CASE DIGEST: B.A. Green, et. al v. Lopeze et.al

 

B.A. Green, ET AL vs. M. Lopez, ET AL.

G.R. No. L-11526

January 2, 1917

 

FACTS:

Lopez et al. issued a negotiable note to a payee. Then, the plaintiffs and Green bought the said note from payee. However, Lopez et al refuses to pay the negotiable instrument saying that they were not holders in due course.

Lopez et al issued a negotiable note to a certain payee. The complaint alleged that the note was indorsed by payee to the plaintiffs “for value received.” However, Lopez et al (the makers) refused to pay the said the negotiable instrument saying that plaintiffs were not holders in due course since they had knowledge of the existence of certain equitable defenses which the makers were entitled to set up as against the payee of the note, before the acquired it by indorsement from the payee.

According to Lopez, one of the makers of the note, a person unknown to him and representing himself to be an employee of Green, one of the plaintiffs, came to him, and made inquiries as to the validity and genuineness of the note, stating that his principal desired this information because he was contemplating its purchase; and that he then and there explained the nature of his equitable defenses as against the payee and repudiated any obligation to meet the note.

Green, one of the plaintiffs, stated that before purchasing the note he sent an employee to call upon the makers of the note to inquire whether it was a good note which would be paid at maturity, and that upon his return this employee stated that he had been informed by the makers of the note that it was a good note duly executed by them and that it would be paid when due.

During the proceedings in the lower court, Green et al filed a demurrer to the complaint because of the lack of an allegation setting forth specifically the nature and amount of the consideration paid by the plaintiffs to the payee of the note, by whom it was indorse in their favor.

ISSUE:

1.       Whether or not the demurrer to the complaint should have been sustained by the trial court

2.       Whether or not Green et al are holders in due course

RULING:

1.       The complaint alleged that the note was indorsed by the payee to the plaintiffs "for value received," and this allegation was conclusively established by the evidence adduced at the trial. This allegation was substantially equivalent to a formal allegation that the indorsement was made for a valuable consideration, and that the truth of this allegation having been established by the introduction of competent evidence establishing the fact that the indorsement was made for a valuable consideration, the purchasers were clearly entitled to judgment for the face value of the note.

In Wade v. Chicago, the Court said that “where negotiable paper has been put in circulation, and there is no infirmity or defense between the antecedent parties thereto, a purchaser of such security is entitled to recover thereon, as against the maker, the whole amount, irrespective of what he may have paid therefor.”

It follows that any allegation which sets forth the existence of a valuable consideration for the transfer by indorsement is sufficient, notwithstanding the failure to allege expressly the amount which was in fact paid by the indorser.

2.       There was nothing on the face of the note to put the purchasers on notice of the existence of such equitable defenses. It was entirely regular in form and came into their possession in the usual course of business. Under these circumstances the burden of proof was manifestly upon the makers of the note to establish the fact of knowledge of these equitable defenses before they could be permitted to rely upon such defenses as against the purchasers.

There is no evidence of record upon which to base a finding that the alleged disclosures made by Lopez were in and in fact made to an employee of either. The Court is do not think that the evidence sustains an affirmative finding that the plaintiffs had knowledge of the alleged equitable defenses when they purchased the note.

One of the purchasers of the note is a broker and the other is an attorney and it would require stronger and more convincing evidence than the interested testimony of one of the makers of the note to satisfy the Court, as against their testimony to the contrary, that these gentlemen were so imprudent as to discount negotiable paper, in the ordinary course of business, after having received formal notice of the existence of equitable defenses against the payee; and our opinion in this regard is strengthened by the undoubted fact that they took the precaution before purchasing the note to send an agent to make inquiries as to its validity.

The Court is force to conclude that the testimony of the maker of the note as to the disclosures made to the purchasers' agent must be rejected, either on the ground that it is wholly false, or upon the ground that he failed to make himself understood in the course of his alleged interview with the plaintiffs' agent, with the result in either event that knowledge of the existence of equitable defenses was not brought home to the purchasers of the note.

Equitable defenses of this nature can in no event defeat the right of the holders of a negotiable note by indorsement and for valuable consideration, until and unless knowledge of the existence of such equitable defenses is brought home to them, or until it appears that ihe holders had such knowledge of the existence of defects in the instrument as to charge them with bad faith in acquiring it under all the attendant circumstances.