First National Bank of Minneapolis v. McNairy
| Decision Date | 20 June 1913 |
| Docket Number | 18,187 - (132) |
| Citation | 142 N.W. 139,122 Minn. 215 |
| Parties | FIRST NATIONAL BANK OF MINNEAPOLIS v. B. Y. McNAIRY |
| Court | Minnesota Supreme Court |
Action in the district court for Morrison county to recover $300 upon a promissory note sold and indorsed to plaintiff before maturity. The facts are stated in the opinion. The case was tried before Nye, J., who, when plaintiff rested, denied defendant's motion to dismiss the action and his motion to direct a verdict in favor of defendant, and at the close of the testimony denied a motion of each party for a directed verdict, and a jury which returned a verdict in favor of defendant. From an order denying plaintiff's motion for judgment notwithstanding the verdict or for a new trial, it appealed. Reversed and judgment ordered in favor of plaintiff notwithstanding the verdict.
Sale -- breach of warranty -- action on promissory note -- burden of proof.
1. In this action against the defendant on his promissory note discounted by the plaintiff bank before maturity, and placed to the deposit account of the payee, a customer of the bank the evidence disclosed no defense to the note, except such as arose from an alleged breach of warranty in the sale of an automobile, the note being given as part payment therefor. Held that the burden was upon the defendant to prove that the plaintiff was not a bona fide holder.
Indorsement of note -- omission of word in payee's name.
2. The note was executed and delivered to Northland Motor Car Company but the word "Car" was omitted from the name of the payee. In discounting the note, the true name of the payee was indorsed. It is held that the variance or omission is not fatal to a valid indorsement under the law merchant.
Discount of customer's paper -- purchaser for value -- checking out amount credited.
3. A bank which upon discounting its customer's negotiable paper places the amount to the credit of the customer's deposit or checking account does not become a purchaser for value until the credit so given is exhausted by payment of checks drawn against such account. In determining whether such credit has been exhausted, the rule is to be applied that as checks are paid the amount is to be charged against the oldest item of deposit or credit of the customer.
Evidence.
4. Under this rule, the whole amount for which credit was given upon the discount of the note was paid out the day after its discount before any notice of any defense thereto and before it became due.
Directed verdict.
5. Upon the evidence, the plaintiff was entitled to a directed verdict.
A. H. Vernon, for appellant.
D. M. Cameron, for respondent.
Appeal by plaintiff from an order denying its blended motion for judgment notwithstanding the verdict or a new trial.
On June 13, 1911, the Northland Motor Car Company sold an automobile for $1,400 to the defendant and such sale, he claims, was made upon certain representations and warranties. The defendant paid $1,000 at the time and gave his two promissory notes for the balance of the purchase price, one for $100 due in 20 days and one for $300 due in 90 days. The first was paid when due, the second is the note involved in this suit. The plaintiff claims that in the ordinary course of business, for value and in good faith, it purchased the note before maturity. This the defendant puts in issue, and, while admitting the execution of the note, sets up as a defense thereto that the representations and warranties of the Northland Motor Car Company, inducing the defendant to buy the automobile, were frandulent and untrue, and because thereof alleges damages in a sum exceeding the amount of the note sued on. It appeared at the trial that the Northland Motor Car Company was a customer of the plaintiff, that it kept a checking account with it and was indebted to it in a large sum for money borrowed. The evidence also shows that on September 6, 1911, plaintiff discounted the note at the request of the Northland Motor Car Company for $299.70, placing that amount to the credit of the company's checking account in the bank. At the close of business on September 5, the company's credit balance on its checking account was $295.08, on the sixth, $1,536.98, on the seventh $209.63, but thereafter it was never less than $540. On the sixth of September the company deposited with the bank $1,241.90 (this included the note in suit and other notes then discounted by the plaintiff) and on the seventh of September $1,000. So that, if the rule be applied that as checks are paid by the bank, the payment should be charged against the oldest deposit item, then the whole of the amount deposited on the sixth together with $790.37 out of the $1,000 deposited on the seventh was paid out before the close of that day's business.
The first eight errors assigned relate to the contention that the evidence fails to show that the plaintiff was not a bona fide holder of the note, therefore, the defense asserted is not available. The ninth challenges part of the charge. Each party moved for a directed verdict when the testimony was in.
The evidence entirely fails to show such fraud in the transaction leading up to the execution of the note that the onus of proving good faith devolved on the plaintiff. The only defense attempted to be proved was an offset to the note arising from the breach of an alleged warranty in the sale of the automobile. When the plaintiff produced the note, indorsed by the payee, the presumption obtained that the note was taken in good faith, for value, before maturity, in due course of business and without notice of any defenses thereto. First Nat. Bank v. Person, 101 Minn. 30, 111 N.W. 730; 1 Dunnell, Minn. Dig. § 1040, and cases there cited. The court therefore rightly laid the burden on the defendant to prove the plaintiff not a good faith purchaser. We are of opinion that he signally failed in this in so far as the evidence shows that the funds credited to the deposit account of the Northland Motor Car Company upon the discount of this note were actually paid out before maturity or notice of any defense thereto.
The payee of this note, Northland Motor Car Company, was a going concern engaged in legitimate business. A business in which it is commonly known that negotiable instruments are taken. The company was a customer of the plaintiff bank, and the evidence discloses that it did business with it to a considerable extent. It had a line of credit, and also kept a deposit account of some size subject to checking. There can be nothing suspicious in the fact that when the note was discounted, the proceeds were placed to the credit of the indorser's checking account instead of then paying cash for the note. Indeed, it may be said that when a bank discounts its customer's paper, the usual and ordinary method is to proceed exactly as was done in this case.
There are only two matters urged by the defendant as evidence tending to give notice which require mention. The first is that some sort of notice was conveyed to the plaintiff in a letter which the defendant claims to have written it explaining why he had sent the check to pay the $100 note direct to the company instead of to plaintiff, when he had...
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