Hodge v. Smith, 130 Wis. 326.

the delivery, in order to be effectual, must be made either by or under the authority of the party making, drawing, accepting, or indorsing, as the case may be; and in such case the delivery may be shown to have been conditional, or for a special purpose only, and not for the purpose of transferring the property in the instrument. But where the instrument is in the hands of a holder in due course, a valid delivery thereof by all parties prior to him so as to make them liable to him is conclusively presumed."

The next important question is: Did appellants become the owners of the notes in due course? We need not discuss the subject, at any considerable length, of what constitutes a holder of commercial paper in due course, since the written law covers the matter. Sec. 1676-22 of the Negotiable Instrument statute provides that:

"A holder in due course is a holder who has taken the instrument under the following conditions:

"1. That it is complete and regular upon its face.

"2. That he became the holder of it before it was overdue, and without notice that it had been previously dishonored, if such was the fact.

"3. That he took it in good faith and for value.

"4. That at the time it was negotiated to him he had no notice of any infirmity in the instrument or defect in the title of the person negotiating it.

"5. That he took it in the usual course of business."

It will be observed that, in harmony with elementary principles, one of the important incidents of the transfer of negotiable paper, essential to the transferee becoming a holder in due course, is the actual payment therefor. So what constitutes payment, when there is not an actual transition of the money equivalent from the purchaser of the paper to the seller at the time of the transfer, has often been a subject of consideration. Such circumstances as we have here, that is the sale of a note before due and placing the consideration to the credit of the vendor upon the books of the purchaser subject to the former's check, have been held not to be a taking for

Hodge v. Smith, 130 Wis. 326.

value so as to render the new holder a purchaser in due course, except to the extent of the money actually drawn and charged against such credit. This court so held in Manufacturers' Nat. Bank v. Newell, 71 Wis. 309, 37 N. W. 420. The principle there and in many cases declared was incorporated into the Negotiable Instrument Law at sec. 1676-24 in these words:

"Where the transferee receives notice of any infirmity in the instrument or defect in the title of the person negotiating the same before he has paid therefor the full amount agreed to be paid he will be deemed a holder in due course only to the extent of the amount theretofore paid by him."

Since in this case the evidence conclusively shows that when appellants took the notes from the original holder they placed the consideration to the credit of the latter, and there is no proof that the credit was thereafter exhausted in whole or in part by payment of money on account thereof, there was a failure of proof that appellants became holders of the papers in due course so as to cure the infirmities therein, unless the mere production thereof was sufficient to make out a prima facie case in that regard. On that the learned trial court decided in the negative, and seems in so doing to have followed the written law, as indicated by sec. 1676-25 of the Negotiable Instrument Law, which covers the subject in these words:

"The title of a person who negotiates an instrument is defective within the meaning of this act when he obtains the instrument, or any signature thereto, by fraud, . . . or when he negotiates it in breach of faith, or under such circumstances as amount to a fraud."

So as we have seen the title of the original holders of the papers in question was defective. They negotiated such papers in bad faith as to all who signed conditionally, and as to others, if any there were, their signatures were obtained by fraud. The purchaser of commercial paper under such circumstances occupies a materially different position, when he

Hodge v. Smith, 130 Wis. 326.

attempts to judicially enforce it, from that occupied by one who has taken a note as indorsee, which in the hands of the original holder is subject to a defense not based on the title of the latter being defective or his signature having been obtained by fraud. Ordinarily the second holder is presumed, in the absence of evidence to the contrary, to have taken the paper in due course and before maturity. But the rule in this state and generally, independent of the written law, is that where circumstances exist rendering the title of the original holder defective, or showing fraud in obtaining the paper, the burden is on the second holder to go further than to merely produce such paper. He cannot rely upon the mere presumption which obtains, generally, but must carry the burden of showing that he is a holder in due course by proving facts sufficient to establish it. Fuller v. Green, 64 Wis. 159, 24 N. W. 907.

The reason for the foregoing rule, as indicated by judicial authorities, is fairly stated in 4 Am. & Eng. Ency. of Law (2d ed.) at page 323, to the effect that proof of fraud suggests that the party thereto who formerly held the paper and is precluded from recovering thereon himself, transferred it to another to recover for his use, and the latter must overcome the presumption in that regard. It is further said there with supporting authorities:

"It is well settled that the holder does not meet the burden. cast upon him by proof of value merely, but he must also prove .. that he gave value within the conditions which the law prescribes to establish the character of a bona fide holder; or, as it is sometimes expressed, he must show all the circumstances under which he took the paper, with a view to determining his good faith as a holder." "But . . . it has been held that proof that the holder before maturity paid full value for the instrument sued upon" makes out a prima facie case of "bona fides." Market & F. Nat. Bank v. Sargeant, 85 Me. 349, 27 Atl. 192; Henry v. Sneed, 99 Mo. 407, 422, 12 S. W. 663.

Hodge v. Smith, 130 Wis. 326.

That seems reasonable and we adopt it, although it is not universally supported by judicial authority. Of course, proof of payment is not conclusive, it only makes out, as indicated, a prima facie case; one subject to be rebutted by the adverse party. The basic principle of the law, as thus declared by the courts, was incorporated into the Negotiable Instrument Law at sec. 1676-29, in these words:

"Every holder is deemed prima facie to be a holder in due course; but when it is shown that the title of any person who has negotiated the instrument was defective, the burden is on the holder to prove that he or some person under whom he claims acquired the title as a holder in due course.'

Counsel for appellants freely concede that the mere crediting of the consideration agreed upon, to the seller of commercial paper, as was done in this case, does not constitute payment therefor, but it is insisted that the burden in such circumstances is on the respondent to show that the credit was not balanced by payment. Not only the judicial authorities, as we have seen, are to the contrary, but the written law is also. Counsel rely confidently on Warman v. First Nat. Bank, 185 Ill. 60, 57 N. E. 6, but as we read that case it does not bear out counsel's contention. The note there dealt with was subject in the hands of the original holder to an ordinary defense, not one based on the title of such holder being defective, or on fraud in obtaining the paper, and so governed by the principle incorporated into sec. 1676-29 of the Negotiable Instrument statute.

What has been said renders all other questions discussed in the briefs of counsel immaterial. The conclusion reached by the learned circuit court that the title of the original holders of the notes was defective and that such condition cast upon the appellants the burden of proving that they became holders of the papers in due course, which included proof that they actually paid therefor, not merely entered upon the bank books a credit for the agreed consideration, and that, there being

VOL. 130-22

American Foundry and Furnace Co. v. Settergren, 130 Wis. 338.

no proof produced on that subject, the evidence failed to establish the causes of action pleaded, seems to be fully warranted.

By the Court. The judgment is affirmed.

AMERICAN FOUNDRY AND FURNACE COMPANY, Appellant, vs. SETTERGREN and another, Respondents.

December 5, 1906-January 8, 1907.

Sales: Offer to accept return of goods: Failure to return: Remedy of seller: Consideration: Breach of contract: Damages: Appeal and error: Conflict of evidence: Findings: Market value: Witnesses: Competency.

1. A buyer, having received goods ordered accompanied by an invoice, objected to the price and sent his check to the seller for the amount he claimed to be a fair price. The seller immediately replied insisting on the price named in the invoice, but gave the buyer the option to keep the goods at the demanded price or to redeliver the goods to the seller at once. The buyer thereupon requested the return of his check, which was returned, but failed to redeliver the goods. Held:

(1) The return of the check was a sufficient consideration for the promise of the buyer to redeliver the goods.

(2) The inconsistent conduct of the buyer in retaining and using the goods gave the seller the right to elect to hold the buyer on an implied contract to pay the demandéd price, or to stand on the contract to return the goods and to recover its damages instead of the demanded price.

2. In such case, the seller having elected to stand on the contract to return the goods, its damages, in the absence of peculiar circumstances, were the market value of the goods.

3. In such case the election of the seller opens the door to the buyer to offer proof in negation of the damages claimed, and, there being conflict of evidence upon that subject, it was held that the verdict of the jury could not be set aside on appeal.

4. Where a witness, called to prove market values, appears sufficiently familiar in general with that subject to arouse the judicial duty of the trial court to decide as to his qualifications, the decision of that court will be affirmed unless clearly wrong,