Peterson v. Modjeska

Snell, J.

— Plaintiff claiming to be the holder in good faith and for value seeks recovery from the maker of a dishonored check. The trial court, without the aid of a jury, found for plaintiff. Defendant Sid Beattie, the maker of the check, appeals. The two other original defendants and other issues are not involved here.

Plaintiff in May 1959 was a co-owner of a motor-vehicle filling station. Plaintiff knew Jack Modjeska as a customer. Modjeska was a salesman for Sid Beattie Ford, Inc., a dealer in new and used cars.

On May 21, 1959, plaintiff loaned Modjeska $1376. Repayment was to be four days later as evidenced by an I.O.U. This was in the handwriting of Modjeska in words and figures as *154follows: “I, Jack Modjeska, owe Melvin Peterson $2200 to be repaid May 25, 1959.” Modjeska did not pay.

On May 26, 1959, when tbe instrument was five days old and one day past due, plaintiff called on Modjeska to collect. Modjeska told plaintiff be would get him a check. Modjeska then consulted defendant Sid Beattie. Although not binding on plaintiff it is undisputed that Modjeska misrepresented to Beat-tie the reason he needed a check. It was to be held until the nest day when it would be retrieved. This transaction was not in plaintiff’s presence.

Beattie signed and delivered to Modjeska a check for $1300. Modjeska endorsed and delivered the check to plaintiff. Plaintiff deposited this check in his bank account. It was returned to him the next day marked “insufficient funds.” Beattie later stopped payment.

Plaintiff then sued Modjeska for $2200 and Beattie for $1300. A third count in the petition sought recovery from Sid Beattie Ford, Inc. for merchandise sold to Modjeska. This count was dismissed by the trial court and there has been no appeal therefrom. Modjeska made no defense and judgment for $2200 was entered against him. Defendant Beattie defended on numerous grounds. The trial court found plaintiff to be a holder of the check in due course and entered judgment against Sid Beat-tie for $1300.

The check defendant Beattie gave defendant Modjeska was a negotiable instrument. It was regular on its face, it had not been previously dishonored and there was no evidence that plaintiff had notice of its infirmities as between Modjeska and Beattie.

The weakness in plaintiff’s case is in the issue of good faith and value.

Section 541.52, a part of our statutory Negotiable Instruments Law, provides:

“What constitutes a holder in due course. A holder in due course is a holder who has taken the instrument under the following conditions:

“1. That the instrument is complete and regular upon its face.

*155“2. That he became the holder of it before it was overdue, and without notice that it had been previously dishonored, if such was the fact.

“3. That he took it in good faith and for value.

“4. That at the time it was negotiated to him he had no notice of any infirmity in the instrument or defect in the title of the person negotiating it.”

Section 541.57 provides:

“Rights of holder in due course. A holder in due course holds the instrument free from any defect of title of prior parties, and free from defenses available to prior parties among themselves, and may enforce payment of the instrument for the full amount thereof against all parties liable thereon.”

Under these statutory provisions if plaintiff took defendant Beattie’s check in good faith and for value he is entitled to recover.

The transaction between plaintiff and Modjeska was clearly usurious. On May 21 plaintiff loaned Modjeska $1376. Plaintiff took an I.O.U. for $2200 due May 25, just four days later. Plaintiff admitted without equivocation that he was to receive $2200 for the $1376. This was such a shocking revelation that the trial court invited plaintiff to explain. Plaintiff repeated that that was all there was to it. Plaintiff also sued and took default judgment against Modjeska for the $2200. By no legitimate computation could interest, commission or carrying charge on a loan of $1376 for four days amount to $824. The fact that the loan was usurious is not even denied by plaintiff.

Under the provisions of section 541.57 quoted above and well recognized authority the defense of usury is not available to defendant Beattie. Martin v. Harper, 193 Iowa 259, 263, 186 N.W. 897; Partch v. Krogman, 202 Iowa 524, 528, 210 N.W. 612. The defense is personal to the borrower. 7 Am. Jur., Bills and Notes, section 273. This rule, however, does not prevent us from looking at plaintiff’s position with a jaundiced eye when he attempts to invoke the letter of the law to collect on an unconscionable agreement. The Negotiable Instruments Law is designed and intended to aid in orderly and legitimate trade and commerce. When payment of a check is sought for credit *156on a usurious agreement the position of the holder who claims he took it in good faith and for value is subject to close scrutiny.

If plaintiff was a bona fide holder for value of the Beat-tie check he can recover thereon. The record does not support his position as such.

The debt from Modjeska to plaintiff was past due. There was no extension of time and no agreement for forbearance of any kind. There was no new consideration between plaintiff and Modjeska. There was no evidence admitted by the trial court that plaintiff at that time gave Modjeska credit either actual or conditional. In fact there is no evidence as to when the alleged credit was given.

At one time while identifying the I.O.U. plaintiff said “$1300 was applied upon this note or instrument of $2200. That money was applied May 21.” This statement was obviously wrong. The date mentioned was the date the I.O.U. was delivered. The Beattie check was not issued until May 26.

The I.O.U. has written on its face

“2200

1300

900 Bal — ”

but there is not a word of admitted evidence as to when this notation was made.

Plaintiff attempted to testify that he gave Modjeska credit of $1300 upon the $2200 obligation. To these questions as asked objections were made and sustained. There is no evidence relative thereto in the record. Plaintiff has not complained about these restrictions.

There was no evidence in the record to support a finding that plaintiff was a holder for value.

Giving Modjeska credit on his debt would, of course, constitute value. Clearly in this ease there was no unconditional credit. Beattie’s check “bounced” and plaintiff has taken judgment against Modjeska for $2200. Plaintiff’s case is bottomed on the theory that there was a conditional credit and that a conditional credit makes plaintiff a holder for value.

*157Admitting arguendo that there was a conditional credit that was not sufficient under Iowa law. Commercial National Bank v. Citizen’s State Bank, 132 Iowa 706, 708, 109 N.W. 198, is squarely in point and positive in its language. The opinion says:

“The controlling question in this case is whether the plaintiff was a bona fide purchaser in the due course of business, and our conclusion thereon makes it unnecessary to consider the other questions argued by the appellants. The certificate was payable on demand and the return thereof, and was a negotiable instrument. But the undisputed evidence shows that the plaintiff did not give the Exchange Bank absolute credit therefor. The credit given was provisional; that is, if the certificate was paid by the issuing bank the credit became absolute thereafter, but if it was not so paid the same was to be charged back to the Exchange Bank. This was nothing more than a conditional credit, and the plaintiff did not thereby become a bona fide purchaser, either under the general law or by virtue of the statute relating to negotiable instruments.”

This has been the law of Iowa since 1906.

It is true plaintiff’s position finds support in recent cases from other jurisdictions. See Fair Loans, Inc. v. John N. Wilkinson, Jr., 211 Md. 216, 126 A.2d 851; Ahern v. Towle, 310 Mass. 695, 39 N.E.2d 561; Citrin v. Tansey, 107 N. J. L. 368, 153 A. 523; City of Fresno v. Dillon, 207 Cal. 714, 279 P. 767. The so-called “modern trend” however occurs in the application of the Negotiable Instruments Law to legitimate trade and commerce. It should not be applied in cases of such questionable ancestry and evasive and uncertain evidence as we have in the ease at bar.

We adhere to our Iowa rule. The circumstances in this case do not prompt us to deviate therefrom even though other jurisdictions indicate a modern trend to the contrary.

The case is reversed and remanded for the entry of judgment absolving defendant Sid Beattie from liability on his check. —Reversed and remanded.

*158Garfield, C. J., and Thornton, Moore and Stuart, JJ., concur. Peterson, Hays, Larson and Thompson, JJ., dissent.