Court Opinion

ID: 6546847
Source: CourtListenerOpinion
Date Created: 2022-07-19 22:20:15.980675+00
Date Added: 2024-06-11T15:55:59.467169
License: Public Domain

Him, C. J. Thos. W. Jones as principal, and J. A. Wilson as surety, executed a note for $519.25 to W. E. Smith. Smith assigned the note to R. M. Jackson, who sued Jones and Wilson upon it. Jones and Wilson filed separate answers, which were substantially the same. The substance of the answers will be set out by the Reporter in the statement of facts, and it will be seen therefrom that the defense was based upon the alleged fraudulent sale of a stock of goods by Smith to Jones, and that Jackson was not an innocent purchaser of the note and had knowledge of the fraud perpetrated upon Jones by Smith. The court sustained motions to make the complaint more specific and certain; and after amendments sustained demurrers to all of the answers except a substitute for paragraph 2, which admitted the assignment of the note from Staith to Jackson and denied that the date it was assigned was the date shown on the note, and alleged that it was not made béfore maturity, and that Jackson did not become the owner in due course of trade, and denied that the assignment was made for valúe, and denied that Jackson was the owner. That was the only defense left to Jones. Judgment was obtained on the note, and Jones and his surety appealed. It is insisted that the bill of exceptions does not show that it was filed within the time allowed for it to be made a part of the record. This is true; but the court finds it unnecessary to consider the bill of exceptions, for the record shows the sustaining of the demurrers to the answer and the exceptions thereto, which were properly preserved; and such record presents a question for review, without the need of a bill of exceptions. Bush v. Prescott & N. W. Ry. Co., 76 Ark. 497. The answers set forth evidentiary matters that are not proper in pleading, and they cannot be commended as examples of good Code pleading; but, when taken as a whole, they sufficiently charge fraud in the sale of the goods to make a good defense between the vendor and vendee, under the principles which were reviewed and announced in Mason v. Thornton, 74 Ark. 46. It seems that the lower court sustained the demurrers because the allegations were not sufficient to connect the fraud in the sale with the holder of the note. The allegations, in substance, charge that Jackson had notice of the fraud, false pretense and intimidation perpetrated upon the defendant by Smith, and .that Jackson was informed that the note was fraudulently obtained and was without consideration, and was warned not to buy or trade for the same, and of all the circumstances and fraud practiced on Smith in obtaining said note, and also that Smith would not pay it. Counsel for appellee argues that these allegations do not present a defense, because they do not allege that the holder of the note participated in the acts complained of or in the fraudulent transfer of the instrument, or bad faith on his part in the purchase of it; and relied upon Thompson v. Love, 61 Ark. 81, to sustain him. That was a suit upon a note given to a hedge fence company. Its execution was admitted, and the defense made that it was fraudulently procured, and the holder was not a bona fide purchaser.. There was evidence to sustain the allegation of fraud in the procurement of the note. The case turned on whether the purchaser was a bona tide purchaser. The only evidence bringing notice home to him was information which he received to the- effect that the makers of this and other similar notes were solvent and good for their contracts, but that the payee of these notes 'had agreed not to sell them. The court, following Burke v. Dulaney, 153 U. S. 233, correctly decided that this was insufficient to make the purchaser a mala fide holder. The court has had occasion recently to re-examine the principles of Burke v. Dulaney, and has again approved them, in Graham v. Remmel, 76 Ark. 140. It is unquestionably true that mere notice of a promise not to negotiate a note does not prevent a purchaser for value in due course of trade from being a bona fide purchaser, for he must have knowledge, not of some oral contemporaneous promise, which is inadmissible in evidence, but of something wrong with the paper itself. This notice, actual or constructive, must be that there is some fraud or equity or -illegality affecting the original parties. Tiedeman on Commercial Paper, •§ 300; 1 Daniel on Negotiable Instruments, § 799, (5th Ed.); Old National Bank of Ft. Wayne v. Marcy, 79 Ark. 149. Following the excerpt from Burke v. Dulaney, the court, in Thompson v. Love, then made a quotation from Tiedeman on Com. Paper, § 289, concluding as follows: “But the great weight of authority in this country, as well as reason, supports the contrary doctrine, that the bona fide character of a holder can only be destroyed by proof of his participation in a fraudulent transfer of the instrument.” This quotation is from the discussion as to what constitutes bona tides in a purchaser. There was a conflict, or rather a progress, in the English decisions on the subject. One rule was laid down by Ford Kenyon, subsequently overruled by Ford Chief Justice Abbott (Ford Tenterden), and this was -in turn modified and finally overruled by Ford Denman,-when he was Chief Justice, and the rule as first announced by Ford Kenyon amplified and established. Chancellor Kent, when he wrote his commentaries, stated the law as it then existed, following the cases then prevailing in England, but which were afterwards overruled, and his text has been followed by some of the courts, but in most instances overruled later, making the rules substantially the same on both sides of 'the water. This subject is treated more fully in i Daniel on Negotiable Instruments, (5th Ed.), § § 770, 776. It was reviewed and explained in Murray v. Lardner, 2 Wall. 110, which case has been followed very generally by State as well as Federal courts. See the notes to it in 6 Rose’s Notes, 388, 394. The discussion was as to what should constitute mala ñdes, negligence, gross negligence, suspicious circumstances, or participation in the original fraud or fraudulent transfer, etc. The discussion was not as to the notice which was necessary to bring home to the party sought to be charged knowledge, of fraud. That matter is considered in another section of Tiedetnan on Com. Paper (§ 300), and concludes as follows: “Finally it is not necessary that the purchaser should have notice of the particular defense or defect, in order to be charged with constructive notice. It is sufficient if he has a general notice that there is something wrong with the paper. But if he makes inquiry bona ñde and to the extent of his ability, without substantiating the general notice of defeet, he can claim the protection of a bona ñde holder.” Mr. Daniel says: “It is quite clear and well settled that the purchaser need not have notice of .the particular fraud or equity or illegality, in order to be affected by its It is sufficient that there be notice, actual or constructive, that there is some fraud or equity or illegality affecting the original parties. * * * So if he knows the maker denies his liability or refuses to acknowledge it.” 1 Daniel on Neg. Inst. (5th Ed.), § 799. The foregoing statement of the principles was adopted by this court recently in the case of Old Nat. Bank of Ft. Wayne v. Marcy, 79 Ark. 149. The statement from Tiedeman’s text, quoted in Thompson v. Love, when detached from the statement that notice of something wrong with the paper is sufficient to charge the purchaser with notice, is misleading, but, when considered in connection with it, is correct. It was error for the court to sustain these demurrers, for the answers alleged that the purchaser had knowledge that the makers denied liability and of circumstances tending to show fraud in the contraction of the debt which the note evidenced, before he purchased the paper for value before its maturity. These facts, if proved, would make him a mala ñde, and not a bona ñde, purchaser. Reversed and remanded.