Barbour v. Finke

• Decision Date: 31 December 1924
• Docket Number: 5643
• Citation: 47 S.D. 644,201 N.W. 711
• Parties: CLARA J. BARBOUR, Plaintiff and respondent, v. BERTHA FINKE et al., Defendant and appellant.
• Court: South Dakota Supreme Court

47 S.D. 644

201 N.W. 711

CLARA J. BARBOUR, Plaintiff and respondent,

v.

BERTHA FINKE et al., Defendant and appellant. South Dakota Supreme Court Appeal from Circuit Court, Moody County, SD Hon. John T. Medin, Judge #5643--Affirmed Cherry & Davenport, Sioux Falls, SD Attorneys for Appellant. Parliman & Parlinian, Sioux Falls, SD Attorneys for Respondent. Opinion filed December 31, 1924

GATES, P. J.

This was an action brought to foreclose a real estate mortgage dated January 11, 1915, securing a promissory note for $3,500 of even date due on or before 10 years after date, with interest at 6 per cent. per annum payable annually. In March, 1918, the note was indorsed in blank by the payees and delivered to plaintiff, and the mortgage was assigned to plaintiff. The mortgage, but not the note, contained the usual acceleration clause, which provided that upon default in the payment of interest the holder might declare the whole sum due. Default in the payment of interest due January, 1921, and January, 1922, was alleged. Findings of fact and conclusions of law were made, favorable to plaintiff, and judgment of foreclosure was entered, from which, and from an order denying new trial, defendant Bertha Finke, the maker of the note and mortgage, appeals.

Two principal questions are raised upon this appeal. The first is whether appellant had a defense available between the original parties to the note and mortgage. The second is whether respondent became a holder of the note and mortgage in due course. In the view we take, the plaintiff was a holder in due course, and therefore it is immaterial to this appeal whether there was a defense as between the original parties.

In support of her contention that respondent was not a holder in due course, appellant urges two propositions: (a) That the note had been dishonored, and that respondent had noti':e thereof before her purchase; (b) that even if respondent was the holder in due course of the note, she could not become the holder in due course of the mortgage. In other words, she contends that a mortgage does not partake of the immunity from defense of a negotiable promissory note which it secures and that, in an action of foreclosure as distinguished from an action at law on the note for the recovery of the debt, the defenses open to her as against the original mortgage were still open to her at the time of trial.

In support of contention (a) it is urged that the nonpayment of interest when due amounted to a dishonor of the Tote, atd that respondent had notice thereof prior to her purchase. While the interest on the note was payable annually on the nth day of January of each year, the last indorsement of interest thereon showed that interest had only been paid to October 1, 1917, leaving two months interest unpaid. As a witness, respondent testified that she paid $3,590 for the note and mortgage, and that the $90 represented accrued interest. One of the essential elements of a holder in due course of a negotiable instrument is:

"That he became the holder of it before it was overdue and without notice that it has (had) been previously dishonored if such was the fact."

Rev. Code 1919, § 1756; Neg. Inst. Law, § 52.

Prior to the adoption of the uniform Negotiable Instruments Law in the several states, there was conflict as to whether nonpayment of interest rendered a note dishonored. Since the adoption of that act, the conflict has continued. The majority holding, both before and after, is that the mere fact that interest due is unpaid, the principal not being due, does not render the note dishonored. Among the cases supporting this doctrine are State ex rel. Plock v. Cobb. 64 Ala. 127; Morton & Bliss v. N. O. & Selma Ry. Co., 79 Ala. 59o, McLane v. Placerville & S. V. R. R. Co., 66 Cal. 606, 6 P. 748; Fox v. Hartford & W. H. H. R. Co., 70 Conn. 38 A. 871; Taylor v. Amer. Nat. Bk., 63 Fla. 631, 57 So. 678, AnnCas 1914A, 309; Fidelity Tr. Co. v. Mays, 142 Ga. 821, 83 S.E. 961; Winter v. Nobs, 19 Idaho, 18, 112 P. 525, AnnCas 1912C, 302; S. W. Nat. Bk. v. Lindsley, 29 Idaho, 343, 158 P. 1082; Cooper v. Hocking Valley Nat. Bk., 21 Ind. App. 358, 50 N. E. 775, 69 AmStRep 365; Cooper v. M. & M. Nat. Bk., 25 Ind. App. 341, 57 N.E. 569; Highy v. Bahrenfuss, i8o Iowa, 316, 163 N.W. 247; Nat. Bank v. Kirby, 108 Mass. 497; Mendenhall Lbr. Co. v. State Bk., 97 Miss. 648, 54 So. 883; Town of Ontario v. Hill (N. Y.) 33 Hun, 250; Fidelity Tr. Co. v. Whitehead, 165 N. C. 74, AnnCas 1915D, 200; McPherrin v. Tittle, 36 Okl. 510, 129 P, 721, 44 LRA (NS) 395; U. S. Nat. Bk. v. Floss, 38 Or. 68, 62 P. 751, 84 AmStRep 752; Merchants' Nat. Bk. v. Smith, 110 SC 458, 11 ALR 1274; Spencer v. Alki Point Tr. Co., 53 Wash. 77, 101 P. 509, 132 AmStRep 1058; Ireland v Scharpenberg, 54 Wash. 558, 103 P. 801; Shultz v. Crewdson, 95 Wash. 266, 163 P. 734; Kelley v. Whitney, 45 Wis. 110, 30 Am. Rep. 697; Patterson v. Wright, 64 Wis. 289, 25 N.W. 10; Cromwell v. County of Sac. 24 LEd 681; Ind. & I. C. Ry. Co. v. Sprague, 26 LEd 554; Thompson v. Perrine, 1 SCt 564, 27 LEd 298; Morgan v. U. S., 5 SCt 588, 28 LEd 1044; Gilbough v. Norfolk & P. R. Co.., Hughes, 410, Fed. Cas. No. 5419; Long Island L. & T. Co. v. C. C. & I. C. Ry. Co. (C. C.) 65 F. 455; Gillette v. Hodge, 170 F. 313, 95 CCA 205; Union Inv. Co. V. Wells, 39 Can. SCt 625, 11 AnnCas 33.

The minority view is supported by the following cases: Newell v. Gregg, 51 Barb. (N. Y.) 263 (but see Town of Ontario v. Hill, 33 Hun. 25o, affirmed in 99 N. Y. 324; 1 N. E. 887); Citizens' Sa.v. Bk. v. Couse, 68 Misc. Rep. 153, 124 NYS 79; Guckian v. Newbold, 22 R. I. 279, 47 A. 543; Merch. Nat. Bk. v. Brisch, 154 Mo. App. 631, 136 S.. W., 28; Chouteau v. Allen, 70 Mo. 290; First Nat. Bk. v. Scott County, 14 Minn. 77 (Gil. 59) 100 AmDec 194 (but see First Nat. Bk. v. Forsyth, 67 Minn. 257, 64 AmStRep 415, and Lumpkin v. Lutgens, 143 Minn. 139. 172 N. W. 893); and Tuke v. Feagin (Tex. Civ. App.) 181 S.W. 805. Other cases, where the opinion turned upon the existence of an acceleration clause in the note or mortgage, are Hodge v. Wallace, 129 Wis. 84, 116 AmStRep 938; McMillan v. Gardner, 88 Kan. 279, 128 P. 391, AnnCas 1914B, 755; Yeomans v. Nachman, 198 Mo. App. 195, 198 S.W. 180; Chicago R. Eq. Co. v. Merch. Nat. Bk. 10 SCt 990, 34 LEd 349.

We are of the opinion that the majority holding, above set forth, is not only in accord with the great weight of authority, but is also in accord with the spirit and intent of the Negotiable Instruments...