Case Name: Lapp v. Merchants National Bank
Court: Appellate Court of Indiana
Jurisdiction: Indiana
Decision Date: 1919-05-15
Citations: 74 Ind. App. 527
Docket Number: No. 9,869
Parties: Lapp v. Merchants National Bank.
Judges: Dausman, J., dissents.
Reporter: Indiana Court of Appeals Reports
Volume: 74
Pages: 527–536

Head Matter:
Lapp v. Merchants National Bank.
[No. 9,869.
Filed May 15, 1919.
Rehearing denied October 31, 1919.
Transfer denied December 22, 1920.]
1. 'Bills and Notes. — Promissory Note. — “Bona, Fide Holder”. —Defenses.—Statutes.—Where payee for value received, in due course of business, and before the maturity of a note, assigned and transferred it to plaintiff, such facts sufficiently show that plaintiff had no notice of any infirmity in the instrument or defect in the title of the person negotiating it, and that it purchased the note in good faith for value, and such holder, in view of §§9089zl, 9089d2, 9089e2 Burns 1914, Acts 1913 p. 120, holds the note free from defenses available to prior parties among themselves, p. 529.
2. Bills and Notes. — Promissory Note. — Action by Bona Fide Holder. — Defenses.—Fraud.—Answer.—Sufficiency.—In an action on a promissory note, where plaintiff alleged that the note was assigned and transferred to it for value in due course of business and before maturity, an answer averring fraud but failing to deny the transfer of the note in due course, was insufficient, since, in view of §§9089zl, 9089d2, 9089e2 Burns 1914, Acts 1913 p. 120, fraudulent representations in procuring the execution of a note do not constitute a defense to an action thereon by a bona fide purchaser, pp. 529, 530.
3. Pleading.— Admissions.— Facts Not Denied. — 'Matters well pleaded in the complaint and not controverted in the answer must be taken as true in testing the sufficiency of the answer, p. 530.
From Marion Superior Court (104,574); IF. W. Thornton, Judge.
Action by the Merchants National Bank, of Indianapolis, against John A. Lapp. From a judgment for plaintiff, the defendant appeals.
Affirmed.
Edward B. Lewis, for appellant.
Charles A. Dryer, for appellee.

Opinion:
Nichols, J.
The complaint in this case, by the appellee against the appellant, was filed October 16, 1916, and is upon a promissory note executed by the appellant August 5, 1915, and due in six months after date, negotiable and payable at the appellee's bank in Indianapolis, Indiana, and to the order of the Federal Loan Society, Inc.
It is averred in the complaint that the payee for value received, in due course of business and before the maturity of such note, assigned and transferred it to the appellee, and that it was past due and unpaid. To this complaint the appellant answered in two paragraphs, the first being a general denial, and the second being an affirmative answer charging fraud against the payee named in the note in procuring the execution thereof. There is no charge in the second paragraph of answer that the appellee had notice of such fraud. The appellee filed its demurrer to said second paragraph of answer, with memorandum, which demurrer was sustained by the court, to which ruling the appellant excepted. Thereupon appellant withdrew his first paragraph of answer, being the general denial, refused to plead further, and elected to stand upon his second paragraph of answer. Judgment was rendereed in favor of the appellee.
The Negotiable Instrument Act, §9089a et seq. Bums 1914, Acts 1913 p. 120, was put in force April 30, 1913. Section 52 (§9089zl Bums 1914) of such statute pro vides: "A holder in due course is a holder who has taken the instrument after following conditions:
(1) That the instrument is complete and regular upon its face; (2) that he became the holder of it before it was overdue, and without notice that it had been previously dishonored, if such was the fact; (8) that he took it in good faith and for value; (4) 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."
It is provided by §56 (§9089d2 Burns 1914) of such statute that, to constitute a 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 amounted to bad faith. Section 57 (§9089e2 Burns 1914) provides that a holder in due course holds the instrument free from any defect of title of prior parties, and free from defenses available to prior parties among themselves, and may enforce payment of the instrument for the full amount thereof against all parties liable thereon. By its averments that the payee for value received, in due course of business and before its maturity, assigned and transferred said note to the appellee, such appellee avers that it had no notice of any infirmity in the instrument or defect in the title of the person negotiating it, and that it purchased the same in good faith for value. Such a holder, under the statute, holds the note free from defenses available to the prior parties among themselves. The ap- . pellant's Second paragraph of answer averring fraudulent representations in the procuring of the execution of this note, without any averments of knowledge by the appellee of the alleged fraud, was insufficient, and the demurrer thereto was properly sustained.
There was no error in sustaining the demurrer to the second paragraph of answer. The judgment is affirmed.