to deceive the defendant; that defendant relied thereon, and would not have signed said application or note except for the representations so falsely and fraudulently made; that the service company has failed to render service and give information required by said contract, upon defendant's request therefor, and is in na position or condition to render the same, by reason of which said note was and became wholly fraudulent and void in its inception. Defendant, under the allegations of fraud and failure of consideration -in his answer, assumed the burden of proving that the contract was procured by false and fraudulent statements and representations, of such character that defendant, as a man of ordinary business intelligence, would be entitled to rely thereon
The evidence in the record covers some 60 printed pages, and an attempt at recapitulation -thereof would unduly extend .this opinion to- no useful purpose. Suffice it to siay that defendant, with the single exception hereinafter referred to, has not offered any evidence -tending to. show that -the statements or representations which are alleged to have induced him to sign the application were in fact false, or that -the service company, when it accepted the application land made the contract, was not able to or did not intend to perform the obligations' assumed by it under the contract. On the contrary, the evidence tends strongly to show that the company was acting in good faith toward its contract holders, and possessed the means and ability -to perform the obligations it assumed. Whether defendant acted with good business judgment in purchasing such a contract, or whether the benefits under it would be as great as he anticipated, is not the question before us in this case. Courts cannot relieve men against mistakes of judgment in the co'nduct of their business affairs. Relief can- be given only when fraud and deceit are elements in such transactions.
The defendant testified to representations made by Dessel young, as '.inducements to him to sign the application for the service contract. An examination of the contract shows that the company did in fact obligate itself to perform services in conformity with the oral representations and written application. Defendant' own -testimony also shows that he never, at any time, made any request for services under said contract, except that he shipped a single can of cream to the company for sale, for which he had. to pay express charges, and the shipment did not net him any more than would the 'home market. He testified that Desselyoung told him- he could sell wool for 30 cents a pound, and that he sold wool for 16 cents at home-; that he sent a sample to the company and could get only 16 -cents. These statements are the only matters which defendant -attempted to -prove which might tend to show fraud in the inception of the note. He never shipped any wheat or any wool, and- never made a request for services under ,any of the so-called departments named in th-e service contract, .excep-t in the two instances- above noted. Defendant did testify, in effect, that Desselyoung to-ld- him he co-uld- get 30 cents per bushel more for 'his wheat by consigning it to the company, bu-t did not offer any evidence to sho-w that the statement was false. If this court may assume it was false without proof, it certainly could not be- considered- a statement upon which defendant as a man o-f ordinary intelligence could rely as fraudulent.
In rebuttal of t-his testimony, plaintiff offered -the testimony of farmers, neighbors -o-f defendant and whom defendant, in- company with Desselyoung, had solicited, an-d who had secured contracts identical with the one in question here, to show that such contract holders had demanded and received satisfactory services from the company. No representations upon which, as a matter of law, a man of ordinary intelligence might rely, are shown to have been fals-e b-y anything in the record. The verdict of the jury upon that issue is not sustained by any evidence.
The judgment and order o-f -the trial court mus-t be reversed, and the cause remanded for further proceedings according to law.