Court Opinion

ID: 3237811
Source: CourtListenerOpinion
Date Created: 2016-07-05 16:11:54.533514+00
Date Added: 2024-06-11T13:58:56.180375
License: Public Domain

In addition to the foregoing authorities see Rollings v. Gunter (Ala. Sup.) 101 So. 446,1 where the leading authorities on section 4497 of the Code are collected.
In view of the reasons assigned in the decree on demurrer as to the obligation being a "commercial paper," the observation should be made that we have here to do with the right of a creditor who is alleged to have moved circuitously to evade the statute, having the mortgage taken by a third party (in good faith), and by it transferred before maturity to said creditor. The third party here employed is not a defendant to the instant bill, nor is it charged that it knowingly participated in the circumvention of the statute. Are the averments of the original bill sufficient to bring the case within the principle so well stated by Mr. Justice Sayre in Lamkin v. Lovell, 176 Ala. 334,58 So. 258? The writer believes that it is so ruled on principle, though it was charged in the Lamkin-Lovell Case that the mortgagor and creditor procured Colonel Harris, who had no concern about their purposes, to lend complainant (the wife) the sum desired on the security of her note and mortgage, "the understanding being" that the creditor "would, soon as he desired, reimburse him and take an assignment of the note and mortgage without recourse"; the money was paid to the wife by check which she indorsed to the creditor.
The instant case is therefore different from the Lamkin-Lovell Case, supra, in that in the latter there was understanding between the creditor and the third party for his immediate reimbursement, while no such understanding is averred in the instant bill; and the proceeds of the mortgage in the Lamkin-Lovell Case were paid by Harris to the wife by check, which she indorsed to the creditor; here the proceeds of the mortgage were paid to the husband, who distributed the same to the creditors, etc. That is to say, of the instant bill, the parties (the husband and his creditor — the assignee of the mortgage) are averred to have resorted to an evasion of the statute by the wife's giving her obligation, secured by a mortgage on her property, the effect of which was an indirect security by the wife for the husband's debts — notwithstanding the fact that the security was taken in good faith by a third party at the instance of the husband to secure the moneys to pay the debt, and by such third party transferred, before maturity, to such creditor, who foreclosed the mortgage.
A phase of the case or questions of law entering into this decision are presented by the citation of Wilkinson v. Solomon (1887), 83 Ala. 438, 3 So. 705, which were not discussed on the original hearing. The effect of that decision, under the facts stated, is that a bona fide purchaser may sell and convey a perfect title to one who has notice of the equity, etc. The payment of the note and mortgage in said case was about, or shortly after the maturity of the note secured by the mortgage from which the plaintiff derived title to the property in controversy, and the mortgage was delivered to the mortgagor and in his possession when the mortgaged property was purchased. And, under this case last cited, a purchaser for value of the mortgaged property from said mortgagor in possession of the mortgage, and who represented that he had paid the mortgage and was in its rightful possession, was protected. The decision concludes with the statement that the subpurchaser (with notice and knowledge of the invalidity of the payment of the mortgage) from the purchaser (without notice and knowledge) was protected. The citation of the Wilkinson-Solomon Case, supra, in Barron v. Hughes, 202 Ala. 207,80 So. 29, was not under facts as are averred in the instant bill; and it was in a suit for partition of land between joint owners. Neither of these decisions has application to the facts averred in this bill and under the present statute, nor were they in controversies *Page 279 
growing out of section 4497 of the Code of 1907.
It was recently held that the mortgage securing the note is a mere incident, follows the assignment of the note, and is impressed with the same character and "quality of right." Fortson v. Bishop, 204 Ala. 524, 86 So. 399, and Morriss v. O'Connor, 206 Ala. 542, 90 So. 304. In this last-cited case the question of a holder in due course of the wife's note and mortgage on her lands as security for the husband's debt was considered (Morriss v. O'Connor, 206 Ala. 542, 544, 90 So. 304,305), and it was there declared:
"These notes and mortgages are complete and regular on their face; the notes are payable to the Title Insurance Company, and it is named in the mortgage as mortgagee. If the defendant became the owner of them in good faith and for value, and before maturity, and at the time it was negotiated to her she had no notice of any infirmity or defect in the title of the person negotiating them, then she would be a holder in due course under the statute. As such, her rights would be protected, and the mortgage enforced to pay the notes secured by it, even if they were given under duress, or without consideration, or to secure a husband's debt, the defendant having no notice thereof before she purchased them. If she is a holder in due course, the instruments, notes, and mortgage are 'free from any defect of title of prior parties, and free from the defenses available to prior parties among themselves.' Sections 5007-5014, Code 1907."
Construing the pleadings most strongly against the pleader as to the form of the notes for which the mortgage was given as security, we may inquire when one is a holder "in due course" of "instruments, notes, and mortgage" held "free from the defenses available to prior parties among themselves." The statute defines a holder in due course of a negotiable instrument to be (1) when it is complete and regular upon its face; (2) when it is taken "in good faith" and for value before it was due and without notice of its previous dishonor, if such be the fact; (3) when, at the time it was negotiated, the purchaser had no notice "of any infirmity" in the instrument, or of any "defect in the title of the person negotiating it." Code 1907, § 5007. A defective title is thus defined by the statute:
"The title of a person who negotiates an instrument is defective within the meaning of this chapter when he obtained the instrument, or any signature thereto, by fraud, duress, or force and fear, or other unlawful means, or for an illegal consideration, or when he negotiates it in breach of faith, or under such circumstances as amount to a fraud." Code 1907, § 5010.
To constitute notice of infirmity in the instrument or defect in the title, "the person in 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 amountedto bad faith." Code 1907, § 5011. (Italics supplied). The rights and disabilities of a holder not in due course are defined by the statute of August 9, 1907 (Gen. Acts, p. 660 et seq.), codified as section 5013 of the Code of 1907, as follows:
"In the hands of any holder other than a holder in due course, a negotiable instrument is subject to the same defenses as if it were nonnegotiable. But a holder who derives his title through a holder in due course, and who is not himself a party to any fraud or illegality affecting the instrument, has all the rights of such latter."
In Ex parte Goldberg  Lewis, 191 Ala. 356, 360, 67 So. 839, L.R.A. 1915F, 1157, and Elmore County Bank v. Avant, 189 Ala. 418,66 So. 509, it was held that an original indorsee, with notice of the infirmity or without actual knowledge of the same, yet having such actual knowledge of facts which, if pressed, would lead to an actual knowledge, was charged, etc. See, also, Sandlin v. Maury Nat. Bk., 210 Ala. 349, 98 So. 190. What then is the status of an assignee with notice or knowledge from an original assignee not so charged? Before the Negotiable Instruments Law, the general rule was that stated in Wilkinson v. Solomon, 83 Ala. 438, 3 So. 705. In Fortson v. Bishop,204 Ala. 524, 525, 86 So. 399, 400 (the first case by this court to cite and apply the Uniform Negotiable Instruments Law), the bill was filed by Bishop against W. S. Fortson, the bank of Albertville (the first assignee), Sherman (the second assignee), and W. A. Fortson, to disaffirm foreclosure under power of sale. The facts there stated were:
"* * * That at the time Bishop bought the land from W. A. Fortson and received his warranty deed, there was an outstanding superior seasonably registered mortgage on a part of the land, executed by W. A. Fortson and wife to Mrs. P. F. Pope, securing a note for $450, with interest. Before the maturity of Bishop's note and mortgage to W. A. Fortson, he assigned this negotiable note, secured by the mortgage, to the bank of Albertville, the bank assigned to Sherman, and Sherman, after maturity, assigned to W. S. Fortson, appellant.
"The disaffirming redemptioner, under the thus re-established equity of redemption resulting from Bishop's mortgage to W. A. Fortson, invoked the court to so adjust, to toll, the amount necessary to effect such redemption by the amount necessary to satisfy the Pope mortgage — superior and outstanding at the time Bishop purchased the land from W. A. Fortson — to which Bishop appears to have succeeded by a conditional assignment from Mrs. Pope. The basis of Bishop's claim is predicated of the breach of warranty in the deed (Code, § 3421) from W. A. Fortson to Bishop, because of the outstanding superior incumbrance imposed upon part of the land by the earlier mortgage executed *Page 280 
to Mrs. Pope by W. A. Fortson, Bishop's grantor — a covenant that was breached as soon as made."
The court there said of the statutes:
"It was not averred or shown that appellant or Sherman or the bank was a party 'to any fraud or illegality affecting the instrument,' within the purview of Code, § 5013. Brannan's Uniform Negotiable Instruments Law, pp. 204 et seq., and notes.
"* * * If Sherman became a holder in due course, invested with the right to the protection the law accords to a bona fide purchaser, the appellant became invested with the like rights, nothing being attributable to him to conclude against his succession to Sherman's rights in the premises."
This is in line with the analysis of the present statute so well made in Ex parte Goldberg  Lewis, 191 Ala. 356, 369,67 So. 839, L.R.A. 1915F, 1157. The change in the statute is also indicated in Vogler v. Manson, 200 Ala. 351, 76 So. 117. See, also, Cannon v. Dillehay, 17 Ala. App. 294, 84 So. 549.
Under the instant pleadings the Merchants'  Mechanics' Bank was not a necessary party, and the averments of the bill are to the effect that at the time respondents acquired the notes and mortgage they had notice of the infirmity in the instruments in question. They cannot qualify as "holders in due course" from the bank, a "holder in due course." Fortson v. Bishop, 204 Ala. 524,86 So. 399; 39 Cyc. 1774b, note 50; 8 C. J. 468, note 35; Weil v. Carswell, 119 Ga. 873, 47 S.E. 217.
The application for rehearing is overruled.
All the Justices concur.
1 211 Ala. 671.