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tiff at the time he acquired the paper had actual knowledge of the fraud or facts and circumstances requiring inquiry as to the validity of the note, and that his failure to do so amounted to bad faith, was erroneous as ignoring the rule that mere possession of the note raised a presumption without other evidence, that plaintiff was a holder in good faith, and, having shown possession, was not bound to give affirmative evidence that he, acquired title in due course of business and without notice of fraud, until it had been shown that the instrument was procured or put in circulation by fraud.

2. SAME-FRAUD.

Where a note was shown to have been tainted by fraud in its inception, or was fraudulently put in circulation, the burden was placed on plaintiff by Code Supp. 1907, §§ 3060a55, 3060a59, to show that he acquired it innocently, but such proof was not required of plaintiff until defendant offers evidence to sustain such defense.

[Ed. Note.-For cases in point, see Cent. Dig. vol. 7, Bills and Notes, § 1677.]

3. SAME.

Where, in a suit on a note, defendants proved that it had been obtained from them by fraud, then the further inquiry was not whether defendants had shown that plaintiff took the note with notice of the fraud, but whether plaintiff had shown that he took it in good faith and without notice.

4. SAME RESCISSION-FRAUD.

Where a note sued on was given for the price of a horse, defendants, in order to rescind the sale for fraud perpetrated by the sellers in obtaining their signatures to the note, were not required to return the horse to the sellers as provided by the contract of sale in case of a breach of warranty, but were entitled when the fraud was discovered to rescind by making a bona fide offer to return the horse and hold it in readiness to be delivered if the offer to return was refused.

Appeal from District Court, Johnson County; R. P. Howell, Judge.

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WEAVER, J. The note in suit was given for the purchase price of a stallion. The defendants resisted payment on the ground that the note was procured by fraud, and that plaintiff is not a bona fide holder. The cause was twice tried in the court below; a verdict for defendants being returned in each instance.

1. In its charge to the jury the trial court, after stating the issues, proceeded as follows: “Seventh. The burden is first upon the plaintiff to establish that he is now the owner of the note sued upon, that he acquired the same in the ordinary course of business and before the same was due, and, should you so find from a careful consideration of all the evidence in this case, you will then find for plaintiff, unless you find that the defendants have shown by a preponderance of the testimony that this note was secured through fraud; that is, that their signatures thereto were secured through false and fraudulent

117 N.W.-4

representations, and that the plaintiff at the time he acquired the paper had actual knowledge of such fraud, or that such facts and circumstances were brought to his knowledge before the purchase of the note as would require that he should in good faith inquire as to the validity of the note, and unless you should find that such failure to inquire amounted to actual bad faith." In giving this paragraph the court omitted to note the well-established rule that the mere possession of the note by the plaintiff raises a presumption, without other evidence, that he is a holder in good faith, and it is not until it has been shown by appropriate evidence that the instrument was procured and put in circulation by fraud that any burden is cast upon him to explain his possession, and give affirmative evidence that he acquired title in due course of business and without notice of the fraud. Lathrop v. Donaldson, 22 Iowa, 234; Shaulis v. Buxton, 115 Iowa, 430, 88 N. W. 968. Counsel for appellee say that the instruction under consideration is not inconsistent with this rule; the burden being upon the plaintiff under the pleadings, though removable for the time being upon production of the note in evidence. But the trouble with this suggestion is that the court did not thus explain or qualify its statement. On the contrary, it told the jury that to make his case the plaintiff must first "establish that he is now the owner of the note sued upon, that he acquired the same in the ordinary course of business and before the same was due," and, so far from telling the jury that any presumption of ownership or good faith arises in plaintiff's favor from the possession of the note, they were instructed to determine the question "from a careful consideration of all of the evidence in the case." This placed upon the plaintiff a burden materially greater than the law warrants. It is probably true that the correct rule can be deduced from other instructions given, but this we think cannot serve to remove or neutralize the prejudice presumably resulting from the unqualified statement in the seventh paragraph. In thus holding we do not ignore or minimize the rule approved by the great weight of authority and applied by us in McKnight v. Parsons, 113 N. W. 858, that, where the note is shown to have been tainted by fraud in its inception or fraudulently put in circulation, the burden rests upon plaintiff to show that he acquired it innocently. The rule is also now embodied in our statute (Code Supp. 1907, §§ 3060a55, 3060a59), but until the defendant offers evidence sustaining such defense the plaintiff is under no obligation to negative it or to assume the burden of showing that he is the holder in good faith and without notice.

2. Appellant argues that there is no evidence from which the jury could rightfully find that he was not the holder in good faith in due course of business. But this is a somewhat misleading statement of the point to be considered. The defendants assert that the

note was obtained by fraud, and offered evidence in support of their defense. If the jury found that allegation to be established, then the inquiry remaining to be answered was not so much whether defendants had succeeded in showing that the note was taken by plaintiff with notice of the fraud, as it was whether plaintiff had succeeded in showing that he took it in good faith and without notice, which is a very different proposition. In view of the fact that the cause must be again tried, we shall not review the testimony bearing upon this issue, but simply say that we think the case was in this respect one for the jury.

The

3. The further point is made that the matters complained of did not amount to a fraud, but to this we cannot agree. In our judgment the answer states a good defense to the note as against the payee, or any holder thereof with notice, and there was evidence tending to sustain such defense. Again, it is said by counsel that the warranty upon which the sale was made provides for the return of the animal to Galesburg, Ill., in case of its failure to fill the terms of the agreement, and that defendants, having failed to so return it, cannot rescind the purchase and refuse to pay the agreed price. If the defense relied upon by the defendants and submitted to the jury were a breach of warranty merely, there would be much force in the argument thus advanced. But such is not the case. sole defense submitted to the jury is that which is based on an alleged fraud by which defendants were induced to sign the note on the representation that one Stover who joined them in making the instrument had agreed to become a party to the purchase of the horse and pay his equal share with the other purchasers, when, as it afterwards transpired, Stover was in fact acting as a stool pigeon in the interests of the payee, and, when the defendants' signatures were secured to the note, he was released from all liability thereon without any consideration, except his assistance in perpetrating the fraud. Under such circumstances, the defendants were not obliged to assume the expense and responsibility of shipping the horse to Illinois to effect a rescission of the purchase. To hold otherwise is to say that, when a contract has been obtained by fraud, the innocent party must perform a part of its stipulations in order to rescind and repudiate the remainder. If a contract has been obtained fraudulently, the taint attaches to and affects all its stipulations alike. If the party acts with reasonable promptitude when the fraud is discovered, a rescission of the contract will be effected by a bona fide offer to return the consideration received and by holding it in readiness to be delivered if the offer to return be refused.

Other questions argued are ruled by those already disposed of or are such as will not necessarily arise on a retrial.

For the reasons stated in the first para

graph of this opinion, a new trial must be ordered, and the judgment appealed from is therefore reversed.

FULLERTON LUMBER CO. v. SNOUFFER

et al.

(Supreme Court of Iowa. July 9, 1908.) 1. PRINCIPAL AND SURETY DISCHARGE OF SURETY-EXTENSION OF TIME FOR PAYMENT -VALIDITY OF EXTENSION.

Since an agent cannot bind his principal beyond the scope of his authority, if the payee's agent was not authorized to extend the time for payment of a note and his act was not ratified by the payee, a surety on the note was not released by such extension.

[Ed. Note.-For cases in point, see Cent. Dig. vol. 40, Principal and Surety, § 202.]

2. SAME QUESTION FOR JURY.

Whether payee's agent was authorized to extend the time for payment of a note held a jury question.

3. EVIDENCE PAROL EVIDENCE — LIABILITY ON NOTE-MAKER OR SURETY.

Negotiability is not essential to the validity of a note, and that it is negotiable in form does not, as between the maker and payee, deprive the maker of any defense thereto he would otherwise have; and hence the signer of a note can show by parol in an action thereon by the payee that he was a surety only and that the time for payment was extended without his consent, thus discharging him; the rule being unaffected by Negotiable Instruments Act, Code Supp. 1907, § 3060a192, providing that one primarily liable on an instrument is the person who by its terms is absolutely required to pay it, and that all other parties are secondarily liable, and section 3060a120, providing that one secondarily liable on a note is discharged by an extension of the time of payment without his consent, since the act was intended only to govern the rights of holders in due course, and that intention being shown by seetion 3060a58, providing that in the hands of any holder other than a holder in due course a negotiable instrument is subject to the same defenses as if it were nonnegotiable.

Appeal from District Court, Linn County; F. O. Ellison, Judge.

Suit upon a promissory note. There was a directed verdict for the plaintiff, and from a judgment thereon the defendants appeal. Reversed.

Jamison & Smyth, for appellants. Chas. D. Harrison, for appellee.

SHERWIN, J. The note in suit was dated January 1, 1905, and was due October 1, 1905, Both defendants signed the note as makers thereof; but the appellant Ann J. Snouffer pleaded that she was in fact a surety only and that the time of payment had been extended without her consent or knowledge, and there was evidence tending to support such defense. Mr. R. C. Cutter was the manager of the plaintiff's business in Cedar Rapids, Iowa, its home office being in Minneapolis, Minn., and he took the note and made the alleged extension of the time of payment. The appellee contends that there was no evidence that Cutter had authority

to extend the time of payment or that his act had been in any way ratified.

It will, of course, be conceded that if Cutter had no authority to extend the time of payment of the note, and if his act was not ratified by the appellee, Mrs. Snouffer was not released from liability thereon. That an agent cannot bind his principal beyond the scope of his authority is well settled. But it was shown that Cutter had general authority to extend credit on sales made by him for the appellee and to fix the time of such credit. It was also shown that he was specially authorized to accept the note in suit in settlement of an account against J. J. Snouffer, Jr., and that he was given authority to fix the time when the note should become due. Furthermore, it appears that Cutter was paid in advance the interest which would accrue for the extended time, and that the appellee received the money and made no objection thereto. With such facts in the record, we think the authority of Cutter was a question for the jury, and not for the court. There was evidence which would have warranted the jury in finding that the time of payment had been extended for a valuable consideration without the knowledge or consent of Ann J. Shouffer, and the entire question on this branch of the case should have been submitted to the jury.

While conceding that Ann J. Snouffer was a surety on the note, the appellee insists that by the terms of the note itself she was bound to pay the same, and hence was primarily liable thereon, within the meaning of section 3000a192, Code Supp. 1907, the negotiable instruments act. It is in the following language: "The person primarily' liable on an instrument is the person who by the terms of the instrument is absolutely required to pay the same. All other parties are secondarily liable." Section 3060a120 of the same act provides that a person "secondarily liable" on a note is discharged by an extension of the time of payment without his consent, and the appellee argues that the provision of this section clearly designates the person entitled to the benefit of such defense, and the only person so entitled. If this were an action between holders in due course, within the meaning of the negotiable instruments act, and the appellant Ann J. Snouffer, we are inclined to the view that the appellee's contention would be sound. But we do not determine the point, because we are of the opinion that said act is not applicable to this case. Here the issue is between the parties to the instrument, and the rights of holders in due course are not involved. As we understand it. the entire scope and purpose of the act, so far, at least, as it affects the question before us, is to fix the rights of holders in due course and to make it uniform in the several states. This we think is apparent from the act itself. Thus section 3060a58 in terms

says: "In the hands of any holder other than a holder in due course, a negotiable instrument is subject to the same defenses as if it were nonnegotiable." Negotiability is not necessary to the validity of a promissory note, and the mere fact that it is negotiable in form does not, as between the maker and payee, deprive the former of any defense thereto that he would otherwise have. If this be true, the appellant Ann J. Snouffer had the right to show by parol that she was a surety only on the note in suit and that the time of payment had been extended without her consent. Chambers v. Cochran & Brock, 18 Iowa, 159; Piper v. Newcomer, 25 Iowa, 221.

This rule has not been changed by the act in question, and we think there was error in directing a verdict for the plaintiff. The judgment must therefore be reversed. Reversed.

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That in 1902, when the tax sale was made, to redeem from which the suit was brought, by an association, its receiver succeeding it as plaintiff, the association, or S., the person under whom it claims, had title to the property, as is required by Code, § 1445, in order that the tax deed may be questioned, is not shown by the testimony of the association's secretary that in 1905, and for more than a year or two theretofore, the property was in its charge. it renting it and collecting the rents, it formerly having a mortgage, and not having the record title at that time, and by the testimony of the receiver that, to perfect the title to the property in the association, he in 1906 procured a warranty deed from S. conveying the title to it.

Appeal from District Court, Polk County; W. H. McHenry, Judge.

Action in equity to redeem from a tax sale of real property. Pending the action in the court below the plaintiff association was adjudged insolvent, and J. E. Mershon, receiver, was substituted as plaintiff. The defendant Moore is the holder of the tax deed. There was a decree in favor of plaintiff, and the defendant appeals. Reversed.

C. F. Clark and Frank H. Dewey, for appellant. J. E. Mershon, for appellee.

BISHOP, J. It is alleged in the petition that in September, 1897, one Ault, then the owner of the real property in question, executed and delivered to the plaintiff association a mortgage on said property to secure the repayment of moneys loaned to him; that in September, 1904, foreclosure of said mortgage was had, and a decree entered; that about the time said decree was entered the property was placed in the possession of plaintiff, which possession has continued to the present time; that in April, 1906, one Shaver, who had succeeded to the patent title

to the property through warranty deed from Ault, dated October 27, 1905, conveyed to the plaintiff association by warranty deed, and it is now the owner in fee simple of said property. It is then alleged that on February 14, 1906, a tax deed was executed by the treasurer of Polk county and delivered to the defendant Moore, under which he, said defendant, now asserts title to the property. Facts are then alleged based on which plaintiff claims that said tax deed was improperly executed and is void, and that the period for redemption from the tax sale has not expired. And the prayer is that the right to redeem be established. each and every allegation of the petition, excepting only those relating to the fact of the issuance of the tax deed, and his claim of title thereunder to the property. In a crosspetition defendant asserted his title to the property under his tax deed, and prayed that his ownership be adjudged to be absolute and his title quieted. Upon the issue thus framed, the case went to trial.

Defendant, in answer, denied

One ground relied upon for a reversaland we shall not have occasion to notice any other-is that plaintiff wholly failed to make proof that at the time of the tax sale, which took place December 1, 1902, it, or the person under whom it claims title, had title to property. And reliance is placed on Code, § 1445, which provides that no person shall be permitted to question the title acquired by tax deed without first showing that he or the person under whom he claims title had title to the property at the time of the sale. This provision of the statute, we have frequently held, has application to actions brought in equity to redeem. The cases are collected under the section of the Code referred to, and we need not cite them This takes us to the evidence, because it will be observed that the allegations of the petition respecting title were met by a specific denial in the answer. Plaintiff called as a witness one Wilson, who testified that up to the time the plaintiff went into the hands of a receiver he was its secretary; that the property in question "was in charge of the association in September, 1905, and had been for more than a year or two. We had been renting it and collecting rents. ** The association had formerly had a mortgage. It did not have the record title at that time." J. E. Mershon was called as a witness, and he testified that he was appointed receiver of the association October 1, 1905, and "thereafter, in order to perfect the title to this property in the association, I procured deed, 'Exhibit A,' conveying the title to the plaintiff association." The deed referred to was introduced in evidence, and is a warranty deed, dated April 9, 1906, executed by L. B. Shaver, and conveying to the plaintiff association the property in question. Here the evidence on the subject ends, and it will be seen that there is nothing upon which to base an inference even-much less to find as a fact that on December 1, 1902, when the tax sale took place, either the plaintiff associ

ation or Shaver had any title or interest in the property. In this situation of the record plaintiff's petition should have been dismissed, and, as the tax deed appeared to be regular on its face, there should have been a decree in favor of defendant establishing and quieting his title. The decree entered is reversed, and the cause is remanded for a decree in harmony with the conclusion of this opinion. Reversed.

BAKKER et al. v. FELLOWS, Drain Com'r for Ottawa County, et al. (Supreme Court of Michigan. July 1, 1908.) 1. DRAINS-APPLICATION-“FREEHOLDER."

A lessee for life is a "freeholder," within Comp. Laws, § 4319, requiring an application for a drain to be signed by 10 freeholders.

[Ed. Note.-For other definitions, see Words and Phrases, vol. 3, pp. 2968-2970; vol. 8, p. 7667.]

2. LANDLORD AND TENANT-LEASES-SIGNING BY LESSEES-ACCEPTANCE AND POSSESSION.

A lease for life, though signed by the lèssors, and not by the lessees, who make covenants therein, is valid; it having been accepted and possession having been taken under it.

[Ed. Note. For cases in point, see Cent. Dig. vol. 32, Landlord and Tenant, § 66.]

3. DRAINS-APPLICATIONS-FREEHOLDERS.

Where a father promised to buy his son a farm, and bought land, taking title in his own name, and then told the son it was his farm, the son, who entered into and continued in possession, occupying and working it for years, constructing buildings, and having it assessed to himself, and paying the taxes, has in equity a right to the premises in fee; and so is a freeholder within Comp. Laws, 8 4319, requiring an application for a drain to be signed by 10 freeholders.

Ostrander and McAlvay, JJ., dissenting.

Error to Circuit Court, Ottawa County; Philip Padgham, Judge.

Certiorari by Jacob Bakker and another against Edwin Fellows, drain commissioner of Ottawa county, and Edward P. Kirby, probate judge of said county. The circuit court affirmed the order of the probate judge, and plaintiffs bring error. Affirmed.

Walter I. Lillie and Charles H. McBride, for appellants. Smedley & Corwin and Corie C. Coburn, for appellees.

HOOKER, J. This is a cause in which we are asked to review drain proceedings, and we take this opportunity to commend counsel for the exceptionally clear and concise manner in which both record and briefs present the meritorious questions involved. An application was duly filed with the drain commissioner on February 15, 1907. It appeared to be signed by 10 persons, alleged to be freeholders of the proper township, and it alleged that 5 of these, naming them, were owners of land, liable to be assessed for the proposed drain. On March 28, 1907, the commissioner filed his first order of determination, and being unable to obtain the right of way across the premises of the appellauts

(all others having released), he filed his petition for special commissioners. On June 5, 1907, the appellants filed their objections. They were, in brief: First, that the application was not signed by 10 freeholders; second, that it was not signed by five or more owners of lands liable to assessment for benefits; third, it alleged that one Ann V. Osborne, described in the petition as such freeholder and owner, was not such a freeholder, or a "freeholder at all." A hearing upon the petitions was had, and on July 10, 1907, the probate judge made the usual order appointing commissioners, expressly overruling the objection of appellants. On July 10, 1907, appellants filed with the probate judge a petition for rehearing, based upon the further ground that another of said signers of the petition was not a freeholder, and that the fact was unknown to them at the time of the former determination. A hearing was had upon this application on July 15th, but the probate judge denied it, on the grounds that he had no authority to grant such rehearing. On July 23, 1907, the special commissioners filed their report with the probate court, finding it necessary to take appellants' property, and awarding each $1 damage. On July 24th a final order of determination was made and filed, and on July 31st a written notice of intention to review by certiorari was served on the commissioner by appellants. On August 7, 1907, the affidavit for certiorari was filed, and the writ was issued by the circuit court. The drain commissioner made a return on August 19, 1907, simply denying the allegations of the affidavit, and asserting the regularity of all proceedings. On August 23, 1907, a petition was made for a further return, and the probate judge was made a party by order of the court. On the 27th of August, 1907, the probate judge made a return of the proceedings and evidence taken before him, and the commissioner filed a further return.

From these the following facts appear, viz., first, Ann V. Osborne's interest in land was confined to such as was conveyed to her by a writing attached to the return, whereby several parties, named and described as parties of the first part, in consideration of rents and covenants specified, did "let and lease to George Osborne and Ann V. Osborne, his wife, parties of the second part, premises described, for the term of the natural life of both said second parties, on terms and conditions specified. It expressly stated that the lease should terminate only on the death of both of said second parties. "Provided, that in case any rent shall be due and unpaid, or if default be made in any of the covenants herein contained, then it shall be lawful for the said parties of the first part, their certain attorney, heirs, representatives and assigns, to re-enter into, repossess the premises, and the said parties of the second part, and each and every other occupant, to remove and put

out. And the said parties of the second part do hereby hire the said premises for the term as above mentioned and do covenant and promise to pay to the said parties of the first part, their representatives and assigns, for rent of said premises for said term, the sum of one 'dollars' and other good and valuable consideration paid by said second parties to said first parties, the receipt whereof is hereby acknowledged, the same having been paid in advance before the ensealing and delivering of this lease. Said parties of the second part further covenant that they will not assign nor transfer this lease or sublet said premises or any part thereof without the written assent of said parties of the first part." This document was signed only by the parties of the first part, by whom it was also acknowledged. Nothing indicates that it was not delivered, or that Mrs. Osborne was not in exclusive possession under it, as sole owner of the interest intended to be conveyed by it. The commissioner supposed that Arend K. Brouwer was the owner of the premises occupied by him, and a freeholder, and he never heard anything to the contrary until the petition for rehearing was filed. He then made inquiries, and was informed that said Brouwer's father promised to buy him a farm in Olive township; that he bought this land, taking title to himself. Subsequently he told his son that it was his farm, and the son entered into and afterwards continued, and was in possession at the time of these proceedings; that in the interval he had occupied and worked the land for several years, built buildings, had it assessed to himself, and paid the taxes in every respect as an owner, except that the father had never deeded the land to him. Upon the hearing the learned circuit judge was of the opinion that, under the proofs, Ann V. Osborne was a freeholder, and owner of lands liable to assessment and that "under the showing made in this case as to the question of whether one Arend K. Brouwer was such a freeholder as claimed by plaintiffs was not a proper subject or matter for the court's consideration upon the record as presented." The order of the probate judge was affirmed. The cause is before us by writ of error.

The only questions discussed in appellants' brief are whether the application for the drain was jurisdictionally defective: First, because Ann V. Osborne was not a freeholder and a landowner; second, because Brouwer was not a freeholder.

Freeholders.

Comp. Laws, § 4319, provides for an application signed by not less than 10 freeholders of the township, 5 or more of whom shall be owners of lands liable to assessment for benefits. Under our law one who has an estate for life in land is a freeholder. See Comp. Laws, § 8787; Crouse v. Michell,

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