| S.D. | Sep 8, 1914
This is an action upon a negotiable promissory note for $3,000, dated November 15, 1911, and due January 31, 1912, given by defendants Catherine B. Empey and E. E. Empey, her husband,'to the defendant Nelson, and by him indorsed and ■delivered' to> plaintiff. The consideration for the note was 53 shares of stock in the Farmers’ State Bank of Mobridge, bought by Mrs. Empey from Nelson. The plaintiff- claims to be the holder of the note “in due course.” The answer of the defendants Empey alleged fraudulent misrepresentation by Nelson as to- the value of the bank stock; their reliance thereon; the rescission of the deal by Mrs. Empey; and knowledge of the fraud by plaintiff. Trial by jury was had. Verdict and judgment were rendered i'n favor of plaintiff and against defendant E. E. Empey and in favor of defendant Catherine B. Empey against the plaintiff. From the judgment in favor of Catherine B. Empey, and from the order denying a new trial, plaintiff appeals.
“When the reserve is only 13 per cent, it shows that there was a failure to collect in money to make the reserve good, and it would show poor management. * * * During the year 1911 there were a good -many banks whose reserve was 'below the necessary requirements on account of the short crops.”
This knowledge on the part of the plaintiff that the bank’s reserve was a little low is the only thing in the record that even
“Every person who has actual notice of circumstances sufficient, to put a prudent mán upon inquiry as to a particular fact, and who omits to make such inquiry with reasonable diligence, is deemed to have constructive notice of the fact itself.”
I11 this case there was nothing whatever tending, to- put the plaintiff upon inquiry as to the legitimacy of the transaction -between Nielson and Mrs. Em-pey, so that the decisions of this court in Kirby v. Berguin, 15 S. D. 44, 90 N.W. 856" court="S.D." date_filed="1902-03-01" href="https://app.midpage.ai/document/kirby-v-berguin-6686085?utm_source=webapp" opinion_id="6686085">90 N. W. 856, and Rochford v. Barrett, 22 S. D. 88, 115 N.W. 522" court="S.D." date_filed="1908-03-07" href="https://app.midpage.ai/document/rochford-v-barrett-6686979?utm_source=webapp" opinion_id="6686979">115 N. W. 522, have no application.
“Sec. 2199. An indorsee in due -course i-s- ’one who in good faith, in the ordinary -course of business, and for value, before its apparent maturity or presumptive dishonor, and without knowledge of its actual dishonor, acquires a negotiable instrument duly indorsed to him, or indorsed generally, or payable to the bearer.”
“Sec. 2200. An indorsee of a negotiable instrument, in due course, acquires an absolute title thereto, so- that it is valid in his hands, notwithstanding any provision of law making it -generally void or voidable, and notwithstanding any defect in the title of the person from whom he acquired it.”
The appellant, then, not being charged with notice of any defect in Nelson’s title to the note, the only remaining question necessary to be determined is whether appellant was in other respects an “indorsee in due course.” It is- not claimed by plaintiff that the Empey note was taken in payment of the pre-existing debt of Nelson, because the Nelson indebtedness was not extinguished. It was simply evidenced by a new note. Therefore the decision o-f this court in Iowa National Bank v. Sherman, 17 S. D. 396, 97 N.W. 12" court="S.D." date_filed="1903-11-11" href="https://app.midpage.ai/document/iowa-nat-bank-v-sherman-6686340?utm_source=webapp" opinion_id="6686340">97 N. W. 12, 106 Am. St. Rep. 778, does not quite reach the point. We think it immaterial, h-o-wever, to the decision of this case whether the Nelson note be regarded as collateral to the Empey note or vice versa. Under either theory, we think the appellant
“The doctrine adopted by the federal courts and in a majority ■ ■of the states, as well .as that of England and Canada, is that an indorsee who takes a hill or promissory note in the usual course of business, before maturity, without notice of any infirmity, as collateral security for a pre-existing debt, is a bona fide holder for value, though there was no extension of time or other present consideration. This doctrine is known as the federal rule.”
This is followed by exhaustive citations supporting the text. The contrary rule, known as the N|ew York rule, with citations is set forth on page 292. The New York rule is followed in a number of the states, and, while it is not without good argument in its support, we agree with Chancellor Kent, who, in repudiating the New York rule of which he was the originator, said:
“I am inclined to concur in that decision (Swift v. Tyson, 16 Pet. 1 [10 L. Ed. 865]) as the plainer and better doctrine.” 3 Kent, Com. 8.
We believe that -is the view this court would have taken in Iowa Nat. Bank v. Sherman, supra, if the facts in that case had been appropriate. We are further convinced of the wisdom of this decision, in view of sections 25 and 27 of the negotiable instruments (Chap. 279, Paws 1913) and the discussion of this subject on page 293 of the volume of L. R. A. (N. S.) previously cited.
The judgment and order denying a new trial are reversed, and the cause remanded for a new trial.