M. Rumely Co. v. Anderson

McCOY, P. J.

This action was- instituted by -pl-aintiff to recover from defendants, P. P. Ander-son and J. P. Anderson, the ■amount alleged to be due and unp'aid upon two negotiable pro-mis *117 sory notes for $566 each, executed, signed, and delivered by both said defendants to the Advance Thresher Company, plaintiff’s assignor, on the 16th day of August, 1906, and payable, respectively, on the 15th day of October and the 15th day of November, 1908. On the back of each of these notes appears- the indorsement :

“Pay M. Rumely Company, or order, without recourse. Advance Thresher Company,

“By S. N. Cole, Assistant Secretary.”

The defendant P. P. Anderson defaulted and made no answer. One of -the matters pleaded by defendant J. P. Anderson was-that said notes were assigned and indorsed to plaintiff long after the maturity thereof, ,a»d that he signed said notes as surety only, and- not as a maker, and that as such surety he had been exonerated from the ¡payment of such notes by the acts of the Advance Thresher Company, while it was the owner and holder of said notes. There was verdict and judgment in favor of defendant, and plaintiff appeals, assigning- various errors.

Defendant on the trial offered certain oral evidence tending to show that he executed said notes as surety only, and not as a joint maker thereof, to which -evidence appellant objected on the ground that the same was not binding upon .plaintiff as being hearsay and as tending to vary -the terms of a written instrument; it apparently appearing on the face of -said notes that defendant was a joint maker. The objection being overruled, appellant excepted, and now assigns such ruling as error. It will 'be- necessary, first, to- determine whether or not s'aid notes were- indorsed to plaintiff before maturity.

[1] If indorsed after maturity, plaintiff is not a holder in “due course,” and -defendant will be entitled to any defense against plaintiff 'that he might have interposed against the Advance Thresher Company, were it plaintiff.

[2] Under the provisions of section 2182, Revised Civil Code, the sginature of every indorser of a negotiable instrument is presumed to have been made for a valuable consideration, before maturity, and in the ordinary course of business. This is not a conclusive presumption or a presumption that can be placed in the scales and weighed as evidence, but has the effect only of placing the burden of proof u-pon the maker of the instrument to show by *118 evidence that the instrument was indorsed after its maturity. Peters v. Lohr, 24 S. D. 605, 124 N. W. 853 ; Elliott, Ev. §§ 91, 92, and 93; Wigmore, Ev. §§ 2490, 2491.

[3] Another rule of evidence here applicable is that, where the facts lie peculiarly within the knowledge of one of the parties, slight evidence may sufficce to shift the burden of proof to such person in possession of such facts. Jones, Ev. § 179; French v. Gordon, 10 Kan. 370 ; Hatch v. Calvert, 15 W. Va. 90 . The plaintiff in this case was peculiarly in possession of the facts as to whether the indorsement was, as a matter of fact, made before or after maturity. Daniel, in his work on Negotiable Instruments, § 784a, in speaking of the amount of evidence sufficient to overcome the presumption of an instrument having been transferred in due course before maturity, says:

“But the presumption as to the time of acquiring the instrument is not a strong one. The indorsement is almost invariably without date and without witnesses. The transfer, by delivery merely, leaves no footprint upon the paper by which the time can be traced. And the presumption in favor of the holder as to the time of transfer, being without any written corroborative testimony, is of the slightest nature, and open to be blown away by the slightest breath of suspicion.”

[4] Now, the evidence offered by respondent to overcome -the presumption in favor of appellant that the notes were transferred before maturity was substantially as follows: That the notes sued upon were the last two of a series of six notes given to- the Advance Thresher Company in consideration of the purchase price of certain threshing machinery, including an engine; that the payment of said notes was secured by a chattel mortgage, in favor of said Advance Thresher Company, upon said threshing machinery; that on the i8fh day of August, 1909, the Advance Thresher Company, by its agents, made affidavit for the renewal of said mortgage, in which it was stated that said Advance Thresher Company still had a lien upon said mortgaged indebtedness ; that on May 7, - 1909, P. P. Anderson- executed and delivered a second mortgage to the Advance Thresher Company, covering and including the notes sued upon, as a part of the indebtedness secured by said mortgage; and that on the 8th day of November, 1909, P. P. Anderson made to the Advance *119 Thresher Company's agent a cash payment of $860.35 to be applied on the said threshing machine indebtedness, and a few days thereafter ithe fourth note of said series was delivered to said P. P. Anderson by a managing agent of the Advance Thresher Company, and the balance of $369.51 of 'said $860.35, maining after the- satisfaction- of the fourth note, was indorsed on the fifth note of the -series-, being one of the notes sued- on in this action. Thus the burden of proof cast upon defendant by tlie statute was met by evidence which tended to and did show, prima facie, that -the notes ’were not transferred to -plaintiff until long after the maturity thereof. The plaintiff, who best knew when, as a matter of fact, the transfer was made, offered no evidence upon that question.

Appellant objected to all this evidence offered by defendant on the ground that the aots, statements, and declarations of the Advance Thresher Company's Agent were not binding upon the plaintiff; that as to- plaintiff such acts were hearsay; and, the objections being overruled, plaintiff excepted. We are of the view that the objections were properly overruled. We are of the opinion that the said evidence strongly tended to show, not -only that the. said notes were transferred after maturity, but also- that the Advance Thresher Company, by its agents, was in possession and control of said notes at the times when said acts, statements, and declarations were made.

[5] The rule -seems to be that subsequent acts of an assignor, such as exercising ownership -over notes claimed to have been transferred before maturity, or making statements in relation thereto, are proper and admissible evidence to overcome the presumption in favor of transfer before maturity, where it appears that the assignor still retained possession and control thereof after maturity, -and at the times when the statements and acts occurred. The -circumstance that the fourth note o-f the series was delivered- to- P. P. Anderson by the Advance Thresher Company, when paid in November, 1909, and that a part of -the same payment appears a-s an indorsement on the fifth note, one -of the notes sued upon, strongly tends to the conclusion that the Advance Thresher Company was in possession of all said notes as late as November 8, 1909. McCaffrey v. Dustin, 43 Ill. App. 34 ; Norton v. Heywood, 20 Me. 359 ; 2 Parsons on Notes and Bills, *120 pp. 9, 10; Snyder v. Riley, 6 Barr (6 Pa.) 164, 47 Am. Dec. 452 ; Hill v. Kroft, 29 Pa. 186 ; Henry v. Sneed, 99 Mo. 423 , 12 S. W. 663 , 17 Am. St. Rep. 580 .

[6] Being -of the view that the evidence was sufficient to show that the notes were transferred to plaintiff after maturity, we will ¡consider the merits of the defense interposed by respondent, and whether or not such defense is available under the circumstances ■of the case. The evidence clearly ©hows that respondent, by agreement with the Advance Thresher Company, signed the notes sued ¡up'on as .a surety only and not as 'a joint maker; that defendant \P. P. Anderson was the principal debtor, who- received the consideration for said notes for his sole use and benefit. Thi© evidence went in over the objection that it tended to vary the terms of a written instrument, as the signature 'of respondent appeared on the face of saidi notes to be that of a joint maker. We are of the view that, under the circumstances of this ca©e, the evidence was admissible. 1 Brandt on Suretyship, §§ 38, 39; Daniel on Negotiable Instruments, § 1338; Windhorst v. Bergendahl, 21 S. D. 218, 111 N. W. 544 , 130 Am. St Rep. 715; Revised Civil Code, § 1994. There may be many cases where the original payee, as well as a subsequent holder of the instrument, had no .knowledge or notice that one or more of a number of apparent( .joint makers were in fact only sureies; and decisions under such circumstances have no applicability in this case, it appearing here that respondent was requested to sign these notes as a surety by the agents of the Advance Thresher -Company, who took s-aid- notes on behalf of the ctompany. Dtaniel, Negotiable Instruments, § 1338.

[7] It appears that all said six original notes, which were -all for. similar amounts, including the two last signed by- respondent, were secured by a chattel mortgage upon the threshing machinery, and that the three first -notes- had been paid prior to December 12, 1907; that on said 'last-named date, without the knowledge or -consent of respondent, the said P. P. Anderson, the principal debtor, entered into an agreement with the Advance Thresher Company to purchase a new and larger engine, and as a part of s-aid agreement it took back from- said principal -debtor the other engine, securing the payment of said notes -executed by respondent, at the agreed value of $1,500, and which engine, so securing said notes, *121 was thereafter sold and delivered by the Advance Thresher Company to a third party. A surety ¡being exonerated in like manner with a grantor (Civil -Code, § 1999), we are of 'the view that under the provisions' of section 1986, Civil Code, respondent .was exonerated and released, asi such surety, from the payment of said notes, and which fact constituted a good and valid defense in favor of respondent against the Advance Thresher Company at the time said notes sued upon were transferred to plaintiff.

[8] Now, w'as this defense also, available to respondent in this action? We are of the view that it is. Section 1994, Civil Code, provides that:

“One who appears to be a principal, whether by a written instrument or otherwise, may show that he is in fact a surety, except as against persons who have acted on the faith of his apparent character of principal.”

The original payee, who requested respondent to sign as surety, knew of the suretyship at the time the note was delivered to it. It was the original. payee, while it was owner and in possession before maturity, that committed the acts which created and constituted the defense. This valid defense was in existence against the Advance Thresher Company at the time it transferred said notes to plaintiff. In the case of Nichols v. Parsons, 6 N. H. 30, 23 Am. Dec. 706 , where a note was. transferred after maturity, and by reason thereof becamt a discredited instrument, and after the transfer the assignee granted an extension of payment to one of the apparent joint makers; who was1 in fact 'the principal debtor, it was held that the other comaker, who was in fact a surety, was not discharged; it appearing that the subsequent, holder of the note had no notice of such suretyship. In that case the court, among- other things, said:

“It is true that he who takes a discredted note receives it subject to any defense which might be made to it in the hands of any previous holder. But -that principle is not applicable in this case. When Ingals received the note, it was justly due. The defense is, not that the defendant then had any answer to an action on the note, but that Ingals has since, by giving day of payment to the principal, discharged the defendant.”

In the case at bar, the 'defense existed against the Advance Thresher Company, at the time of the transfer to plaintiff, and *122 plaintiff was 'bound and required to, at his peril, make inquiry as to any defenses to the n'otes.’ Such inquiry would have revealed the. fact of the suretyship of respondent. A purchaser of. past-due negotiable paper must inquire as to all defenses in. the assignor’s hand's. He takes it with implied notice of all defenses, and acquires no greater right than the assignor. He takes it subject to any defense arising 'out of the transaction in which the paper was given, which disabled his assignor, in whole or in part, to recover. Bank v. Taylor, 100 Mass. 18 , 1 Am. Rep. 71 , 97 Am. Dec. 70 ; 46 L. R. A. note, pp. 754, 757, 758, 759 to 802; Joyce, Defenses to Commercial Paper, § 239; May v. Bank, 74 Neb. 251 , 104 N. W. 184 ; Daniel on Negotiable Instruments, § 725a.

Appellant urges as error that the trial judge, to- some extent, himself examined and questioned some of the witnesses for respondent.' We have examined the record in relation thereto, and are of the opinion that no abuse of judicial discretion has been shown. All assignments of error have been carefully considered.

Rinding no prejudicial error in the record, the order and judgment appealed from are affirmed.