First National Bank v. Harvey

1. Negotiable Instrument — Statement of Former Owner — Evidence. Where a note is obtained by fraud and is transferred to a participant in the fraud, the transfer itself being fraudulent and .made for the purpose of cutting off maker’s defense as against such fraud, the original payee is still deemed the owner, and statements made by him are competent and proper on question of fraudulent intent in the inception of the note. 2. Negotiable Instrument — Hearsay Evidence — Statements by Former Owner. In an action on a note, statements of original payee, to show fraud in the inception and transfer of the notes are admissible where the evidence is sufficient to authorize a finding that the notes were obtained by fraud, that payee, notwithstanding the transfer, still had such interest therein as would render his statements admissible, that the procuring and. the transfer to plaintiff was in bad faith. 3. Negotiable Instruments — Fraud—Fraud in' Transfer — Sufficiency of Evidence. Evidence in an action on negotiable notes held sufficient to warrant a finding that plaintiff, a nominal transferee, knowingly participated in obtaining the note by fraud. 4. Corporation — Representation of By Officer or Manager. A corporation can act only by and through its officers and managers. • 5. Corporation — Fraud — Agency, No Dual Capacity — Notice to Officer or Agent, Affecting Corporation — Pleading—Defense to Note. Where plaintiff corporation is the nominal payee of a note sued on as executed to it, but whose evidence is to effect that it purchased note from one who was plaintiff’s officer and agent, held, that any knowledge possessed by such officer as ibo origin of the note must be imputed to plaintiff; that plaintiff stands in shoes of such officer, and whatever is good defense or proper evidence against the officer, were he plaintiff, stands also as against plaintiff. 6. Negotiable Instrument — Nominal Transferee — Burden o£> Proof —Boiia Fide Purchaser. The burden of proof is on plaintiff corporation to show bona fides, for value, of an alleged transfer of a note to it from one from whom it seeks to prove it received it as indorsee, the note itself appearing to run to plaintiff direct, plaintiff not claiming ownership through a nominal assignment on its back. 7. Fraudulent Note — Position of Defendant — Proof of Fraud by Circumstances — Less Evidence Required. Where the maker defending an action on Notes, on ground of fraud in their inception and transfer, must rely on visible surrounding circumstances, the direct evidence of fraud is usually .known only to participants therein, less evidence is required to establish fraud than where direct evidence is at hand. 8. Issue of Fraud — Latitude as to Evidence. On the issue of fraud, great latitude is permitted in adducing evidence. The whole transaction may be scrutinized. Statements and acts of the parties before and after the transaction ended are competent. 9. Fraud — Limitation of Discretion in Proof of. The limit of scope and latitude in proof of fraud depending on circumstantial evidence and statements of participants is within sound discretion of trial court, and becomes error only when there clearly has been abuse of such discretion. 10. Evidence — Res Geste — Circumstances of Giving Note — Settlement Involving Note. Where notes in suit are defended on ground of fraud in their inception and transfer, the facts and circumstances of a real estate transaction between maker and original payee or nominal transferee, are material and part of res geste; and a statement concerning a settlement involving the note, made by one to. whom, the note was delivered and supposedly made, constituted a verbal act as part of the transaction. 11. Evidence — Negotiable Instrument — Bringing Out Whole Transaction. In a suit on notes where plaintiff, the nominal payee but alleged transferee, called the maker as witness and interrogated her as to” a land transaction in settlement of which the note was given; defendant was entitled to show the whole transaction, though part of it occurred after delivery of note. 12. Evidence of Fraud — Negotiable Note — Proof of Similar Fraud. In ,a suit on notes defended on ground of fraud in their inception, and transfer by the alleged original payee to the corporation plaintiff of which such payee was an officer, evidence of a third party as to similar frauds in her transactions with such officer was admissible. 13. Evidence — Harmless Error. Error in admission of secondary evidence whose admission was not prejudicial, because not in issue, is harmless. 14. Instructions — Error Favorable to Complaining Party. • Where instructions of the trial court were more favorable to complaining party than the evidence warranted, they are not prejudicial error. Whiting, J., dissenting.

Appeal from Circuit Court, Spink County. Hon. Alva E. Taylor, Judge. Action by the First National Bank of West Minneapolis against Lizzie E- Harvey, on .two promissory notes; one made nominally payable to order -of plaintiff, but' having on its back a formal assignment to plaintiff by one Lund; the other payable to the order of. J! G. Lund and purporting to be endorsed by him to plaintiff. Judgment for defendant, and plaintiff appeals. The signature of every drawer, acceptor and indorser on a negotiable instrument is presumed to have been made for a valuable consideration before the maturity of the instrument, and" in the ordinary course of business. Civil Code, Sec. 2182; 'Stone v. Crow, 2 S. D. 530. An indorsee in due course is one who in good faith in the ordinary course of business and for value, before its apparent maturity, or presumptive dishonor, and without knowledge of its actual dishonor, acquires a negotiable instrument duly indorsed to him, or indorsed generally, or payable to the bearer. Civil Code, Sec. 2199; Thompson v. Bank, 150 U, S. 231; McCormick v. Taylor, 5 N. D. 53; First National Bank v. Flath, 86 N. W. "R. 868 (N. D.) The plaintiff in order to aid in clearing up -the errors made by the trial court, in' allowing certain cross-examination of the witness Dix in reference to the amount that a national bank can loan to one individual, etc. (See Abs. Fol. 539-541), requested the court to give to the jury instruction No. 26 requested by plaintiff, which is as follows: “You are further instructed that the purchase by the plaintiff of Exhibits “A” and “B”, or either of them, was not in violation of the national banking laws governing national banks, prohibiting the loaning of moneys to one individual for a sum in excess of 10 per cent, of its capital stock and surplus.” (Abs. Fol. 458). The court, however, gave to the jury the following instruction, which was excepted to at the time by the plaintiff’s counsel, and which was entitled Instruction No. 17, to-wit: *“The United States law as to national banks provides the total liabilities of any asociation or any person or of any company, corporation or firm for money borrowed, including the liabilities of a company or firm, or the liabilities of the several members thereof, shall at no time exceed i-ioth of the amount of the capital stock of such association actually paid in and unimpaired and i-ioth of its unimpaired surplus funds, provided, however, that the -total amount of such liabilities shall in no event exceed 30 per cent, of the capital stock of the association, but the discount of bills of exchange drawn in good faith against actual existing values, and the discount of commercial or business papers, actually owned by the person negotiating the same, shall not be considered as money borrowed.” " The court in giving this instruction to the jury upon this point did not correctly quote section 5200 of the Revised Statutes of the United States. The United States Supreme Court in commenting upon this section says: “But if a greater sum is loaned than is allowed by the statute, the loan is not void, and that fact can be set up in defense to an action for the recovery of the money so loaned, or any part thereof.” Union Gold Mining Company v. Rocky Mt. National Bank, 96 U. S.; Shoemaker v. Nat’l. Mechanic’s Bank, 21 Fed. Case 12, 801, 640; Wyman v. Citizens’ Nat’l. Bank, 29 Fed. 734; Mills County Bank v. Perry, 72 la. 15; Corcoran v. Batchelder, 147 Mass. 541; Allen v. Warren Nat’l. Bank, 127 Penn. St. 51. . While it is true that the jury is to be the judge of the credibility of the witnesses, and the evidence offered, yet, when positive and direct testimony is undisputed and uncontradicted and no improbability or inconsistency is apparent in it or disclosed by other facts or circumstances, and the' witness is not impeached or discredited, such testimony must be believed, and a verdict contrary to it should be set aside. Boe v. Lynch, 49 Pac. 381 (Mont.) Assignments 7, 8, 9, 10, 11, 12 and 13 may be reasonably considered .tog-ether. They all relate to questions asked the defendant by her Counsel. (Abs. Fols. 542-551), and they are incompetent and immaterial and did not refer to the issues involved in this case, but relate to transactions that the defendant-had with J. G. Lund in reference to matters wholly without the issues here involved.. Assignments 15, 16, 17, 18, 19, 20, 21, 22, 23, 24, 25 and 26 may be considered together. (Abstract folios 553 to 572). The admission of this testimony is most highly prejudicial to the plaintiff and relates to transactions not in issue in .this case, and the trial court erred in allowing the defendant to testify to the conversation that took place between her and J. G. Lund at the time- of the execution of Exhibits “2” and “2 1-2” and “AA”. These transactions were not involved in this case, and were foreign to its issues, but the admission of this testimony tended to show that there had been an attempt to- alter a written instrument by some one without the consent of the defendant after she had signed the same, and that some trickery, deceit or fraud had been practiced upon-her in connection with the change or alteration of these Exhibits “2” and “2 1-2”, and hen-ce J. G. Lund was a scoundrel, and any transaction with which he was -connected was tainted, and the jury should be governed thereby. This is the natural conclusion to be drawn from the admission of this testimony, and there is no question in our minds b-ut that the , jury was inflamed and prejudiced against the plaintiff by reason of the testimony of the defendant as indicated by these assignments. Assignments 15, 16, 17, 18, 19, 20, 21, 22, 23, 24, '25 and 26 may be considered together. (Abstracts folios 553 to 572). The admission of this testimony i-s most highly prejudicial to- the plaintiff, and relates to transactions not in issue in this case, and the trial court erred in allowing the defendant to testify as to the conversation that took place betwe'en her and J. G. Lund at the time of the execution of Exhibits “2” and “2 1-2” and “AA.-” Assignments 32, 33, 34, 35, 36, 38 and 41 may be considered together and all refer to matters wholly without the issues of the case; that tend to muddle'the minds of the jurors and to show parts of transactions between the defendant and J. G. Lund, and to throw some slur or stain upon the transactions and relations of Lund with_ t-his woman; all of which were highly prejudicial to the plaintiff. Assignments 37, 39, 40, 54, 73,. 74 and 83 all relate to- the admission. of exhibits, which exhibits were wholly without the - issues of the case; incompetent, and immaterial, and were most prejudicial to the plaintiff. This court has within the past few years expressed itself and established a law in this state in reference to the admission of incompetent exhibits. Crane & Ordway Company v. Jones, 113 N. W. R. 81. We cite: Doolittle v. Stone, 136 N. Y. 614. . Memoranda written by a deceased person upon dates of a calendar indicating payments of money to 'his creditor, but not specifying the amounts, nor shown to have been made in regular course of business or to have been continuous, are not admissible as evidence that such payments were made. Hay v. Peterson, 34 L. R. A. 581 (Wyo.); Williams v. Clink, 51 N. W. R. 454 (Mich.) ; Briggs v. N. Y. C. & PI. R. Co., 177 N. Y. 59. It is claimed by appellants that the plaintiff ought not to be ■heard to complain of the ruling of the court in admitting the testimony referred to, because its own witness had given testimony of the same character, but as was said when the case was here before, the introduction of irrelevant evidence upon one side without objection does not justify the introduction of irrelevant evidence upon the other side. San DiegO' Land & Town Co. v. Neal, 11 L- R. A. 609 (Cal.); Thomas v. Black, 23 Pac, 1037; O’Brien v. Bennett, 69 N. Y. S. 298; Orr v. Miller, 98 Ind. 443; Montgomery Street Railway Co. v. Hastings, 35 Southern 412 (Ala.); Galveston H. & S. R. Co. v. Sullivan, 42 S. W. 568 (Tex.) Romanie v. San Antone Transaction Co., 77 S. W. 36; Fountain v. Wabash Railway Co., 90 S. W. 393 to 395 (Mo.) ;• Phillips v. Postal Telegraph Co., 42 S. E. 587 (N. C.); Ency. of Law and Procedure, Vol. 4, page 491; Wilier v. Hildebrand, 19 S. D. 50; Miller v. Durst, 14 S. D. 593. Assignments 43, 44, 45, 46, 47 and 48 refer to conversations purported to have taken place between the defendant and Stella Beam and J. G. Lund in reference to some money deposited by Miss Beam, and some business transaction she and the defendant had with Mr. Lund. In the first place, this testimony is hearsay, and ought not to have been received. In the second place, it is incompetent and without the issues involved in this case, and do not tend to throw any light upon the case before the court. Assignments 49, 50, 51, 52 and 53 can readily be considered together.. They relate to some slip of paper that is not in evidence, .and concerning which the defendant had no right to testify. They do not throw any light upon the issues involved in this case. They are incompetent for any purpose, and in addition to that, they are not the best evidence. No proper foundation was laid for the introduction of secondary evidence. Miller v. Durst, 14 S. D. 591. Assignment 55, 56, 57, 58 and 59 all relate to some transaction had between the defendant and J. G. Duncl, (See Abs. Fol. 604), wherein Lund and the defendant purchased land together as co-partners and Lund was selling same and dividing the profits with the defendant. These issues are not involved in this case. Mr. Lund is not on trial. Assignments 65, 66, 67, 68, 69, 70, 71 and 72 are all questions 'based upon Exhibit “12,” which is a mere memorandum, (See Abs. Fol. 618), and call for conclusions of the witness, and do not prove or disprove any issue in this case. Now this testimony must be considered as prejudicial to the .plaintiff, because it was certainly error to admit it, and the jury might reasonably gather from this kind of testimony that Lund and the defendant had settled up in full, and that he would care for all notes signed by the defendant, and that she would not be liable thereon regardless as to who might own or hold the note or notes. Assignment 77 is subject to the same comment (Abs. Fol. 632), wherein the defendant asked whether she ever received any consideration on Exhibit “B.” There can be no question but what this was error, and that under no possible construction could it be considered as harmless error. Assignments 87 to 97 inclusive all relate to testimony given by the witnesses Beam and Rice and relate to conversations had between said witnesses and the defendant, and some conversations had with J. G. Lund. This testimony is certainly incompetent, immaterial and irrelevant for any purpose, and is all hearsay testimony. We believe that á great deal of the evidence admitted by the trial court was objectionable, because it was hearsay. This applies particularly to the testimony of the defendant where she testified to statements and admissions claimed to have been made by J. G. Lund and not made in the presence of the plaintiff, and which statements' and admissions were not a part of the res -gestae; and the testimony of the witnesses Rice and Beam. We refer particularly to Assignments 7, 8, 9 ,33, 36, 38,- 44, 45, 48, 56 62, 63, 64, 79, 84, 85, 87, 90, 96, 97, (Ate. folios 542-574-615.) Crawford et al. v. Trans. Atl. Fire Ins. Co., 58 Pac. 177; Beasley v. San Jose Fruit Packing Company, 28 Pac. 485; Tenny v. Rapid City,'96 N. W. R. 96; Vol. 6 of Ency of Evidence, 443; PIcpt v. Utah, no U. S. 574; Ohio & Miss. R. Co. v. Stein, 19 L. R. A. 751; Morrill v. Morrill, 60 N. E. R. 1093 (Ind.); Jackson, etc., v. Inman, 118 N. W. R. 189 (Wis.); People v. Gonzalez, 91 Pac: 1031 (Cal.) Appellant requested the court to give certain instructions as to what constituted good faith and the purchase of negotiable instruments in the usual course of business, before maturity, ere., an instruction that we believe applicable to the case at bar. Instructions 4 to 10 inclusive, 17, '21, 22, 23, 27, 28 and 29 (See Abs. Fol. 431.) These instructions were based upon the statute of our own state, and instructions generally given by the court and recognized by the court as to be based upon almost universal law. “The signature of every drawer, acceptor and indorser of a negotiable instrument is presumed to have been made for a valuable consideration before the maturity of the instrument, and in the ordinary course of business.” Civil Code, Section 2182; Stone v .Crow, 2 S. D. 530. “An indorsee in due course is one who, in good faith and in the ordinary course of business for value and before its apparent maturity or presumed dishonor, and without notice of its actual dishonor, acquires a negotiable instrument duly indorsed to him, or indorsed generally, or payable to the bearer.” Section 2199, Civil Code; Thompson v. Bank, 150 U. S'. 231; McCormick v. Taylor, 5 N. D. 53; 1st Nat’l. Bank v. Flath, 86 N. W. R. 868; Daniel on Negotiable Instruments, Vol. 1, page 806; Brickwood’s Sackett on Instructions, Sections 2134, 2168, 2169, 2176, and cases cited; Sackett, Sec. 2173; Cook v. Helms, 5 Wis. 107; Depuy v. Schuyler, 45 111. 306; Travlers Ins. Co. v. Clark, 59 S. W. 7; Thorp v. Goewey, 85 111. 611; Brickwood’s Sackett on Instructions, -4202; Ki-mmel v. Nágele, 84 111. App. 22; Brickwood’s Sackett, Sec. 4209; Lehman v. Press, 76 N. W. R. 818 (la), and cases cited therein; Chicago, B. & N. Q. R. Co. v. Greenfield, 53 .111. App. 424; Brickwood’e Sackett, Sec. 3743; Shaw v. Gilbert, 86 N. W. R. 188; Schroeder v. Walsh, 11 N. E. R. 70; Watkins v. Wallace, 19 Mich. 57. We call the -court’s attention to' the insufficiency of the evidence, to justify the verdict and ask the court to examine the notes themselves, the indorsements u-pon the back, or to examine carefully the photographic copies and compare -same with the admitted signatures of the defendant, and the court can readily see that these instruments were all written with the same hand, and we are satisfied that if the only question of forgery had been submitted to the jury, that the verdict would have been necessarily for the plaintiff upon all the issues. Under the pleadings the following issues were submitted to the jury: (a) Borgery; (b) The position of plaintiff as a bona fide holder of commercial paper; (c) Total want of consideration; (d) The procurement of the defendant’s signature by some fraudulent craft, trick, scheme, device or artifice as to the nature and terms of the note, without negligence on the part of the defendant. The jury returned a general verdict in favor of the defendant upon all the issues. The evidence is clear that these notes are not founded upon any consideration whatever, and aside from- the question of( forgery (as to which there is a conflict of evidence), the proof was directed to show two separate and distinct facts, either of which would be sufficient to defeat the plaintiff’s right of recovery : (a) That the plaintiff is not a bona fide holder, under the law -protecting the holders of negotiable instruments; and’ (b) That the defendant’s signature was obtained without her negligence, "by means of some fraudulent craft, trick, scheme, ■device or artifice as to the contents of the notes, which, under the* Minnesota statute, prevents- a recovery whether the plaintiff be a boan fide holder or not. These defenses are entirely independent and are not inconsistent. Hinkley v. Freick, 127 N. W. 940. Proof of'fraud in the inception of the note shifts the burden of proof to the plaintiff and he must respond by showing that he acquired it bona fide, for value, in the usual course of business and under circumstances which created no presumption that he knew facts which would impeach its validity. Landauer v. Sioux Falls Implement Co., 10 S. D. 205; Kirby v. Berguin, 15 S- D. 444; McGill v. Young, 16 S-. D. 360; Bank v. Sherman, 19 S. D. 238; Rochford v. Barrett, 22 S. D. 83, 115 N. W. 522; Mee v. Carlson, 22 S. D. 365,' 117 N. W. 1033; Smith v. Kipp et al., (Wis.) 118 N. VC. 848; Biddeford Nat. Bank v. Hill, (Me.) 66 Atl. 721; Yakima Valley Bank v. McAllister, (Wash.) 79 Pac. 1119; People’s State Bank v. Ruxer, (Ind.) 67 N. E. 542, and numerous cases cited from that state; Home Nat. Bank v. Hill, (Ind.) 74 N. E. 1086; New Madrid Banking Co. v. Poplin, (Mo.) 108 S. W. 115, citing several Missouri cases. Where» issue is joined on an allegation in the complaint that a -promissory note payable to order was sold, indorsed and transferred to the ¡plaintiff in gopd faith before maturity, the burden is on the plaintiff to establish the proof of such allegation, including the fact' that the note was in fact indorsed by the payee; and the mere fact that a promissory note, when offered in evidence, has indorsed upon its back the name of the payee, does not establish the fact that the payee indorsed the same, in the absence of proof of actual indorsement. Vickery v. Burton, (N. D.) 69 N. W. *93- If, in the confusion of signing a number of papers at once,, an extra signature was fraudulently obtained to some paper which she did not know of or intend to sign, this statute will protect her, even though she may not be able to say just how it was accomplished. Such is the view taken by the Supreme Court of Minnesota in regard to the statute. First National Bank v. Holán, 63 Minn. 525; 65 N. W. 952; Bank of Glencoe v. Cain, 89 Minn. 473; 95 N. W. 308; Farris v. Koplau, 129 N. W. 770; First National Bank v. Piolan, supra; Ward v. Johnson 51 Minn. 480, 53 N. W. 766; Yellow Medicine Co. Bank v. Tagley, 57 Minn. 391, 59 N. W. 486; Yellow Medicine Co. Bank v. Wiger, 61 N. W. 452; O’Gara, King & Co. v. Hansing, 88 Minn. 401, 93 N. W. 307; Johnson Co. Bank v. Hall, 102 Minn. 414, 113 N. W. 1011; Sibley Co. Bank v. Schaus, 104 Minn. 439, 1x6 N. W. 928; Hinkley v. Freick, 127 N. W. 940; First Nat. Bank v. Doeden, 21 S. D. 400, 113 N. W. 81. The defense under the Minnesota statute is entirely independent of the plaintiff’s position as a bona fide holder, and the only questions at issue are fraud in obtaining the signature, which necessarily involves the fraudulent intent or purpose,* and want of negligence on the part of the defendant. The intent with which an- act is done may be shown by circumstances, and where the only question in issue is the fraudulent intent of a particular person, great latitude is allowed in the introduction of evidence for this purpose, and his intent may be shown by his acts, conduct or declarations, either oral or written, and whether made before or after or at the particular time of the transaction under investigation. The whole transaction involving an alleged fraud may be given in evidence and every relevant circumstance in the condition and relation of the .parties and every act and declaration of the party charged with fraud, is competent evidence, if in the opinion of the court it bears such a relation to the transaction under investigation as to persuade the jury that the allegation of fraud is or is not well founded. 20 Cyc., pages no, Il6; Van Sickle.v. Shenk, 50 N. E. 381, and cases cited; Paulson Mer. Co. v. Seaver, (N. D.) 77 N. W. 1001; Grimes v. Hill, (Col.) 25 Pac. 699; O’PIare v. Duckworth, (Wash.) 30 Pac. 724. “As previously indicated, circumstantial evidence is admissible to prove fraudulent intent, and great latitude is allowed in the introduction of evidence for this purpose. Evidence of defendant’s subsequent conduct may be admissible to show fraudulent 'intent or motive for making the alleged fraudulent representation.” Title Fraud, 20 Cyc. 116, 122; Title Evidence, 16 Cyc. 998; Title Evidence, 16 Cyc. 1184-1186; Cummings v. Cummings, 5 Watts & S. 553; Minx v. Mitchell, (Kan.) 22 Pac. 710. , The evidence of the settlement made between the defendant and J. G. Fund of the only transaction out of which the $700 note could possibly have arisen, we think was admissible and competent to show the continued concealment by J. G. Fund of the existence of the'$700 note as indicating his intent and design in the original transaction. We think this evidence was clearly admissible for three reasons: 1. An essential issue under the Minnesota statute is the securing of the defendant’s signature by means of a fraudulent trick or artifice,'in which his motive is an-important element; and this issue is entirely independent of the plaintiff’s position in regard to this note. Upon this question of fraudulent intent, the subsequent acts and declarations indicating the intent are just as competent as though J. G. Fund were himself a party to this suit, and the concealment by him at that time of the existence of this note tends to show the existence of such intent at the time he obtained her signature by means of his fraudulent trick or artifice.' 2. As it was a settlement of the very transaction out of which it is claimed this note arose, it seems to be admissible upon the res gestae. 3. The plaintiff,'in its case in chief, called the defendant to prove her signature -to Exhibit 2, and then'offered it-in evidence as a standard of comparison for the disputed signatures on Exhibits A and B. This exhibit contains a reference to a note of $700- as forming part of the consideration and, as the contract bore the same date as the disputed note, it was perfectly apparent that this exhibit might be considered by the jury as evidence that the defendant had signed the note in questian as part of the consideration of that contract, notwithstanding the limited purpose for which it was offered. The defendant could not safely leave the evidence in this condition, and it was proper for her to show that the contract was altered after she signed it, and by circumstantial evidence to show when and where and how it was altered, and also as corroboration the settlement made with Lund under the contract, wherein the existence of the note was concealed. Having opened the door for this proof, it does not lie in the mouth of the plaintiff to say that this evidence was incompetent. To guard against any improper inference by the jury, the court instructed the jury in accordance with the law as laid down in the authorities cited in appellant’s brief, by saying that the discount of bill of exchange and the discount of commercial or business paper actually owned by the person negotiating- the same should not be considered as money borrowed. We fail to see how the giving of this instruction or the failure to give the instruction requested could in any manner operate to the prejudice of the appellant.