FIRST NATIONAL BANK OF ROLETTE, NORTH DAKOTA v. ALBERT ANDERSEN AND ANOTHER

Minnesota Supreme Court1919-12-19No. No. 21,524

144 Minn. 288

Summary · law.co

Holding. The court affirmed the trial court's decision that the question of whether Citizens State Bank was an innocent purchaser in good faith should be submitted to the jury rather than decided as a matter of law, particularly given that neither McGregor nor Edwards testified and their absences were unexplained.

First National Bank sought to collect on two promissory notes originally issued to Edwards. Edwards had pledged these notes as collateral to Citizens State Bank of Minneapolis to secure a loan. When that loan became overdue, Citizens State Bank sold the note to First National Bank along with the collateral. First National Bank brought suit against the note makers, who asserted defenses available against the original payee.

The central question was whether Citizens State Bank qualified as an innocent purchaser in good faith, which would shield First National Bank from the makers' defenses. Under the applicable statute, good faith status requires actual knowledge of an infirmity or defect—mere negligence or careless banking practices do not constitute bad faith. However, the trial court submitted the good faith question to the jury rather than deciding it as a matter of law, citing the suspicious absence of key witnesses: McGregor, a bank vice president who had brought Edwards to the bank, and Edwards himself, who possessed direct knowledge of the transaction.

Summary generated by law.co from the public-domain opinion. The opinion text itself is public domain.

Key issues

Whether a bank purchasing negotiable instruments qualifies as an innocent purchaser in good faith
What standard of knowledge constitutes bad faith under the Negotiable Instruments Act
Whether absence of potentially knowledgeable witnesses may support an adverse inference regarding good faith

Procedural posture

First National Bank appealed from the trial court's denial of its motion for judgment notwithstanding the verdict or alternatively for a new trial following a jury verdict in favor of the note makers.

Authorities cited

No cited authorities resolved to law.co cases yet.

Opinion · public domain

majority opinion

Dibell, J.

Action on two promissory notes. There was a verdict for the defendants and the plaintiff appeals from the order denying its alternative motion for judgment or a new trial.

The two notes were given by the defendants to one Edwards as payee. It is conceded that they were given under such circumstances that the makers had a defense and that the burden was upon a purchaser to show good faith. G. S. 1913, § 5871.

Edwards took the notes to the Citizens State Bank of Minneapolis with other notes, making an aggregate of $5,850, borrowed $4,000 from the bank, and used these two and the other notes as collateral. After-wards the bank, when the $4,000 note was overdue, sold it to the plaintiff bank, and with it went the collateral. The plaintiff does not claim, as we understand from the argument, protection as an innocent purchaser from the Minneapolis bank, but it is in as favorable position as was the bank upon its purchase from Edwards. G. S. 1913, § 5870.

The cashier of the bank, one Saméis, attended to the making of the loan. McGregor, the vice president and a member of the discount committee, brought Edwards to Saméis and recommended him. McGregor, though a member of the discount committee, was not active in the bank’s affairs. The cashier gave testimony, tending to show that the bank purchased in good faith and in the ordinary course of business. Neither McGregor nor Edwards was a witness. The question is whether the Minneapolis bank was, as a matter of law, an innocent purchaser, or whether the question of its good faith was for the jury as the trial court held it to be.

The Negotiable Instruments Act provides:

"To constitute notice of an infirmity in the instrument or defect in the title of the person negotiating the same, the person to whom it is negotiated must have had actual knowledge of the infirmity or defect, or knowledge of such facts that his action in taking the instrument amounted to bad faith.” G. S. 1913, § 5868.

The holding of the cases before tbe act was to the same effect. Merchants Nat. Bank v. McNeir, 51 Minn. 123, 53 N. W. 178; Tourtelot v. Reed, 62 Minn. 384, 64 N. W. 928; Merchants Nat. Bank v. Sullivan, 63 Minn. 468, 65 N. W. 924; Gale v. Birmingham, 64 Minn. 555, 67 N. W. 659.

A bank is not a bad faith purchaser because it is negligent or careless or because it does imprudent or bad banking. Its act must amount to something like fraud upon the rights of the purchaser. The absence of McGregor is not explained. It is true, as pertinently remarked by counsel for the plaintiff in his brief, that it was not "necessary for the plain tiff to hale all the officers, directors and agents of the Citizens State Bank into court and to call the roll and ascertain whether any of them might know of the defenses or equities existing.” But McGregor was definitely connected with the taking of the note from Edwards. He knew something of the facts concerning it. It does not appear that he was acting in the interest of himself and Edwards so that his knowledge would not be that of the bank within the well understood rule stated in First Nat. Bank v. Persall, 110 Minn. 333, 125 N. W. 506, 675, 136 Am. St. 499, and cases there cited. It may (be noted; too that Edwards, who was not present at the trial, had knowledge of the transaction, and there is nothing to suggest that he was-hostile to the plaintiff. Bearing in mind that the burden of proof was upon the plaintiff to show that the Citizens State Bank was a purchaser in good faith, and that neither McGregor nor Edwards was called as a witness, nor the absence of either explained, we are of the opinion that the question was one for the jury. It might draw an inference unfavorable to the plaintiff from their absence. This was the view taken by the trial court.

Order affirmed.