160 Minn. 102 | Minn. | 1924
Appeal from an order denying plaintiff’s blended motion for judgment or a new trial of an action brought on a draft for $2,000 drawn by defendant on the Cargill Commission Company, made payable to the Emmet County Bank and indorsed by that bank to the plaintiff.
It had been defendant’s practice to issue such drafts and deposit them for credit, drawing checks against its account with the payee bank to pay for grain purchased. The draft in question was dated December 18, 1920, deposited and credited December 20 and indorsed. and mailed to the plaintiff on that day with other credit items listed on a slip reading as follows:
*104 Emmet County Bank, 72-907
Armstrong, Iowa, 12/20 1920
St. Paul St. Bank, St. Paul, Minn.
We enclose for collection and credit:
Payer Amount
Fairmont Cry. Co.................... 2.78
1st Nat. Bak., ....................... 2.39
Mid. City T. & Svgs. Bk., .......... 99.41
Id. T. & Svgs. Bk., ................. 7.13
Cargill Com. Co., .................... 2000.00
.....Savgs Bk., ..................... 39.00
................................... 8.70
.....Trust Co., ..................... 13.00
Total ........................ 2172.41
Plaintiff received the draft on December 21 at 9 a. m. and before the close of business on that day credited the Emmet County Bank with the amount of the items shown by the slip. In the usual course of business the draft was sent through the regular channels for presentation to the Cargill Commission Company and was presented on December 23, but in the meantime defendant had stopped payment, so the draft was refused.
The Emmet County Bank was conducted by a copartnership, in which Thomas Doughty was the active partner. He came to St. Paul on December 20 and had a conference with the president of the plaintiff bank. Subsequent developments proved that Doughty’s bank was in trouble and it is a fair inference that the conference had to do with its affairs. At 8:30 o’clock the next morning Doughty was found dead in bed. It is hinted that he committed suicide,, but there was no proof that such was the fact. Plaintiff’s cashier learned of Doughty’s death before the credit entry of the draft was made in its books. The Emmet County Bank did no business after December 21 and is now in charge of a receiver. At the close of business on December 20, its account with plaintiff was overdrawn to the amount of $314.60. The credit items received
Upon this state of facts the following questions were presented and argued: (1) Was there a failure of consideration for the draft? (2) If so, what is the effect upon the rights of the plaintiff? (3) Did plaintiff have a right to credit the Emmet County Bank with'the draft before it was collected? (4) If the draft was properly credited, then was it taken for value as defined by section 5837, G. S. 1913? (5) Did plaintiff take the draft in good faith? (6) Did the court instruct the jury correctly with respect to the burden of proof? (7) Was the draft negotiated by the Emmet County Bank in breach of faith or under such circumstances as to amount to a fraud?
Defendant had issued checks upon the Emmet County Bank which were outstanding when the bank closed but had not been presented for payment. No part of the proceeds of the draft was drawn out, and when the bank closed defendant had a credit balance of $85.30 exclusive of the draft. It is clear that the consideration for the draft failed.
Unless plaintiff is a holder in due course, failure of consider» ation is a defense. Section 5840, G. S. 1913 (section 28, Unif. N. I.
Since the year 1905, plaintiff had been the Twin City correspondent of the Emmet County Bank. It had regularly received for deposit drafts taken by the last named bank from its depositors. With the exception of the draft in question, all those drawn on the Cargill Company had been paid. The record does not show whether the same form of deposit slip was used in every instance. All we have is the fact that the slip accompanying the last draft begins with the words: “We enclose for collection and credit.” Standing alone these words indicate that plaintiff was to collect the draft and credit the payee with the proceeds, but when read in connection with the undisputed testimony of plaintiff’s cashier as to the manner in which the business of the two banks was regularly conducted, it would be' difficult to conclude that the draft was not transmitted to plaintiff as a cash item for which immediate credit was to be given. In the absence of a showing that there was a different understanding, the draft became the property of the plaintiff and it became the debtor of the Emmet County Bank. In re State Bank, 56 Minn. 119, 57 N. W. 336, 45 Am. St. 454; Security Bank v. Northwestern Fuel Co. 58 Minn. 141, 59 N. W. 987. Upon the record now before us we hold that a finding that it was intended that plaintiff should not credit the payee bank’s account with the draft before it was paid could not be sustained.
Under section 5837, G. S. 1913 (section 25, Unif. N. I. Act) an antecedent or pre-existing debt is a valuable consideration. This section is in line with the Federal rule, which was the rule followed by this court before the act was adopted. First Nat. Bank v. Malmquist, 158 Minn. 140, 197 N. W. 271. When plaintiff opened for business on the morning of December 21, the Emmet County Bank owed it $314.60. The note already mentioned increased the indebtedness to $1,948.64. The items listed on the deposit slip total $2,172.41. The account would have shown a debit balance of $1,776.23 at the close of business on December 21 if the draft had not been accepted and credited. We see no escape from the conclusion that, to that extent at least, plaintiff took the draft for
To acquire the rights of a holder in due course, the draft must have been taken in good faith as well as for value. There are circumstances from which it may be inferred that plaintiff’s president knew that the Emmet County Bank was in financial straits. Evidently Doughty’s tragic death precipitated the crisis which had been impending. Plaintiff’s cashier learned of Doughty’s death in the morning. The draft was credited to his bank in the afternoon. Possibly a jury might properly find that, when credit was given, plaintiff’s president and cashier had knowledge of such facts that their action in taking the draft amounted to bad faith. Section 5868, G. S. 1913 (section 56, Unif. N. I. Act.) We express no opinion as to that for the case must be tried again for error in the instructions and the evidence at the second trial may not be the same.
The jury were instructed that plaintiff was required to prove by a preponderance of the evidence that it was the owner of the draft; that it bought it for a valuable consideration, without notice, in good faith, and in the ordinary course of business. Plaintiff entered an exception to the charge “that the burden of proof was on plaintiff to establish good faith.” It had duly requested an instruction that no defense which defendant had against the Emmet County Bank was good against the plaintiff, unless defendant proved that plaintiff had knowledge on or before December 21 of such defense, or knowledge of such facts indicating such defense that its action in taking the draft amounted to bad faith; also an instruction that the burden of proof was on defendant to show that plaintiff had such knowledge. These requests were refused and plaintiff excepted. Error is assigned in the giving of the instruction above mentioned and in the refusal to give those requested.
The-draft was a negotiable instrument and was attended by the presumption of law with which negotiable paper is favored. By virtue of the statute, it is deemed prima facie to have been issued for a valuable consideration, defendant is presumed to have become a party to it for value, and plaintiff is deemed prima facie to be a
Defendant contends that the instruction was not erroneous because the draft was negotiated in breach of faith and under such-, circumstances as amounted to a fraud, and hence the title of the Emmet County Bank was defective. Sections 5867, 5871, G. S. 1913 (sections 55, 59, Unif. N. I. Act); McWethy v. Norby, 143 Minn. 386, 173 N. W. 803; Farmers State Bank v. Skellet, 149 Minn. 266, 183 N. W. 831.
The answer admitted that defendant drew the draft and delivered it to the payee bank. It alleged that it was drawn and delivered without consideration and solely for the bank’s accommodation; that the bank was insolvent; that defendant was ignorant of that fact; and that plaintiff had knowledge of the insolvency of the payee bank and of the fact that the draft was issued without consideration when it took it. There is no direct allegation that the draft was negotiated in breach of faith or under circumstances amounting to fraud. It is not alleged that it was accepted as a deposit with knowledge on the part of the owners of the payee bank that they could not meet their obligations; therefore the rule that such an act is fraudulent, as is held in Steele v. Commissioner, 240 Mass. 394, 134 N. E. 401, and in the cases cited in the note thereto in 20 A. L. R. 1203 cannot be invoked. The case was not tried on the theory that the bank broke faith with the drawer, when it put the draft in circulation. The briefs make no reference
In passing, it is proper to suggest that an amendment of tbe answer may be necessary to enable defendant to litigate questions respecting tbe title to tbe draft.
Tbe order denying a new trial is reversed and a new trial granted.