Case Name: FIDELITY TRUST COMPANY v. J. D. WHITEHEAD et als.
Court: Supreme Court of North Carolina
Jurisdiction: North Carolina
Decision Date: 1914-03-04
Citations: 165 N.C. 74
Docket Number: 
Parties: FIDELITY TRUST COMPANY v. J. D. WHITEHEAD et als.
Judges: 
Reporter: North Carolina Reports
Volume: 165
Pages: 74–78

Head Matter:
FIDELITY TRUST COMPANY v. J. D. WHITEHEAD et als.
(Filed 4 March, 1914.)
1. Bills and Notes — Fraud—Burden of Proof.
Where fraud in the procurement of note is pleaded as a defense to the payment of a note, with evidence tending to establish it, the burden of proof is on the plaintiff claiming to be a holder in due course, to show that he purchased in good faith and without notice of any infirmity or .defect, for value and before maturity.
2. Same — Infirmity—Default in Interest — Notice—Evidence.
As to whether default in payment, when previously due, of interest on a negotiable note acquired before maturity is alone evidence of notice of the infirmity of tlie instrument, Qtimre. But in this case it is held sufficient to be submitted to the jury with the further evidence that the note was purchased at a considerable discount, and the maker was sued in another State when the indorser was solvent, lived in the same town with the plaintiff, and had not been sued on his indorsement.
3. Trials — Courts—Remarks—Appeal and Error.
In an action by a bank upon a note, the remarks of the trial judge that the witness may be of. good character and a good banker, but that not every such one knows the law, is held not prejudicial or reversible, if erroneous.
Appeal by plaintiff from Peebles, J., at August Term, 1913, of Halifax.
• Clark & Clark, George C. Green, and Winston & Biggs for plaintiff.
W. E. Darnel, R. C. Dunn, and D. L. Travis for defendants.

Opinion:
Clark; C. J.
This is another action, of which we have had several, upon a note to McLaughlin Brothers as part of the purchase price of a French coach horse. See Trust Co. v. Ellen, 163 N. C., 45. The defendants pleaded fraud in procuring the note, as a defense, and that issue is so found, and there is no exception on the part of the plaintiff. The burden as to the second issue, whether the note was "purchased in good faith and without notice of any infirmity or defect add before maturity and for value," was on the plaintiff, Revisal, 2208; Bank v. Exum, 163 N. C., 203.
The note was dated 2 November, 1907, payable 1 July, 1911, "with-interest at 6 per cent, payable annually." The plaintiff purchased the note, according to its own evidence, on 1 November, 1909, when at least one installment of interest was past due.
The court charged the jury that the fact that interest was unpaid on the note was a circumstance to be considered in passing upon the second issue, and that they could also consider the further circumstances that the president of the plaintiff company testified that McLaughlin Brothers were indorsees on the note and were solvent, and lived in the same town, and that the plaintiff, instead of bringing suit against tbem, came to North Carolina to.sue the defendants. The jury were also entitled to consider the further fact that upon the plaintiff's evidence it bought the note for $1,490.64 when its face value at that time was $1,624.30, and that there was no indorsement on the note of payment of past-due interest.
These were circumstances which the defendants were entitled to have submitted to the jury upon the second issue which the jury found against the plaintiff. The plaintiff earnestly contended that the nonpayment of interest when it fell due was not notice of dishonor. The court, however, simply left it to the jury, together with the other circumstances above named, for the jury to find whether or not the plaintiff was a purchaser without notice.
As to the abstract proposition, for such it was in this case, "where a note is payable on a future day,' with interest payable at stated periods before the maturity of the principal of the note, whether the nonpayment of the installments of interest is notice of dishonor," the authorities are divided. In Newell v. Gregg, 51 Barb., 263, it is held: "Where a note is payable at a future day, with interest payable annually, the payment of interest annually is as much a part of the agreement as a promise to pay the- principal.. It is a portion of the debt, and if when the note is bought-by a third party the'interest is past due, the note is then dishonored." Tiedeman Com. Paper, sec. 297.
There are cases which hold .to the contrary, and in Daniel on Neg. Instr., sec. 787 (Calvert's Ed.), it is said: "The weight of authority is that the bona fide purchaser for value is within the protection of the law merchant, although interest is overdue and unpaid at the time of the purchase," the authorities being cited in the notes. The notes, however, cite Guckian v. Newbold, 22 R. I., 279, which held that nonpayment of annual interest was notice of dishonor, though this was explained in a subsequent case between the same parties (23 R; I., 553) to apply where a note had run for a long time with no'apparent reason for the delay, and there was nonpayment of interest. We think, however, that there is a distinction between nonpay ment of interest on an ordinary negotiable instrument and nonpayment of coupons upon municipal and other bonds referred to in many decisions quoted in tbe notes to 2 Daniel Neg. Instr., sec. 1506.
In Union Investment Co. v. Wells, in tbe Supreme Court of Canada, 11 A. and E. Anno. Cases, it was beld tbat tbe nonpayment of interest payable at stated periods before tbe maturity of tbe principal was not notice .of dishonor. But there was a very able dissenting opinion, concurred in by two of tbe judges. Tbe note to tbat case is very full, and shows a conflict of authority. To tbe same effect is Winter v. Nobs (Ida.), 24 A. and E. Anno. Cases, 302. Tbe very full notes to tbat case show tbat while such is tbe preponderance of authorities, there are cases to tbe contrary. Notably, Bank v. Brisch, 154 Mo. App., 631, and Bank v. Couse, 124 N. Y., 19, which follow tbe doctrine laid down-in Newell v. Gregg, 51 Barb., 279, above cited.
We do not need, however, to confine ourselves to either of these two lines of decision, for this ease does not depend upon tbat one circumstance of tbe nonpayment of interest. Even if it did, there is a- line of authorities represented hy Bank v. Kirby, 108 Mass., 497, which bolds tbat while tbe nonpayment of interest, falling diie at stated periods before tbe maturity of tbe principal of tbe note, is not of itself notice of dishonor, it is a circumstance for tbe consideration of tbe jury on tbe issue whether tbe plaintiff took it "in good faith and without notice of dishonor."
In tbe present case, upon tbe plaintiff's own evidence, there was nonpayment of interest, no indorsement of its payment, 'the purchase of tbe note at a considerable discount, and though tbe indorsee of tbe note lived in tbe same town in a distant State, where tbe bank was located, and was solvent, tbe plaintiff did not bring its action there, but came to this State to do so; and all these circumstances could be considered by them in passing upon the issue. We think there was no error in leaving these facts to tbe jury- upon tbe issue as to "notice." It is not neces sary, therefore, to discuss tbe abstract question as to what would have been tbe effect if tbe only circumstance bad been tbe nonpayment of interest.
As to tbe remark of tbe judge, "Mr. Flower may be a man of very good character and a good banker, but it is not every man of good character and who is a good banker, who knows tbe law," we do not think that, if erroneous, it could have affected tbe result or would justify a new trial. It might have been left unsaid without hurt to any one, but we cannot see that making tbe statement was prejudicial to tbe extent that it could reasonably have affected tbe verdict.
No error.