Hendricks v. Banning

By the Gourt Emmett, C. J. The Defendant on the 10th day of June, 1859, was the owner and holder of a certain promissory note secured by a mortgage on real estate, and on that day assigned the same to the Plaintiff, by an instrument in writing, wherein, after reciting said assignment, he stipulated that no part of the principal sum mentioned in the note had been paid ; that it was then bearing interest at the specified rate of 2 1-2 per cent, per month; and that the sum of $1,625, for principal and interest, was then due thereon. The note bore date June 21, 1854, and called for the payment of one thousand dollars in four months, with interest after maturity at the rate of 2 1 2 per cent, per month, payable quarterly, but specified no rate of interest for the time transpiring before maturity. The sum warranted to be due was the exact sum paid by the Plaintiff for the note ; and it is observable that it is arrived at by computing the unpaid interest thereon, at the rate specified in the note after maturity, and adding it to the principal. The transaction between.the Plaintiff and Defendant took place long after the note became due, and at a time when the • question of the rate of interest which could be collected on notes after they became due, was still unsettled. It is true the Supreme Court had held in the case of Mason, Craig & Co. vs. Callender, Flint & Co., 2 Minn., 350, that the rate was the same after as before maturity, and could be recovered by way of damages; but as the Court had not been unanimous in that opinion, and as the particular point upon which the decision was made to depend, had not been fully argued by counsel, many entertained the opinion that on a more thorough and elaborate argument the Court would adopt a different rule. [37] In addition to tbis it was extremely doubtful whether the rule laid down in the decision referred to, would extend to a note such as this, where no rate of interest before maturity is expressed,, whatever may have been the contract in regard to it. Under such circumstances it was but natural and prudent for the purchaser to protect himself against contingencies; and it was equally natural that the seller should be willing, for a sufficient consideration, to take all risk upon himself, and warrant his article of merchandize what he represented and doubtless believed it to be, to wit, a legal and valid note, drawing interest after maturity at the rate of 2 1-2 per cent, per month, on which there was then due the sum which the purchaser was paying him therefor. If he believed, and so represented to the purchaser, that there was due on the note the sum which he was requiring as the consideration of the transfer, and that it was yielding the per cent, per month profit which it purported on its face to yield, why might he not, as an inducement to the purchase, warrant the note to be as represented ? Is there anything wrong in thus assuming all the risk to himself? anything illegal in such-a contract? Doubtless this warranty was the'sole inducement to the Plaintiff to make the investment, and we cannot see why the Defendant should not be obliged to make good his warranty in this case, as in any other. The counsel for the Defendant insists however, that the nature and conditions of the instrument warranted were obvious and apparent to both parties, and that the warranty therefore would not be binding beyond the terms of the note. The Defendant here appeals to the familiar rule of construction that patent defects are presumed not to be covered by a general warranty; but we think the rule was never extended to a case like the present. The reason usually given for the presumption excluding such defects, is because they are naturally within the knowledge of the purchaser. But it is held that if the articles sold are not actually examined, the warranty is binding however apparent the defect; and this, whether the failure to examine arose from any physical inability on the part of the buyer, or from mere neglect. So [38] too, though ample opportunity be given for examination, and the vendee be skilled in relation to such articles, yet he is not bound to exercise his skill, where he has the express warranty of the vendor. These are the conclusions at which Judge Story arrives in his work on contracts, after an examination of the authorities. {Story on Contracts, sec. 830.) They show that,' in the application of the rule which the Defendant invoked, the presumption is controled entirely by the facts. This is quite sufficient for the case at bar ; for here we have not a general warranty which might be presumed to cover obvious detects; but a special warranty expressly excluding any presumption that the purchaser intended to take the risk upon himself. On the other hand we think it was by no means apparent in point of tact, that the sum warranted to be due on the note was not due ; nor that the note was not drawing the rate of interest warranted. It is true that this Court afterwards, in the case of Talcott vs. Marston, 3 Minn., 339, reversed the decision in Mason, Craig, et al. vs. Callender, Flint & Co., on one point; and that according to the decision last made, the Plaintiff could not recover of the maker of said note the amount which the defendant warranted to be due thereon ; nor a greater rate of interest, after maturity than J per cent, per annum ; yet, as the decisions stood at the time this note was transferred, the presumption, if any existed, was, in favor of the Court adhering to the decisions already made. Certainly it was not obvious and apparent that a change would be made. I think we may safely say that the parties were at least in doubt both as to the amount due upon the note, and the rate of interest which it was then bearing. The Defendant undoubtedly was of opinion that interest could be recovered on it according to its terms, and therefore estimated its value upon that basis, while the Plaintiff evidently doubted the correctness of this opinion, or he would not have insisted on the warranty. And admitting this difference of opinion or uncertainty as to the respective rights of the maker and' holder, we again ask, what was there to prevent either party from taking all the risk upon himself % There was nothing [39] illegal, — nothing against public policy in tbe transaction. The rate of interest which the Defendant claimed the note was drawing, was not then unusual, nor by many considered exorbitant, and as such a rate could legally be contracted for and collected, it could not be shown that the warranty was an evasion of the usury laws or an attempt to secure by indirection what could not be directly contracted for. The Plaintiff certainly might have assumed all the risk himself by receiving the instrument without indorsement; and we are at a loss to discover why the Defendant on the other hand might not have the corresponding privilege of taking the risk wholly upon himself; why he might not in this as in other cases, insure his wares to be all they are represented, or purport to be; and thus secure to himself not only a purchaser, but a better, price. Shortly after the assignment the Plaintiff commenced an action on the note against the maker, claiming interest according to the terms of the note and warranty, but, the maker defending, he was unable to recover more than seven percent, per annum after the note became due. He then brought this action to recover of the Defendant on his warranty the difference between the amount recovered against the maker, and the sum which would have been due on the note according to the terms of the warranty. No question was made in the pleadings that the delay in commencing action on the note was unreasonable, nor that it was not properly and vigorously prosecuted. The amount recovered against the maker was $1375.45, being $249.55 less than the amount which the Defendant in this action warranted to be due. The Plaintiff here claimed a judgment for the amount of this difference of $249.55, with interest thereon from thé date of the assignment, and for $200, being interest on the principal sum in saicl note, from the date of the assignment to the time of the recovery of judgment against the maker, at the rate of 2 1-2 per cent, per month. The Judge of the Court below to whom this case was submitted, found the facts substantially as above stated, and gave judgment for the Plaintiff for the first cause of action on the $249.55, with interest, but refused to include therein the second cause. [40] Both parties were dissatisfied with this judgment, and each brings his writ of error to reverse the same. ¥e have taken up the case in which the Plaintiff below prosecutes the writ, but we cannot decide one without necessarily disposing of the other. We see no necessity for the distinction made by the Court below, between the claim for interest warranted to be due at the date of the assignment, and that warranted to accrue after-wards; and therefore reverse the judgment below, and will permit the Plaintiff to enter judgment in this Court, for the amount due him on his several causes of action, according to the facts as found by the Judge. This decision necessarily disposes of both writs of error to this judgment.