Creston National Bank v. Salmon

ELLISON, J.

This was an action on a promissory note given by defendant to E. N. Dewitt and by him assigned in writing on the back thereof to the plaintiff. The judgment in the trial court was for the plaintiff.

The note provided for an attorney’s fee, which in this State would destroy its negotiability. But it was executed in Iowa, where by statute such notes are negotiable. This statute is pleaded by plaintiff and the defendant admits the note to be negotiable. An attorney’s fee was not asked to be allowed in the judgment.

The note is for $200, due two years after date, and was given in part payment for a stallion purchased by defendant of Dewitt. The defendant set up in his answer that the note was procured from him by false and fradulfent representations made by Dewitt as to the horse being “a full-blooded, pedigreed” animal and as to his breeding qualities, etc. He also pleaded a statute of Iowa, reading as follows: “The want or failure in whole or in part of the consideration of a written contract may be shown as a defense, total or partial, except to negotiable paper, transferred in good faith, and for a valuable consideration before maturity; but if such paper has been procured by fraud upon the maker, no holder thereof shall recover thereon of the maker a greater sum than he paid therefor with interest and costs.”

The trial court of its own motion gave some'instructions wherein the entire defense was submitted to the jury. Instructions were offered by defendant and refused. Many of the propositions therein asserted are correct statements of the law, but as, in our opinion, everything to which defendant was entitled had been incorporated in the other instructions it was not error to refuse them. Taking the admission of the parties, with the undisputed face of the record, there was very little of affirmative facts upon which to base hypotheses for the jury. The execution of the note and that it is negotiable was conceded; and that it was purchased by plaintiff before due for a valuable consideration is shown without any semblance of substantial dispute. But defendant does insist that plaintiff had notice of the fraudulent inception of the note and therefore that it should not be taken as an innocent purchaser. The instructions given plainly submit that issue of fact to the jury. The policy of the law is to eneourge commercial affairs and to facilitate the transaction of that class of business. To that end, it protects endorsees of negotiable paper unless they have actual knowledge of its infirmity. Neither suspicion nor negligence in its purchase, will destroy the purchaser’s title. There must be actual knowledge on his part. [Hamilton v. Marks, 63 Mo. 167; Mayes v. Robinson, 93 Mo. 114; Borgess Investment Co. v. Vette, 142 Mo. 560, 573.] In such state of the law, it is at least questionable, if the court did not go too far in submitting defendant’s' theory of plaintiff’s knowledge of the fraud charged. Certainly there is nothing in the record showing that plaintiff had knowledge of any representations made by Dewitt to defendant before the time when he purchased the note. So we conclude that, under the law and the state of the evidence, defendant is without any ground.of complaint except for the following reason.

II. As already stated, it appears by the pleading that there is a statute in Iowa providing that if a negotiable note is procured of the maker by fraud, and is afterwards endorsed before maturity for value, to an innocent purchaser, yet such purchaser can only recover the sum he paid for the note. The rule is, that all matters pertaining to the remedy merely are determinable by the law of the forum. And plaintiff’s position is that defendant’s claim to be allowed the defense given by the Iowa statute is a matter to' be classed with the remedy, and therefore under the control of our law, uninfluenced by that statute. We do not think so. Whatever contract defendant made in the State of Iowa must abide without change until discharged. No law can alter his right to discharge the contract as made. The note was not only made in Iowa, but was to be paid there. The laws of Iowa entered into and became a part of the contract evidenced by the note. “The law of. a State or county where a contract is executed and is to be performed enters into and becomes a part of the contract, in the sense that its validity and obligatory effect are to be determined and controlled by that law; and when valid there, the contract Avill be sustained everyAvhere, and accorded the interpretation required by the laAV of the place where made.” [Heaton v. Eldridge, 56 Ohio St. 87.] The obligation of the maker of a negotiable note, generally, is to pay to an innocent endorsee for value, before due, the full amount of the note. But in Iowa that obligation is limited in cases of fraud to the payment of a sum not in excess of Avhat the endorsee paid for the note. Therefore, in cases where the note has been procured of the maker by fraud, his contract in that State, is to pay an innocent indorsee the amount such endorsee paid and no more. The contract evidenced by the note in question limited the amount due the plaintiff, as endorsee. It was a matter of substantive right existing in the defendant and cannot be taken from him in a foreign forum under the guise of administering a remedy. “The principle is, that whatever relates merely to the remedy and constitutes a part of the procedure is determined by the law of the forum, for matters of process must be uniform in the courts of the same country; but whatever goes to the substance of the obligation and affects the rights of the parties, as growing out of the contract itself, or inhering in it or attaching to it, is governed by the law of the contract. . . . So, if by the laAV of the place of a contract equitable defenses are allowed in favor of the maker of a negotiable note, any subsequent indorsement Avill not change his rights in regard to the holder. The latter must take it cum- onere.” [Pritchard v. Norton, 106 U. S. 124, 129, 133; Story on Conflict of Laws, sec. 332.]

The case of Williams v. Haines, 27 Iowa 251, Avas perhaps relied upon in the trial court in support of the plaintiff’s view. That was an action on a note, under seal, executed in Maryland and as a sealed instrument, under the laws of that State, a consideration Avas conclusively presumed. While by the laws of Iowa, a want of consideration for the execution of such an instrument could be shown. It was held that the question Avas one of remedy and that the law of Iowa controlled. But the case seems out of line Avith authority and is specially disapproved in Pritchard v. Norton. If there is any reason for stating that a question of consideration, closed at the place of contract, was open at the forum, it could not well apply to the case in hand; for here, a refusal to apply the law of the place where the contract was made and to be performed, absolutely changes and enlarges the obligation.

The foregoing view is fully supported by a full discussion of the subject to be found in Wharton’s Conflict of Laws. And matters aptly illustrative of the question have been adjudicated in the Supreme Court of this State in cases called to our attention by defendant’s counsel. That is to say, where the statute where the contract is made and to be performed operates to extinguish the contract or debt itself, the case no longer falls within the law in respect to the remedy, and when such a contract is sued upon in another State, the lex loci contractus, and not the lex fori, is to govern. [St. Louis Foundry v. Jackson, 128 Mo. 119; Berkley v. Tootle, 163 Mo. 584; Baker v. Stonebraker, 36 Mo. 338.] The case of Gates v. Tebbetts, 100 Mo. App. 590, decided by this court, is unlike the case at bar and therefore not applicable.

It follows that the judgment should be reversed and the cause remanded. But if the plaintiff will remit the excess óf his recovery over the amount he paid for the note (which appeared in evidence) within fifteen days the judgment will be affirmed; the costs of the appeal to be taxed against it.

All concur.