West v. First Baptist Church of Taft , 42 S.W.2d 1078 ( 1931 )

On Motion for Rehearing.

SMITH, X

The note in controversy was executed by the church officials for a consideration no part of which was ever paid, and which therefore wholly failed. It was payable according to its terms to the Mortgage Company, which assigned it to the Securities Company, which in turn assigned it to appellants, who brought this suit against the makers to recover thereon. The trial court found, and such finding is not attacked by any assignment of error urged by appellant on this appeal, that:

“At the time the notes were sent by Southern Mortgage Company of Abilene, Texas, from Abilene, Texas, to and received by Mortgage & Securities Company at New Orleans, Louisiana, and at all times hereinafter in this and subsequent paragraphs of these findings, the officers of both Southern Mortgage Company and Mortgage & Securities Company knew the conditions upon which said notes had been sent to and were held by Southern Mortgage Company, knew the purpose of which plaintiff had applied for the loan; that said conditions had not been complied with, that said notes were not to be negotiated and were not negotiable, and would not be ready for negotiation until the building had been completed, inspected and accepted by Southern Mortgage Company, as erected, completed and finished in acordanee with said plans and specifications for the same, and the proceeds of said notes received by plaintiff; and said Southern Mortgage Company and Mortgage & Securities Company, and the officers thereof, knew at the times aforesaid, that said building had not been completed, that it was still in process of construction, and that it would be some time before the same would be completed, and knew that plaintiff had not received any money or anything of value for said notes.”

Appellants knew, nearly two months before they purchased the note, that it was given in consideration of a construction loan, to be made in the future at uncertain intervals, in uncertain amounts, upon uncertain contingencies. They knew the conditions upon which the note was given and enforceable. They were, in short, in possession of all the facts known to the payee and then holder affecting its negotiability. They knew that the then holder had no right to negotiate it, that the consideration for it had not been paid, and was not payable and would not be paid except upon the happening of uncertain future contingencies, and that its failure would render the obligation subject to defeat upon that ground. They were definitely advised that the note was not “ready for delivery,” because the consideration for it had not been paid, and that the loan was not a “good loan” until it was “ready for delivery,” and admitted that they would not have purchased the note had they known that the conditions of the loan had not been completed “and the money paid.” All this information was in the actual possession of appellants for nearly two months prior to the time they purchased the note and paid for it. They finally took it solely upon the verbal statement of the selling agent from whom they purchased it that the instrument was “ready for delivery.” In the face of all their knowledge of the conditions and uncertainties and future contingencies affecting the negotiability of the note, that the holder had obtained possession of it before the consideration for it had been paid, before it was negotiable, before it was ready for delivery, appellants made no effort to ascertain the true facts, paid no heed to the danger signals flying all about them, and were content to proceed upon the verbal assurance of the broker with whom they were dealing, and upon whom they “relied,” that the note was “ready for delivery.”

It is true that the rule which puts a prospective purchaser upon inquiry has no application to the purchaser of a negotiable instrument, generally. But, when the maker asserts, as in this case, that the purchase was not made in good faith or in due course, the burden is thereby shifted to the purchaser to show affirmatively that he had purchased in due course and under circumstances which do not amount to bad faith, which raises an issue of fact triable by the judge or jury, to be determined from all the facts and circumstances in evidence, including the conduct of the purchaser in closing his eyes to facts reasonably calculated to induce a careful or bona fide purchaser to inquire into the true facts affecting the negotiability of the instrument. And where, as in this case, the purchaser acquires specific knowledge that the instrument is not at the time negotiable, and proceeds to purchase in spite of that knowledge and without making reasonable investigation to ascertain if the known infirmities have been removed from the obligation, the court trying the case may properly resolve the issue against the purchaser, as the trial court did in this case.

A majority of this court have concluded upon rehearing that the finding of the trial court in this ease upon the issue does not disclose such abuse of the discretion lodged in that court as to warrant reversal thereof by this court, and that the judgment should be affirmed. Associate Justice COBBS does not concur in this conclusion.

Appellees’ motion for rehearing will be granted, and the judgment affirmed.