Howland v. Scott

PRESTON, P. J.

This appeal involves three suits brought on three promissory notes, and, also, three suits brought to cancel the same three notes for alleged fraud, not in the procuring of the three notes sued upon, but in procuring other notes • eventually taken up by the execution of the three notes sued upon.

The defense to the suit to cancel and rescind the notes is: First, that the holders took the same in due and ordinary course of business, without notice of the alleged fraudulent representations or other defenses; second, ratification by the makers of these notes after discovery of the alleged fraud; third, acceptance by the makers of these notes of benefits and considerations both before and at the time of the execution of the new notes, which have not been returned.

The record shows that John Scott, Jr., and James Ferguson were engaged in promoting a corporation known as the Great Western Lime and Cement Company. By order of the corporation commissioner certain shares in this corporation were impounded for their benefit as promotion stock, to be issued to them when they had sold a certain amount of the stock for cash. John Scott, Jr., and James Ferguson, being in need of money, induced Sallie 0. Scott, the aunt of John Scott, Jr., to execute notes in favor of John Scott, Jr., and James Ferguson, aggregating $10,000, such notes to be used by them as collateral security in obtaining money from the bank. To secure Sallie O. Scott, John Scott, Jr., and J ames Ferguson gave her their promissory notes, aggregating $10,000, and, also, agreed to give her a part of their promotion stock in said corporation as a bonus for her credit. These notes executed by Sallie O. Scott were by John Scott, Jr., and Ferguson indorsed and sold to Charles T. Howland and R. S. Howland, the plaintiffs and respondents herein.

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The proceeds of the sale of these notes were used by John Scott, Jr., and James Ferguson for the purposes of the corporation. When these notes became due, the Howlands demanded payment of Sallie 0. Scott. She then claimed and protested to both Howlands that she had been defrauded by her nephew, John Scott, Jr., and James Ferguson. Nevertheless, Sallie 0. Scott, on being threatened with a suit for the collection of said notes and in order to get an extension of time for the payment thereof, paid to the Howlands the interest to December 7, 1923, and at the same time gave new notes, one for $6,000, payable to Charles T. Howland and one for $4,000, payable to E. S. Howland. Mrs. Scott, at the time of executing these last notes, petitioned the corporation commissioner and had transferred into her hands 15,000 shares of the promotion stock originally promised to her by John Scott, Jr., and Ferguson. She also kept in her possession the $10,000 note theretofore given her by John Scott, Jr., and James Ferguson. The Howlands also surrendered to her the old notes with the indorsements of John Scott, Jr., and James Ferguson thereon. At the time Mrs. Scott executed the original notes to John Scott, Jr., and Ferguson, she also signed and put into their hands a writing, stating that she had signed said notes for a good consideration and had no defense thereto. She also supplied a financial statement to accompany her notes.