alleges that plaintiff had actual knowledge of the infirmity or defect, he must prove such allegation, and not merely the knowledge of such facts that plaintiff's action in taking the note amounted to bad faith.

8. Bills and notes 337-Purchaser not to inquire about infirmities in absence of suspicious circumstances.

A person to whom a note negotiable in form is offered need not inquire about infirmities unless there are suspicious circumstances, but may purchase the note provided he acts in good faith, without searching for defects of which there is no indication on the face of the note, unless he has knowledge of such facts as would make his purchase a matter of bad faith.

the rate of 7 per cent. per annum from date until paid, with the usual provisions for reasonable attorney's fees in case suit or action should be instituted to collect the note; that immediately upon the execution of the note he indorsed the same in blank by writing his name across the back thereof; and that afterwards, prior to its maturity, the note was duly sold, assigned, transferred, and delivered to the plaintiff for value, and the plaintiff is now the legal owner and holder thereof. It is alleged that $45 was indorsed as payment thereon on August 22, 1914, which the evidence shows was prior to the purchase of the note by plaintiff, and that there is now due and owing to the

9. Witnesses 269 (15) Defendant cannot prove case in chief by cross-examination of plaintiff from the defendant $2,955, with interest from August 22, 1914, at the rate plaintiff's witnesses. mentioned, which the defendant fails and refuses to pay. Claiming $500 as a reasonable attorney's fee, the plaintiff demands judgment against the defendant for the principal, interest, and attorney's fee.

A defendant on cross-examination of plaintiff's witnesses cannot prove his case in chief. 10. Bills and notes 370-Failure of consideration no defense as against holder in due course for value.

As against a holder in due course for value

failure of consideration is no defense.

11. Bills and notes 537 (5)-Submission of question as to plaintiff's ownership of note held error.

In an action on a note in which the answer itself imputed the ownership to the plaintiff and denied its right to recover on the ground that it acquired ownership with knowledge of alleged defect, it was error to submit the question of whether plaintiff was the owner of the note.

For answer the defendant first "denies

each and every allegation of the complaint of the plaintiff not herein expressly admitted." Further answering the complaint, the defendant pleads substantially that about the date of the note two men representing themselves to be agents of the Bankers' Mortgage Corporation appeared at his residence in possession of a letter from the cashier of the plaintiff bank, addressed to the defendant, stating in substance that "the bearers thereof were seeking to sell the stock of

12. Bills and notes 537 (6)-Evidence held said corporation, that they were persons insufficient for submission of whether plain-whose statements were entitled to full faith tiff had knowledge of fraud.

and credit, and that said persons were in every way responsible." The answer goes on, stating in substance that the men proceeded to describe the condition and prospects of the mortgage corporation, the plan upon which it would carry on its business,

Appeal from Circuit Court, Malheur Coun- saying that the par value of its shares of ty; Dalton Biggs, Judge.

Action by the Bank of Jordan Valley against P. O. Duncan. Judgment for defendant, and plaintiff appeals. Reversed and remanded, with directions.

Wells W. Wood, of Ontario, for appellant. P. J. Gallagher, of Ontario (W. H. Brooke, of Ontario, on the brief, and John L. Rand, of Salem, and J. A. Hurley, of Anchorage, Alaska, of counsel), for respondent.

BURNETT, C. J. The plaintiff, Bank of Jordan Valley, admittedly a banking corporation organized and existing under the laws of this state, avers in substance that on August 22, 1914, at Jordan Valley, Or., the defendant for value made and executed his promissory note in writing for the sum of $3,000, payable to his order in six months after date without grace, with interest at

its stock was $100 per share, but that they would sell to the defendant stock in the company at $65 per share, and that he informed them that he would subscribe and pay for so much of the stock at $65 per share, par value $100 per share, as would amount to $3,000, which was the largest sum he would invest in said stock. He goes on further to state that, relying upon these statements, he "signed the promissory note alleged in the complaint in payment for stock in said mortgage corporation at $65 per share, par value $100 per share"; that the two men requested him to sign other papers which they represented contained nothing but the terms of purchase; that he signed the same without reading them or otherwise informing himself about their contents, but it transpired that the papers were actually another note for $10,000 with interest due December 31, 1914, and a contract to pur

For other cases see same topic and KEY-NUMBER in all Key-Numbered Digests and Indexes

(209 P.)

151

chase 200 shares of stock amounting to $13,- | defendant advised the plaintiff bank through 000, but that he was not aware of the fraud its president that the agreement to purchase practiced upon him by said agents until 200 shares of the stock was fraudulently obabout January 1, 1915, when the note was tained; that he would not pay the note for presented to him for payment. $10,000 or the note sued upon, and that he would not purchase the 200 shares of stock; that he has never received anything of value for the notes; and that no stock of the corporation was ever issued or delivered to him. The reply puts in issue the matters alleged in the answer, except as stated. that the letter referred to was one which the It avers cashier of the plaintiff bank gave to the agents, stating in effect that certain business men in and about Jordan Valley, Or., were owners of stock in the mortgage corporation, and that they would have no objection to being associated with the defendant, in the event said defendant should become a stockholder therein, which statements were and are true, but said letter contained no personal recommendation of said agents or either of them and did not state that they were reliable or responsible or entitled to

Respecting the knowledge of and connecttion with the transaction attributed to the plaintiff, the answer contains this allegation: “The defendant further alleges that the said bank of Jordan Valley, through its said officer, knew of the false and fraudulent representation hereinabove alleged, and know that the said selling agents of said corporation intended to make such false and fraudulent representations to the defendant, at the time the said officer of the said bank issued the letter stating that the two selling agents of said mortgage corporation were reliable and trustworthy, as hereinbefore alleged and set forth, and that the said Bank of Jordan Valley had actual knowledge at the time it received the promissory note set forth in the complaint that said note was procured from the defendant by means of false and fraudulent representation of the said selling agents of said mortgage corporation as aforesaid. Defendant further alleges that the said cashier of the plaintiff was aware of the false and fraudulent statements which the said Masse and Funnell intended to make, and which said persons did make to defendant concerning the sale and purchase of said stock, at the time said cashier gave to said persons the letter of recommendation as aforesaid; that said cashier of plaintiff wrote said letter of recommendation for the purpose and with the intent of causing defendant to have faith and confidence in the said statements of said Masse and Funnell in their proposal to sell the said stock to defendant, and defendant alleges that the said letter of cashier did cause him to believe as true all of the statements made to defendant in reference to the sale and purchase of said stock. Defendant further alleges that as a consideration for the said letter from said cashier to defendant the said Masse and Funnell agreed to give said cashier a large sum of money in case the defendant was induced to purchase any of said stock, and defendant alleges on his information and belief that the said cashier of the plaintiff received the sum of $1,000 from said Masse and Funnell for writing said letter to defendant; that said cashier of plaintiff knew at the time he wrote said letter to defendant that said Masse and Funnell were intending to make an attempt, by false and fraudulent statements to defendant, to induce defendant to purchase a portion of the capital stock of said mortgage company; that plaintiff at all times since the promissory note involved herein was procured from defendant by means of the fraud and deceit as aforesaid has had actual knowledge that the said note was procured from the defendant by means of the false statements, acts, and conduct of said Masse and Funnell as aforesaid; and that the plaintiff, through its cashier as aforesaid, was a party to the fraud and deceit practiced upon the defendant as aforesaid."

Continuing, the answer repeats largely the alleged fraudulent representations of the two agents as stated, and declares that, on being presented with the notes by the plaintiff, the

full or any faith or credit. The reply concludes with an averment to the effect that on August 23, 1914, the plaintiff, in due course of business, before maturity of the note, purchased the same from said agents for its full face value; that they then and there transferred and delivered the note to the plaintiff as its property; that at the time neither the plaintiff bank nor any of its officers or agents had any knowledge whatever of the circumstances under which the note was executed by the defendant, and did not know or have any reason to suspect that there was any infirmity in said instrument or any defect in the title of the bearers thereof, but that plaintiff purchased the said note in good faith, and, if said note was procured from the defendant by fraud or misrepresentation, neither the plaintiff bank nor any of its officers or agents knew anything about such fraud, were not parties to it, and had no reason to suspect that any such conditions existed in the execution of said note.

verdict for the defendant, and the plaintiff A jury trial on these issues resulted in a appeals.

At the close of all the evidence on both

sides of the case, when both parties had rested, the plaintiff moved the court to direct the jury to find a verdict for the plaintiff for the face of the note and the interest due thereon, and such reasonable attorney's fee as the jury should determine, because the defendant had failed to prove a case sufficient to be submitted to the jury, in that he had "failed to show or introduce any evidence to show that the plaintiff bank does not own the note or that it is not a holder in due course, or that the paper was procured by fraud, or that the plaintiff had any. knowledge of any fraud in the procuring of

case."

The

the note or any other cause sufficient to con-, Or. L. § 7826. As stated, the defendant says stitute a defense to plaintiff's complaint and "the bank received the promissory note." This motion was overruled, and an It could not receive the same unless it had exception allowed. been delivered to it. Receiving is the complement of delivery. The legal effect of the averment in the answer is that the note was negotiated to the bank by delivery. manifest purpose and intent of this part of the answer was to charge that the plaintiff took title to the note, and not only so, but also that it took that title with actual knowledge of the infirmity of the paper. By his own answer the defendant traces to the plaintiff ownership of the note; otherwise that pleading is purely frivolous. It would be idle to plead as against the plaintiff any knowledge of the fraud, unless it was intended to affect the title which the plaintiff had acquired. The ownership of the note therefore was not in issue. It stands admitted by the pleadings when construed according to their legal effect and as the defendant obviously intended when he made the statement alluded to.

[1] There was evidence given by the defendant and his wife sufficient to go to the jury to the effect that the agents had made the representations to him as set forth in his answer; that he had agreed to and did give the note in question and indorsed it in blank; that they represented to him and he believed that he was contracting only for the purchase of $3,000 worth of the stock at $65 per share, whereas in fact he had signed papers, as the event proved, obligating himself to purchase 200 shares and to pay there for not only the $3,000 represented by the note in suit, but also an additional note for $10,000. This was sufficient evidence to brand the transaction as fraudulent. As ruled in Everding & Farrell v. Toft, 82 Or. 1, 150 Pac. 757, 160 Pac. 1160:

"When it is shown that the title of any person who has negotiated an instrument was defective, the burden is on the holder to prove that he or some person under whom he claims acquired the title as a holder in due course."

See Or. L. § 7861.

The motion for a directed verdict in favor of the plaintiff was predicated on the assumption that the burden of proof was upon the defendant to show that the plaintiff was not a holder in due course. The holders of the note from whom the plaintiff acquired it perpetrated the fraud by which it was obtained from the defendant, if he is to be believed, and hence their title was defective, being corrupted by their own deceit. The evidence that the note originated in fraud was sufficient to cast upon the plaintiff the burden of proving that it took the note in good faith, within the doctrine of Everding & Farrell v. Toft, supra. Therefore the motion for a directed verdict for the plaintiff was properly overruled in the form in which it was addressed to the court.

[3, 4] Over the objection of the plaintiff, the defendant submitted in evidence the judgment roll in a case entitled Beverly v. Duncan, the defendant here, showing that prior to the commencement of this action Beverly had instituted action against the present defendant on this same promissory note, averring himself to be the owner thereof and demanding judgment for its amount. Issues were joined and afterwards, as the judgment roll shows, without further proceeding, the action was dismissed without prejudice. The effect of the dismissal without prejudice was, so far as the action was concerned, to restore the parties to their former position, so that in legal effect the action came to naught, one way or the other. We have, then, a situation where the en

deavor is to show that Beverly also averred ownership in this note at some time prior to the commencement of this action, with the purpose of showing that Beverly, and not the plaintiff here, is the real party in in

terest. If that, as it seems, is the object of the introduction of the judgment roll, it was not admissible, for, as stated in Overholt v. Dietz, 43 Or. 194, 72 Pac. 695:

"There was no attempt to set up [any proof] that plaintiff was not the real party in interest. Under the authorities cited, such a destated showing who the real party may be. fense should be specially pleaded, and facts Curtis v. Gooding, 99 Ind. 45; Mathis v. Thom

[2] It is well, before proceeding further, to settle some questions raised about the ownership of the note. It is averred in the complaint that the plaintiff is the owner thereof, and under the first clause of the answer, denying as it does in general terms "every allegation of the complaint of the plaintiff not herein expressly admitted," this averment of ownership on the part of the plaintiff is challenged, unless the further statements of the answer dispense with this trav-as, 101 Ind. 119." erse. It is said in the answer "that the defendant signed the promissory note set forth in the complaint; that said note was procured from the defendant by means of false and fraudulent representations," etc. As admitted by the defendant as a witness, In other words, a defendant may deny the he indorsed the note in blank, the effect of plaintiff's allegation of ownership of the which was to make the note payable to bear-note sued upon and thus put the latter upon er, and it could be negotiated by delivery. his proof, but if the defendant wishes to go

See, also, McGregor v. O. R. & N. Co., 50 Or. 527, 538, 93 Pac. 465, 14 L. R. A. (N. S.) 668; Rorvik v. North Pacific Lumber Co., 99 Or. 58, 190 Pac. 331, 195 Pac. 163.

(209 P.)

further and litigate the question of wheth-rectly that the plaintiff wrote the letter iner or not the plaintiff is the real party in tending to defraud the defendant. In these interest, he must by appropriate averment respects the pleading fails to conform to declare who is the real party in interest, in the well-established standard already mendefault of which he can offer no evidence on tioned. the subject.

The substance of the defense here is that In passing, it may be noted that the evi- the defendant intended to and did give his dence discloses a complete explanation of note for $3,000 in payment for stock to be the Beverly action, in this, that a brother of delivered to him, but that the transaction the defendant was a director of the plain-was clouded by contemporaneous fraud of tiff bank; that the defendant was a custom- the two men with whom he dealt, in palmer of the bank; and that to avoid conse-ing off upon him a contract and an additionquent embarrassment of those personal rela-al note for $10,000, both of which he signed, tions the bank called upon the mortgage com- but did not read, obligating him to purchase pany to collect the note, for the account of 200 shares of stock for an aggregate of $13,the bank, and thus avoid bringing the plain-000. In other words, the defendant says: tiff into an annoying attitude against a near "It is true I gave my negotiable promissory relative of its own director. There is no note for $3,000 knowingly and intentionally. I evidence that the bank authorized the ac- indorsed it in blank, publishing it to the world tion brought by Beverly against the defend- as current money among the merchants, negoant, but, when the mortgage company failed tiable by delivery from hand to hand. Not to take up the note, the plaintiff would not having received any stock for which I consurrender it. The undisputed evidence is tracted, to cover this promissory note, I now that at all times after the bank purchased seek to make the plaintiff here answer for the the note on the day after its execution the default and miscarriage of the concern or its instrument remained in the custody of the agents with whom I contracted, and to imbank as its property until delivered to its carelessness in not reading the papers I was pose upon the plaintiff the burden of my own attorney for collection in this action. There called upon to sign, and in publishing to the was error in admitting in evidence the judg-commercial world my negotiable promissory ment roll in Beverly v. Duncan.

[5, 6] The only fraud imputed to the plaintiff directly lies in the allegation about the letter which the agents of the mortgage corporation presented to the defendant. The letter itself was not introduced, the defendant testifying that it was destroyed. The pleading is that the letter "stated in substance that the bearers thereof were seeking to sell the stock of said corporation; that they were persons entitled to full faith and credit; and that said persons were in every way responsible." The canon for pleading fraud has been enunciated many times in the decisions of this court to this effect that in pleading fraud it must be stated that the representations made were false; that the defendant making them knew they were false; that they were made with the intent to defraud; and that the party seeking to be relieved therefrom must have relied upon such representations. Rolfes v. Russell, 5 Or. 400; Dunning v. Cresson, 6 Or. 241; Wimer v. Smith, 22 Or. 469, 30 Pac. 416; Martin v. Eagle Development Co., 41 Or. 448, 69 Pac. 216; Anderson v. Adams, 43 Or. 621, 74 Pac. 215; Bailey v. Frazier, 62 Or. 142, 124 Pac. 643; Riddle v. Isaacs, 97 Or. 404, 192 Pac. 398.

note."

Taking the letter at full value as pleaded, it does not purport to underwrite the subsequent conduct of the agents. Neither is there any averment or proof that the letter was accepted as a guaranty or that the defendant gave any notice to the plaintiff of such acceptance. Rothchild Bros. v. Lomax, 75 Or. 395, 146 Pac. 479; Balfour, Guthrie & Co. v. Knight, 86 Or. 165, 167 Pac. 484; Chittenden & Eastman Co. v. Saunders County National Bank, 102 Neb. 557, 168 N. W. 100, L. R. A. 1918F, 1143.

Yates Center National Bank v. Allen, 92 Kan. 481, 141 Pac. 553, L. R. A. 1915A, 100, Ann. Cas. 1916F, 376, was a case founded on a letter of recommendation addressed to the plaintiff, reading thus:

"This letter will introduce to you Mr. Cecil C. Kennedy, who has just moved to your city, to engage in the confectionery business. Mr. Kennedy is a son of Mr. D. M. Kennedy, our vice-president, and a boy whom I have known from infancy; he is honest and upright in evtive to business. If you can be of any assistery particular, as well as energetic and attenance to him at any time in any way, his father as well as myself will very much appreciate the same."

While there is a wealth of statement in the testimony of the defendant and his This was signed by the cashier of another wife to the effect that after the letter was bank. In complaining of the writer of the written the agents turned out to be unre-letter and seeking to recover damages to the liable, there is no averment or proof that extent of credit given to the young man, at the time the plaintiff's officer, the cashier, wrote the letter, the plaintiff or any of its officers knew that any statement made in the letter was false. Neither is it stated di

it was averred that he was not honest, upright, energetic, or attentive to business, but was dishonest and wholly unreliable, and that the writer had made other false repre

"We regard him as a perfectly reliable, In the precedent cited the court refers to trustworthy gentleman" was the language of Russell v. Clark's Executors, 7 Cranch, 69, a letter relied upon in Hughes & Co. v. Peper 3 L. Ed. 271, where the opinion was writ- Tobacco Warehouse Co., 139 N. C. 158, 51 S. ten by Mr. Chief Justice Marshall; also Har-E. 793, 1 L. R. A. (N. S.) 305, 111 Am. St. dy v. Pool, 41 N. C. 28, where goods were sold on faith of a letter saying: