Kelley v. Whitney

45 Wis. 110 | Wis. | 1878

Cole, J.

Can the plaintiff, under the circumstances, claim the protection which the law affords a iona fide purchaser of commercial paper for value, before maturity? The learned circuit court, in obedience to the decision of this court in Hart v. Stickney, 41 Wis., 630, decided that the plaintiff took the note and mortgage as dishonored and subject to equities, because installments of interest were due and unpaid when they were transferred. If there is error in this ruling of the court below — as we are well satisfied there is,— it is an error for which this court, and not the circuit court, should be held responsible. When the case of Hart v. Stickney was decided, our attention was not called by counsel, and ye entirely overlooked in our examination, the previous case of Boss v. Hewitt, in the 15 Wis., 260, where a directly opposite ruling was made. The case of Boss v. Hewitt was decided in 1862, and the point was directly involved in the judgment. The defendant had given four negotiable notes payable respectively in one, two, three and four years, with interest payable annually, for the price of sheep bought of the payees, and secured all the notes by a mortgage. One of the notes, and an installment of interest on all of them, being due and unpaid, the payees transferred the notes and mortgage to the plaintiff, who brought an action to foreclose the mortgage. The defendant pleaded fraud on the part of the payees in the sale of the sheep. The court held that the fact that the first note was due and unpaid at the time of the transfer to the plaintiff, did not let in the defense as against the notes not then due. On the other point, Mr. Justice Paine, in delivering the opinion of the court, says: “Neither do we think that the fact that the interest had not been paid makes the case equivalent to a purchase after maturity, so as to let in defenses that might have been made against the original parties. The interest is a mere incident to'the debt, and although it is frequently provided that it shall be paid at stated periods before the principal falls due, we know of no authorities holding that a failure to pay it dishonors the note, so as to let in all defenses against subsequent purchasers for value without any other notice of defects except the mere fact that such interest has not been paid. And we do not think it should have that effect. The maturity of the note, within the meaning of the commercial rule upon this subject, is the time when the principal becomes due.” pp. 262-3. Boss v. Hewitt derives direct support from the decisions in National Bank of North America v. Kirby, 108 Mass., 497, and Cromwell v. County of Sac, 96 U. S., 51. It is true, in National Bank v. Kirby, while it was held that failure to pay interest, standing alone, was not sufficient in law to throw such discredit upon the principal security upton which it is due, as to subject the holder, to the full extent of the security, to antecedent equities, yet it was also held that it was a fact proper to be considered by the jury, in connection with other circumstances, on the question whether the holder is entitled to the protection of one who has taken it in good faith and without actual or constructive notice of existing defenses. "What is said in the opinion in Hart v. Stickney upon the point now in question, was not necessarily involved in the decision, and must therefore be regarded as a mere dictum. The judgment in that case was reversed on the appeal of the plaintiff, the holder of the note, on the ground that the trial court refused proper, and gave erroneous, instructions as to' the legal consequences resulting where a vendee abandons qDossession of premises held by him under an executory contract of sale, and the vendor takes the possession. That was the precise point upon which the judgment was reversed. And as the earlier case of Boss v. Hewitt was entirely overlooked, which, by implication, is sustained by many decisions of this court, made in the farm mortgage cases and in actions arising upon town, county and city bonds, we deem it our duty to adhere to the rule, that a purchaser for value of unmatured commercial paper, with interest overdue, is not, from that fact alone, affected with notice of prior equities or infirmities in the title.

The plaintiff being the purchaser of the note and mortgage for value before maturity, the further question arises, whether there were any circumstances or facts disclosed which can affect his rights as a bona fide holder. In considering this question, it is necessary to bear in mind that it is the settled law in this state that a negotiable promissory note secured by mortgage may be transferred before maturity like other negotiable paper, and the holder takes it discharged of existing equities. The mortgage in such a case passes as an incident to the note, and may be enforced by the holder in spite of equities which may exist between the mortgagor and mortgagee. This is the doctrine laid down in Croft v. Bunster, 9 Wis., 504, and the same point has been repeatedly affirmed in subsequent cases. And, “ as with other negotiable paper, mere suspicion that there may be a defect of title in its holder, or knowledge of circumstances which would excite suspicion as to his title in the mind of a prudent man, is not sufficient to impair the title of the purchaser. That result will only follow where there has been bad faith on his part.” Cromwell v. County of Sac, supra. Was the plaintiff guilty of gross negligence, or had he any ground of suspicion of defect of title, or knowledge of circumstances which would excite suspicion on the part of a prudent man that there was some infirmity in these securities; and if so, what were those circumstances? The note, it is said, was indorsed by the payee and .mortgagee “without recourse.” But that “ is not sufficient to charge the assignee with notice of a defense against the note, on the part of the maker, nor is it sufficient to put him on inquiry in reference thereto.” Stevenson v. O’Neal, 71 Ill., 314. Then it is said that the words “ secured by real-estate mortgage” appeared on the face of the note. But “ the object and intent of the parties in putting these words on the note was not to limit or impair its value, but to add to it; . . . and they were neither sufficient to inform third parties of the contents or terms of the mortgage, nor to put them upon inquiry.” Howry v. Eppinger, 34 Mich., 29-33. Again, it is claimed that there was on the records in the register’s office a satisfaction or release of the note and mortgage in suit, executed by Curtis on the 16th day of July, 1874, so far as the mortgage was a lien on the south 45 feet of lot 30, known as the hotel property. But the plaintiff does not claim anything inconsistent with that release, even if chargeable with actual knowledge of its existence.

But it is also said that while Curtis was the owner of plaintiff’s note and mortgage, and when he executed this release, he knew of the existence of the second mortgage now held by the defendant Goodenough on a portion of the premises covered by the first. Suppose he did: it does not appear that when plaintiff bought the note and mortgage, he had knowledge of either the release or the second mortgage. The doctrine is well settled, “ that equity will not permit a prior mortgagee, knowing that portions of the mortgaged premises have been subsequently conveyed or incumbered by the mortgagor, to deal with him arbitrarily, to the prejudice of the interests of such subsequent incumbrancers or purchasers, by releasing those parts of the land on which he has the only lien, and attempting to enforce his entire claim out of those portions in which such others had become interested.” Deuster v. McCamus, 14 Wis., 308-311. But we do not see that this equitable principle has any application to this case, because the defendant Good-enough does not aver in his answer that he was injured in any way by the discharge of the prior mortgage as to a part of the premises contained in that mortgage; and the proof shows beyond a doubt that he was not prejudiced thereby. The property may be ample security, and it appears that it is, to discharge both mortgages. So, in any aspect of the case, we think the plaintiff is entitled to a judgment of foreclosure according to the prayer of his complaint.

By the Gowrb. — The judgment of the circuit court is reversed, and the cause remanded with directions to enter such a judgment.

RyaN, C. J., took no part.