ON REHEARING.
PARKER, J.[3] In the last section of the opinion we determine that the question as to whether the plaintiff took the note without notice, and in good faith, had not been determined in the court below, and consequently we remanded the cause for a new trial. A later examination of the record, however, discloses that in this we were in error, and for that reason we have granted a rehearing.
At the close of the case each party moved for an instructed verdict in his favor, the defendant specially submitting the case on the “basis of all evidence.” This necessarily submitted to the court the evidence on the question of notice and good or bad faith on the part- of the appellant in taking the note. The appellant does not resist this proposition, but, on the contrary, insists that the evidence submitted authorizes and requires a judgment in its favor. Appellee, of course, argues that the evidence authorized the direction o£ a verdict in favor of appellee upon this point, and that the action of the court cannot be disturbed here. There is a controversy between com sel as to the issue tendered by the answer. It was alleged-in the answer tnat:
“The said plaintiff had full knowledge and notice of all of the facts hereinabove stated, and took the said note charged and chargeable with full knowledge and notice thereof, and of each of said facts.”
In the reply the appellant denied this allegation of the answer, and alleged that it acquired said note for full value in due course of .business prior to its maturity,, and without knowledge of any defect or want of consideration or other defects claimed by said defendant. Upon this state of the pleadings the appellant argues that there was tendered the solé issue of notice or want of notice to the appellant of the infirmities in the paper, and that no issue of bad faith in taking the note was tendered by the pleadings. The- appellee contends that the allegations of the answer are broad enough to tender the issue both of actual notice and of knowledge of such facts that the taking of the instrument amounted to bad faith. In view of the disposition which we will make of the matter, we do not deem it necessary to determine specifically whether-the issue tendered was narrowed by the pleadings, as claimed by the appellant, or not, and the case will be treated as if the pleadings tendered both issues.
One M. W. Flournoy, vice-president and manager of the appellant bank, was the only witness who testified upon these subjects. lie flatly denied that he or the appellant bank had any knowledge or notice of the defects or infirmities of the paper at the time the bank took the same; the business having been done entirely between the holder of the note and the witness as such vice-president and general manager. Upon cross-examination the witness was not shaken in any particular from the position which he took on direct examination in this regard. The issue, then as to whether the appellant bank had notice of the infirmities of the-paper at the time it acquired it may be. dismissed from further consideration, there being no evidence of any kind in the record to support a finding that it did have such notice, and, on the other hand, evidence, given all showing that it did not have such notice.
Upon cross-examination the witness Flournoy was pressed for facts which might show that he was aware of the financial condition of the payee, and the general condition of his business affairs, from which it was thought to be inferred that the note was taken in bad faith. He was asked whether he did not know, prior to taking the note, that the Montezuma Trust Company, of which the paj'ee of the note was the head, was in bad financial condition, and that the payee was endeavoring to reorganize the same with additional capital. The witness admitted that he-knew that the Montezuma Trust Company was doing business under unfavorable conditions; that he had declined to join in the reorganization of the same, and supposed that the plan had been abandoned. He testified that the Montezuma Trust Company appeared to • be in financial difficulty. He further testified that the payee presented the note, and asked a loan of $5,000 with the note as collateral security, which was made, and the proceeds placed ±0 the. credit.of the Montezuma Trust Company according to. the custom of years; the payee not having a personal account with the appellant bank. The note was upon a printed blank, with the Montezuma Trust Company named as payee, and it was interlined, substituting the name of the payee .for that of the Montezuma Trust Company. The note was pajuible on or before two years from date, and the witness testified it was not customary for the appellant bank to discount such note, but it was customary to. take the same as collateral. The note provided for semi-annual interest, but the witness did not demand interest for about one year after the date of the note. He explained the failure to demand the interest by saying that, the nóte.being held as collateral security, the bank did not attend to the collection of the interest promptly, as it would in case the bank really owned the note. The witness said he understood the maker of the note to be a man of means, and knew nothing about his business affairs, or whether he had needs to raise money on notes, and made no inquiry of the payee as to how he came to have the maker’s note. This is the substance of the testimony of the witness Flournoy, on this subject on cross-examination. The mcst that can be said for this evidence is. that the bank failed, to make inquiry of the payee how or why he came to have such a note of the maker. That the bank did not take the note in bad faith in the sense that it knew of these infirmities, and attempted to defraud the maker to its advantage, or that of the payee, is apparent. The evidence points ‘to no other conclusion. The bank simply failed to inquire of the payee how or why he had such a note, either through negligence, or carelessness, if, indeed, it w'as its duty to so inquire, or under suspicious circumstances.
Appellee argues that -while gross negligence is not the-same thing as bad faith, it may be evidence of the same and, in this case the appellant bank having been negligent, or being aware of suspicious circumstances, these-facts are sufficient to support a finding of bad faith in taking the note. He relies upon Goodman v. Harvey, 4 Adolphus & Ellis, 870; Ward v. City Trust Co., 192 N. Y. 61, 84 N. E. 585; McNight v. Parsons, 136 Iowa, 390, 113 N. W. 858, 22 L. R. A. (N. S.) 718, 125 Am. St. Rep. 1265, 15 Ann. Cas. 665; Re Hopper-Morgan Co. (D. C.) 156 Fed. 525; and 1 Daniel on Negotiable Instruments (6th ed.) § 776.
In Goodman v. Harvey, supra, the bill' was given by the defendants to a shipowner for freight. It was presented for acceptance by an agent of the bolder, and acceptance was refused, and the bill was protested. The bill was then returned to the payee, and was again put out by him, and was discounted by the plaintiff. When it became due, it was presented to the makers; and payment refused, and it was thereupon again protested for nonpayment. The jury, in answer to a question- from the Lord Chief Justice, said that in their opinion the- notarial marks on the bill were sufficient notice to an indorsee of non-acceptance. The court said:
“The question I offered to submit to tbe jury was whether tbe plaintiff had been guilty of gross negligence or not. I believe we are all of opinion that gross negligence only would not be a sufficient answer where tbe party has given consideration for the bill. ¡Cross negligence may be evidence of mala fides, but it is not tbe same thing. We have shaken off the last remnant of the contrary doctrine. Where the bill has passed to tbe plaintiff without any proof of bad faith in him, there is no objection to his title. The evidence in this case as to tbe notarial marks could only weigh as rendering it less likely that the hill should have been taken in perfect good faith.”
In Willis v. Bank of England, 4 Adolphus & Ellis, 32, it is said:
“A doctrine has, indeed, prevailed that the person taking a negotiable instrument must show that he used such caution as a prudent man acquainted with business would exert; hut this gave rise to many complicated' auestions, and the law has now nearly reverted to the old rule, which was that of certainty and convenience, that the bona fide holder of a negotiable instrument for value is entitled as against every one. It would probably be considered now, if the precise point arose, that the real question- was bona fides. * * * It would, perhaps, he more correct to say that the same facts might raise the presumption of gross negligence or that of fraud. The facts might show a determination to wink at anything.”
In Ward v. City Trust Co., supra, the trust company had representatives on the board of directors of a corporation, and two of the officers of the corporation used the funds of tlie corporation for the payment to the trust company of their personal obligations to it. The transaction was on its face apparently without authority on the part of the officers of the bank. The court said:
“It was not enough for the trust company to part with value by surrendering the note and collateral, for it w.as bound to act in good faith in order to get good title. * * * Bad faith in taking commercial paper does not necessarily involve furtive motives; for it exists when the purchaser has notice of facts which, if unexplained, would show that he was taking the property of one who, to quote again from Paviour Case, ‘owed him nothing, in payment of a claim that he held against some one else. * * * Even if his .actual good faith is not questioned, if the facts known to him should have led him to inquiry, and by inquiry he would have discovered the real situation, in a commercial sense he acted in bad faith, and the law will withhold from him the protection that it would otherwise extend.’ ”
The court said further:
“The presumption was against the transaction, and, as we have seen, unless the presumption was overcome by reasonable inquiry, the transaction, unlawful in fact and unlawful on its face, is presumed to have been known to the trust company to be unlawful.”
In McNight v. Parsons, the note was delivered by the maker to the payee under agreement that it should not be negotiated until it was ascertained whether a certain fact came to pass, and in case it did not, the note was to be void and to be returned to the defendant. The question was whether the holder and plaintiff was a holder in good faith. It appears that the plaintiff in that case was really a dummy, and the note was indorsed to him for the express purpose of avoiding such defenses as the defendant might make against the holder of the note. The plaintiff made no attempt to assert the good faith of his purchase, or to negative the fact that he had notice of any defense thereto. The trial court directed a verdict for the plaintiff upon the ground that there was no evidence of bad faith in the taking of the note. The judgment, was reversed. It -is said by the court:
“It is equally true that, if tbe facts sbown have any fair tendency to show bad faith, the question remains one of fact, and not of law. It is especially the case where the evidence of fraud is sufficient to put the burden of showing ■good faith on the holder.”
In re Hopper-Morgan Co., supra, it appeared from an agreed statement of facts that the plaintiff purchased the note in a peculiar way, under peculiar circumstances, and with knowledge that the note had been issued for some particular purpose, not disclosed, but that Mugler, who had disposed of it to Prescott, from whom the claimant obtained it, was not the owner, and had the right to use it as collateral merely. The court said:
“If the purchaser of the note has actual knowledge of the infirmity in the note, or want of title in the one from whom he takes it, that, of course, ends the case. If he has no such actual knowledge, then had faith or a willful disregard of known facts showing the infirmity or want of title or a willful evasion of knowledge of the facts, will he sufficient to defeat recovery. Facts sufficient to create a suspicion of the truth are not sufficient to show knowledge or had faith, nor is mere gross negligence in making inquiry, or in failing to make inquiry, alone, sufficient. There must he either actual knowledge or bad faith. Ead faith mav be shown by a willful disregard of and refusal to learn the facts when available and at hand.”
It is apparent from what has been shown as to the facts in each of the foregoing cases that they have no application to a case like the one under consideration. In eacli of those cases, except, perhaps, the English eases, there was something about the nature of the transaction itself which excluded and prevented any dealing concerning the same in good faith. In the case at bar there was nothing whatever about the nature of the transaction which called for explanation; it bore no evidence whatever of illegality or fraud, but was the usual and ordinary commercial transaction. Mr. Daniel, in discussing this proposition, uses the following language:
“It thus appears that the majority rule, referred to in the foregoing discussion, that there must have been actual notice or bad faith, has been codified in those states which have enacted the statute. According to that rule, and under the statute, mere suspicion of defect of title or knowledge of circumstances which would excite suspicion in the mind of a prudent man, or even gross negligence on the part of the taker of the instrument, at the time of transfer, will not defeat his title. While neither gross negligence, nor knowledge of suspicious circumstances, of itself constituios bad faith as matter of law, it is evidence from which bad faith may be inferred, and such facts, when proven, may be considered by a jury in arriving at the ultimate fact of good or-bad faith. What constitutes this actual knowledge of bad faith, under the statute, has been the subject of judicial discussion. Ead faith in taking commercial paper, it has been said, does not necessarily involve furtive motives. It may be shown by a willful disregard and refusal to learn the facts when available' and at hand, and if a purchaser of a note for value before maturity has notice of facts tending to show defenses to the same, he cannot purposely refrain from making inquiries as to the inception of the paper, and at the same time claim to be a bona fide purchaser.” I' Daniel, Nego. Ins. (6th Ed.) § 776.
Appellant cites a multitude of cases upon the general doctrine that there must be either actual notice, of bad faith to defeat a holder of commercial paper. A few of' them only will be cited. Murray v. Lardner, 2 Wall. 121, 17 L. Ed. 857; Swift v. Tyson, 16 Pet. 1, 10 L. Ed. 865; Goodman v. Simonds, 20 How. 343, 15 L. Ed. 934; Bank v. Neal, 22 How. 96. 16 L. Ed. 323; Cromwell v. County of Sac, 96 U. S. 58, 24 L. Ed. 681; Shaw v. Railroad Co., 101 U. S. 564, 25 L. Ed. 892; Swift v. Smith, 102 U. S. 442, 26 L. Ed. 193; Second National Bank v. Morgan, 165 Pa. 199, 30 Atl. 957, 44 Am. St. Rep. 653; Cheever v. Pittsburg, etc.. R. R. Co., 150 N. Y. 65, 44 N. E. 701, 34 L. R. A. 69, 55 Am. St. Rep. 649; Kitchen v. Loudenback, 48 Ohio St. 177, 26 N. E. 979, 29 Am. St. Rep. 544; Jennings v. Todd, 118 Mo. 303, 24 S. W. 148, 40 Am. St. Rep. 377: Wilson v. Denton, 82 Tex. 531, 18 S. W. 620, 27 Am. St. Rep. 912; Breckenridge v. Lewis, 84 Me. 349, 24 Atl. 864, 30 Am. St. Rep. 357; Youle v. Fosha. 76 Kan. 20, 90 Pac. 1091; Eames v. Crosier, 101 Cal. 260, 35 Pac. 873; Matlock v. Scheurman, 51 Or. 49, 93 Pac. 826, 17 L. R. A. (N. S.) 747; McPherrin v. Title 36 Okl. 510, 129 Pac. 722, 44 L. R. A. (N. S.) 395; Scandinavian, etc., Bank v. Johnston, 63 Wash. 187, 115 Pac. 102; Reilly v. McKinnon, 159 Fed. 78, 86 C. C. A. 268. He also cites 7 Cyc. 945, and Crawford’s Am. Neg. Ins. Law (3d ed.) 68. These authorities all establish the uniform doctrine that a holder of commercial paper may be a holder in due course, notwithstanding that he may have knowledge of suspicious circumstances, or may be guilty of even gross negligence in taking the paper; the question always being in such cases whether he took the paper in good faith or bad faith.
It is apparent, however, from what has been heretofore seen in the original opinion and herein, that this fundamental, underlying proposition is not quite the proposition involved in this case. The question in this case is whether there was sufficient evidence before the trial court to authorize a finding that the plaintiff bank took the note in bad faith. In other words, the question is, Had the trial court or the jury made a specific finding that the plaiiltiff bank did not take the note in good faith, is there anjr substantial evidence in the record upon which such a finding could be based? We do not think that there is any such evidence. As has been before pointed out, this transaction was the ordinary business transaction dealing with commercial paper. There was nothing about the note itself to call attention of the plaintiff bank to any infirmity in the same. There was nothing about the circumstances or the relations of the parties which called for explanation on the part of the payee, or which even was calculated to arouse suspicion on the part of the bank. The witness Flournoy testified that he treated the transaction exactly as he would treat any other of the same character, and that he knew nothing'irregular or defective about the note. Owing to the condition of the record, Ave are put in the position of sitting as a jury or a trial court, and passing upon these facts. After careful examination of the testimony, and a thorough consideration of all legitimate inferences which could be draAvn therefrom, Ave are compelled to say that there is no substantial evidence in the record authorizing a finding of bad faith on the part of the bank. A fine discussion of this same question is to be found in 3 R. C. L., p. 1071, § 277, et seq. It is .there -said:
“It is a general principle, running through all branches and subjects of the law, that one will be charged with notice of a fact who has information which should have put him upon inquiry, if, by following up such information with diligence and understanding, the truth could have been ascertained. * * * It is now well settled, however, that the doctrine of notice, as it affects good faith of transactions generally, does not apply to negotiable instruments.”
Detroit National Bank v. Union Trust Co., 145 Mich. 656, 108 N. W. 1092, 116 Am. St. Rep. 319, is cited, wherein it is said:
“It is a general rule, applicable to transactions not involving commercial paper, that where one has notice of facts which would put an ordinarily prudent man upon inquiry, he cannot be considered a bona fide purchaser, if he neglect to take such care of his own interests as an ordinarily prudent man would do, but that rule has not been applied to commercial paper.”
A lengthy quotation from Jones v. Gordon, L. R. 2 App. Cas. 627, is inserted in the opinion, from which wc quote the following:
“But if the facts and circumstances are such that the jury, or whoever has to try the question, came to the conclusion that he was not honestly blundering or careless, but that he must have had a suspicion that there was something wrong, and that he refrained from asking questions, not because he was an honest blunderer or a stupid man, but because he thought in his own secret mind, ‘I suspect there is something wrong, and if I ask questions and make further inquiry, it will no longer be my suspecting it, but my knowing it, and then I shall not be able to recover,’ I think that is dishonesty. I think, my lords, that this is so not only by good sense and reason, but by the authority of the eases themselves.”
In section 278 of 3 R. C. L., p. 1074, it is said:
“He cannot be charged with notice by reason of any want of diligence on his part, even when he is in the situation where such facts could be ascertained by inquiry. * * * Gross negligence even is not sufficient; actual knowledge of the facts which impeach the validity of the note must be brought home to the holder. Knowledge, however, may be shown to have been possessed by the party either by direct proof,'or by facts and circumstances that fairly lead to that conclusion, and circumstances that are not of any .great probative force in themselves are admissible in connection with other proof to show guilty knowledge or want of good faith.”
In section 280, p. 1075, R. C. L., it is said:
“Although suspicious circumstances are not “notice as a matter of law, yet the jury may find them to be so as a matter of fact, and evidence going to show the existence of such grounds for suspicion is always admissible.”
See, also, Harrington v. Butte, etc., Mining Co., 33 Mont. 330, 83 Pac. 467, 114 Am. St. Rep. 821.
The only suspicious circumstances, if it may'be‘ called such, is the fact that this note was dated January 5, 1911, and was negotiated by the payee on January 6, 1912. It appears in the record that this note was made on January 5, 1912, and was ’ accidentally misdated. However, át the time the note was negotiated, the fact that the payee had apparently had possession of the note for a year was not mentioned. It might be argued that a man who had a good note like the one in question, and who needed money, would hardly refrain from using it for a 'year after its date, and that the bank should have taken notice of tliis fact, under the circumstances. On the other hand, if the matter was considered at all by the bank, which does not appear from the record, it might well have, been inferred that the negotiating of the note one year after its date was in accordance with a perfectly honest and lawful arrangement with the maker. No inference of bad faith can be legitimately drawn from this circumstance. •' The question is, Did the witness, Flournoy, as the agent of the bank, know or believe at the time he took the note from the payee that it was being fraudulently put out by him, and did he willfully refrain from inquiry along that line? We have been .unable, after a careful re-exámination of the testimony, to put finger upon any fact from which a legitimate inference could be drawn to that effect.
This being the state of the record, we find that'there is no substantial evidence upon which the district court could have found that the appellant bank took the note in bad faith. There being no such evidence, it was error to so find, and for that reason the judgment will be reversed. As a matter of fact the record bears internal evidence, but not in direct terms, that the trial court did not so find, but, owing to the form in which the record is presented here, he is made to have so found, as already pointed out.
The judgment of the lower court will be reversed and the cause will be remanded to the district court, with directions to enter judgment in favor of the appellant bank as prayed in the complaint; and it is so ordered.
Roberts, C. J., and Hanna, J., concur.