Case Name: FARMERS SECURITY BANK OF PARK RIVER, a Corporation, Appellant, v. C. F. NELSON, as Administrator of the Estate of Peter J. Wibe, Deceased, Respondent
Court: North Dakota Supreme Court
Jurisdiction: North Dakota
Decision Date: 1920-11-01
Citations: 46 N.D. 106
Docket Number: 
Parties: FARMERS SECURITY BANK OF PARK RIVER, a Corporation, Appellant, v. C. F. NELSON, as Administrator of the Estate of Peter J. Wibe, Deceased, Respondent.
Judges: Birdzell and Grace, JJ., concur.
Reporter: North Dakota Reports
Volume: 46
Pages: 106–113

Head Matter:
FARMERS SECURITY BANK OF PARK RIVER, a Corporation, Appellant, v. C. F. NELSON, as Administrator of the Estate of Peter J. Wibe, Deceased, Respondent.
(179 N. W. 917.)
Bills and notes — accommodation shown; bona fide purchase not shown.
The plaintiff sues to recover on. a promissory note $2,528 and interest from March 12, 1914. The defense is that the note was given for a special accommodation to make a show of assets and it was not to he transferred. The evidence shows the payee had no right to transfer the note. It did not sell the note; the bank did not receive it in good faith or for value, or in due course of business. The verdict for the defendant is well sustained by the evidence.
Opinion filed November 1, 1920.
Appeal from judgment and order denying motion for judgment notwithstanding verdict or for a new trial, in District Court, Towner County, Honorable G. W. Bubtz, Judge.
Affirmed.
McIntyre & Burtness, for appellant.
Accommodation paper is paper to which the accommodation party has put his name without consideration. 8 Corpus Juris, 255, 258 <¶¶ 403, 408) ; Comp. Laws 1913, § 6914.
Accommodation paper cannot be revoked after negotiation. Such revocation, however, affects only one who takes with knowledge of what has been done, and does not prevent a recovery on the instrument by un innocent indorsee to whom it has been negotiated. 8 C. J. 260, 263 (¶¶ 410, 412).
To constitute notice of an infirmity in the instrument or defect in the title of the person negotiating the same, the person to whom it is negotiated must have had “actual knowledge of the infirmity or defect, or knowledge of such facts that his action in taking the instrument amounts to bad faith.” First Nat. Bank v. Flath, 10 N. D. 281.
Tt is not the good faith of the payee that is in question. It is the good faith of the person who parts with his money or other property when he purchases the note. American Nat. Bank v. Lundy, 21 N. D. 167.
The Negotiable Instruments Act in specific terms requires tbe actual knowledge of the infirmity or defect or knowledge of such facts- as amount to bad faitb. Johanna v. Lennon, 32 N. D. 71; Hart v. United States Trust Co. (Pa.) 12 Atl. 561.
Kehoe & Moseley and H. A. Libby, for respondent.
Accommodation paper is operative only, when negotiated and until negotiation an accommodation party may revoke tbe instrument, and this is so although security was given tbe accommodation party for tbe use of bis name. 8 Corpus Juris, 258, ¶ 408.
Wibe wrote tbe letter to tbe plaintiff in tbe last of March, 1914. Tbe note was still in tbe possession of tbe association. Tbe plaintiff did not acquire it till tbe 1st of June 1914. Hence, tbe revocation was made in time. 8 Corpus Juris, 259, ¶ 408; St. Paul Nat. Bank v. Howe (Minn.) 42 N. W. 200.
Tbe question as to whether Mrs. Olsen wrote and mailed tbe letter was not in dispute. She and her mother testified that she wrote it. Tbe question as to whether tbe plaintiff received it was, however, in dispute, and that question was properly submitted to tbe jury under appropriate instructions. Hurley v. Olcott (N. Y.) 91 N. E. 210; Malloy v. Drumheller ()Vash.) 122 Pac. 1005; Marston v. Bigelow (Mass.) 5 L.R.A. 43; Fleming v. Evans (Kan.) 61 Pac. 503; 16 Cyc. 1010.

Opinion:
Robinson, J.
Tbe plaintiff sues to recover on a promissory note, $2,528 and interest from March 12, 1914. Tbe defense is that the note was given for a special accommodation to make a showing of assets and it was not to be transferred, and that plaintiff is not a good faitb purchaser; that it did not receive tbe note in due course or for value. Tbe jury found a verdict for defendant, on which judgment was entered. Though forty errors are alleged, as usual, tbe only real question is on tbe sufficiency of tbe evidence to sustain tbe verdict. Certain it is tbe note was made without any consideration. It was made to the •Northwestern Underwriter's' Association, a Grand Forks insurance company. He made tbe note, not that it might be transferred, but that tbe company might use it as evidence to evade tbe Blue Sky Law and to mollify tbe insurance commissioner. Tbe transfer of the note was an act of bad faith. There is evidence that defendant caused bis daughter to write to the bank a letter by which it was cautioned against the purchase of the note. The bank denies the receipt of the letter, but its evidence is no more convincing than is the evidence that the letter was written, mailed, and received by the bank.
Then it appears that the bank did not pay for the note in cash or take it in the usual course of banking business. The note was turned over to the bank with several other notes in exchange for a lot of notes held by the bank. There is nothing to show the value of the notes, and they were all of a questionable character.
In 1909 the bank was organized by three persons, with an authorized capital of $20,000. The capital stock was divided between the three organizers thus: One took sixty-six shares; another took sixty-six shares; C. E. Yerry took sixty-eight shares and became the first president, cashier and manager of the bank. The underwriters' company was organized about the same time as the bank. Its authorized capital stock was $100,000. Its directors and organizers were H. II. Hand, E. Sandlie, M. E. Nelson. One, Mr. Bradley, became president; H. H. Hand, secretary. In time they organized the now defunct Fire & Marine Insurance Company, which became a feeder, and obtained large bunches of farmers' notes and transferred them to the parental company—an innocent purchaser, of course—and yet each company had the same officers, clerks, and did business in the same rooms.
Exhibit 6 shows a lot of notes, amounting to $13,399.86, marked "Notes turned over to the Insurance Company by Farmers' Security Bank on June 2, 1914, having been taken up and settled for as per attached sheet." Exhibit 7 purports to show a list of notes turned over to the bank June 2, 1914, by Northwestern underwriters in part payment of notes shown by exhibit 6. The bunch amounts to $8,444.20, and includes the Wibe note in suit. The same exhibit shows the insurance company was given a credit for checking account of O. E. Yerry, Treasurer of Northern Fire & Marine Insurance Company, $623.62, and for collection account, $5,290.35. Turned over to the bank same date. This is of importance as it shows that Yerry, the organizer and first president and manager of the bank, was also treasurer of the Fire & Marine Insurance Company. • It shows a kind of a marital relation between the companies and the bank. Exhibit 8 is a list of notes amounting to $85,445 which, on September 23, 1914, the underwriters turned over to the bank; agreeing that if any note was not paid when due it may be charged back or collected from the underwriters company after sixty days when it becomes due.
Mr. Bradley was president of the Underwriters Company and of the Fire & Marine Insurance Company. He testifies:
Q. Did your company ever sell and deliver that note to the bank ?
A, No, we did not sell the note.
Q. Did your company ever receive any value from the plaintiff bank for the note ?
A. No. (Fol. 213, 214, 233.)
It is needless to quote the testimony showing the intimate relations, winding and devious ways of those three corporations. It is clearly shown the Northwestern Company had no right to sell or transfer the note. It did not sell the note; the bank did not receive it in good faith or for value, or in due course of business. Both hy the direct and the circumstantial evidence, the verdict is well sustained.
Affirmed.
Birdzell and Grace, JJ., concur.
Bronson, J,, disqualified did not participate.