Court Opinion

ID: 7118009
Source: CourtListenerOpinion
Date Created: 2022-07-24 12:34:51.972762+00
Date Added: 2024-06-11T16:13:59.734853
License: Public Domain

Salinger, J.
(dissenting). Where the maker defends at law, and has evidence that the title of the payee is defective, the endorsee must show good faith. The question is whether that is the rule where the maker is plaintiff, and seeks the affirmative equitable relief of cancellation. The majority says the burden is assigned by the statute, and that the Negotiable Instruments Act is concerned with neither form nor forum, but lays down a general rule. It seems to me this may be well answered in two ways:
(a) The evidence rule in question is not statutory; is but declarative of the common law. Green v. Wilkie, 98 Iowa 74, 87; Voss v. Chamberlain, 139 Iowa 569. Therefore, decisions on this point are applicable, even if made where there is no negotiable instrument statute. I submit it has been held that, even if the maker stops-short of asking affirmative equitable relief, and but asks the opening *920and closing argument, he must prove bad faith. Cochran v. Priddy, 49 Tex. Civ. App. 39 (107 S. W. 616). In effect, it is declared in Black on Bankruptcy, Section 716, that the burden shifts if relief fsuch as cancellation is prayed.
(b) Buies of evidence found in negotiable instrument statutes apply only if a negotiable instrument be involved. The petition at first declared such an instrument existed. This declaration was expressly withdrawn by amendment alleging that the original declaration was put in under a misapprehension of both fact and law. It was also withdrawn because of allegation that plaintiff was tricked into signing negotiable instruments, under the belief she was signing nothing but an application for a. loan. Inconsistency is permitted as to defenses only. Where an amendment to petition is inconsistent with the petition, the amendment becomes the basis of the suit. It follows that the amendment changed the suit into one to cancel because assent was lacking. If that be her suit, she cannot avail herself of evidence rules that apply to negotiable paper only; because it is overwhelmingly settled that, when one is tricked into signing what proves a negotiable instrument, he does not create negotiable paper.
“Negotiability * * * presupposes the existence of the instrument as having been made by the party whose name is subscribed; for, until it has been so made, ánd has such actual legal existence, it is absurd to talk about a negotiation, or transfer, or bqjpa-fide holder of it, within the meaning of the law merchant.” Walker v. Ebert, 29 Wis. 194; Kellogg v. Steiner, 29 Wis. 626; Butler v. Carns, 37 Wis. 61; Kagel v. Totten, 59 Md. 447.
It is only when the party sought to be charged intended to bind himself by some obligation in writing that a negotiable instrument toiay be created by him, and no negotiable instrument exists where there was no intention to create one. No contract can come into existence unless *921the parties give assent; wherefore, if a paper is signed in the belief that it was not a negotiable instrument, it is as though no paper has been signed, for the reason that “the will does not go with the act.” Gibbs v. Linabury, 22 Mich. 479, followed in Anderson v. Walter, 34 Mich. 113. To the same effect are cases too numerous to cite. One is Green v. Wilkie, 98 Iowa 74, at 80. All the text writers declare it. It was held as early as, if not earlier than, Foster v. Mackinnon, L. R. 4 C. P. 704, and is affirmed down to the last advance sheets. In principle, this is the ground taken in First Nat. Bank v. Zeims, 93 Iowa 140, at 145. A very strong case for this position is Briggs v. Ewart, 51 Mo. 245. followed in Martin v. Smylee, 55 Mo. 577, and Corby v. Weddle, 57 Mo. 452. In Nance v. Lary, 5 Ala. 370, the doctrine is applied to a case where the maker wrote his name on a blank piece of paper, of which another took possession without authority', and upon which he wrote a promissory note, which he negotiated to a good-faith buyer.
1a
Since plaintiff seeks cancellation, and since she pleads that no negotiable instrument is in existence, it would seem to follow that she may not invoke .a rule of evidence applicable to negotiable instruments only, and to follow, in turn, that plaintiff has the burden of proof on bad faith. If, then, the witnesses are of equal credibility, the plaintiff should fail. But, were the burden of the issue on defendants, still they should prevail, if their testimony' be the more credible.
The majority holds that nothing in the record indicates one party to be a more credible witness than the other. What is the record?
(a) Plaintiff swore, in pleading, over and again, that she executed a note and mortgage. She testifies, in effect, that she signed no note. She knows, and the majority holds, she signed it.
*922(b) She testifies Price told her, after he knew there was trouble, what would'clearly prove he knew a fraud had been committed upon her in loaning Hamilton on her paper. It is incredible that a keen banker should do this, and let his money go, knowing this.
(c) She swears, in pleading, that Price knew Hamilton well, and the two had been associated in various enterprises; that she knew nothing of Hamilton, and trusted Price. The undisputed testimony, including her own, is that she knew Hamilton well; had had dealings with him before; relied on him implicitly; that she knew nothing of Price beyond knowing his name; and that Price had not been an associate of Hamilton’s. In the face of this, she testifies she relied on Price.
(d) She admits she went into a deal with Hamilton which “did not look straight,” and that she told Hamilton so.
(e) Plaintiff testifies that, though she in fact signed a note and mortgage, she believed she was signing an application to a loan agency in Kansas City. Plaintiff wants it believed, first, that she did not knoAV, and had not experience enough to know, though an experienced business woman, that she was signing a mortgage; second, and still more incredible, that she did not know she was signing a note ;-third, that she believed what she signed, — to wit, a mere application for a loan, to a concern that had no relations with defendant bank, — would enable her to go to that bank and get her money.
No matter who has the burden of proof, the testimony for plaintiff is the less credible; and this is so though the trial judge saw the witnesses. The majority treats that advantage possessed below as is done concerning a finding ou the law side. It has but little effect on hearing de novo, or it would not be a hearing de novo. Even on the law side, that advantage would count for little against such im*923peachment of credibility as this record presents. See Miller v. Paulson, decided January 20, 1919.
II. I fail to understand why the majority cites cases such as McNight, v. Parsons, 136 Iowa 390. They deal with what is enough to send bad faith of an endorsee to a jury. The question here is whether bad faith may be found on review de novo.
Since this suit no longer involves a negotiable instrument, the statute rule on proof of bad faith has no application. If that be passed, there is no evidence of bad faith.
The majority rightly concedes that many things are no evidence of bad faith. It bases its decision on Lehman v. Press, 106 Iowa 389; Knowlton v. Schultz, 6 N. D. 417 (71 N. W. 550); Schmueckle v. Waters, 125 Ind. 265 (25 N. E. 281); Bowman v. Metzger, 27 Ore. 23 (39 Pac. 3), and Tourtelot v. Reed, 62 Minn. 384 (64 N. W. 928), — all holding that one who has his suspicions aroused, so that he is afraid to investigate, may not cautiously close his eyes and act in the dark for the bad-faith purpose of making himself “an innocent purchaser:” that a purposed abstention from inquiry or further inquiry, in the belief that its making or pursuit would reveal an infirmity, may taint the purchase. Of course, I have no quarrel with this law, but find no facts upon which to apply it. All the evidence is this:
(a) There is a failure to prove that the suspicions of Price were not aroused by the fact that he was called upon as a notary to acknowledge the mortgage which Hamilton had offered defendant bank’s cashier as collateral for a loan. The trouble is: (1) There is no evidence that the mortgage acknowledged was the one offered the cashier; (2) if it was the one, there is no evidence that Price knew it, and the majority finds that' his acknowledging was a perfunctory act, that made no impression on Price, which finding is supported by undisputed evidence that Price would not know such a mortgage existed, were he not shown his *924acknowledgment of it; (3) a request by Hamilton to acknowledge the execution of a mortgage running to Hamilton, and which he had offered for collateral, is not a ground for suspecting that he has no right to the mortgage. On the contrary, the rightful owner of a mortgage would want it acknowledged, if he desired to borrow on it.
(b) It is said that it is evidence of bad faith that a loan of $2,800 was made on this mortgage, which was for $3,600, and is said to be for $100 more than the mortgaged property was worth, and that reasonable inquiry would have disclosed this fact. I have to say: First, that the foundation of this argument is that a witness put the value at $3,500, adding that it might be worth $3,800; second, failure to make the inquiry is no evidence of bad faith; third, inquiry was made, and disclosed that the property was worth $1,200 or $1,300 more than the loan sought; fourth, in the view of the majority, plaintiff is not impeached for believing that this property was good for a loan of $3,500, and having attempted to make such loan, yet the bank is said to have acted in bad faith for treating the same property as good for $2,800.
(c) Another claim is that the bank loaned, and closed its eyes in doing it, because it feared to lose a $500 note made it by Hamilton, which was paid it out of said new loan. The major premise is not sustained by, and is contrary to, the evidence. The $500 note had sureties. Assume the presumption that all were solvent is overcome as to Hamilton, it still exists for his sureties. Both this presumption and affirmative undisputed evidence that the note was good, and that defendants considered it so, are swept aside on no more than the fact that the cashier was “unable to assign any reason” for thinking the note was good. It is also pointed out that the bank declined to make the $2,800 loan on the signers to the $500 note. I cannot understand how the fact that signers are declined on a note for $2,800 dis*925proves the testimony that they were good, and considered good, for $500. The petition charges actual fraud and conspiracy. It seems unbelievable the bank would be guilty of the charge, to save a $500 note. Certainly, it would not when the note was good. If this can be believed of the bank, certainly Price would not join in this crime to save a $500 note belonging to the tank, — -and the majority finds that neither defendant is guilty as charged.
(d) The next “evidence” of bad faith is that Price must have noticed that Hamilton had “forged” the name of Price as a witness to the mortgage. I think the record exhibits no “forgery;” beyond all question, Price did not notice it, if it existed, — and it requires more imagination than I possess to understand why one should want to forge the signature of Price to a paper as a witness, which Price had acknowledged as a notary.
(e) The main ground upon which the majority places itself is that Price, for some reason, went to plaintiff, with the mortgage in his hand, and asked her whether she was the person who had executed same, but did not show her the mortgage. As to this, I have to say: (1) That the failure to show her the mortgage is an immaterial matter, because, if plaintiff can have any relief, it must be done by holding — as the majority does hold — that she knowingly executed note and mortgage, which would estop her to deny that she did not know what was in what she signed. Therefore, showing her the mortgage would but have disclosed what both she and Price knew, as matter of law. (2) For all that appears, the mortgage had already been bought. (3) Pass all that, and still it could not have been the purpose of Price to refrain from inquiry, and so make an “innocent purchase;” for, if that had been his bad-faith purpose, he would have made sure by keeping away altogether.
If statute “bad faith” were involved, it is not proved.
III. The charge in the petition is- that the defendants *926were co-conspirators with Hamilton, to cheat and defraud plaintiff out of the proceeds of the mortgage. I shall not stop to elaborate upon the. proposition that the bank could not be a conspirator; that notice to Price, bank president, was not, in this matter, notice to the bank, because the authority of a bank president, as such, is exceedingly limited ; and that, under a general rule in agency, — which is that it is not presumed the knowledge of the agent is the knowledge of the principal, when it is natural that the agent would conceal his knowledge, — the bank had no notice, even if Price knew anything, because it may well be presumed that, if he were guilty of the crime charged, he would conceal and not reveal it. I content myself on this head with pointing out that the majority finds the charge is not proven.' While I agree to this conclusion, I cannot agree to the deduction that the relief granted “is clearly within the allegation of the petition.” The petition charged actual fraud and conspiracy. A conclusion that the charge is not proved, should alone have sufficed to reverse a decree which finds the evidence to sustain what the majority holds it does not sustain, — and see Wright, Dryden & Co. v. Flinn, 33 Iowa 159, at 163.
IV. If it be conceded to be immaterial that this is a suit to cancel, instead of a defense asserting a bad-faith purchase; if it be, therefore, conceded that defendant has the burden of proof on good faith; if it be conceded that this is a suit involving the purchase of a negotiable instrument: yet all these concessions are immaterial, because plaintiff is seeking affirmative relief in equity. And she may not have such relief, if she negligently refrained from reading before she signed. Such negligence will bar such relief, even between the parties. She may not have the relief even against Hamilton. Therefore, she surely cannot have it against an endorsee who is not an actual participant in the fraud. If it was negligent not to read, equity will *927deny relief because of such negligence, even between the parties. Reid, Murdock & Co. v. Bradley, 105 Iowa 220, 221; Glenn & Pryce v. Statler, 42 Iowa 107; McKinney v. Herrick, 66 Iowa 414; Bonnott Co. v. Newman Bros., 108 Iowa 158; Roundy v. Kent, 75 Iowa 662; Minneapolis & St. L. R. Co. v. Cox, 76 Iowa 306, at 310; Shores-Mueller Co. v. Lonning, 159 Iowa 95. This last case was on the law side, and between the parties to the contract. It upholds that the signer is bound, unless signing without reading can be found to be no negligence, and then proceeds to say:
“We do not overlook the fact that many cases hold a contrary rule upon the theory that it is no defense for one guilty of a fraud to say that the other party was negligent in believing him. * * But we have so long adhered to the doctrine just stated that we are not justified in departing from it now.”
Quite a proportion of the cases involve innocent endorsees. But that malíes no difference. For, as has been seen, when affirmative relief is sought in equity, even the one who is charged with having committed the fraud may say that the maker is, by negligence, barred from relief.
All that the opinion claims is that plaintiff came to the bank at the instance of a telephone message from Hamilton. When she arrived, Price was at his desk in a small room, and Hamilton, across the aisle. Hamilton said:
“I know your time is limited, and all we will ask you to do is to sign this paper. You will have to sign this paper before your money can come, and it will come through the bank.”
As she sat down at the desk, Price, who was standing, remarked, “Sign your name on this line, Mrs. Lundean,”— pointing to the line. Then Hamilton requested that she sign her name “Mary,” because it appeared that way in the abstract. After so signing, she inquired if there was anything further, and was told by Hamilton that the paper *928could be finished after she left. Whereupon, she departed, and left the paper. There is nothing here to avoid the effect of signing without readiug. This alone suffices to defeat the equitable relief prayed. A thousand cases hold that more than this will not avoid enforcement of what was signed. Included in them are Van Slyke v. Rooks, 181 Mich. 88 (147 N. W. 579); McKinney v. Herrick, 66 Iowa 414; McCormack v. Molburg, 43 Iowa 561; Chirurg v. Ames, 138 Iowa 697, at 708; Gulliher v. C., R. I. & P. R. Co., 59 Iowa 416, at 422; Wallace v. Chicago, St. P., M. & O. R. Co., 67 Iowa 547; Jenkins v. Clyde Coal Co., 82 Iowa 618; Soper v. Peck, 51 Mich. 563; Shores-Mueller Co. v. Lonning, 159 Iowa 95, 100; Green v. Wilkie, 98 Iowa 74. It is not an avoidance of the failure to have read, that the other party directed the signer where to make erasure to clauses covering antecedent debts, and informed him that such erasure would strike all of them out, when in truth it struck out but one of them. Reid, Murdock & Co. v. Bradley, 105 Iowa 220, 221.
The majority has absolutely nothing to say against all this, unless it be the perfectly immaterial statement that the case is one in which it holds that plaintiff made a negotiable instrument, which Hamilton could not collect, and that the bank could not collect, because it had notice of the infirmity. As said, this is an immaterial statement: First, because, by amendment to petition, the plaintiff settled that there was no negotiable instrument, and the court may not act in disregard of this allegation, and for her benefit hold that she made a negotiable instrument; second, failure of the evidence to prove good faith is utterly immaterial, where the maker seeks affirmative relief in equity, and was negligent in signing without reading. As seen, this is so if Hamilton himself were defending this suit. Surely, what is true of a party to the fraud must be true of one whom the majority finds was not a party to the fraud. Surely, *929one avIio merely fails to show he bought iu good faith has as much standing as the payee who committed the fraud.
V. But assume that, in fact, there was no negligence, or that it is, in fact, excusable negligence. Defendants pleaded that certain things do constitute negligence that estops the plaintiff to claim what her claim finally became: to wit, that the two instruments should be cancelled, because she had been tricked into signing them, and into the belief that she was signing an application for a loan. This plea of the defendants’ was in no manner attacked.
“Under familiar rules, if matter pleaded as a defense is not attacked by motion or demurrer, and there is testimony to sustain it, it will defeat the action, although it may not have amounted to a legal defense.” First Nat. Bank v. Zeims, 93 Iowa 140, at 143 (citing Conger v. Crabtree, 88 Iowa 536; Linden v. Green, 81 Iowa 365; Benjamin v. Vieth, 80 Iowa 149). And see Enix v. Iowa Cent. R. Co., 114 Iowa 508; Ormsby v. Graham, 123 Iowa 202, at 211; Heiman v. Felder, 178 Iowa 740, at 751; Boyd & Williams v. Watson & Co., 101 Iowa 214, at 222; Lacy v. County of Kossuth, 106 Iowa 16. So it becomes the controlling question just what defendants asserted created such estoppel, and whether that assertion ivas proved. If the facts relied on for the' estoppel in said unchallenged plea are established, there is an estoppel, though the facts pleaded do not, in truth, create such estoppel.
By adopting all allegations of the original answer, an amendment to answer repeats a denial of the bad faith charged in the petition, worked by declaring that the purchase was made in good faith. To say at this point that defendants proved good faith would beg the question. Therefore, T content myself with saying that the plea of good faith ivas an immaterial one, and need not be proved. For, in a suit for affirmative equitable relief, a defendant ivho is not an innocent, has as much defensive standing *930as has one who is. As for the rest, the amendment expressly bases an estoppel plea upon nothing but the allegation that plaintiff signed while she was “a person who could read and write * * * and is a person who is and was at the time of the execution of said instrument competent to know and understand the nature and effect and meaning of the same;” and that she was further negligent because, by so signing and by delivery to Hamilton, she put it in his power to sell the instruments. It will not be claimed that this allegation is not absolutely proved. So this estoppel, which is given no consideration by the majority, should alone reverse.
The only answer by the majority is that there was not, in fact, a good plea of estoppel, because the case is dealt with as a claim that one who knowingly signed a note was defrauded. First, it may not so be dealt with because the petition makes the suit one in which no paper knowingly signed is involved. Second, even if the plea of estoppel be not, in fact, good, failure to attack makes it good. This last, the majority leaves untouched.
5a
Still another estoppel is pleaded; and it, too, seems not to have had any consideration. It does not inject good or bad faith, at all; and, of course, this made it unnecessary, in. aid of the estoppel, to prove good faith, even if good faith were material. It is based upon allegations that plaintiff is estopped by laches, because she made no inquiry whether her money had come, and remained silent until Hamilton withdrew his money from defendant bank, and absconded. Every word pleaded was proved. This state of pleading and proof is alone a warrant for reversal.
Of this plea, nothing is said, except that Hamilton was financially worthless, and that plaintiff owed no duty to warn these who had bought by bad faith. Assume this *931proves the plea is, in fact, bad, how does that answer the unanswerable position that the plea, as made, and which did not negative what the majority points out, was in no manner assailed?