Court Opinion

ID: 7968021
Source: CourtListenerOpinion
Date Created: 2022-09-09 00:52:27.214802+00
Date Added: 2024-06-11T16:34:41.975266
License: Public Domain

Dickinson, J.
The defendant executed to one Maxfield his negotiable promissory note. The case before us shows that Maxfield was indebted to the plaintiff and two other persons, William A. and Charles M. Campbell. The debt of Maxfield being due, he indorsed the defendant’s note in blank, and before its maturity delivered it to the plaintiff, who wrote over Maxfield’s blank indorsement in the usual form a direction that payment be made to himself, the plaintiff. As such indorsee, the plaintiff prosecutes this action on the note against the maker. At the trial, upon the evidence presented by both parties, the court directed a verdict for the plaintiff. The correctness of that ruling is in question on this appeal.
While it appears that the indorsement to the plaintiff was made on account of the whole indebtedness to the plaintiff and the Camp-bells, and that they all had a beneficial interest in the paper, it also appears that as between themselves it had been committed to the plaintiff to act for their common interest, and according to his own discretion, in obtaining payment or security from Maxfield. It does not prejudice the defendant, and constitutes no defense, that the Campbells are not parties to the action. Elmquist v. Markoe, 45 Minn. 305, (47 N. W. Rep. 970,) and cases cited. The defendant sought to show in defense, and now claims to have shown, that Maxfield induced him to execute the note by fraudulent representations. The ruling of the court now under review was that this defense was not available as against the plaintiff. That is the important question in the case. Its solution depends upon the question whether the plaintiff so acquired and holds the note that he en*329joys the legal advantage and protection ordinarily attending the indorsement of negotiable paper to bona fide purchasers. Although Maxfield’s testimony, taken alone, may tend to show a sale of the note to the plaintiff, yet it is apparent from the transaction itself, which was by letters between the parties, which are before us in the case, that the note was transferred as collateral security for the existing debt. The' subsequent understanding of Maxfield, or the manner in which he afterwards treated the matter could not change the obvious nature of the prior transaction. Hence we come to the question whether a creditor who bona fide receives by indorsement negotiable paper not yet due as collateral security for a prior indebtedness holds the same free from any defense of fraud which might have been available as between the original parties. The decisions have long been at variance, and the reasons which may be advanced in support of diverse conclusions have been so fully stated, and so often reiterated, that we need not restate them, and will not attempt to add to them. The question has never been decided in this court. In the following jurisdictions it has been settled that the holders of such collateral securities enjoy the advantages peculiar to bona fide purchasers of negotiable paper: California, Connecticut, Georgia, Illinois, Indiana, Louisiana, Maryland, Massachusetts, New Jersey, Rhode Island, South Carolina, Texas, Virginia, the Federal Courts, England and Canada. About an equal number of state courts have declared the contrary rule. The subject was fully discussed, and the rule finally settled as first above indicated in the Federal Courts in the case of Railroad Co. v. National Bank, 102 U. S. 14. The modern law writers very generally recognize this as the prevailing rule, and among late decisions in jurisdictions where the opposite doctrine had long been settled may be found expressions indicating that the courts would have followed the law as declared by the Supreme Court of the United States if' they had not been bound by their own former decisions. See Smith v. Bibber, 82 Me. 34, (19 Atl. Rep. 89.) Most of the authorities are cited and the subject well presented in Jones, Pledges, 107, 111, et seq. See, also, Bigelow, B. & N. 497. This being a matter of general commercial law, the rulings in the Federal Courts will everywhere follow that of the Supreme Court, as above indicated, irre*330spective of what the state courts may declare to be the law in their respective jurisdictions. Diverse rules of law, affecting ordinary commercial transactions, cannot be finally declared and enforced by different courts within the same jurisdiction without resulting evils too great to be disregarded. Without assuming now to determine as to which side of the question is supported by the better reason, it is considered that our decision should be such that there shall be but one rule of law recognized and enforced in all the courts in this state. We therefore decide that the indorsee of negotiable paper taken before maturity as collateral security for an antecedent indebtedness, in good faith, and without notice of defenses, such as fraud, which might have been available as between the original parties, holds the same free from such defenses. We the more unhesitatingly declare this as the rule of law because, in addition to the great weight of authority in its favor, we believe that it is in accordance with the understanding and usage which have generally prevailed in commercial circles.
If, then, the plaintiff became an indorsee of the note bona fide. without notice of the fraud claimed to have been involved in its execution, that defense is unavailable. We will assume that,. if fraud was shown, the burden rested on the plaintiff to prove that he had no notice of it. The notice which the indorsee must have in order to prevent his enjoying the advantage of a bona fide purchaser must be such as to charge him with fraud or actual bad faith. Merchants’ Nat. Bank v. McNeir, 51 Minn. 123, (53 N. W. Rep. 178.) We do not see that the plaintiff testified upon this subject, but it appeared from the testimony of Maxfield that the plaintiff knew nothing about the circumstances of the transaction between Max-field and the defendant in the course of which the note was given. This testimony is not opposed by any evidence, and we see nothing-in the case which would justify the conclusion that the plaintiff had any notice of the fraud, if there was any. He, as well as the Campbells, resided in a distant state. The communications connected with the indorsement and sending of the note to the plaintiff (which were all between Maxfield and the plaintiff alone) disclosed nothing as to the circumstances of the procuring of the note by Max-field. Hence, while there is not much affirmative evidence of the *331absence of notice to the plaintiff of any fraud, we think there was enough to make a prima facie and credible case in his favor; and, being unopposed, as we consider, by evidence to the contrary, our conclusion is that the court was right in directing a verdict for the plaintiff.
(Opinion published 56 N. W. Rep. 38.)
Judgment affirmed.
Gilfillan, C. J., did not sit.