Court Opinion

ID: 9832572
Source: CourtListenerOpinion
Date Created: 2023-09-01 22:00:39.522026+00
Date Added: 2024-06-11T07:43:48.286178
License: Public Domain

On Motion for Rehearing.
Appellee has filed an elaborate motion for rehearing, supported by copious extracts from authorities, to the effect that the doctrine enunciated in the original opinion is not the law in this state, but that the rule that governs here is that contained in the following extract from 8 Cyc. p. 38, that: ‘•While fraud in procuring the execution of an instrument may, of course, be shown between the original parties, or parties with notice, it is a rule adopted for the protection of negotiable instruments in general that the maker, indorser, or acceptor of a negotiable instrument procured through fraud may be held liable to a purchaser for value before maturity without notice; and he will not be 'allowed to set up the defense of fraud to relieve himself of such liability”— citing, in support of this contention, Watson v. Flanagan, 14 Tex. 354; Blum v. Loggins, 53 Tex. 121; New v. Walker, 108 Ind. 365, 9 N. E. 386, 5S Am. Rep. 40; Texas Banking & Ins. Co. v. Turnley, 61 Tex. 365; Thompson v. Samuels (Sup.) 14 S. W. 143; Worsham v. State, 56 Tex. Cr. R. 253, 120 S. W. 439, 18 Ann. Cas. 134; State Bank v. Holland, 103 Tex. 266, 126 S. W. 564; Barnes v. McCarthy, 132 S. W. 85; Bank v. Cruger, 91 Tex. 446, 44 S. W. 278; Id., 44 S. W. 1057; Allen v. Garrison, 92 Tex. 546, 50 S. W. 335; Riley v. Reifert, 32 S. W. 185; Harfst v. State Bank, 56 Tex. Civ. App. 31, 119 S. W. 694. The last two cases seem to be in point and sustain his contention.
In discussing this question in Green v. Wilkie, 98 Iowa, 74, 66 N. W. 1046, 36 L. R. A. 434, 60 Am. St. Rep. 184, it is said; “There is something of a hopeless conflict of authorities touching the liability of persons whose names appear to negotiable paper, through fraudulent means, and the paper is in the hands of innocent holders. It would be useless to attempt a reconciliation of them. There áre numerous cases in which parties intending to sign a contract have, through fraudulent misrepresentation, placed their signatures to negotiable instruments which have fallen into the hands of innocent purchasers. There is a very respectable line of authorities holding that, in the absence of negligence, the maker of such an instrument is protected.”
[3] We are inclined to believe that the weight of authority is with the contention urged by appellant and is sufficient reason for us to reverse our former holding; but, be that as it may, the motion in the present case should be granted, because, even if the law is as held in the cases cited in the original opinion, then appellant has not made out his defense, for the reason that each of said cases showed that, in order for him to have defended against the payment of the note, three separate and distinct things must have been shown by him: First, he must have signed the note under the belief that the same was for $100; and, second, he must have been induced to do so by the fraudulent representations of the appellee; and, third, that he was guilty of no negligence in doing so. An inspection of the record discloses that the only defense urged here is that he was illiterate, signed the note, believing the same was for $100, when in fact it was for $600, and that he was induced to do so on account of the fraudulent statement and misrepresentation of the defendant; but there is no allegation showing, or tending to show, that he was not negligent in doing so, or that he exercised any diligence to ascertain the truth of such representations before signing same.
[4] The burden of proof was upon him to show each element of this defense.
[5] It is true, the evidence discloses that he could not read or write the English language; but it appeared that he had been in this country for many years, and had many business transactions, and could read and write German. And while the note was signed in the bank, and no one else was shown to have been present except appellant and Davis, it would have been an easy matter for appellant to have consulted some one with reference to it. This he failed to do, and in so failing, in our judgment, was guilty of such negligence as defeated his right to defend against the note in the hands, of an innocent purchaser, who took the same without notice, for value, in due course of trade.
In 1 Daniel on Negotiable Instruments, § S36, it is said: “There are numerous cases in which the line of demarcation between the fraud which does not affect the bona fide holder for value and without notice, and that which utterly vitiates the instrument in all hands whatsoever, is narrow and difficult to distinguish. The distinctions taken are frequently very refined and metaphysical; but the test questions to be applied, we think, are these: (1) Has the party sought to be charged created an agency or trust by means of which the fraud has been com*1154mitted? (2) Has lie deliberately given the appearance of validity to the instrument? (3) Has lie committed negligence respecting it, by means of wbicb an opportunity for tbe fraud has been created? And whenever either of these questions can be answered affirmatively upon a fair consideration of all the circumstances of the ease, the balance of equity is in favor of the bona fide holder for value and without notice; the axiomatic principle of law then applying that, where one of two innocent persons must suffer, the one who creates the trust or does the act from which the loss results must bear it.”
In an elaborate note to Green v. Wilkie, supra, the question of what is negligence and its legal effect upon the party making a similar defense to the one here is fully discussed and seems to be generally held that, where an illiterate person has been imposed upon and caused to execute a promissory note for a greater amount than he intended, his failure to make inquiry from others, where this can conveniently be done, will prevent a successful defense to said note, where the same has passed into the hands of an innocent holder for value, without notice.
In Mackey v. Peterson, 29 Minn. 298, 13 N. W. 132, 43 Am. Rep. 211, it is said: “If a person signs a paper voluntarily while under no controlling necessity to sign, without taking time to inform himself of its character, but relies on the opposite party to the contract for information respecting it, he misplaces his confidence and will not be heard to say that he was, in consequence, misled to sign, so as to take himself out of the general rule governing commercial paper.” Again, in Fisher v. Von Behren, 70 Ind. 19, 36 Am. Rep. 162, it is held that, although the maker is not able to read or write, yet, if he signs the paper without any attempt to learn its contents he will be guilty of negligence which will preclude his defense of fraud.
In Williams v. Stoll, 79 Ind. 80, 41 Am. Rep. 60^ it was held that if the maker of a note, who was unable to read or write, signs the same without asking his son, who was present and who could read, to read it to him, he will be liable on the note because of his negligence, although the character of it was fraudulently- misrepresented to him. Again, if the maker who signs a note under false representations inducing his signature fails to use ordinary diligence to ascertain the truth as to the paper he is signing, he cannot defend against an innocent holder for value. See, also, section 847, vol. 1, Daniel on Negotiable Instruments, and also note 31 under section 849a, Id.
For the reason that appellant failed to exercise any diligence to ascertain the truth of the matter represented to him by appel-lee, he is precluded, we think, from setting up this defense as against the bank, who appears from the evidence to be an innocent holder for value, in due course, without notice of the alleged fraud. For which reason, as well as the additional reason that the weight of authority seems to be that, under such circumstances, the defendant could not resist the payment of the note, we think the motion is well taken and should be granted. The issues presented by questions 2 and 4, under either view, became immaterial; and we were in error in holding to the contrary.
The motion for rehearing is therefore granted, and the judgment of the court be-law is, in all things, affirmed.
Motion granted. Judgment below affirmed.