Felt v. Bush

• Citation: 126 P. 688,41 Utah 462
• Decision Date: 06 September 1912
• Docket Number: 2379
• Court: Utah Supreme Court
• Parties: FELT v. BUSH et al

126 P. 688

41 Utah 462

FELT v. BUSH et al

No. 2379

Supreme Court of Utah

September 6, 1912

APPEAL from District Court, Third District; Hon. M. L. Ritchie Judge.

Action by George F. Felt against R. N. Bush and another.

Judgment for defendants. Plaintiff appeals.

REVERSED WITH DIRECTIONS TO GRANT NEW TRIAL.

King Nibley & Russell for appellant.

L. L Baker for respondents.

FRICK, C. J. McCARTY and STRAUP, JJ., concur.

OPINION

FRICK, C. J.

Appellant, as indorsee of a negotiable promissory note, sued the respondents as the makers thereof. Judgment was entered in favor of respondents, from which appellant has appealed to this court.

The material facts, briefly stated, are as follows:

On August 24, 1907, respondents made and delivered their certain promissory note for the sum of $ 519, payable in three years from date, with eight per cent. interest to one James D. Lewis or order. On January 8, 1908, respondents made a payment of $ 100 on said note, which was indorsed thereon, and thereafter paid $ 300 more to be applied thereon, but which was not indorsed on the note, leaving, as respondents believed, unpaid of the principal of said note the sum of $ 119. Afterwards, to wit, on August 1, 1908, said Lewis, as evidence of an indebtedness for lumber theretofore purchased from appellant, made and delivered his certain promissory note for the sum of $ 519 payable after date to appellant or order, and, as collateral security to secure the payment of said note, indorsed and delivered to appellant the note sued on in this action. The only payment that was indorsed on the note sued on was the sum of $ 100, and appellant received and accepted the note without notice of any payments except said sum, and received the same in due course of business and in good faith before maturity. Before this action was commenced, respondents offered to pay and tendered appellant the sum of $ 119.75, the amount they believed to be due on said note, and appellant refused to receive the same, and brought this action to recover the whole amount except the $ 100 aforesaid.

The attorneys representing the parties to this action agree upon and insist that the only question to be decided by this court is whether, under our statute (Comp. Laws 1907, secs. 1577, 1578, 1579, 1606), an indorsee of negotiable paper who received it before maturity in due course of business as collateral security for a pre-existing debt without any further consideration, and without notice of equities or infirmities, is a holder for value so as to protect him against payments that were made to the original payee before maturity and before the note was indorsed and delivered as aforesaid. The authorities in this country have always been divided upon the foregoing proposition. A majority of the state courts of last resort and all of the Federal courts, including the Supreme Court of the United States, have always answered the foregoing question in the affirmative. Upon the other hand, there has always been a very respectable minority of courts of last resort, the New York Court of Appeals leading the list, which has held that, unless there is some independent consideration for the transfer, the taking of a negotiable instrument in due course of business before maturity and without notice as security for a pre-existing debt does not constitute the indorsee a holder for value, and hence he takes the instrument subject to all existing equities between the parties thereto. We shall not pause here to refer to the cases, or even to the courts, that have ranged themselves upon one side or the other. The reader who desires to learn the precise view that is taken by the different state and Federal courts upon either or both sides of the question can do so by referring to the following text-books, namely: Selover on Neg. Insts. (2 Ed.) pp. 217-221; Ogden, Neg. Insts., sec. 128, p. 114 et seq.; Crawford's Ann. Neg. Insts. L. (3 Ed.) 39-41; Brannan's Neg. Inst. L. (2 Ed.) 32-35. See, also, 7 Cyc. 932, where the cases for and against the proposition are collated.

In view that the question is novel in this jurisdiction, and because of its importance, we shall briefly refer to the latest cases in which the negotiable instruments law is construed and applied to the question now under consideration. The parts of the negotiable instruments law that are directly involved are found in Comp. Laws 1907, in the following sections:

"Sec. 1577. Value is any consideration sufficient to support a simple contract. An antecedent or pre-existing debt constitutes value, and is deemed such whether the instrument is payable on demand or at a future time.

"Sec. 1578. Where value has at any time been given for the instrument, the holder is deemed a holder for value in respect to all parties who became such prior to that time.

"Sec. 1579. Where the holder has a lien on the instrument, arising either from contract or by implication of law, he is deemed a holder for value to the extent of his lien."

Respondents' counsel contends that section 1606 of that compilation should also be considered in connection with the foregoing sections. That section reads as follows:

"When the transferee receives notice of any infirmity in the instrument or defect in the title of the person negotiating the same before he has paid the full amount agreed to be paid therefor, he will be deemed a holder in due course only to the extent of the amount theretofore paid by him."

The first three sections referred to above have in the following recent decisions been construed and applied.

In Brooks v. Sullivan, 129 N.C. 190, 39 S.E. 822, decided in 1901, the Supreme Court of North Carolina assumes without comment that the first three sections of the negotiable instruments law above quoted required the court to hold that the transfer of a negotiable instrument before due in due course of business and without notice as collateral security for a pre-existing debt constitutes the transferee a holder for value, and as such is protected the same as any innocent purchaser for value before maturity and without notice of equities or infirmities would be. The Supreme Court of North Carolina prior to this decision had held to the contrary doctrine.

Graham v. Smith, 155 Mich. 65, 118 N.W. 726, decided in 1908, takes precisely the same view that is taken by the Supreme Court of North Carolina. The Michigan court also changed its holdings, as it is said, to harmonize them with the negotiable instruments law.

Payne v. Zell, 98 Va. 294, 36 S.E. 379, decided in 1900, in construing the provisions of the negotiable instruments law referred to, holds the same doctrine laid down in the foregoing two cases.

Voss v. Chamberlain, 139 Iowa 569, 574, 117 N.W. 269, 19 L. R. A. (N. S.) 106, 130 Am. St. Rep. 331, decided in 1908, adopts the rule laid down in the foregoing three cases. In the Iowa case there was perhaps some additional consideration which would have been held sufficient under the minority rule, but the court places the decision upon both grounds; that is, upon the new instruments law and also upon the additional consideration...