Court Opinion

ID: 6738681
Source: CourtListenerOpinion
Date Created: 2022-07-20 23:20:24.629746+00
Date Added: 2024-06-11T16:01:53.312958
License: Public Domain

Birdzbll, J.
(dissenting). The statement of facts contained in the main opinion in this case is so framed that it appears to obscure the real transaction. As I read the record in this case, the main transaction and the one involved here was between Deree, who held the land under contract under which he had paid $2,000, and France, who purchased it from him. It is true that Deree held his contract from Beeson, and *61that Beeson in turn held a contract from one Porter, but nevertheless Deree sold to France his interest in the land, which was a substantial one, and by mutual arrangement it was agreed that Beeson would hold the title which he might subsequently acquire from Porter as security for the deferred payments that were to go to Deree for his equity. .It is believed that a better understanding of the case may be had by referring to what is considered by the writer of this opinion to be a more correct statement of the transaction.
In the early part of July, 1914, the defendant France and one Deree entered into negotiations for a trade involving the transfer of some land in Wilkin county, Minnesota, to France for a stock of goods which was owned by the latter in Sanborn, North Dakota. A preliminary contract looking to the exchange of the lands, at $45 an acre, for the stock of goods, at the agreed price of $3,500, was drawn up by one Isansee, cashier of the bank of Sanborn, but the consummation of the deal was conditioned upon the land proving as represented. Immediately after the preliminary contract was made, the defendant France went to Breckenridge, Minnesota, for the purpose of inspecting the land, and upon arrival there he discovered that Deree did not own the land, but that he was purchasing it under a contract with one K. B. Beeson, who in turn held it under one Porter. The deal, according to the testimony of Beeson and the defendant, was completed within a day or two after arrival at Breckenridge, Minnesota; although it seems to be contended by the plaintiff that it was not consummated until the parties returned to Sanborn. At any rate, a contract was drawn up under which Beeson obligated himself to sell the land to France for $14,400, France turning over $500 in cash, his stock of goods at $3,500, and giving some notes representing the deferred payments. A separate contract was entered into between Beeson and Deree and witnessed by France, whereby three notes, one for $800, upon which the Bank of Sanborn has sued in a separate action, the two notes in controversy, and the stock of goods, were agreed to be turned over to Deree. Immediately after the execution of these contracts at Breckenridge, Deree, France, and a son of 11. B. Beeson returned to Sanborn, the latter having possession of the three notes which were to go to Deree and which had been indorsed by his father without recourse. Deree arranged with Isansee, the cashier of the Bank of Sanborn, for the sale of one of the notes, and obtained a *62loan of $1,100 for which the other notes vrere pledged to the bank as-collateral.
With part of the proceeds of the notes, Deree paid some indebtednesses owed to Beeson on an outside matter. The notes in suit, being-the collateral notes, were later transferred to the plaintiffs, who were officers of the Bank of Sanborn. There seems to be ample evidence that the plaintiffs had full knowledge of the character of the transaction in which the notes were given, and it is certain that the bank, through its cashier, had ample notice. France later defaulted in payments under his contract of purchase from Beeson, and the contract was foreclosed pursuant to a notice dated November 30, 1915.
This action and the action of the Bank of Sanborn v. France, post, 68, 172 N. W. 79, were tried under a stipulation that the evidence taken should suffice for both and that the jury should render separate verdicts.
In submitting the cases to the jury, the court gave the following instruction: “The plaintiff, the Bank of Sanborn, claims to have piirchased this note from Louie Deree and claims that at the time of purchase the defendant knew that the plaintiff was about to purchase the same, and plaintiff claims that the defendant acquiesced and consented to the purchase of the note by the plaintiff. If you find that such was the case, then I instinct you that your verdict in this case should be for the plaintiff. The defendant denies this contention of the plaintiff, and it is a question of fact for the jury to determine from the evidence. As I have already stated, if the plaintiff has satisfied you by the greater weight of the evidence of its contention in this respect, then you should find for the plaintiff for the sum of $800, and interest at 6 per cent per annum from the 9th day of July 1914, to date, or such amount as the testimony shows due thereon. However, if you find that the defendant did not consent or acquiesce in the purchase of said note, then your verdict in this case should be in favor of the defendant.”
The foregoing instruction was given with special reference to the note held by the Bank of Sanborn, but was also made applicable to the notes in suit by the following instruction: “Gentlemen of the jury, the same principles of law apply in this case as in the former one, which I will not reiterate. If, under the instructions already given in the former case, applying the principles there laid down to this case, then you should find in favor of the plaintiff for such a sum as you find due *63and owing to the plaintiffs upon the two notes in question, otherwise you should find in favor of the defendant.”
The appellants complain of the giving of the foregoing instructions on the ground that under them the jury could return a verdict for the defendant even though the defendant knew' at the time the notes were given that they were to be used for the purpose of paying Deree for his equity in the land, and though they wex*c ixx fact used for that purpose.
If it is the fact that the ixotes ixx question were given to compensate Deree for the sale of his interest in the laxxd, then it is immaterial whether or not the defendant assented to or acqxxiesccd in the purchase of the notes. The giving of the notes for’this purpose would be but the consideration for the surrender, by Deree in favor of the defendant of his interest in the land contract he held from Beeson, and this consideration is one that coxxld xxot be said to have failed by reason of the failure of France to make subseqxxexxt payments that would entitle him to a conveyance from Beeson, and this woxxld be true even thoxxgh Bee-son, xxpon France’s default, subsequently foreclosed the latter’s interest.
There is ample testixnoxxy in the case showing that defendant understood full well that the xxotes in sxxit xvero given as the consideration for Dcrcc’s relinquishment of his interest in the laxxd. The defendaxxt testified :
Q. Yoxx knew these three notes that have been referred to which had been or were to be delivered to Mr. Deree represented his equity in the land yoxx purchased?
A. Yes, sir.
Q. That xvas talked over down at Breckcnridge ?
A. Yes, sir.
Q. You had full knowledge that Mr. Deree had this interest in this way. ?
A. Yes, sir.
Q. That, is the reason the notes wore drawn as described in the contract, one for $800 axxd the other one for $1,000 — that is the reason that it was drawn up that way ?
A. Yes, sir.
Q. Bo, Mr. Deree’s interest coxxld be delivered to him in that form ?
-A. Yes, sir.
*64Again on cross-examination, defendant testified as follows:
Q. Why were these notes made m six instead of three notes ?
■ A. Why, I understood Mr. Deree that was his equity in the land.
Q. They were made in that way so that these notes, the two $800 and one $880 note, could be turned over to Mr. Deree as representing the balance of his equity in the land ?
A. Yes, sir.
Q. And at the time you executed and signed these notes, Mr. France, you knew they were to be disposed of, that that was to be the disposition to be made of them ?
A. That was his equity in the land.
Q. You knew these three notes as described, being a part of these payments to be made, were to be turned over by Beeson to Deree in payment of Deree’s equity in the land?
A. Yes, his equity.
Q. You knew that Deree’s equity in this land was to be paid out by taking over this stock of goods at Sanborn and by the taking of these three notes? ~ •
A., Yes, sir..
Q. That knowledge was yours before you signed the notes ? That had been explained to you before you ever signed the notes ?
A. Yes, it was explained before I signed the notes. He wanted the notes or security he was to have for that first contract.
Q. That was to be security to Deree ?
A. Yes, sir.
Q. That was why it was put in the contract ?
A. Yes, sir.
Q. But it was thoroughly understood to be turned over to Deree in payment of this equity you were trading for?
A. I didn’t know what disposition they were to make of the notes.
Q. No, but you knew that Deree was to get them ?
A. I knew he was to get them, yes.
Q. And at the time you signed them you had this knowledge ?
A. Yes, sir.
The defendant testified not only that he knew that the notes in question were to be delivered to Deree for his equity in the land, with the *65understanding that he (the defendant) was to take a direct contract from Beeson, but also that the stock of goods which he was trading was to be turned over to Deree, and that he understood from Deree before they left Sanborn that Deree expected to raise money upon the obligations that the defendant would execute in the purchase of this real estate. It appears, furthermore, that the defendant was a witness upon the contract entered into between Beeson and Deree at Breckenridge, Minnesota, in which it was expressly stated that the notes in suit and the stock of goods were to be transferred by Beeson to Deree in payment of Deree’s interest, and that this contract was read to France before he witnesséd it.
Under the defendant’s own testimony his liability upon the notes is not, as a matter of law, dependent upon his acquiescence in their transfer ; nor is it contingent upon his completion of the land contract which he entered into with Beeson. Furthermore, under the defendant’s own evidence, he did acquiesce, and no other finding would be warranted. But the notes in suit represent the present consideration for an interest which was transferred to France through the surrender of Deree’s contract with Beeson and the making of the new contract between Beeson and France. In short, defendant’s own testimony shows conclusively that the consideration for the notes in suit has not failed.
Even accepting defendant’s theory that there is a failure of consideration as between himself and Beeson, or, for that matter, as between him and Deree, and that the plaintiffs are chargeable with notice of the actual consideration upon which the notes were executed, it does not follow that the liability of the defendant is disproved. As a general proposition, knowledge of the consideration for a note is not notice of a subsequent failure thereof, nor is a transferee subject to a defense on that account. See 8 C. J. 509 — 518. This is so, even where the note contains on its face a statement of the consideration for which it is given, and where it appears that the consideration is to be enjoyed by the maker in the future. Even the statement of á future consideration does not put the indorsee upon notice of a subsequent failure thereof. Siegel, C. & Co. v. Chicago Trust & Sav. Co. 131 Ill. 569, 7 L.R.A. 537, 19 Am. St. Rep. 51, 23 N. E. 417. We see nothing in the instant case to take it out of the operation of the general rule. For additional *66authorities on this subject, see 7 Cyc. 706, 948; notes in 29 L.R.A., (N.S.) 382; 33 L.R.A.(N.S.) 589; and 46 L.R.A.(N.S.) 864.
The evidence shows that the instruments in question were transferred as collateral security for a loan negotiated by Deree with the' Bank of Sanborn, and that they were subsequently transferred to the plaintiffs. This transfer was. made before the notice of cancelation was served by Beeson, and there is no evidence (though we regard this as immaterial) that either the plaintiffs or the bank knew at the time that the defendant had defaulted under his contract. We find nothing: in the record to impugn the lien of the bank or the right of the plaintiffs as transferees to collect the pledged paper. It is true that in the-contract between Beeson and Deree, of which France had knowledge and which he witnessed, Beeson obligated himself to use his best, endeavors to collect the notes in suit under the contract for deed which he gave at the same time to France. But the existence of a contract between Beeson and Deree, whereby, as between them, the legal title to-the land should be held by Beeson as security for the notes representing the purchase price of Deree’s interest, does not, in our opinion, qualify the plaintiff’s right to recover the consideration which, in reality, according to the defendant’s own understanding, passed from him toDeree. Whether or not Beeson, had he remained the holder of the notes in suit in his own right, could recover upon them after foreclosing the land contract (2 Warvelle, Vendors, 2d ed. § 916), is a question that is not involved in this suit, and we express no opinion concerning it. To allow the defendant, however, to take advantage of his own default to defeat the notes in suit is to enable him to deprive the other party tc the transaction (Deree) of the benefit of a trade which must be presumed, in the absence of evidence, to have been fairly made. The defendant’s contentions, and the holding of the majority 'of the court, if' carried to their logical conclusion, would enable him by his own default, not only to defeat the payment of the notes, but at the same time deprive' Deree of whatever money he had invested in the land under his preexisting contract. Deree has no escape from this consequence. His. equity is gone and Beeson is under no obligation to him, as intimated by the majority; for he has faithfully performed his contract with Deree by using his best endeavors to collect the notes under his contract with France. . It was not incumbent on Deree, upon France’s default, to *67step in and make the payments in France’s stead, at the peril of losing the benefit of his bargain. In fact to so hold operates in itself to.deprive him of his bargain without any cause whatever; for it requires him to perform the very contract by which his own profit is measured. We confess our inability to see any justification for a holding that results as above. It seems clear to us that the only effect of the failure of Deree, the plaintiffs, or the bank to relieve France’s default would-be the loss of the security, and not the loss of the primary obligation itself.
It must be borne in mind that the defendant claims no right to rescind the sale as against Deree, and that under the contract he was vested with the right to possession, and became the equitable owner. As such, he was entitled to any increment of value and to whatever other advantages attached to ownership. Where such rights pass, even under a conditional contract for the sale of chattels, it is held in some jurisdictions that the destruction of the property before the passing of the title does not deprive the vendor of the right to collect the agreed price.
Tufts v. Griffin, 107 N. C. 47, 10 L.R.A. 526, 22 Am. St. Rep. 863, 12 S. E. 68; Williston, Sales, § 304; Mitcherson v. Dozier, 7 J. J. Marsh. 53, 22 Am. Dec. 116. This principle applies with greater force where the defendant’s loss is attributable directly to his own breach of contract.
By § 6912 of the Compiled Laws of 1913, it is expressly provided that where the holder has a lien on the instrument arising either from contract or by implication of law, he is deemed to be a holder for value-to the extent of his lien. Under § 6936, Compiled Laws 1913, every holder of an instrument is given the right to sue thereon in his own name, and all that is necessary to constitute one a holder is that he shall' be a payee or indorsee in possession, or, in case of instruments payable to bearer, that he shall be the bearer. Comp. Laws 1913, § 7075. Whatever might be the application of § 6913, Compiled Laws 1913 (to the effect that absence or- failure of consideration is a matter of defense as against any person not a holder in due course) if the instruments in question were being enforced by Beeson after the foreclosure of the land contract, we are satisfied that it has no application where, as in the case at bar, the action is brought by one who has in good faith advanced money on the strength of notes fair on their face and which represent an *68' agreed purchase price, of an interest in property bought by the defendant, — and interest he would still own were it not for a loss incident to his own breach of contract. As we view the record, there is no evidence which tends to impugn the title of the plaintiffs.
The holding of the majority not only runs counter to the whole theory upon which the case was tried below, and presents as an absolute' defense a matter that was not urged as such a defense, but it contradicts what seem to us to be well-established, controlling legal principles. If the holding of the majority is correct, it would follow logically that one taking a secured note, with knowledge that it is secured, would be chargeable with any personal defenses that might subsequently arise on account of the manner in which the security is dealt with by the original payee. If absolute promises to pay money in the shape of negotiable instruments, which are given even an additional element of currency by the fact of being secured, are thus rendered subject to conditions inherent in the original transaction, it is manifest that new and artificial precautions will have to be taken in dealing with commercial paper.
I am authorized to say that Mr. Chief Justice Christianson fully concurs in all that is' said in this dissenting opinion.