Continental Bank & Trust Co. v. Times Pub. Co.

PROVOSTY, J.

The defendant entered into a ten-year lease of a building, and executed for the 120 monthly installments of the rent as many notes, to its own order and by itself indorsed in blank, reading as follows, with change only of date when payable and of month for which given:

“$150. Shreveport, La., March 24, 1913.
“September 1st, 1915, after date I promise to pay to the order of myself one hundred and fifty dollars with 7 per cent, per annum interest from maturity until paid at Commercial National Bank of Shreveport, La., rent for month of August, 1915, for part.of brick building located on *211corner of Marshall street and alley in Shreveport, La., as per contract dated March 24, 1913.
“Value received.
“The Times Publishing Co., Ltd.”

The present suit is upon two of these notes. The defense is that their consideration has failed, as the result of the leased building having been destroyed by fire before the rent for which they were given could accrue. The question is whether this defense is available .against plaintiff, in view of the fact that plaintiff acquired the notes in good faith, before maturity, for value. That question ■depends upon whether the notes were negotiable in the technical sense of that term; that is to say, in the sense that they passed to plaintiff free of all defenses that might have been urged against the original holder, the lessor. Defendant’s reason for contending that they were not thus negotiable is that the recital on their face of their having been given for rent “as per contract” had the effect of reading the contract of lease into them, and thereby conveying full notice that their consideration might fail, as it was an ■executory contract which might fail of performance.

The notes are to the order of the maker and by him indorsed in blank; that is to say, in form for passing by mere delivery, without further indorsement, like bank notes. The recital in question is nothing more than a statement of the transaction which gave rise to them, and “a statement ■of the transaction which gives rise to the instrument” does not destroy its negotiability. ■See Negotiable Instruments Law. (Act 64, p. 147, of 1904) § 3.

Very true by said recital knowledge was conveyed to all takers that the consideration of the notes was an executory contract that might fail of performance; but the fact that the consideration of a note is known to be .an executory contract that may fail of performance does not destroy the negotiability ■of the note. Edwards on Bills and Notes, par. 519; Daniel, on Neg, Ins. 740-74S; 2 Randolph, Com. Paper, 1018, 1019; 4 A. & E. E. of L. 90; 8 Corpus Juris, 121; 1 Parsons, Bills & Notes, 261.

Whether the case might not be different if the contract thus read into the note contained an express condition that the note should be payable only in the event the contract was performed is a question not up for consideration in this case, since no such express condition is contained in the lease in this case, but only the implied condition, equally existing in all cases where the recited consideration of the note is an executory contract.

The two lower courts decided the case in. favor of the plaintiff, on the authority of Sadler v. White, 14 La. Ann. 177, where this court allowed the transferee of a'rent note to recover, although he knew at the time of the transfer that the note had been given for rent, and although, subsequently to the transfer, the consideration of the note had failed, as the result of the lessee having been ousted by the foreclosure of a mortgage superior in rank to the lease, and also on the authority of State National Bank v. Cason, 39 La. Ann. 867, 2 South. 881, where the transferee of a note given by a planter to a commission merchant for advances to be made was allowed to recover, although he knew the origin of the note at the time of the transfer, and although the consideration of the note thereafter had failed by reason of the advances not having been made.

The learned counsel for defendant would distinguish the first of these cases on the ground that the note there involved did not contain on its face the recital of its having been given for rent; and they contend that the point really involved in that ease was as to whether parol evidence could be received to vary or contradict the note, and that what else the court may have there said was mere obiter.

The defense in that case was that the note had not passed to the plaintiff free of the *213equity in question, ueeause lie had acquired it with full knowledge of this equity; the defense in the instant ease is that the notes did not pass to plaintiff free of the equity in question because plaintiff acquired them with full knowledge of this equity. The equity in question in the one case is precisely the same as in the other, namely, that the consideration of the note was a lease contract which has failed. The question in the one ease is precisely the same as in the other, namely, whether this equity is one which can he invoked against the transferee of a note payable to order. And the negative of that question is what the court decided in that case, and what it decides in this. The only difference between the two cases is that the fact of. the transferee’s having had knowledge of this equity at the time he acquired the note had to be proved in that case dehors the note, whereas it is proved in-this case by the recital on the face of the note.

The ease could be differentiated only if the recital in a note of the origin of the note, or, in the language of the Negotiable Instruments Law, “a statement of the transaction which gives rise to the instrument” could take the note out of the category of commercial paper; but this statute, which is but an epitome of the general commercial law, declares that it does not.

The second of the above-named cases might have been decided on the ground that the note there involved was made for the purpose of being negotiated; that the understanding at its making had been that it should be negotiated; but while that fact is referred to by the court, it was not made the basis of the decision; the decision is based squarely on the familiar principle of commercial law that a negotiable instrument, when transferred “in due course,” passes free of equities.

Analogous with said two eases are those where the transferees of notes given for the purchase price of property have been allowed to recover, although the consideration of the notes had failed subsequently to the transfers, as the result of the eviction of the makers, and although the transferees had had, at the time of the transfers, full knowledge of the possibility of this eviction and consequent failure of consideration. Maurin v. Chambers & Williams, 16 La. 207; Id., 6 Rob. 62; Davie v. Stevens, 10 La. Ann. 496; Fusilier v. Bonin, 12 Mart. (O. S.) 235; Canal Bank v. Holland, 5 La. Ann. 363.

Judgment affirmed.

MONROE, O. J., and O’NIELL, J., dissent.