
    GUARANTY BANK OF OKLAHOMA CITY v. STATE BANK OF STRATFORD et al.
    No. 12558
    Opinion Filed Feb. 17, 1925.
    1. Bills and Notes — Holder in Due Course —How Defeated.
    The rights of a holder for value before maturity, of a negotiable certificate of deposit may be defeated only by evidence of actual knowledge of infirmity or defect in the title of a prior holder, or knowledge of facts amounting to bad faith in taking same.
    2. Same — Fraud Between Previous Assignors.
    That the transaction by which the last assignor acquired such instrument, was prohibited by Act of Congress and void also for fraud as to the previous assignor, cannot defeat the rights of such holder in due course.
    (Syllabus by Estes, C.)
    Commissioners’ Opinion, Division No. 2.
    Error from District Court, Garvin County; W. L. Eagleton, Judge.
    Action by Guaranty Bank of Oklahoma City against State Bank of Stratford et al. Judgment for plaintiff against McTon Oil Company, and for other defendants. Plaintiff appeals.
    Reversed, with directions.
    Everest, Vaught & Brewer, for plaintiff In error.
    O. F. Green, for defendant in error Arnold.
   Opinion by

ESTES, C.

The stipulated and uncontroverted facts are: That for a cash deposit of $1,000, made by defendant Arnold with his codefendant, State Bank of Stratford, on January 26, 1918, that bank Issued and delivered to him its negotiable certificate of deposit, in due form for said sum, payable 11 months after date with. interest until maturity at four per cent., and no interest thereafter; that said Arnold field said certificate until May 10, 1918, at which time he indorsed with recourse and duly delivered same to McTon Oil Company in exchange for shares of its capital stock; that said stock was delivered to Arnold on May 21, 1918, and that said company did not Rave permission of tRe Capital Issues Committee to sell and issue its capital stock as required Ry Act of Congress, creating tRe War Finance Committee, said issue Reing in excess of tRe amount allowed witRout sucR permission; that on May 11, 1918, said oil company indorsed witR recourse and delivered said certificate to plaintiff Guaranty Bank, wRere said company kept a running account, and received tRen a deposit credit tRerefor, less $50 discount and accrued interest; that on Oc-toRer 10, 1918, said company closed its account witR plaintiff bank, clicking out all its funds to its credit; tkat plaintiff Reid said certificate until its due date, December 26, 1918, at wRicR time it presented same for payment tfirougk its correspondent bank, but payment was refused. Thereupon, plaintiff filed tfiis action, Rased on said certificate, against said .Bank of Strat-ford, tRe maker, and' G. C. Arnold and Mc-Ton Oil Company, indorsers thereof. Defendant Arnold alleged fraud of the McTon in procuring the certificate and the worthless character of the stock Re received tRere-for, and the invalidity thejreof because of the violation of the federal statute; that plaintiff was not a bona fide purchaser of said certificate, for value, without notice of the infirmities of the title of the McTon thereto, but Rad full notice and knowledge thereof, or by reasonable diligence could Rave known same; that plaintiff knew or could Rave thus known such infirmities prior to the withdrawal of the funds of the Mc-Ton from plaintiff bank; that if the court found plaintiff to be a holder of said certificate for value in due course and entitled to a right therein superior, to his, that Re Rave judgment over against the McTon tRerefor. TRe other defendants adopted Arnold’s answer. Judgment — the jury waived —was for plaintiff against the McTon for the amount of said certificate, and in favor of defendants, State Bank of Stratford and Arnold, against plaintiff for costs, from which plaintiff appeals.

1. Plaintiff assigns, in substance, that said judgment was contrary to the law and evidence. TRe evidence shows and is practically conceded that the title of the McTon to isaid certificate was defective under Negotiable Instruments Laiw), 'because of the fraud of that company upon Arnold and its illegal stock consideration paid Rim tRere-for. Under the foregoing facts, plaintiff was a holder in due course unless it took said certificate in bad faith or Rad notice of said infirmities or defect in th,e title of the McTon. Section 7727, Comp. Stat. 1921. is:

‘‘To constitute notice of an infirmity in the instrument or defect in the title of the person negotiating the same, the person to whom it is negotiated must Rave Rad actual knowledge of the infirmity or defect, or knowledge of such facts that his action in taking the instrument amounted to Rad faith.”

Unless plaintiff Rad such actual knowl edge or knowledge of such facts as amounted to bad faith in taking the certificate, it was a holder in due course and entitled to enforce payment for the full amount thereof against the maker, State Bank of Strat-ford, and the McTon and Arnold, indorsers, under another statute and under well-known decisions of this court. TRe uncontradicted and all the evidence in this behalf in addition to the above is: That Mr. Everest, president of and acting for plaintiff bank, purchased said certificate as stated above; was not acquainted with Mr. Arnold, hut acquainted with the officers of the McTon and knew and relied upon defendant bank; did not know what the McTon paid Arnold for said certificate and did not inquire; supposed that the company had been selling stock, but did not know; did not inquire whether the .company had permission from the Capital Issues Committee to sell the stock; knew the company was engaged in developing leases, but considered it a weak company; knew the chairman of the Capital Issues Committee residing at Oklahoma City, and made no inquiry of him whetlm the company had permission to sell stock. Under the numerous decisions of this court, including Fleming v. Drew et al., 88 Okla. 160, 212 Pac. 306, defendants could not establish that plaintiff, was not an innocent purchaser by suspicion of defect of title or by knowledge of plaintiff bank of circumstances which would excite suspicion in the mind of a prudent man, or by circumstances sufficient to put it upon inquiry, but that result could be produced only by proof of bad faith on the part of plaintiff in taking said certificate. When measured by this rule, said evidence, in this behalf, wholly fails to support the judgment rendered herein.

E converso, defendants contend, under National Bank of Commerce v. Armbruster et al., 42 Okla. 656, 142 Pac. 393, that plaintiff- did not sustain the burdejn of proof that it had paid the entire consideration for the certificate to the McTon before it acquired knowledge of such infirmities. Said evidence shows that plaintiff had no such knowledge at any time prior to the due date of said certificate. Defendants also contend that said certificate having been given for oil stock issued and sold in violation of said Act of Congress, the transaction was void, and plaintiff could claim no rights thereunder. In its inception, the certificate was given by defendant bank to defendant Arnold for a cash deposit. As between Arnold and the McTon, the rule invoked is applicable. The rule contended for ’ can have no application to plaintiff. This certificate was valid and regular in its inception in the hands of Mr. Arnold, although he was deprived of same by the fraud of the McTon. Cases like Neil v. Utah Wholesale Grocery Co. (Utah) 210 Pac. 201, dealing with contracts inhibited by a federal statute, are applicable in cases between original parties, but not to this plaintiff.

Note. — See under (1) SC. J. 500. (2) 8 C. J. p. TC0 (see. 1032), p. 787 (sec. 10471.

Let the judgment be reversed and the cause remanded with directions to enter judgment in favor of plaintiff, the Guaranty Bank, against State Bank of Stratford, the McTon Oil Company, and G. C. Arnold for the amount of the certificate of deposit with interest, with judgment in favor of G. C. Arnold over against the McTon Oil Company for the same amount.

By the Court: It is so ordered.  