Gulbranson-Dickinson Co. v. Hopkins

Rosenberry, J. The plaintiff claims that it is entitled to recover because it is a holder in due course. That the indorsement is restrictive as defined by sec. 1676 — 6, Stats. 1917, is conceded. The notes are dated at West De Pere, Wisconsin, and are payable by their terms at Iowa City, Iowa, where the notes in the contract appear to have been sent for acceptance by the payee named in the note. No claim is made that the laws of Iowa, where the note was payable and where it was transferred, are not the same as those of Wisconsin; therefore w6 treat the case as if the notes were executed, delivered, and payable within the state of Wisconsin, and indorsed there. Sec. 1676 — 7, Stats. 1917, states the rights conferred upon the trustee under a restrictive indorsement. He may (1) receive payment of the instrument; (2) bring any action thereon that the indorser could bring; (3) transfer the rights as such indorsee where the form of the indorsement authorizes him to do so; but all subsequent indorsees acquire only the title of the first indorsee under the restrictive indorsement. Indorsements restrictive as to persons are of two kinds: first, those for the benefit of the indorser; and second, those for the benefit of a third person. An indorsement for the benefit of the indorser .constitutes the trustee the agent of the indorser, the beneficial interest remaining in the in-dorser, while an indorsement for the benefit of a third person transfers the title in the instrument to the indorsee. Hook v. Pratt, 78 N. Y. 371; 8 Corp. Jur. 366. The in-dorsement of the instrument in question by the manufacturing company to the Iowa City State Bank for the benefit of the plaintiff transferred the whole title in the instrument to the bank for the benefit of the plaintiff. The question then arises, Can the plaintiff, for whose benefit the indorsement was made, maintain an action upon the note? This question must be answered in the affirmative. Sec. 2605, Stats., provides that every action must be prosecuted in the name of the real party in interest. [330] While sec. 2607 provides that a trustee of an express trust may sue without joining with him the person for whose benefit the action is prosecuted, it is permissive, and does not require that the person for whose benefit the trust was created be joined with the trustee. Piotrowski v. Czerwinski, 138 Wis. 396, 120 N. W. 268; 8 Corp. Jur. 824. The question then arises, Is the plaintiff entitled to recover upon the notes as a holder in due course? The defendant contends that under the provision of sec. 1676 — 17, Stats., which provides that an instrument negotiable in its origin continues to be negotiable until it has been restrictively indorsed or discharged by payment or otherwise, the plaintiff cannot be such a holder in due course, because of the fact that the instruments in question were restrictively indorsed. The plaintiff contends that the instruments in question passed to the indorsee as negotiable instruments, so as to constitute the indorsee the holder in due course, the restrictive indorsement becoming operative only as against subsequent transferees. It is established beyond question that an indorsee under a restrictive indorsement takes a title qualified either as to pei-son or use. The delivery of the instrument gives effect to the indorsement, and it passes to the indorsee subject to all restrictions imposed upon it. The indorsee in this case parted with nothing of value. While as between the manufacturing company and the plaintiff the money when paid was to be applied to the use of the plaintiff, the plaintiff was not in any sense of the term an indorsee. The instruments in question were not delivered to.it until after due. It had no legal title thereto. Its right to maintain an action upon the notes so indorsed arises out of no incident of the instrument as negotiable paper, but rather arises out'of the practice acts which require the suit to be brought in the name of the real party in interest. It does not appear that the notes were delivered to plaintiff under such circumstances as to pass the legal title [331] thereto. While no doubt the Iowa City State Bank, by the terms of the indorsement, could have transferred or negotiated the instrument in question, the rights of the transferee would have been subject to the terms of the in-dorsement, and such second indorsee would not have the rights of a holder in due course. Any transfer by the Iowa City State Bank would have been subject to the rights of the plaintiff and notice to all subsequent transferees oí the plaintiff’s right to the proceeds of the instrument in question. Our attention is called to Hook v. Pratt, 78 N. Y. 371. This case, however, does not pass upon this point. The question there involved was whether or ,not it was incumbent upon an indorsee under a restrictive indorsement to prove consideration, or whether consideration was imported by the indorsement. In National City Bank v. Wescott, 118 N. Y. 468, 475, 23 N. E. 900, Hook v. Pratt, supra, and White v. Miners’ Nat. Bank, 102 U. S. 658, are cited on the proposition that a restrictive indorsement rendered the check in question nonnegotiable. The instruments in- the hands of the plaintiff were therefore nonnegotiable. and subject to any defense which might have been made against them in the hands of the manufacturing company. We do not overlook the fact that an indorsee accepting negotiable paper as collateral security may be a holder for value. Shaffer v. Peavey, 161 Wis. 149, 152 N. W. 829. The trouble is that the notes were not accepted by the plaintiff and were not held 'by the Iowa City State Bank as collateral, but as trustee for the benefit of the plaintiff, and the Iowa City State Bank as indorsee is therefore plainly brought within the provisions of the statute relating to restrictive indorsements. While the indorsement rendered the instruments nonnegotiable, they were valid and transferable, and the plaintiff is entitled to recover thereon in the event that the defendant failed to establish a valid defense thereto. [332] The plaintiff further claims that the delivery of the note to plaintiff united the legal and equitable title and so constitutes the plaintiff the owner, with exactly the same right as if the original indorsement had been in the usual and unrestricted form. It appears from the evidence that the note was not delivered to the plaintiff until after due. It could not, therefore, become such owner and holder before the maturity of the note, and we are not called upon to consider or discuss what the effect would have been had there been a union of the legal and equitable titles before the notes became due. The jury found that there was a failure of consideration to the defendant as to the notes sued upon. The court set aside the finding of the jury upon motion, and held that there was no failure of consideration. The object and purpose of the advertising campaign was to increase the sales of defendant during the twelve-months period specified in the contract. While the manufacturing company agreed that if one and eight-ninths per cent, of the defendant’s gross sales did not amount to $340 it would pay to the defendant any deficiency, in cash, and the defendant testified upon the trial that he had no claim under that clause of the contract, that does not dispose of the question whether or not there was a substantial failure of consideration. It appears with reasonable certainty that the amount of the defendant’s sales was increased, but that increased amount of sales was due to advance in prices resulting from war conditions and not to any increased betterment of business. It clearly appears that a considerable part of the goods contracted for were never Shipped, or, if shipped, were never received by the defendant, that the campaign was not put on in the manner and at the times specified in the contract, and there is evidence from which the jury was warranted in believing that the business of the defendant was injui'ed rather than promoted by reason of the manufacturing com [333] pany’s failure to carry out its contract according to its’ terms. Without attempting to recite the entire evidence, we are clearly of the opinion that there was sufficient evidence to sustain the jury’s answer to question 2 — that there was a failure of consideration as to the notes remaining unpaid and sued upon. The trial court was therefore in error in setting aside the answer to question 2, and that part of the verdict should have been allowed to stand. The plaintiff not being a holder in due course for value, and the defendant having established a valid defense to the notes, judgment should have gone accordingly. By the Court. — Judgment reversed, with directions to dismiss the plaintiff’s complaint.