First Nat'l Bank v. Smith

• Decision Date: 09 November 1895
• Citation: 8 S.D. 7,65 N.W. 437
• Parties: FIRST NATIONAL BANK OF PIERRE, Plaintiff and respondent, v. SMITH et al., Defendant and appellant.
• Court: South Dakota Supreme Court

8 S.D. 7

65 N.W. 437

FIRST NATIONAL BANK OF PIERRE, Plaintiff and respondent,

v.

SMITH et al., Defendant and appellant. South Dakota Supreme Court Appeal from Circuit Court, Edmunds County, SD Hon. Loring E. Gaffy, Judge Affirmed C. H. Barron, Albert Gunderson Attorneys for appellants. Horner & Stewart Attorneys for respondent. Opinion filed Nov. 9, 1895 (See 8 SD 101, 65 NW 439)

KELLAM, J.

This was an action by respondent against appellants upon a negotiable promissory note made by them to DeLaney Bros. The note was dated September 17, 1892, and became due November 17, 1893. On the 22d day of September, 1892, the payees indorsed the note, “without recourse” to the respondent bank. The appellants answered both a general denial and an affirmative defense, based upon a breach of warranty of the property for which the note was given. At the close of the evidence, the court directed a verdict for the respondent, and this appeal is from a judgment entered upon such verdict.

All the assignments of error are subordinate to two general propositions maintained by appellants: First. That a national bank cannot become the owner of commercial paper by purchase; that the attempted purchase is ultra vires and void, and consequently gives it no title or ownership upon which it can maintain an action. Appellants cite a number of cases which would sustaln their contention. See Bank v. Baldwin, 23 Minn. 198; Bank v. Pierson, 24 Minn. 140; Lazear v. Bank, 52 Md. 78.

But the later and more authoritative adjudications of the United States supreme court rule the question otherwise; that is, they hold that the want of authority by the bank to so acquire such paper can only be taken advantage of by the United States, and cannot be used by the maker as a defense to an action by the bank upon the same. See Bank v. Matthews, 98 U.S. 621; Bank v. Whitney, 103 U.S. 99. The supreme court of Minnesota subsequently recognized the controlling force of these decisions, and in Bank v. Hanson, 33 Minn. 40,held that “the plea of ultra tires is not available to defeat a recovery by a national bank upon negotiable paper purchased by it”; overruling Bank v. Pierson, 24 Minn. 140. The same question was before the supreme judicial court of Massachusetts in Bank v. Butler, 157 Mass. 548, 32 N.E. 909; and it was there held that, even if such purchase by the bank were unlawful, the violation of the law could only be availed of in a proceeding against the bank in the interest of the public to deprive it of its charter, but could not be used by the maker of the note as a defense in an action upon it. See, also, 16 Am. & Eng. Enc. Law, p. 167, and cases cited to support the text that “the plea of ultra vires is not available to defeat a recovery by a national bank upon negotiable paper purchased by it, even though the bank acquired such paper, not as security, but as its absolute property.”

It is next contended by appellants that the court erred in directing a verdict for plaintiff on the theory, as announced by the court, that “the evidence also shows that it [the note] was transferred to an innocent holder for value before maturity; that the defense attempted to be offered by defendants is not good under the law.” The note was made to DeLaney Bros., and by them indorsed to the respondent bank. The presumpition is that it was indorsed for a valuable consideration, and in the ordinary course of business. Comp. Laws, Sec. 4470. Appellants’ contention is that its transfer for a valuable consideration was denied by the answer, and at least left in so much doubt by the evidence as to prohibit the court from treating it as a...