Genesee County Savings Bank v. Kindt

This was a suit on two promissory notes for $300 and $400, respectively and interest,. executed and delivered by defendant to one S. B. Me Intyre, and by him indorsed and delivered before maturity to the plaintiff in error. The defendant filed a general denial, and also pleaded that the note for $400 was in part payment for a horse sold by McIntyre to him for $650, that McIntyre failed to deliver the horse as agreed, and that the consideration of the note had entirely failed. That the remainder of the purchase price of the horse, $250, was paid in sheep, delivered by defendant to Me Intyre. The evidence showed that in October, 1892, the plaintiff took the $300 note together with others as collateral security for a loan of $1,200, made at the time to McIntyre, and that McIntyre’s indebtedness to the bank, at that date, with the $1,200 added, was $9,700. That on January 3, 1893, this indebtedness having been reduced to $8,700, all of which was due, Me In tyre deposited the $400 note with others as collateral in consideration of an additional loan of $200, and an extension of the time of payment of the entire indebtedness. That a portion of this indebtedness, largely in excess of the amount of these two notes, was still unpaid. That the bank or its officers had no notice of any defense to the notes or any infirmity in either of them and took them in the ordinary course of business. Upon the trial it was stipulated by counsel for the parties that the defendant if present would testify to the facts set out in the special defense as above detailed, the plaintiff reserving the right to object to the admission of the *327testimony as incompetent, irrelevant, or immaterial. No other evidence was offered by the defendant than that contained in the stipulation. It was admitted by the court over' the objection of the plaintiff. The plaintiff requested the court to charge the jury that “plaintiff is entitled to recover upon the notes in suit the full amount of principal and interest of each of them, computed from the date of each, at the rate of interest provided for in each.” The court refused to give the instruction and upon a further stipulation that a reasonable attorney’s fee provided for in the $300 note was $50, the cause was submitted to the jury. They gave the defendant credit for the amount of the purchase price of the horse and returned a verdict for the plaintiff for $118.44.

There being no infirmity in the $300 note, and none alleged or claimed, it is manifest that the action of the jury in setting off against it the value of the sheep delivered as part consideration for the purchase price of the horse, was erroneous, and upon this ground alone the judgment should be reversed. But the principal question presented by the record is whether the court should have excluded the evidence objected to and instructed the jury to find for the plaintiff the amount of its notes and interest.

The rule of law is well settled that if a promissory note has been transferred before due, in the usual course of trade for value, to a person who had no notice of any defects arising out of the dealings of the prior parties, commercial policy requires that such bona fide holder shall hold the paper discharged from such infirmities. And the rule is incorporated into the chapter of the statutes of this State entitled “negotiable instruments.” Laws 1888, Chap. 70, Secs. 33, 34.

At the same time nice questions arise as to what constitutes a transfer for value. In many of the States it is held where the paper is transferred as collateral merely for a pre-existing debt and not as a consideration for forbearance, or the parting with any right by the creditor, *328the transfer is not for value. A larger number perhaps of the States, the English courts, and the courts of the United States hold a contrary doctrine. But the authorities are substantially agreed that where the transfer has for its consideration a loan or advancement, made at the time, for which the paper is to be held as collateral, or if it is deposited as additional security to obtain an extension of the time of payment of a precedent debt, in such cases it is deemed a transfer for value and in the usual course of business, and the assignee will be protected from infirmities affecting the instrument before it was thus transferred. Roxborough v. Messick, 6 O. S., 451; Chicopee Bank v. Chapin, 8 Met., 40; Frey v. Clifford, 44 Cal., 339; Meadow v. Bird, 22 Ga., 248; Bank v. Cheeney,. 87 Ill., 604; Straugham v. Fairchild, 80 Ind., 598; R. R. Co. v. Nat. Bank, 102 U. S., 14. The cases are collated in a very able dissenting opinion by Justice Conaway in Bank v. Luman, 6 Wyo., 123.

But the defendant contends that the notes were taken by plaintiff under circumstances calculated to excite suspicion and sufficient to put it upon inquiry as to any fraud in the procurement of the notes. The only evidence upon the subject is that introduced by the plaintiff from which it appears that the plaintiff is a banking corporation in Michigan. That it had had considerable dealings with Me Intyre, in the course of which it had lent him sums of money aggregating some ten thousand dollars. That its officers knew in a general way that he was handling horses and sheep in the West, and it took these notes as collateral for loans made to him, and for an extension of time and a renewal of his notes to the bank. So far as appears from this evidence, and it' is all there is on the subject, there were no circumstances other than the borrowing of money, and an extension of the time of payment, upon notes as collateral security. Whether the bank acted prudently in making the loan under the circumstances, the court is not informed and can not judge, and whether it did or not, in no way affects the question of notice or good faith upon the part of the plaintiff.

*329It is also urged that plaintiff is to be deemed simply the agent of Me Intyre for the collection of the notes and as merely standing in his shoes.' But it is sufficient to say that there is no evidence in the case whatever tending to such a conclusion. All the evidence tends to show that the plaintiff took the first note as collateral security for money loaned at the time, and the second partly for money loaned at the time and partly as security for an existing indebtedness and an extension of the time of payment. That they were taken in the usual course of business and without notice of any defect.

The evidence in support of the special defense was inadmissible and should have been excluded. And as the evidence for the plaintiff supported the material allegations of the petition, and there was no competent evidence controverting it, the peremptory instruction directing the jury to find for the plaintiff should have been given as requested.

For the errors indicated the judgment will be reversed and a new trial awarded.

Reversed.