Opinion ID: 237615
Heading Depth: 1
Heading Rank: 2

Heading: The Proof of Good Faith and Burden Thereof.

Text: 44 It is true that the Indiana bank was not a purchaser of this paper in the sense that it bought it. But we do not think it helps the analysis of the problem to call the bank a mere 'conduit.' It was a 'holder' of the paper because it was in possession of an instrument payable to bearer. 12 There is no doubt, too, that both Parnell and the bank were persons to whom the instrument had been negotiated. Section 30 of the Negotiable Instruments Law, Pa.Stat.Ann. tit. 56, § 81 (1930) states: 45 'An instrument is negotiated when it is transferred from one person to another in such manner as to constitute the transferee the holder thereof. If payable to bearer, it is negotiated by delivery; if payable to order, it is negotiated by the indorsement of the holder, completed by delivery.' 46 Now we come to the provision of the law that contains the controlling language for this case. That is Section 59 of the Negotiable Instruments Law and here is the appropriate section as it appears in Purdon's: 47 ' § 139. Burden or proof when title is defective 48 'Every holder is deemed prima facie, to be a holder in due course; but when it is shown that the title of any person who has negotiated the instrument was defective, the burden is on the holder to prove that he or some person under whom he claims acquired the title as holder in due course. But the last mentioned rule does not apply in favor of a party who became bound on the instrument prior to the acquisition of such defective title.' Pa.Stat.Ann. tit. 56, § 139 (1930). 49 See First National Bank of Blairstown v. Goldberg, 1941, 340 Pa. 337, 17 A.2d 377, where the section was applied. 50 In appellants' briefs there seem to be points made that the federal rule applies at this place and that if the federal rule applies the burden on the holder is different. We do not see any basis for this claim. We have already said that Pennsylvania law determines the rights acquired by transfer. But regardless of this the quoted section of the statute was a codification of the law merchant rule which had prevailed before the statute was passed. This is quite clear on the authorities. Canajoharie Nat. Bank v. Diefendorf, 1890, 123 N.Y. 191, 25 N.E. 402, 10 L.R.A. 676 (and cases cited therein); Keegan v. Rock, 1905 128 Iowa 39, 102 N.W. 805 (and cases cited therein); Parsons v. Utica Cement Co., 1909, 82 Conn. 333, 73 A. 785; Ireland v. Scharpenberg, 1909, 54 Wash. 558, 103 P. 801 (and cases cited therein); Campbell v. Cincinnati Fourth Nat. Bank, 1910, 137 Ky. 555, 126 S.W. 114. That being so, whether one goes to uncodified mercantile law or to codified statute the rule is just the same. 51 Now, to apply that rule to the situation in this case. Rocco was a holder. Parnell was a holder. Indiana bank was a holder. So must have been the person who took the bonds from plaintiff bank and passed them on. That person certainly had a defective title for he (or they) stole the bonds. 13 Therefore, under Section 59 of the statute, it was incumbent upon these defendants to show either that they or some person under whom they claimed held as a holder in due course and the rights of a holder in due course are described in Section 57 of the statute 14 and the qualifications for one to become a person in that happy situation are stated in Section 52. 15 That provision, as it appears in Purdon's, is also worth quoting. 52 ' § 132. Who is a holder in due course 53 'A holder in due course is a holder who has taken the instrument under the following conditions: 54 '1. That it is complete and regular upon its face. 55 '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. 56 '3. That he took it in good faith and for value. 57 '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.' 58 We are, therefore, in this situation. The instruments are shown to be stolen. Someone has them. We do not know who, nor do we know how they got to Rocco. We do know that Rocco turned them over to Parnell, Parnell to the bank in Indiana and that bank in turn to Federal Reserve in Cleveland. By the words of the statute the burden is on these people to establish their lack of notice of defective title. 59 The only thing that an appellate court needs to decide upon this question is whether the verdict of the jury, which necessarily found they did not establish their lack of notice, is a supportable verdict. Both the bank and Parnell claimed that they took the paper in ordinary course of business and the bank pointed out that all it got out of the transaction was a small fee for collection. Mr. Parnell likewise claimed to have made only a nominal amount for handling the collection for Rocco but his testimony was flatly contradicted by Rocco who was brought back from jail to testify and was not cross-examined by either of the other defendants. 60 As to Parnell, the testimony of Rocco, if the jury believed it (and after verdict we must take it that they did), was itself sufficient to cast very great suspicion upon the honesty of Parnell's claim of good faith. The language in which Rocco described the matter, too, was, again if his testimony was believed, enough to discredit good faith in the transaction. For example, when questioned about procedure, he said, 'Well, I can't answer that question truthfully either, as to whether he took his out or I gave him his   ' The whole affair seemed to have been conducted without any record of any kind being made by either party. 61 There was this business, too, of the way in which the money was secured. The cashier of the bank, it was testified, telephoned to Mr. Parnell when the credit was received from Federal Reserve Bank, and Parnell got a cashier's check for the amount right away and immediately proceeded to cash it and get the money in small bills. This was done with the two batches of bonds here concerned and with another batch of bonds which had been cashed a little bit earlier. Now, of course, there is nothing against the law in a man getting a check cashed in any form he wants it. But it does seem a little unusual to have even a lawyer who does business for clients in three transactions get several thousands of dollars worth of small bills. At least twelve reasonable jurors might raise their eyebrows at this. The facts do not tend to show the regularity and good faith of the transaction, the 'ordinary course of business' aspect of the things the parties were doing. Furthermore, the jury saw the witnesses. 62 As to Mr. Parnell, the point discussed earlier in this opinion with regard to a called bond becoming demand paper does not apply. There is nothing to show that Mr. Parnell knew the bonds had been called and he, himself, denied it. The verdict for the plaintiff, as to him, rests on the fact that the jury's finding that the burden of proving good faith had not been sustained is a verdict which is sufficiently supported by the evidence. 63 Now as to the bank, if we are right in saying that the bank was a taker of demand paper an unreasonable length of time after the maturity had been advanced by the call, the bank is clearly liable. Even without that, however, there is enough here to let the verdict stand although the evidence is not so strong against the bank as it is against Mr. Parnell. 64 We think the circumstances surrounding this negotiation were such as to arouse some suspicion. These two batches of bonds and one other before had been collected by the bank on behalf of Mr. Parnell. Notification was given him by telephone by the same bank officer each time. He received a cashier's check each time and proceeded to cash it into currency each time. With regard to the bonds here involved the bank took them, knowing they were called, with unpaid coupons, eight in number, attached to them. And these coupons, as already has been explained, do not call for the payment for money since the call cancelled the obligation to pay interest. 65 When one goes back to the earlier cases which talk about overdue paper, one of the things which is stressed is the fact that this overdue paper is not the kind of thing which is circulating in the channels of commerce; that the fact it is still around after its maturity shows something, not criminal, but not in due course of business either. We think that the taking of such paper as that involved here is not the ordinary course of business kind of thing which one would expect to be done. Or, if that is too strong, the fact that it was so taken does not help the party with a burden of establishing his good faith to show it. 66 We conclude that as to both the defendant, Parnell, and the bank, there is sufficient evidence to justify the jury's finding against them in view of the burden which they had under the law. 67