Case Name: First National Bank of Fairfield, Appellee, v. R. C. Dutton et al., Appellants
Court: Iowa Supreme Court
Jurisdiction: Iowa
Decision Date: 1925-02-17
Citations: 199 Iowa 468
Docket Number: 
Parties: First National Bank of Fairfield, Appellee, v. R. C. Dutton et al., Appellants.
Judges: Faville, C. J., and Evans and Arthur, JJ., concur.
Reporter: Iowa Reports
Volume: 199
Pages: 468–476

Head Matter:
First National Bank of Fairfield, Appellee, v. R. C. Dutton et al., Appellants.
BILLS AND NOTES: Holdersliip in Due Course — Proof Justifying 1 Directed Verdict. Testimony (uncontradicted and unimpeached by circumstances or otherwise) by those officers and employees of a corporation (1) who had charge of or anything to do with the purchase of a negotiable promissory note, and (2) who had knowledge of such contemplated purchase, to the positive effect that they , had no notice, prior to purchase, of any fraud or invalidating circumstance in the inception of the note, will justify a directed verdict’ in favor of plaintiff. In such case, a directed verdict will not be denied because of the absence of the denial of a deceased officer whose participation in and knowledge of the purchase is impliedly negatived.
BILLS AND NOTES: ■ Holdersliip in Due Course — -Evidence—Jury Ques-2 tion.. Testimony relative to the purchase of a promissory note by a bank, to the failure of the officers to make inquiry relative to the transaction out of which the note arose, and to the knowledge of the officers that the business out of which the note arose was a failing venture, reviewed; and held to present no jury question on the issue of holdership in due course.
Headnote 1: 8 C. J. p. 1063. Headnote 2: 8 C. J. p. 1063.
Appeal from Henry District Court. — James D. Smyth, Judge.
February 17, 1925.
Action on a promissory note. Defense, fraud. Directed verdict for the plaintiff. Defendants appeal. —
Affirmed.
F. S. Finley and McCoid & McCoid, for appellants.
Starr & Jordan and McAdam & Nelson, for appellee.

Opinion:
Albert, J. —
I. About October 1, 1920, one L. G. Boies was the owner of the Union Telephone Company, and traded it to the defendant R. C. Dutton for his farm, situated in Henry County, Iowa. In said transaction Dutton executed to-Boies the note for $4,000 sued on herein; and on the 18th day of October,-1920, Boies indorsed this note to. the plaintiff. Plaintiff sued Dutton and Boies oii said note. Defendant Dutton pleaded fraud in the inception of the note. Plaintiff replied that it was an innocent purchaser. Boies appeared, and filed an answer admitting that judgment should be entered against him. At the close of all the testimony, the plaintiff filed a motion for a directed verdict in its favor, Avhich Avas sustained by the court, the substance of which, so far as material to our vieAvs in the case, is that the plaintiff has produced the quantum of proof necessary to establish its plea of innocent purchaser, to Avarrant the court in. directing a verdict in its favor. The appellant Dutton claims that the evidence introduced showing that the plaintiff was an innocent purchaser is wholly insufficient in two respects. The evidence shows that one Marcey Avas a director on the loan board of the appellee bank at the time the bank took said note from Boies. Marcey Avas not used as a Avitness in the case. Dutton therefore insists that, because the appellee did not use Marcey as a witness; it has not produced the quantum , of proof necessary under such circumstances.
. The ' record is wholly wanting in evidence showing that Marcey kneAV of or had anything to do with this transaction. It is equally wanting in evidence to show that he did not know of or have something to do with said transaction. The only evidence of any character bearing on either of these propositions is the evidence of the cashier, Bangs: "I handled the transaction between Boies and the bank, myself."
The record shoAArs that Marcey died about a month after the bank became possessed of this note.
Appellant urged the application of the rule announced in the case of McLaughlin-Gormley-King Co. v. Hauser, 195 Iowa 224, as the controlling rule herein.
In considering the Hauser case, it is to be remembered that the district court, in that case, directed a verdict for the defendants, and the plaintiffs appealed. Part of the opinion which has to do with the matters under consideration reads as follows:
"Nor can we say, upon this record, that the failure of the plaintiff to call the president of the company as a witness amounted to a failure of proof, as a matter of law, that the company was a holder in due course. The plaintiff did call as witnesses the persons who transacted the business which resulted in the negotiation of these notes. Whether that was sufficient proof of good faith to satisfy .the jury wás á question for the jury."
The record referred to in the above quotation, on inspection, shows that the salesman, before he procured the four promissory notes therein sued on,, went to the home office of the plaintiff corporation in Minneapolis, and had an interview with the president of the company, and talked over with him the transaction out of which these notes grew, before the transaction was completed, thus showing knowledge on the part of the president prior to the time his company accepted the notes. Under such circumstances, of course, the failure of the plaintiffs to use the president as a witness would at least make a question for the jury.
The question of just what officers of the appellee bank, and how many of them, must testify, in order to warrant the court in directing a verdict for the bank on the ground of its being an innocent purchaser, is rather an unsettled question under our decisions, where the bank is a corporation. It seems to be settled in this state that, where the bank is a partnership, all partners must testify, denying notice. Commercial Bank of Essex v. Paddick, 90 Iowa 63, at 66; Frank & Darrow v. Blake, 58 Iowa 750. In Bennett State Bank v. Schloesser, 101 Iowa 571, the cashier alone testified. He did not say that he had the sole charge of the transaction, or in fact that he transacted the business of the purchase of the notes, but simply says that neither he nor the other officers of the bank had any knowledge of the matter pleaded by the defendants in defense to said notes. No objection was interposed to this evidence whereby the cashier undertook to testify to want of notice on the part of ail the other officers of the bank. Nevertheless, as to them, his testimony was not conclusive, and made a question for the jury. Bank of Bushnell v. Buck Brothers, 161 Iowa 362.
In the case of McNight v. Parsons, 136 Iowa 390, it is said, in a general way, that the undisputed testimony of the cashier is not necessarily sufficient to enable the court to say, as a matter of law, that he received the note in good faith. Such evidence does negative notice or knowledge on the part of other officers of the bank. Later, in the case of Robertson v. United States Live Stock Co., 164 Iowa 230, at 234, we said:
"It has been frequently held that denial of notice, by one who purchases an instrument, that it had its inception in fraud, even though uncontradicted by other witnesses, is not sufficient to justify the court in directing a verdict in his favor. But it has also been held that, although the uneontradicted evidence of the buyer of fraudulent paper is not sufficient to justify the direction of a verdict, yet the facts and circumstances supporting the denial of notice may be such as would warrant such a direction; but this only in case where the facts and circumstances are such that a reasonable man could not draw therefrom any other conclusion than that contended for. The mere fact, therefore, that there are other officers of the bank who were not called to testify, does not, in itself, negative a conclusion that the bank did not have notice. Where the officers of the bank who had charge of the transaction in question, and who acted for the bank in the consummation of the matter out of which the controversy arose, are called as witnesses, and testified that they had no notice or knowledge of the fraud prior to or at the time the deal was consummated, and it is apparent from all the facts and circumstances disclosed by the record that the other officers, who were not called, could not, from the nature of the transaction, and from the manner in which it was carried on, have notice of the matters charged as constituting fraud, the testimony will be sufficient to negative the existence of knowledge on the part of the bank. The existence or nonexistence of a disputed fact may be established by facts and circumstances, as well as by direct testimony. While a jury or a court is not bound to accept the testimony of any witness as absolutely true, yet neither the court nor the jury has a right to disregard the testimony of a witness or refuse to accept a fact as established, where all the facts and circumstances corroborate the witness, and the testimony of the witness and the facts and circumstances show affirmatively the existence or the nonexistence of the disputed fact. The want of notice on the part of the intervener in this case, the want of notice on the part .of every officer of the intervener, may be established by direct testimony of all the officers who might or could know; or it may be established by facts and circumstances from which the inference of want of knowledge must necessarily be drawn."
In the case of Perry Sav. Bank v. Fitzgerald, 167 Iowa 446, we said:
"Plaintiff bank is a corporation. Plaintiff placed some of its officers on the stand, but not all of them, to show that the bank had no notice of the defect in the note. Defendant cites Bank v. Buck, 142 N. W. 1005, to sustain his contention that the plaintiff had not met the burden cast upon it to show the want of notice and good faith. But in that case the question was not raised or decided whether such burden is met by a showing by the only officer who was concerned in the transaction. The evidence in this case is undisputed that John Carmody, the cashier, was the only officer purchasing notes, and that he was the only one who had to do with the purchase of this note. Under such circumstances, the holdings are that the burden is met by his evidence, in the absence of other circumstances. ' '
"We have intimated, if not decided, in some of our cases, such as Connelly v. Greenfield Sav. Bank, 192 Iowa 876, and Arnd v. Aylesworth, 136 Iowa 297, and kindred cases, that, although the officers specifically denied notice, yet at least its credibility is for the jury, hence making a jury question.
If these pronouncements were followed to the conclusion contended for by appellant, then in every case where a primafacie case of fraud is made by defendant, thereby easting the burden on the plaintiff to show that it was an innocent purchaser, it would have to go to the jury on the question of the credibility of witnesses tendered to establish that plaintiff was an innocent purchaser. We refuse to acquiesce in any such construction of that line of cases.
In Second Nat. Bank of New Hampton v. Scanlon, 196 Iowa 1305, we said:
"This contention of appellees' is too broad and sweeping, and is not in line with the previous holdings of this court. The evidence that tbe transferee of a negotiable instrument is a holder in due course may be so- indubitable as to make it tbe duty of tbe trial court to direct a verdict in behalf of-the bolder of sucb instrument, even though it be established that tbe instrument was induced by fraud on tbe part of tbe original payee. Central State Bank v. Spurlin, 111 Iowa 187; Johnson v. Buffalo Center St. Bank, 134 Iowa 731; Arnd v. Aylesworth, 136 Iowa 297; Robertson v. United States Live Stock Co., 164 Iowa 230; City Nat. Bank of Auburn v. Mason, 192 Iowa 1048; Grinnell Sav. Bank v. Gordon, 195 Iowa 208. It is also true that, although tbe payee may offer testimony direct and posi7 tive to tbe effect that he is a bolder in due.course, still tbe facts and circumstances surrounding tbe transaction may be such as to leave tbe question as to whether or not tbe payee is a bolder in due course, one for tbe determination of tbe jury. Connelly v. Greenfield Sav. Bank, 192 Iowa 876; German Am. Nat. Bank v. Kelley, 183 Iowa 269; Anthon St. Bank v. Bernard, 194 Iowa 1090; Mooers v. Stalker, 194 Iowa 1354; Farmers Nat. Bank v. Pratt, 193 Iowa 406; McLaughlin-Gormley-King Co. v. Hauser, 195 Iowa 224; Commercial Sav. Bank v. Colthurst, 195 Iowa 1032."
Later, in tbe case of First Nat. Bank of Montour v. Brown, 197 Iowa 1376, this court further said:
"To sustain tbe proposition advanced by tbe appellant in tbe instant ease, we would be compelled to say that tbe defendant has an inherent right to have a jury pass upon his claim, or that tbe credibility of -an-uncontradicted and unimpeacbed witness in all eases presents a jury question. We cannot make sucb a pronouncement. ' '
We deem tbe correct rule to be that, where tbe bank, being a corporation, attempts to establish itself as an innocent purchaser, it must negative notice, first, 'by tbe officer or employee who bad tbe transaction in charge of purchasing tbe paper, and second, by any other officer of the bank who -had to do with said transaction, or who bad knowledge that sucb a transaction was under consideration or contemplation; and if notice be- squarely negatived by these parties, if their testimony is uncontradicted, and if tbe circumstances shown in tbe case do not tend to impeach their testimony, then tbe court will be warranted in holding, as a matter of'law, so far as this question is concerned, that the bank was an innocent purchaser.
In the instant ease, we have a somewhat different situation. The director Marcey was dead at the time this case was tried in the lower court. There is no showing that he knew of or had anything to do with the transaction; and, as before stated, the only testimony inferentially negatives his knowledge of the transaction.
There is a dearth of authority on this question; but, after a somewhat laborious search, we find the case of Merchants Nat. Bank v. Peterson, 109 Neb. 407 (191 N. W. 690). In that case, the president of the bank was in a serious condition physically, and unable to attend court. While an attempt was made to take his testimony, it was excluded from the record, and the court draws this conclusion:
' ' But it is not necessary in every instance where the defense of fraud is made, as in the instant case, that the holder of a note make this proof out of the mouth of each and every employee or agent who has had some part in the tailing of the note. The good faith, or lack of good faith, of the holder of negotiable paper, like any other question of fact, may be susceptible of proof in a variety of ways. Cases may frequently arise where an officer or agent of a bank may be unable to testify because of sickness; he may be absent from the jurisdiction of the court, and his whereabouts be unknown; or his lips may be sealed in death. The rule invoked by appellant would defeat justice, and we cannot adopt it as the law of this state. ' '
We are of the opinion that the above quotation from the Nebraska ease states a sane and sensible rule. We do not deem the testimony of the witness Marcey in any way necessary, under the circumstances of this case, to establishment, of the fact that the bank was an innocent purchaser.
II. It is further urged that there is certain other testimony in the record, aside from matters discussed in the previous division, that should take this question to the jury. To that evidence we will give some attention.
It appears that, at the time the bank bought this note, it was a holder of three notes of the Union Telephone Company, one of which was indorsed by Thorne, another indorsed by Sayers, and a third note, of about $1,100, which was secured by collateral consisting of 176 shares of that company's stock and two shares of development stock. Apparently, from the record, the telephone stock was considered worthless; but the shares of the development stock are shown to be worth about $1,000 each.
Boies, the OAvner of that telephone company, in trading the telephone company to Dutton, needed the aforesaid shares of stock. He proposed to turn in the $4,000 note sued on herein, to apply as far as possible on these notes just described, which was done, settling the first two of said notes, and leaving a balance of something like $280, which was applied on the $1,100 note. It is claimed that, because Thorne was an officer of the bank, and Sayers was a customer of the bank, said .bank had an ulterior motive in taking this note of Dutton's, which Avould not be due for a year, in place of the first two above described notes, Avhich were shortly due; and therefore that the transaction on the part of the bank was not in good faith. By what line of logic this conclusion is reached, we are unable to determine. There is some testimony from some of the officers of the bank that they were not interested in and made no inquiry about the deal made betAveen Boies and Dutton, and one of the officers said that it Avas no concern of theirs, etc. It is not shown that the bank or any of its officers had knowledge of any suspicious circumstances Avhich would put them on inquiry, and therefore they were not bound to make the inquiry. Starr, the cashier, in his testimony says, in response to questions, that, in handling as many daily transactions as he did, unless it was something out of the ordinary or of unusual kind, he would not remember it; but he did recall that the purchase of this note had been spoken of. It is urged that this is a circumstance in itself sufficient to take this case to the jury.
The Union Telephone Company was a losing proposition, and some testimony shows that Thorne knew of this' fact. He also knew that Boies had traded the telephone company to the defendant Dutton, and that this note in suit was part of this consideration; but he knew nothing whatever of the details of the .transaction between Boies and Dutton. It is urged that these are circumstances which should have aroused suspicion that demanded inquiry. It is further urged that the bank officers studiously avoided making any inquiry as to the details of the transaction between Boies and Dutton.
There are a few other minor circumstances which are urged, that should be considered on this question; but we are of the opinion that none of these circumstances are sufficient, nor are all of them combined sufficient, to produce the condition under which the case should be sent to the jury. It seems to us that the history of the buying of this note shows an ordinary business transaction. These facts referred to are not such that they can be said to be such suspicious circumstances as would take the case to the jury.
Having carefully reviewed the record in the light of what has just been said herein, we are of the opinion that the ruling of the district court in directing a verdict in favor of the plaintiff was correct; and the same is, therefore, affirmed. — Affirmed.
Faville, C. J., and Evans and Arthur, JJ., concur.