200 N.W. 849 | Minn. | 1924
At the trial plaintiffs presented evidence sufficient to sustain their charge of fraud against the four original defendants, but offered no evidence tending to connect the answering defendant with the fraudulent transactions, nor to show that it had any notice or knowledge thereof at the time it purchased the note in controversy. The note was put in evidence. It bears interest at the rate of 6 per cent per annum payable annually and contains this further provision: "Principal and interest to draw interest at 8% if not paid when due."
When plaintiffs rested, the answering defendant stated that it would offer no evidence on the issue of fraud, but it made an offer to prove the facts necessary to establish that it was a holder of the note in due course under the Negotiable Instruments Act. This evidence was excluded on the ground that the note was not a negotiable note, for the reason that it provided for a higher rate of interest after maturity than before maturity. Thereafter the court made findings and directed judgment for plaintiffs canceling both the note and the mortgage. The answering defendant appealed from an order denying a new trial.
Plaintiffs contend: (1) That the provision for a higher rate of interest after maturity than before rendered the note non-negotiable; (2) that the filing of the notice of lis pendens operated as notice to the answering defendant of the defenses to the note. *13
Plaintiffs concede that the note is negotiable, unless made illegal and non-negotiable by section 5805, G.S. 1913, which provides:
"Contracts shall bear the same rate of interest after they become due as before, and any provision in any contract, note, or instrument providing for an increase of the rate of interest after maturity, or any increase therein after making and delivery, shall work a forfeiture of the entire interest; but this provision shall not apply to notes or contracts which bear no interest before maturity."
In Smith v. Crane,
In Chase v. Whitten,
In Loring v. Anderson,
Plaintiffs rely upon Green v. Northwestern Trust Co.
In Goedhard v. Folstad,
Plaintiffs insist that the statute makes a contract containing such a provision illegal, and therefore non-negotiable. It makes the provision for interest illegal, but leaves the contract a valid obligation for the principal sum without interest. As said in Chase v. Whitten,
Our conclusion is in harmony with the prior decisions of this court, and also in accord with the decisions of other courts. The laws of some states declare a provision for attorney's fees in a note or other evidence of debt against public policy and void. It is held that an instrument containing such a provision, but otherwise *15
negotiable, is negotiable under the Uniform Negotiable Instruments Act, although that provision is illegal and void. Sharpe v. Schoenberger,
To constitute a holder in due course under section 52 of the act, G.S. 1913, § 5864, the instrument, when taken, must be complete and regular upon its face. Plaintiffs insist that this note is not regular on its face, for the reason that it contains the forbidden provision in respect to interest. Section 1 of the act, G.S. 1913, § 5813, prescribes the conditions necessary to make an instrument negotiable. A promissory note which complies with these requirements, and which, on inspection, discloses nothing to indicate that it has been altered or was not intended to be fully operative according to its terms is complete and regular upon its face within the meaning of the statute. 8 C.J. 475.
The contention that the lis pendens, filed one day before the answering defendant purchased the note, operated as constructive notice of the defenses to the note, is without merit. Under the statute, section 56, G.S. 1913, § 5868, a purchaser is not chargeable with notice of an infirmity or defect in the instrument unless he had "actual knowledge of the infirmity or defect, or knowledge of such facts that his action in taking the instrument amounted to bad faith." The statute, by its terms, excludes constructive notice. The statute, G.S. 1913, § 8025, providing for the filing of a notice of lis pendens makes it notice only of the right or equities of the party filing it in or to the real estate therein described. It has no other effect. Joslyn v. Schwend,
That a note and a mortgage securing it are transferred at the same time does not make the note, if negotiable, subject to *16 defenses existing against the mortgage. Dunnell, Minn. Dig. §§ 6278, 6284.
While what has been said leads to a reversal, the fact that the note had its inception in fraud was not controverted at the trial, and a retrial of that issue is deemed unnecessary. The order is reversed, and a new trial is granted to determine whether the answering defendant was a holder of the note in due course.