Bank of Montreal v. Beecher, 19,662 - (56)

• Court: Supreme Court of Minnesota (US)
• Writing for the Court: HALLAM, J.
• Citation: 157 N.W. 1070,133 Minn. 81
• Parties: BANK OF MONTREAL v. E. G. BEECHER
• Docket Number: 19,662 - (56)
• Decision Date: 19 May 1916

157 N.W. 1070

133 Minn. 81

BANK OF MONTREAL v. E. G. BEECHER

Nos. 19,662 - (56)

Supreme Court of Minnesota

May 19, 1916

Action in the district court for Hennepin county to recover $6,250 upon a promissory note. The answer alleged that the note was given without any consideration; that plaintiff, having an overdue claim against David Elliott, the husband of the payee, caused her wrongfully to divert the note from the purpose for which it was given by giving it to plaintiff as collateral to secure the payment of that claim; that plaintiff never gave any consideration whatsoever either to defendant, to the payee or to her said husband, and that plaintiff is not a bona fide holder of the note for a valuable consideration, but received the same with notice of the foregoing facts and solely to secure the payment of an antecedent debt of David Elliott. The case was tried before Steele, J., who made findings and ordered judgment for $5,846.87 in favor of plaintiff. From an order denying his motion to amend the findings and conclusions of law or for a new trial, defendant appealed. Affirmed.

SYLLABUS

Bills and notes -- purchaser for value.

1. One who takes an indorsement of a promissory note as collateral security for an antecedent debt owing to him by the indorser is a purchaser for value.

Promise of third person to pay debt of another.

2. On the other hand, where one takes, as collateral to a debt due from his debtor, the naked promise of a third person who is indebted to neither, such promise is without consideration.

Consideration -- continuance of supplementary proceedings.

3. An agreement to forbear the enforcement of a legal right is a sufficient consideration to sustain a promise. Where a negotiable note held by a wife is indorsed and delivered to a judgment creditor of her husband as collateral security for the payment of the judgment, the continuance for a period of three months of proceedings supplementary to execution upon such judgment is a valuable consideration for the transfer.

Consideration -- collateral security.

4. Whatever may be the nature of the consideration in such a case, if it is a valuable consideration the indorsee may hold the collateral, not merely for the amount of the new consideration, but for the full amount of the debt for which it is pledged.

Notice -- constructive notice of accommodation note.

5. It is claimed that the note was an accommodation note, but there is no evidence that plaintiff had notice of that fact. Notice may be actual or constructive. In order to charge an indorsee with constructive notice the facts must be such as to impute fraud or actual bad faith.

Cray & Eaton, for appellant.

Durment Moore, Oppenheimer & Haupt, and Hough, Campbell & Ferguson for respondent.

OPINION

HALLAM, J.

This is an action on a promissory note brought by an indorsee against the maker. Plaintiff acquired the note by indorsement before maturity. Defendant contends that the note was given without consideration and for the accommodation of the payee and offered proof to that effect. The court rejected this evidence on the ground that it appeared that plaintiff was a bona fide holder for value without notice.

If plaintiff was not a purchaser for value, or if charged with notice of the facts claimed in defense, the proffered testimony should have been received.

The facts are these: Lillian K. Elliott was the original payee of the note. Plaintiff had a judgment against David Elliott, her husband. Supplementary proceedings were instituted. Husband and wife were called for examination. After some examination this note was indorsed and delivered by Lillian K. Elliott to plaintiff as collateral security for payment of the judgment against her husband, and a stipulation was made that in consideration thereof further hearing in supplemental proceedings be "extended and continued" from April 25 to June 28. This extension of time was the only new consideration for the indorsement of the note.

1. It is settled in this state that one who takes an indorsement of a promissory note as collateral security for an antecedent debt owing to him by the indorser is a purchaser for value. Rosemond v. Graham, 54 Minn. 323, 56 N.W. 38, 40 Am. St. 336; Haugan v. Sunwall, 60 Minn. 367, 62 N.W. 398; First National Bank of Morrison v. Busch, 102 Minn. 365, 113 N.W. 898, German American State Bank of Ritzville v. Lyons, 127 Minn. 390, 149 N.W. 658; Snelling State Bank v. Clasen, 132 Minn. 404, 157 N.W. 643.

2. On the other hand, it is held that when one takes, as collateral to a debt due from his debtor, the naked promise of a third person who is indebted to neither, such promise is without consideration. Security Bank of Minnesota v. Bell, 32 Minn. 409, 21 N.W. 470; Turle v. Sargent, 63 Minn. 211, 65 N.W. 349, 56 Am. St. 475; West Coast Co. v. Bradley, 111 Minn. 343, 127 N.W. 6; 1 Daniel, Neg. Inst. (6th ed.) § 185; 1 Randolph, Com. Paper (2d ed.) § 446; Tiedeman, Com. Paper, § 170.

3. This case is not quite the same as either. It differs from the first in that the collateral is delivered by one not the debtor, and it differs from the second in that there is here an agreement, in consideration of the transfer, to suspend the enforcement of a lawful remedy for the collection of the debt.

It is said in Railroad Co. v. National Bank, 102 U.S. 14, 27, 26 L.Ed. 61, that when a negotiable note upon its delivery to the transferee is in such form that the transfer makes him a party to the instrument, and imposes on him the duty to fix the liability of prior parties according to the commercial law by presentation for payment and due notice in case of nonpayment, the obligation thus imposed is a sufficient consideration to make the transferee a holder for value. See also Turle v. Sargent, 63 Minn. 211, 217, 65 N.W. 349, 56 Am. St. 475. Without either approving or disapproving this principle, we prefer to place our decision on other ground. In our opinion the suspension or continuance of the proceedings supplementary to execution formed a valuable consideration for the transfer of the note in question here, and made the plaintiff a purchaser for value within the law merchant.

It is well settled that an agreement to forbear or suspend the enforcement of a legal right is a good and sufficient consideration to sustain a promise. We might give many illustrations. In this state it has been held: That an agreement to extend the time of payment of a debt is a sufficient consideration for the note of a third party given as collateral to the debt (Nichols & Shepard Co. v Dedrick, 61 Minn. 513, 63 N.W. 1110), or for a guaranty of the debt (Peterson v. Russell, 62 Minn. 220, 64 N.W. 555, 29 L.R.A. 612, 54 Am. St. 634); that the abandonment of an attachment sued out and about to be levied is sufficient consideration for the promise of a third party to pay the defendant's debt (Brewster v. Leith, 1 Minn. 40 [56]); that an agreement to defer a threatened foreclosure of a chattel mortgage is sufficient consideration for the promise of a person in possession to pay a stipulated...