Maclaren v. Cochran

• Decision Date: 19 August 1890
• Citation: 46 N.W. 408,44 Minn. 255
• Parties: MACLAREN v COCHRAN ET AL.
• Court: Minnesota Supreme Court

44 Minn. 255

46 N.W. 408

MACLARENvCOCHRAN ET AL.

Supreme Court of Minnesota.

Aug. 19, 1890.

(Syllabus by the Court.)

1. One who has been induced by fraudulent representations to purchase property, giving his negotiable promissory notes therefor, may rescind the contract upon the discovery of the fraud; and if he exercises that right, and asserts it as a defense to an action on his note by an indorsee, it becomes incumbent on the plaintiff, in order to overcome that defense, to show that he purchased the note for a valuable consideration, and without notice of the fraud.

2. Fraudulent representations, upon which the other party had a right to and did rely, and by which he was induced to enter into a contract when he otherwise would not have done so, justify a rescission, and the party in the wrong should not be heard to say that the misrepresentations were immaterial because no real injury resulted therefrom.

3. The testimony of an expert in the business of negotiating securities held admissible to show that the dishonor of a promissory note by the maker would depreciate the market value of other notes of the same maker, given for the same consideration, but not yet mature.

Appeal from district court, Ramsey county; VILAS and KELLY, Judges.

H. J. Horn, for appellants.

Warner, Richardson & Lawrence, for respondent.

DICKINSON, J.

This action is for the recovery of the amount of a negotiable promissory note for $1,000, executed by the defendants to one Reaser in November, 1887, and payable 90 days after its date. The plaintiff alleges the indorsement of the note for value, and before maturity, by the payee to one Espy, and by the latter to himself. The defendants aver that the execution of the note was procured by false and fraudulent representations of Reaser and Espy, (to be hereafter more fully stated,) of which the plaintiff is alleged to have had knowledge; and it is denied that he purchased the note in good faith, and before maturity. The court found that the payee, for value received, indorsed the note to Espy, and that the latter, for value received, indorsed it to the plaintiff. The whole case of the plaintiff consisted in the production of the note indorsed to him, and its introduction in evidence. This made a prima facie case for a recovery; but if the evidence presented on the part of the defendants showed fraud on the part of Reaser in procuring the execution of the note, it then became incumbent on the plaintiff to establish by affirmative proof that he was entitled to the peculiar protection enjoyed by bona fide purchasers. Cummings v. Thompson, 18 Minn. 246, (Gil. 228;)Bank v. Luckow, 37 Minn. 542,35 N. W. Rep. 434. If such fraud was shown in this case, and if the defendants seasonably exercised the right of rescission, the determination in favor of the plaintiff cannot stand, for he offered no proof to overcome the effect of such a defense. We must therefore consider whether the defendants made out a case of fraud on the part of the payee, and a defense to this action which would be available except as against a bona fide purchaser of the note without notice of the fraud. For this purpose the nature of the transaction between Reaser and the defendants, upon which the note was given, must be explained. On the 23d of October, 1886, more than a year prior to the transaction between the defendants and Reaser, Reaser was seised of certain lands in Dakota, and by assignment from another person held contracts theretofore made by the latter with the Northern Pacific Railroad Company for the purchaseof a large quantity of Dakota land from that corporation. On that day Reaser entered into a contract with one Rollin C. Cooper to sell and convey to him such lands, Cooper agreeing on his part to pay to Reaser therefor the sum of $25,000. Five thousand dollars of this was paid at that time, and the remainder of the price was evidenced by five promissory notes of Cooper, each for the sum of $4,000, and payable respectively on or before one, two, three, four, and five years from date. It will be observed that the first of these notes fell due in October, 1887. On the 19th of November, 1887, the defendants purchased from Reaser, and took an assignment of his rights and interest under this contract with Cooper. Reaser also conveyed to the defendants by deed the lands which were the subject of that contract. Reaser also indorsed in blank the above notes of Cooper, excepting the one which had become due in October, 1887, and deposited them in escrow with the St. Paul Trust Company, to be delivered to the defendants on the payment of their notes given in consideration of these premises. As the consideration on their part, the defendants paid $6,000 in cash, and executed to Reaser their negotiable notes, amounting to $6,000. The note in suit is one of those notes.

The defendants alleged false and fraudulent representations in several particulars to have been made by Reaser, personally and by his agent, in this matter, by which the defendants were induced to enter into this contract. It will not be...