Sample v. Hundred Lakes Corp. , 107 Fla. 568 ( 1932 )

This case affords a fair illustration of the trial of a cause at nisi prius without due regard to the pleadings in the case and the issues presented thereby, although the result arrived at is correct in view of the issues presented by the pleas.

The basic facts in the case are that on April 23, 1925, J. W. Sample executed a promissory note in the sum of $16,212.07 payable of Lake Marian Groves Corporation or order on or before March 31, 1929. The note was dated at Bartow, Florida, and signed "J. W. SAMPLE, TRUSTEE." It bore interest at the rate of six per cent. per annum and carried a promise to pay attorney's fees.

The Hundred Lakes Corporation brought an action on the note against J. W. Sample in May, 1929. The declaration alleged that the plaintiff acquired the note from the payee for a valuable consideration before maturity and that the plaintiff is the owner and holder of the note in due course and that the note has not been paid.

A demurrer to the declaration was overruled, which was correct. Thereupon the defendant interposed seventeen pleas. A motion was made to strike pleas numbered 2, 3, 4, 5, 6, 7, 8, 9, 11, 12, 13, 14, 15 and 16. A demurrer was interposed to pleas numbered 1, 10, 17. The demurrer and motion to strike came on to be heard and was argued by counsel, whereupon the Judge made an unusual order in which he sustained "said demurrer" to pleas numbered 2, 3, 4, 5, 7, 9, 12, 14, 15 and 16, to which no demurrer was interposed, and overruled the demurrer to pleas numbered 1, 6, 8, 10, 11 and 13, as to four of which no demurrer was interposed, leaving said the Court, "said pleas to which said demurrer is overruled, together with plea #17, which was not demurred to, standing to the Declaration." There was a demurrer to plea numbered 17, as the record shows. The order then recites that the questions of law involved in this case having been decided on the demurrer, it is not necessary to pass on the Motion to Strike filed at the same time the demurrer was filed, and said Motion to Strike of the Plaintiff to the Pleas of the Defendant, is hereby dismissed."

The case then proceeded to trial. A verdict was rendered for the plaintiff as follows:

"Bartow, Fla., Dec. 6, 29.

"We, the jury, find for the Plaintiff and assess its damages at 20,697.39 and an attorney's fee of 2119.73. So say we all."

Judgment was then entered for the plaintiff against the defendant in the sum of "TWENTY-TWO THOUSAND, EIGHT HUNDREDSEVENTEEN 12/100 ($22,817.12) DOLLARS, damages, including attorney's fees." to which the writ of error was taken. Neither verdict nor judgment appears in the record proper but both appear in the bill of exceptions.

Not possessing the facility of ascertaining what issues were tried except from an inspection of the pleadings as they appear in the record and the orders made upon them, I find that all the pleas interposed were left undisturbed as the demurrer which was interposed to pleas numbered 1, 10 and 17, was overruled as to pleas numbered 1 and 10, and ignored as to plea numbered 17, and the motion to strike which was addressed to all the others was "dismissed.". According to my reckoning, that leaves all pleas in on which the parties went to trial, though no issue appears to have been joined upon any of them.

The first plea was the equivalent of a plea of non est factum and had no support whatever in the record. Pleas 2, 3 and 4 constituted no defense whatsoever as they merely averred in substance that the note was signed as Trustee and the transaction out of which the note issues. Pleas numbered 5, 6, 7 and 8 denied the plaintiff's ownership of the note which had no support in the evidence. Plea numbered 9 was invalid as setting up no defense available against a holder of the note in due course. Plea numbered 10 denied the plaintiff's corporate capacity to sue which plea had no support in the evidence. Pleas numbered 11, 12, 13, averred that the plaintiff acquired the note with notice, actual, as averred in one plea, constructive, as averred in another, of the equities existing in the maker's behalf, which were that the note was signed by him in such circumstances as to show his liability only in a representative capacity.

Plea numbered 14 denied consideration for the note which was not good as a plea and had no support in the evidence. Plea numbered 15 denied that plaintiff acquired the note before maturity and before default, which was invalid as a plea and had no support in the evidence. Plea numbered 16 averred that when the plaintiff acquired the note there was a declaration of trust setting out the terms of the trust under which the defendant executed the note which showed that the note was not the personal obligation of the defendant. That plea was invalid because it did not aver that the plaintiff had actual notice of the existence of the trust and its terms. Plea numbered 17 averred that the note was signed by the defendant as trustee for himself and two other persons and there was at that time an agreement between him and the payee that the maker should not be liable individually on the note and that the property, for part of the purchase price of which a mortgage was given by defendant to secure the payment of the note, should be the sole security for its payment, that the mortgage has not been foreclosed and the plaintiff acquired the note with notice of the agreement with the payee.

Pleas numbered 11, 12, 13 and 17, of which plea numbered 12, so the order recites, went out on demurrer to which no demurrer was interposed, present the issue that although the defendant signed the note as trustee for himself and two other persons an agreement existed between him and his associates on the one hand and the payee of the note on the other that he, the maker, should not be personally bound and the land which was mortgaged to secure the payment of the note should be the sole security for its payment and that the plaintiff had knowledge of such agreement at the time it acquired the note.

I think the evidence fails to support that issue on the defendant's behalf and the circumstances in which the note was acquired by the plaintiff did not constitute constructive notice of such agreement, even if the pleas presented a valid defense upon that ground.

In the first place the note was a negotiable promissory note. So far the pleas show to the contrary the plaintiff acquired the note for value before maturity and the pleas admit the execution of the note by defendant as trustee forhimself as well as others. The note was acquired by indorsement in blank by the payee, not by assignment and indorsement as the majority opinion states. I do not agree with the statement in the majority opinion that any plea questioned the title of the payee to the note. No plea questions the title of the payee to the note either at the time of its execution or indorsement by the payee and acquisition of the note by plaintiff.

The only question involved is whether the plaintiff acquired the note in such circumstances as to place it upon notice of the existence of a mortgage executed by the maker of the note to secure its payment and the contents of such mortgage containing a clause that the land should be the only security for the payment of the note and that the maker should not be held personally liable upon it.

There was no evidence to support such an issue in defendant's behalf. It is true that the note was acquired by plaintiff at a large discount but if that fact was material at all it was admissible on the question of good faith only. There was no question of good faith in the acquisition of the note by plaintiff nor as to the payee's title to the note. The only question was whether the plaintiff took the note with notice that the maker was not to be bound individually and that the payee could resort only to the security given for its payment. See 3 Rawle C. L. 1079.

The plaintiff Corporation was a holder in due course because the instrument was complete and regular on its face; it became the holder of the note before it was over due; there had been no previous dishonor of it; it took the note for value and without notice of any infirmity in the instrument or defect in the title of the payee. See Sec. 6814 C. G. L. 1927.

There was no defect of payee's title and the plaintiff had no actual knowledge of any defect or infirmity in the note therefore it could enforce the note free from defense available to maker as against original payee unless the knowledge of the facts known to the plaintiff rendered its action in taking it a matter of bad faith. See Secs. 6780, 6815, 6816 C. G. L. 1927.

Mere failure to follow constructive record notice does not necessarily amount to bad faith. See Taylor v. American Nat. Bank of Pensacola, 64 Fla. 525, 60 South. Rep. 783.

The rule that knowledge of circumstances sufficient to excite the suspicion of a prudent man would put the purchaser on inquiry was once announced in Gill v. Cubitt, 3 Barn. Cress. 466, but was later overruled in Crook v. Jadis, 5 Barn. Ad. 909, 110 Eng. Rep. Reprint 1028.

Some states follow the rule. It seems to be followed in Vermont and Indiana and New Hampshire, but the rule is not followed in the greater number of States. See Goodman v. Simonds, (61 U.S.) 20 How. 343 Text 367, 15 L. Ed. 934 text 942; Clark v. Evans, 13 C.C.A. 433, 66 Fed. Rep. 263.

Negligence in such case is not bad faith. Atlas Nat. Bank v. Holm, 19 C.C.A. 94, 71 Fed. Rep. 489; Sinkler vs. Siljan, 136 Cal. 356, 68 Pac. Rep. 1024; The St. Joe and Mineral Farm Consolidated Mining Co. v. First Nat. Bank of Aspen, 10 Colo. App. 339, 50 Pac. Rep. 1055; Standard Cement Co. vs. Windham Nat. Bank, 71 Conn. 668, 42 Atl. Rep. 1006; Wildsmith v. Tracy, 80 Ala. 258; Comstock v. Hannah, 76 Ill. 530.

Gross negligence does not deprive a party of the character of a bona fide holder, there must be proof of bad faith. Chapman v. Rose, 56 N.Y. 137, 15 Am. Rep. 401; Iowa College v. Hill, 12 Iowa 462; Lake v. Reed, 29 Iowa 258, 4 Am. Rep. 209; Richards v. Monroe, 85 Iowa 359, 52 N.W. Rep. 339; Central State Bank vs. Spurlin, 111 Iowa 187,82 N.W. Rep. 493, 49 L.R.A. 661; Bedell v. Burlington Nat. Bank,16 Kan. 130; Totten vs. Bucy, 57 Md. 446; Jennings v. Todd,118 Mo. 296, 24 S.W. Rep. 148; Borgess Inv. Co. vs. Vette,142 Mo. 560, 44 S.W. Rep. 754; First St. Bank v. Borchers,83 Neb. 530, 120 N.W. Rep. 142; Hamilton v. Vought, 34 N.J. 187; Magee v. Badger, 34 N.Y. 247; Kitchen v. Loudenbeck, 48 Ohio St. 177,26 N.E. Rep. 979.

There is no question of fraud practiced by the original payee in obtaining the note involved in this case.

In the case of Sample v. Wilson, 101 Fla. 818, 134 South. Rep. 549, the evidence showed that when Arline indorsed the note to Wilson he explained to the latter Sample's representative capacity and that Wilson was advised of the agreement between Sample and Lake Marian Groves Corporation, the original payee. These facts do not appear in this case. I think the judgment should be affirmed.

BROWN, J., concurs.