Case Name: The Merchants' National Bank v. McNulty et al.
Court: Iowa Supreme Court
Jurisdiction: Iowa
Decision Date: 1873-03-20
Citations: 36 Iowa 229
Docket Number: 
Parties: The Merchants’ National Bank v. McNulty et al.
Judges: 
Reporter: Iowa Reports
Volume: 36
Pages: 229–231

Head Matter:
The Merchants’ National Bank v. McNulty et al.
Promissory note: latent defenses. It is only the bona, fide holder of a note for a valuable consideration before maturity that is protected against equities existing between the maker and payee, and the question whether the plaintiff is such an one, is one of fact to be submitted to the determination of the jury.
Appeal from Dubuque District Qowrt.
Thursday, March 20.
Action upon a promissory note for $3,989.44, executed by H. T. McNulty to Burton, Hill & Co. or order, dated January 1st, 1870, due six months after date, and indorsed by Burton, Hill & Co. to Geo. W. Burton, and by Geo. W. Burton to plaintiff.
The defendant McNulty for answer alleges that the note was executed by him to Geo. W. Burton & Co., merely for the purpose of formally closing a long and complicated account existing between them, they agreeing not to put the note in circulation until a full and final accounting could be had, and that then, if the .balance proved different, the note should be destroyed. That at the time he executed said note he owed Burton, Hill & Go. nothing, but that, on the contrary, they were indebted to him in a large amount. That Burton, Hill & Co., in violation of their agreement, assigned by indorsement the note to Geo. W. Burton, a member of said company, and that Burton assigned the same back to Hill, another member of said firm. That plaintiff gave no value for the note, but holds it merely as the agent of Hill for collection, and took it with full knowledge of the circumstances attending its execution.
Jury trial. Verdict and judgment for plaintiff. Defendant appeals.
The necessary facts appear in the opinion.
Griffith & Knight, John Doud, Jr., and D. K Lyon for the appellant.
8. M. Pollock and H. B. Fouke for tbe appellee.

Opinion:
Day, J.—
It was proved at tbe trial that tbe bank took tbe note from Hill, wbo before that time bad been a depositor there, and gave him credit on bis book account for tbe face of tbe note exclusive of the accrued interest, and that Hill, at that time, was not indebted to tbe bank.
Tbe defendant McNulty offered to prove several distinct facts, in substance ás follows:
That tbe note was given without consideration; that tbe payees were indebted to McNulty at tbe time of its execution; that they agreed to bold tbe note and not put it in circulation; that plaintiffs took tbe note out of their ordinary course of business; that only $300 of tbe credit for it bad been drawn by Hill before maturity and protest; that then McNulty informed plaintiffs of tbe facts constituting bis defense, and they required Hill to make good his account so that bis credit should equal tbe credit for the note; that Hill did make further deposits so that bis credit was made equal to tbe face of tbe note, and it still so remains; that while tbe said credit to tbe amount of tbe note less $300 stood as abalance in tbe account in Hill's favor, plaintiffs dishonored bis check for $25; that notwithstanding Hill still has said credit of tbe amount of said note in bis account with plaintiffs, as a balance in his favor, yet, be has lately borrowed large sums of money at ten per cent interest, and mortgaged all bis property to secure tbe same; that several conversations were bad at tbe bank between Babbage, tbe cashier, and Burton and Hill, to determine in whose name tbe suit should be brought, and that they finally agreed to bring tbe suit in tbe name of tbe bank, and instituted it pursuant to said agreement; that tbe plaintiff retained tbe note in suit for nearly a year after it matured, without instituting' proceedings on it, and commenced this suit at tbe request of Hill, and Burton, Hill & Co., tbe understanding being that they were to pay the expenses of tbe suit, and that tbe bank was not to be at any expense; that tbe bank is suing upon tbe note for tbe benefit of Hill, or Burton, Hill & Co.
All of this offered evidence the court refused to submit to the jury. Appellant duly excepted to the various rulings of the court thereon, and now assigns them as error. The evidence should have been admitted. It is only the bona fide holder for valuable consideration of a negotiable note transferred before maturity, that is protected against equities growing out of the note existing between the maker and the payee. The question here is not whether such equities may be interposed against such bona fide holder, but whether the plaintiff is in fact such holder. Upon this question the defendant tendered an issue of fact, upon which it was his right to have the response of the jury.
If the note was. obtained without consideration, as alleged, the payees could not recover thereon. The indorsee, Burton, and the subsequent holder, Hill, constitute the firm of Burton, Hill & Co., the payees, and hence held the note subject to the same defenses which might have been interposed against it in the hands of the payees. The plaintiff, if not a bona fide purchaser, stands in no better position. Suppose it should be conceded that the placing of the note to the credit of Hill upon the books of the bank, constitutes it prima faeie a bona fide holder for value in the usual course of business. What then? Does this conclude defendant? Is the evidence to be unilateral only ? Shall not the defendant be heard to give his version of the transaction ?
Clearly he had a right to show all the circumstances attending the transfer of the note, and the subsequent course of dealing respecting it.
He alleges that plaintiff is not the real owner of the note but holds it merely as the agent of Hill for collection, and that the note was procured without consideration. The facts which he offered to prove certainly tend, in some degree, to support these allegations. The evidence was competent and material. Its weight and effect are questions for the jury. In excluding the evidence from the jury, the court erred.
Reversed-.