
    City Deposit Bank, of Columbus, Ohio, Appellant, v. Samuel T. Green, et al., Appellees.
    1 Evidence: varying a writing. In a suit on a joint and several promissory note containing no ambiguity, neither parol evidence, nor a prior contract not a part of the same transaction, providing for the giving of the note are admissible for the purpose of explaining the liability of the makers.
    2 Negotiable instruments: bona fide holder. A bank which discounts a note for a dispositor, simply giving him credit for the proceeds in his account, is not a bona fide holder so long as the credit exists; but if the depositor was indebted to the bank at the time in an amount equal to the proceeds, or withdrew the deposit before maturity of the note and notice to the bank of any infirmity therein, it would then become a bona fide holder.
    3 Same: burden of proof. In the absence of fraud in the execution of a note, the burden is upon the maker to show that the holder is not a bona fide purchaser.
    
      Appeal from Calhoun District Court.— Hon. F. M. Powers, Judge.
    Monday, April 9, 1906.
    Action upon defendants’ joint and several promissory note for tbe sum of $1,000. Verdict for plaintiff in tbe sum of $730.30, interest, and costs. From a judgment on tbe verdict, plaintiff appeals.—
    
      Reversed.
    
    
      J. M. Toliver and M. R. McCrary, for appellant.
    
      Hutchinson & Jacobs, for appellees.
   Deemer, J.

Tbe note in suit wbicb was given to McLaughlin Bros., is negotiable in form, and was signed by eacb of tbe defendants, thirteen in number. Thereby defendants jointly and severally promised to pay to tbe payees or bearer, $1,000, two years after date, with interest at the rate of 6 per cent. This note with others was given in performance of a contract for the purchase of a stallion by these defendants from McLaughlin Bros., the material parts of which contract read as follows: “ McLaughlin Bros, agree to sell the above-named stallion for $3,000.00 to the undersigned subscribers, who wishing to improve their stock agree to pay McLaughlin Bros. $200.00 for each share in said stallion. Capital stock, $3,000.” No. of shares, 15. Payments to be made in cash, or one-third in two years, one-third in three years, one-third in four years after July 1, 1901, secured by joint and several notes with interest.” Other provisions of the contract will be found in McArthur v. Board, 119 Iowa, 562, to which reference is made. When time arrived for performance defendants did not pay cash, but instead made the note upon which suit is brought with others, according to the terms of the contract. To ,this action on the note defendants pleaded that they were severally and not jointly liable, and that the note was obtained “through fraud. They further pleaded that plaintiff was not a good-faith holder of the note.

To establish their claim that they were severally and not jointly liable, they introduced the contract for the purchase of the stallion, and some parol testimony, claiming that these matters should be taken into account in ascertaining the extent of their liability on the note. If the action were upon the contract there would be no doubt of the soundness of defendant’s contention. McArthur v. Board, supra. The action is not upon that instrument however, but upon one of the notes executed in performance thereof. There is no ambiguity in the note, and it is expressly provided in the contract, that if payment is not made in cash, the purchase price shall be secured by joint and several notes with interest. Defendants were obligated in the event they did not pay in cash to secure the purchase price by joint and several notes. There is no ambiguity in this expression unless it be found in the use of the term notes.” That is to say should there be fifteen or more joint and several notes, or three, due respectively in two, three, and four years. In any event defendants were to be jointly and severally bound, and it is largely immaterial we think which construction should be put upon this contract for the parties have given it their own construction, and have executed three joint and several notes each for the. sum of $1,000, representing the purchase price of the animal. Having placed their own construction upon the contract we need not speculate on the proper interpretation thereof. The notes and the contract were not executed at one and the same time and as a part of the same transaction; for the notes were given in fulfillment of the contract obligation, and in performance of the promise therein made. After the execution of the notes the contract became fundus officio; and as there is no ambiguity in the note there is no occasion so far as this issue is concerned to refer to the contract for any explanation thereof.

Defendants’ attempt to ingraft conditions and limitations upon their absolute liability on the note clearly offends against the rule forbidding the introduction of extrinsic or parol evidence to vary, change, or modify the terms of a promissory note. Were there doubt or ambiguity on the face of the note, or had the contract been executed at the same time as the note and as a part of the same transaction, we might refer back to the contract and perhaps receive oral testimony for light whereby to solve the difficulty; but that is not the situation here. There was ample consideration for.the notes in any event; and the question reduced to its last analysis is: May parol or extrinsic evidence be received to contradict change or vary the terms thereof ? Under the peculiar circumstances of this case we think such testimony was inadmissible save on the issue of fraud; and that the trial court was in error in admitting the same.

It was also in error in instructing .that, if plaintiff was not an innocent holder, defendants were each liable for no more than their respective shares, to wit, eleven-fifteenths of the amount called for by the note, two of the defendants having made default, or not being in the case. As supporting our conclusions on this branch of the case, see De Long v. Lee, 73 Iowa, 54; Farmers’ Bank v. Wilka, 102 Iowa, 315 ; Dickson v. Harris, 60 Iowa, 730; Courtwright v. Stickler, 37 Iowa, 386; Mason v. Mason, 72 Iowa, 459.

II. The fraud issue was not submitted to the jury, and is not involved on this appeal; but the court instructed as to who would be considered a bona fide purchaser of negotiahie paper, saying in one of its instructions, in effect, that if a bank discounts paper for one 0f ¿epog^ors, giving him credit therefor upon its books for the proceeds, it is not a bona fide holder, unless some other and valuable consideration passes. Further it instructed that such a transaction simply created the relation of debtor and creditor and so long as that relation continued, and the deposit is not drawn the bank is not an innocent holder, even though it took the paper before maturity and without notice. Taken abstractly, these instructions, in so far as they attempted to cover the case, announced a correct rule of law. Mfrs. Bank v. Newell, 71 Wis. 309 (37 N. W. 420) ; Drovers’ Bank v. Blue, 110 Mich. 31 (67 N. W. 1105, 64 Am. St. Rep. 327) ; First Bank v. Mt. Pleasant Milling Co., 103 Iowa, 518 (72 N. W. 689). But as applied to the facts of this case the instruction was likely to be misleading, and should have been amplified with reference to these facts. The testimony upon this subject all came from plaintiff's witnesses, and it is a little difficult to understand the transaction. They, or some’of them, say that they paid in cash, $1,075.17 for the note. Whether they did or not was a question for a jury, and this was properly submitted. But there was also testimony tending to show that they discounted a lot of notes belonging to McLaughlin Bros., amounting to over $20,000, when they obtained the note in suit, and that the firm was at that time owing the bank an overdraft of something more than $1,700, that it drew out on the day the bank received the notes something over $600, and that the firm also had a debit account of $40,-000 on that day, which was afterwards increased until it amounted to $57,000. Plaintiff says that no arrangement about the indebtedness was made when the notes were discounted; that McLaughlin Bros, wanted some ready money, and that it paid them cash for the notes. Plaintiff’s books show a credit entry of $20,233.39 of date April 4, 1903, the day it claims to have purchased the notes, and a debit entry on that day of $601.23. There is no showing as to what was done on subsequent days save testimony to the effect that the'debit account grew larger and amounted to over $57,000 at the time the testimony ivas taken.

As the defense of fraud was not submitted, the burden was upon defendants to show that plaintiff was not an innocent holder. Freillenberg v. Rubal, 123 Iowa, 154. If tank allowed McLaughlin Bros, to check 011t more than these discounted notes amounted

to before the maturity of the note, and before receiving notice of an infirmity in the note or if the firm was indebted to the bank in a sum greater or as great as the amount of the credit, which was then due, then under the authorities it became a bona fide holder. Warman v. Bank, 185 Ill. 60 (57 N. E. 6, 49 L. R. A. 412) ; Fox v. Bank, 30 Kan. 441 (1 Pac. 789); Crosby v. Grant, 36 N. H. 273; Drilling v. Bank, 43 Kan. Sup. 197 (23 Pac. 94). If there was no shoiving as to the status, of McLaughlin Bros.’ account after the discounting of the notes we should be inclined to hold that the burden was upon plaintiff to show that this credit appearing.upon the books of date April 4, 1903, was exhausted before the maturity of the note in suit, or that it held overdue paper upon which it might properly apply the same. The record is in a confused state on this proposition, and it is enough to say that the trial court did not properly instruct upon tbe question of what constitutes one a good-faith holder of negotiable paper under the facts disclosed by this record. The major part of the instruction seems to have been copied from volume 4, Am. & Eng. Ency. of Law (2d Ed.) page 298, but a very material part was omitted, to wit, the words, “ who is not in its debt.”

Eor the errors pointed out the judgment must be, and it is, reversed.  