First Nat. Bank of Waverly v. Forsyth

• Decision Date: 19 January 1897
• Citation: 67 Minn. 257,69 N.W. 909
• Parties: FIRST NAT. BANK OF WAVERLY, IOWA, v FORSYTH ET AL.
• Court: Minnesota Supreme Court

67 Minn. 257

69 N.W. 909

FIRST NAT. BANK OF WAVERLY, IOWA,vFORSYTH ET AL.

Supreme Court of Minnesota.

Jan. 19, 1897.

(Syllabus by the Court.)

An overdue and unpaid installment of interest, known to the indorsee at the time of purchase, dishonors negotiable paper, and renders it subject, in the hands of the purchaser, to existing defenses between the original parties, the same as an overdue and unpaid installment of principal. Bank v. Scott Co., 14 Minn. 77 (Gil. 59), followed.

Appeal from district court, Watonwan county; Francis Cadwell, Judge.

Action by the First National Bank of Waverly, Iowa, against W. D. Forsyth and others. Verdict for defendants. From an order refusing a new trial, plaintiff appeals. Affirmed.

Ashley Coffman, for appellant.

J. W. Seager and W. S. Hammond, for respondents.

MITCHELL, J.

The only question presented by this record is whether the promissory note in suit was dishonored paper at the time it was indorsed to the plaintiff, and therefore subject, in its hands, to defenses existing between the original parties. The note was executed April 4, 1891, and was payable July 1, 1894, with interest payable annually. The court finds that it was indorsed to the plaintiff on the 22d of May, 1894; that on that day the plaintiff paid for it $243; that at that time there was interest overdue and unpaid on the note; and that that fact was known to the plaintiff at the time of the purchase. The evidence amply sustains these findings. No interest had ever been paid, and hence there were, at the time of the purchase, two yearly installments of interest overdue and unpaid. The sum which was paid for the paper fully justified the court in finding that the plaintiff knew of this default. Therefore the case is not distinguishable from Bank v. Scott Co., 14 Minn. 77 (Gil. 59). We are asked, however, to overrule that case, for the reason that it stands alone, and is contrary to the uniform current of authorities in other jurisdictions. If this was true, it would probably be sufficient reason for overruling the case, because uniformity is eminently desirable in rules governing negotiable paper.

All the authorities agree that, when the principal of a note is payable by installments, and one installment is overdue and unpaid at the time the paper is indorsed and transferred, the whole paper is dishonored, and subject to all equities between the original parties. Whether or not the same rule applies when there is an installment of interest overdue is a controverted question,-at least, the authorities are not all agreed on it. The cases holding, either directly or impliedly, that the indorsee for value of negotiable paper is within the protection of the law merchant, although interest is overdue and unpaid at the time of purchase, are the following: Bank v. Kirby, 108 Mass. 497;Cromwell v. County of Sac, 96 U. S. 51;Kelley v. Whitney, 45 Wis. 110; State v. Cobb, 64 Ala. 127; Brooks v. Mitchell, 9 Mees. & W. 15. The first three are the only cases in which the question is discussed, and of these the last two adopt substantially the line of reasoning used in Bank v. Kirby. Among the text writers Daniels, Bigelow, and Tiedeman favor this rule. The supreme court of Wisconsin had held the same way in Boss v. Hewitt, 15 Wis. 260, but held differently, or at least expressed different views, in Hart v....