First Nat. Bank of Mankato v. Carey

• Decision Date: 20 October 1922
• Docket Number: No. 22757.,22757.
• Parties: FIRST NAT. BANK OF MANKATO v. CAREY et al.
• Court: Minnesota Supreme Court

153 Minn. 246

190 N.W. 182

FIRST NAT. BANK OF MANKATO

v.CAREY et al.

No. 22757.

Supreme Court of Minnesota.

Oct. 20, 1922.

Appeal from Municipal Court of Mankato; H. S. Goff, Judge.

Action by the First National Bank of Mankato against Thomas H. Carey and another. From a judgment for plaintiff, notwithstanding the verdict, defendants appeal. Affirmed.

Syllabus by the Court

A provision in a promissory note to pay exchange and collection charges does not take it out of the class of negotiable instruments under the Negotiable Instruments Act.

The holder of a negotiable instrument is deemed prima facie to be a holder in due course and need not prove affirmatively that he is such holder unless it be shown that the title of the person who negotiated the instrument was defective.

Where a promissory note was executed and delivered unconditionally, a promise by the payee not to transfer it does not render his title defective.

Where the title of the person who negotiated a note was not defective, a defense of breach of warranty is not available against the transferee, unless it be shown that he had knowledge of the warranty and of its breach before he parted with the consideration for the note. C. J. Laurisch, of Mankato, for appellants.

Ivan Bowen, of St. Paul, Le Roy Bowen, of Minneapolis, and F. E. Morse and S. B. Wilson, both of Mankato, for respondent.

TAYLOR, C.

This is an appeal from a judgment on a promissory note rendered by order of the court notwithstanding a verdict for the defendants. The defendants owned a Little Giant tractor which they had used for six years. They took it to Mankato and had the Little Giant Company overhaul and repair it. They testified that when they came for the tractor the company represented and guaranteed that it had been put in first-class shape and would do good work, but refused to let them have it until they had settled for the repairs; that they gave the note in controversy for the cost of these repairs; that at their instance the company promised not to transfer the note; that they took the tractor home and about a month later attempted to use it and found that it would not work. The note was dated July 1, 1920, and was payable on or before December 1, 1920. The Little Giant Company did its banking business with the plaintiff bank. On July 2, 1920, the company indorsed the note and delivered it to the bank as a part of its deposit made on that day and received credit for the amount in its account with the bank. At the close of business on that day it had a credit balance in this account of more than $3,000. At the close of business on the following day, July 3d, the account was overdrawn, showing that the bank had paid out the full amount of the note. When the note became due the defendants refused to pay it and the bank brought this action.

While the answer alleges fraud as well as breach of warranty and lack of consideration, the evidence most favorable to the defendants will not sustain a finding of fraud, but only of a breach of warranty, or, perhaps, of a failure, or partial failure, of consideration. Neither breach of warranty nor failure of consideration can be interposed as a defense to an action on a negotiable promissory note brought by a bona fide purchaser thereof, or as he is termed in the Negotiable Instruments Act (Gen. St. 1913, § 5871), a holder in due course.

[1] 1. Defendants contend that the note is not a negotiable instrument which passes to a holder in due course free from defenses, for the reason that it contains a promise to pay ‘all exchange and collection charges.’ The rule for which they contend was the rule in this state prior to the enactment of the Negotiable Instruments Act but was abrogated by section two of that act, section 5814, G. S. 1913. By virtue of that statute a stipulation in a note to pay collection charges no longer takes it out of the class of negotiable paper. First Nat. Bank v. Miller, 139 Wis. 126, 120 N. W. 820,131 Am. St. Rep. 1040;McCornick v. Swem, 36 Utah, 6, 102 Pac. 626,20 Ann. Cas. 1368.

[2][3] 2. The holder of a negotiable instrument is deemed prima facie to be a holder in due course; but when it is shown that the title of the person who negotiated the instrument was defective the burden is on the holder to prove that he, or some one under whom he claims, acquired it in due course. G. S. 1913, § 5871. Defendants contend that the title of the Little Giant Company was defective for the reason that the company had promised not to transfer the note, and that this cast upon the plaintiff the burden of proving that it was a holder in due course. The note was executed and delivered as an actual obligation of the defendants; it was not delivered conditionally or to take effect on the happening of some future event, but absolutely and to go into effect at once. The promise not to transfer it did not make the title defective nor furnish any ground for a defense to the note. Farmers' State Bank v. Skellet, 149 Minn. 266, 183 N. W. 831;Snelling State Bank v. Clasen, 132 Minn. 404, 157 N. W. 643, 6 A. L. R. 1663.

[4] 3....