business with the bank, and had often, in the absence of the cashier, accepted and discounted other notes for such person, and that these transactions had been recognized and approved by the officers of the bank.

3. That the president of a bank is a stockholder, and the cashier a stockholder and secretary, of a corporation which is the payee of a note transferred to the bank, does not charge the bank with constructive notice of defenses of the maker against the corporation payee, when neither the president nor cashier had actual notice.

4. The application of the proceeds of a negotiable note to the credit of the transferror on an existing debt is a sufficient consideration to constitute the transferee a bona fide holder, and protect him against defenses of which he had no notice.

Appeal from Circuit Court, Minnehaha County; Joseph W. Jones, Judge.

Action by Iowa National Bank of Ottumwa against Sherman & Bratager on a promissory note. From a judgment for plaintiff, defendants appeal. Affirmed.

Joe Kirby, for appellants. Boyce & Warren, for respondent.

CORSON, J. This is an appeal from a judgment entered on a directed verdict in favor of the plaintiff. The action was brought upon a promissory note executed by the defendants to the Janney Manufacturing Company, and transferred by that company to the plaintiff. The defendants, in their answer, set up a warranty on the part of the Janney Manufacturing Company, and claim that the machinery delivered to them was not in compliance with the warranty. It was proven on the part of the plaintiff, and uncontradicted, that before the maturity of the note in suit the same was transferred to the plaintiff bank by the president of the Janney Manufacturing Company, and discounted by the teller of the bank, and the proceeds passed to the credit of the Janney Manufacturing Company, which was indebted to the plaintiff bank in a sum exceeding $10,000; and it further appeared from the cross-examination of the president and cashier of the bank that the president of the bank was a stockholder in the Janney Manufacturing Company, and its treasurer, and that the cashier of the plaintiff bank was the secretary of the Janney Manufacturing Company, and also a stockholder therein.

The appellants seek a reversal of the judgment in this case upon four grounds: (1) That the president of the Janney Manufacturing Company was not authorized to transfer the note in controversy to the plaintiff bank, or at least that there was no evidence tending to show that he was authorized to make the transfer. (2) That there was no evidence showing or tending to show that the teller of the bank was authorized to discount the note and pass the proceeds of the same to the credit of the Janney Manufacturing Company. (3) That the president and cashier of the plaintiff bank, being stockholders and officers of the Janney Manufac

turing Company, were charged with notice of any defenses that may have existed against the note in suit in this action. (4) That as the plaintiff bank advanced no new consideration for the note in suit, but gave the Janney Manufacturing Company credit for the proceeds, it could not defeat the rights of the defendants to make their defense to the note. The court, evidently being of the opinion that the plaintiff had established by the uncontradicted evidence a transfer of the note to the plaintiff bank before maturity, excluded all evidence on the part of the defendants as to their alleged warranty and breach thereof, and, on motion of the plaintiff, directed a verdict in its favor.

It is contended by the appellants that the president of a corporation is not authorized to transfer a note belonging to such corporation by virtue of his office as president, and that a transfer by him, unless specifically authorized by the board of directors, does not have the effect to transfer the title. It appears in this case that the Janney Manufacturing Company was engaged in the manufacture of agricultural machinery, and that much of its business was transacted by way of notes taken by it for machinery delivered, and that it was in the habit of transferring such notes to the plaintiff bank by the indorsement of the president. The Janney Manufacturing Company being engaged in a business in which it received notes from its agents and customers, the president, in the absence of any evidence to the contrary, may reasonably be presumed to be authorized to discount and transfer the notes of the company. In Merrill v. Hurley, 6 S. D. 592, 62 N. W. 958, 55 Am. St. Rep. 859, this court held, "In the absence of evidence to the contrary, it will be presumed that the managing president of a corporation engaged in loaning money and in buying and selling negotiable instruments has authority, as such, to transfer by indorsement a promissory note made payable to such corporation." The case of Mann et al. v. Second National Bank of Springfield, Ohio, 34 Kan. 746, 10 Pac. 150. is very analogous to the case at bar. In that case it was contended by the defendant in error that there was no such indorsement or transfer of the note as would convey any interest to the transferee (plaintiff below), and, even if there was, that such indorsement or transfer was irregular, informal, and that it would not cut off outstanding equities existing in favor of the defendant below and against the original holder of the note. It appeared from the evidence that the note was made payable to Amos Whitely, president, and was by him indorsed and transferred before maturity to the plaintiff in the action. It further appeared that Whitely was the president and manager of the Champion Machine Company, and that the note in fact belonged to that company. Upon these facts, the Supreme Court of Kansas held it would presume that Whitely, as president and gen.

eral manager of the Champion Company, was authorized to discount and transfer the note in the due course of business. Merchants' Bank v. Citizens' Gaslight Co., 159 Mass. 505, 34 N. E. 1083, 38 Am. St. Rep. 453; American Exchange National Bank v. Oregon Pottery Co. (C. C.) 55 Fed. 265; Crowley v. Mining Co., 55 Cal. 273; Caryl v. McElrath, 3 Sandf. 176.

In the case at bar it is further contended by the defendants that the teller of the bank, was not authorized to discount the note in suit by virtue of his position as teller, and therefore the acceptance of the note in suit, and discounting of the same by him, and placing the proceeds of the same to the credit of the Janney Manufacturing Company, was not such an acceptance of the note as would prevent the defendants from proving their defense to the same. We are of the opinion, however, that the transaction on the part of the teller was such as he was authorized to make under the custom and business of the bank.

It appeared from the evidence that he was accustomed to accept and place to the credit of parties negotiable notes of such parties as it did business with and were regarded as good, and it further appeared in evidence that the plaintiff bank did a very large business with the Janney Manufacturing Company, in the way of discounting its notes, and that these transactions were often made by the teller in the absence of the cashier, and were recognized and approved by the officers of the bank.

This brings us to the next and more important question, namely, was the bank, through its officers, charged with the notice of the defendants' defense to the action? It was shown that the president and cashier of the bank had no actual knowledge that there was any defense to the note, and the question is, can they be held to have constructive notice by virtue of their connection with the Janney Manufacturing Company as its treasurer and secretary? We are of the opinion that to hold that they had such constructive notice would be carrying the principles of constructive notice too far, in order to defeat negotiable paper held by a corporation whose officers hold stock in and of which they are officers. The Janney Manufacturing Company had its place of business in Iowa. The transaction culminating in the note in suit was had with the appellants at Sioux Falls. The possession of a negotiable instrument payable to order and properly indorsed is prima facie evidence that the holder is the owner thereof, and that he acquired the same in good faith, for value, in the course of business, before maturity, without notice of any circumstances that would impeach its validity, and that he is entitled to its full face value as against any of the parties, except where the note was obtained by fraud, in which case a different rule applies. Section 4487

Comp. Laws 1887; Manufacturers' National Bank v. Newell, 71 Wis. 309, 37 N. W. 420; First National Bank of Rock Island v. Loyhed, 28 Minn. 396, 10 N. W. 421; Ft. Dearborn National Bank v. Seymour, 71 Minn. 81, 73 N. W. 724; Benton v. German National Bank (Mo.) 26 S. W. 975; Memphis National Bank v. Sneed (Tenn.) 36 S. W. 716, 34 L. R. A. 274, 56 Am. St. Rep. 788; Wilson v. Second National Bank (Pa.) 7 Atl. 145; Casco National Bank v. Clark (N. Y.) 34 N. E. 908, 36 Am. St. Rep. 705. In Manufacturers' National Bank v. Newell, supra, the Supreme Court of Wisconsin says: "The acts of the agent in selling the machine and taking the note were, in legal effect, the acts of the company. This being so, the company must be presumed to have had constructive notice of the infirmity of the note in question. But it does not appear that, prior to its receipt of the note, any of the directors or officers of the bank had any actual knowledge or information respecting such infirmity. The mere fact that some of the directors and officers of the bank were also directors and officers of the company did not import to the bank the same constructive notice as was chargeable against the company." In the case of First National Bank of Rock Island v. Loyhed, supra, the Supreme Court of Minnesota says: "Lastly, the defendant contends that the court erred in directing a verdict for plaintiff, because the evidence showed that it was chargeable with notice of defendant's equities against the note when it was discounted. The evidence is uncontradicted that the bank became the purchaser and indorsee of the note before maturity and in the regular course of business, for a valuable consideration; that the business was transacted on the part of the bank by its cashier, J. M. Buford, who had never seen nor heard of the note until it was presented at the bank for discount, and had no actual notice of any defense or equities on the part of the defendant. But defendant insists that because J. M. Buford was a stockholder and director of the B. D. Buford & Co., corporation, therefore he was chargeable with notice, and that notice to him was notice to the bank. It appears, also, that said J. M. Buford had no duties to perform in reference to this note, either as a stockholder or director of B. D. Buford & Co." But the court held that the bank was protected. In the case at bar no illegality in the original inception of the note was shown or claimed. In the Mann Case, supra, this same question was considered; and the court, in the course of the opinion, says: "The claim, then, of the defendants, in the light of the facts of the case, is as follows: * *. In other words, the bank must be held to have had constructive notice of the infirmity of the note, not because it or any of its officers or agents had actual notice thereof, or actual notice of any fact which might put them upon inquiry, but because

*

one of its officers was a member of another corporation, which had an agent who had actual notice of such infirmity. We think this is carrying the doctrine of constructive notice too far. We think a corporation should be held to have constructive notice of only such facts as have been brought to the actual notice or attention of some one of its officers or agents, or of such facts only as have been constructively brought to the notice or attention of some one of its officers or agents, by the actual notice of such other facts as would naturally put the officer or agent upon inquiry. Why should a corporation be required to take notice of matters or things concerning which not one of its officers or agents has any actual notice? How could its officers communicate to the corporation notice of matters or things of which they themselves have no actual notice? And how, in the present case, could Whitely have communicated to his bank the fact of the infirmity of the note in suit, when he did not possess the slightest actual knowledge or notice that such infirmity existed?" The views expressed by these courts meet with our approval.

It is further contended by the appellants that the plaintiff is not in the position of an indorsee of negotiable paper before maturity, for the reason that it advanced no money to the Janney Manufacturing Company at the time of the transfer of the note or at any time, and the giving the Janney Manufacturing Company credit for the amount of the note did not place it in a position to defeat the defendants' right to make their defense to the action. It seems to be well settled that the transfer of a negotiable promissory note before maturity in the payment of a pre-existing debt is of itself sufficiently valuable consideration to constitute a transferee a bona fide holder, and to entitle him to protection as against infirmities in the paper of which he had no notice. 4 Am. & Eng. Enc. Law (2d Ed.) 285; Swift v. Tyson, 16 Pet. 1, 10 L. Ed. 865; Hanold v. Kays, 64 Mich. 439, 31 N. W. 420, 8 Am. St. Rep. 835; Outhwite v. Porter, 13 Mich. 533; Mann v. Second National Bank, supra; Naglee v. Lyman, 14 Cal. 451; Rosemond v. Graham, 54 Minn. 323, 56 N. W. 38, 40 Am. St. Rep. 336; Mayer v. Heidelbach, 123 N. Y. 332, 25 N. E. 416, 9 L. R. A. 850; Carlisle v. Wishart, 11 Ohio, 173, 192; Barker v. Lichtenberger, 41 Neb. 751, 60 N. W. 79; R. Co. v. National Bank, 102 U. S. 74, 26 L. Ed. 61. In the latter case the Supreme Court of the United States, in considering this question, after commenting at some length on the case of Swift v. Tyson, supra, says: "According to the very general concurrence of judicial authority in this country, as well as elsewhere, it may be regarded as settled in commercial jurisprudence—there being no statutory regulations to the contrary-that, where negotiable paper is received in payment of an antecedent debt, * the holder who takes

the transferred paper before its maturity, and without notice, actual or otherwise, of any defense thereto, is held to have received it in due course of business, and, in the sense of commercial law, becomes a holder for value, entitled to enforce payment, without regard to any equity or defense which exists between prior parties to such paper. Upon these propositions there seems at this day to be no substantial conflict or authority." Upon questions of commercial law, it is desirable that the decisions of the state and federal courts should, as far as possible, be in harmony; and in a new state like our own, where the question we are considering has not as yet been settled by judicial decision, it is proper that the view of the United States Supreme Court should be followed.

It clearly appearing in the case at bar that the plaintiff received credit by the bank on its indebtedness to the value of the note, the plaintiff must be considered as an indorsee for value, without notice, and entitled to recover the amount due upon the note, without regard to any defense that may exist in favor of the defendants as against the Janney Manufacturing Company.

Finding no error in the record, the judgment of the circuit court and order denying a new trial are affirmed.

MCKINNEY v. MINNEHAHA COUNTY

et al.

(Supreme Court of South Dakota. Nov. 11, 1903.)

TAX DEED-MERGER IN FEE TITLE-SUIT TO SET ASIDE-DEPOSIT IN COURT-NECESSITY -PURCHASER'S CLAIM FOR TAXES PAIDJUDGMENT ENFORCING-EQUITABLE POWERS OF COURT.

1. Rev. Pol. Code, § 2214, requires that, when the validity of a tax deed arises in an action, the suit shall not proceed in favor of the party assailing the deed, unless he shall deposit in court an amount sufficient to redeem from the tax sale, together with costs, etc. Held, that the section did not apply to a suit to set aside a tax deed which the plaintiff conceded on the record and the defendant's answer showed to have been merged in the fee title.

2. Where a tax deed is set aside for defects not affecting the validity of the tax, a judgment decreeing that the party attacking the deed shall reimburse the purchaser, whose claim shall be a lien on the property rendering it subject to sale on execution, is within the equitable powers of the court.

Appeal from Circuit Court, Minnehaha County; Joseph W. Jones, Judge.

Action by D. L. McKinney against Minnehaha county and another. From a judgment for plaintiff, defendants appeal. Affirmed.

W. D. Scott and Joe Kirby, for appellants. Boyce & Warren, for respondent.

FULLER, J. Relying upon a treasurer's deed based upon a tax sale for the year 1891 and the subsequent payment of taxes for the years 1892 and 1893, plaintiff brought this

action to determine conflicting claims to the premises described in the complaint. While it is alleged by plaintiff that defendants' claim rests upon two tax deeds issued on January 13, 1900, for taxes never assessed, and that all proceedings of the taxing officers with reference thereto are absolutely void, it was established by competent proof that their interest, if any was thus acquired, had been merged in the fee title to the premises purchased by the defendant Joe Kirby from the owner thereof, and by warranty deed conveyed to his codefendant, Minnehaha county. In support of the issues raised by an amended answer, alleging, among other things, fee-simple ownership in the defendant county, certain irregularities in the tax proceedings upon which plaintiff relied were shown by competent proof, and his tax deed, though fair upon its face, was rightly adjudged to be of no validity. Finding from the evidence that the irregularities of which the defendants complained in no manner affected the validity of the tax, the nonpayment of which culminated in plaintiff's deed, the trial court ascertained the just and equitable amount for which the premises were liable for the years 1891, 1892, and 1893, together with interest, penalty, and costs, and adjudged the same to be a paramount lien upon the property, rendering the same subject to sale on execution for the nonpayment thereof. When plaintiff offered his tax deed in evidence, the objection was first made that facts sufficient to constitute a cause of action are not stated in the complaint, and to reverse the action of the trial court in overruling such objection it is now urged that no tender of the amount necessary to redeem from the tax sales at which the defendants purchased is alleged.

The eighth paragraph of the complaint is as follows: "That this plaintiff is ready and willing to pay, and now offers to bring into court, whatever sum of money, if any, this court may find to be due upon said premises for taxes for the years 1894 and 1895, ready to be paid to such of the defendants as should be entitled thereto, in the event that the court shall determine that anything is due upon said premises for the taxes of said years, or either thereof." By section 2214 of the Revised Political Code it is provided that: "Whenever in any action at law or in equity, the validity of any tax sale certificate, or tax deed, arises upon the pleadings, or otherwise, * such action shall not proceed in favor of the party assailing such certificate, or deed, unless he shall within such time as the court shall deem reasonable, deposit in court, for the benefit of the party claiming thereunder an amount equal to the sum required by law to redeem from the tax sale or sales involved together with the costs and disbursements of the action then incurred by the party claiming under such certificate or deed." It being tacitly admitted by plaintiff upon the record that the defendants'

interest is derived through mesne conveyances from the former owner, and shown, as alleged in the amended answer, that the defendant county is now the fee-simple owner of the premises, the relation of the defendants to the action, as presented by the pleadings and tried, was that of owners seeking to set aside the tax deed of plaintiff; and the fact that the cause proceeded in their favor without the deposit required by statute furnishes no just ground for complaint.

The requirement that the defendants answer for their delinquency by paying the just amount collectible as consideration for the avoidance of plaintiff's tax deed and the judgment directing the sale of the premises in satisfaction thereof is clearly within the equitable powers of the court. Pettigrew v. Moody County (S. D.) 96 N. W. 94.

Having thus determined the only essential question presented, it is needless to discuss immaterial assignments of error.

The judgment appealed from is affirmed.

DAVIS v. JEWETT BROS. & JEWETT. (Supreme Court of South Dakota. Nov. 11, 1903.) ASSIGNMENT

BANKRUPTCY
OF JUDGMENT
AGAINST INSOLVENT-EXECUTION SALE BY
ASSIGNEE-LIABILITY TO TRUSTEE.

1. The word "judgment" in Bankr. Act July 1, 1898, c. 541, § 671, 30 Stat. 565 [U. S. Comp. St. 1901, p. 3450], providing that all levies, judgments, attachments, or other liens obtained through legal proceedings against an insolvent, within four months prior to filing of petition in bankruptcy against him shall be void if he is adjudged a bankrupt, refers only to the lien of the judgment, the judgment remaining an assignable claim against the estate; and the judgment creditor having assigned the judgment, and his assignee having had execution issued thereon and goods of the insolvent levied on and sold thereunder, the proceeds being applied to satisfaction of the judgment, the judgment creditor is not liable on account thereof to the trustee in bankruptcy thereafter appointed.

Appeal from Circuit Court, Minnehaha County; Joseph W. Jones, Judge.

Action by Joseph C. Davis, trustee of the estate of Matous Novotny, bankrupt, against Jewett Bros. & Jewett, a corporation. Judgment for defendant. Plaintiff appeals. Affirmed.

Davis, Lyon & Gates and Shull & Farnsworth, for appellant. Joe Kirby, for respondent.

FULLER, J. The defendant corporation obtained judgment against Matous Novotny within four months immediately preceding the filing of a petition for his involuntary bank ruptcy, and this action by the chosen trustee in bankruptcy is to recover the value of certain personal property sold on execution at the instance of an assignee of such judgment in satisfaction thereof. There was a directed verdict for the defendant, and plaintiff ap

Chronologically stated, the facts essential to the only question of law necessary to be determined are these: On the 26th day of August, 1898, respondent commenced an action aided by attachment against Novotny on a claim of $1,149.55 for goods obtained under false pretenses, and 31 days later obtained judgment for the full amount, together with costs. On the day of its rendition, and before taking any steps by virtue of an execution and the warrant of attachment to satisfy the judgment, the same was sold and assigned for a valuable consideration to a stranger, and the assignment was made of record in the manner provided by law. The following day-September 28, 1898-the assignee of the judgment caused an execution to issue, which recited that the judgment had been thus assigned. The stock of merchandise attached was levied upon under this execution and sold for $1,620 on the 12th day of October, 1898, and the proceeds thereof were applied in satisfaction of the judgment. The creditors' petition in bankruptcy was filed against Matous Novotny on the 16th day of December, 1898, and he was adjudged a bankrupt on January 21, 1899; respondent qualifying as trustee on the 9th day of March following. That portion of the federal bankruptcy act upon which appellant relies provides: "That all levies, judgments, attachments, or other liens, obtained through legal proceedings against a person who is insolvent, at any time within four months prior to the filing of the petition in bankruptcy against him, shall be deemed null and void in case he is adjudged a bankrupt, and the property affected by the levy, judgment, attachment, or other lien shall be deemed wholly discharged and released from the same and shall pass to the trustee as a part of the estate of the bankrupt, unless the court shall, on due notice, order that the right under such levy, judgment, attachment, or other lien shall be preserved for the benefit of the estate." Act July 1, 1898, c. 541, § 67f, 30 Stat.565 [U.S. Comp. St. 1901, p. 3450]. That Congress Intended to limit its abrogation to levies, attachments, and liens created by judgment is clear from the relation in which the expression "or other liens" is employed, and the act does not destroy the Judgment itself. As the statute applies only to liens obtained through legal proceedings, and a judgment in this state does not "affect property," and is not a lien except upon the land of the debtor situated in the county where the judgment is docketed, it follows that the filing of the petition in bankruptcy operated merely to de stroy the lien, if one existed, but the judgment was not thereby annulled. The validity of the claim thus litigated and the amount of the indebtedness evidenced by such judgment is not impaired, and continues to be conclusive upon all parties. In re Beaver Coal Co. (D. C.) 110 Fed, 630; Doyle v. Heath (R. I.) 47 Atl. 213. Consequently, respondent's rights were not 97 N.W.-2

fraud, collusion, or want of jurisdiction its claim against Novotny stood proved by the judgment. As a demand against the bankrupt estate, it was assignable, and no act of respondent has in any way prejudiced the right of creditors or diminished the value of assets to the possession of which the trustee is entitled. Having in a lawful manner disposed of its claim against Novotny, respondent is in no manner responsible for the fact that there existed no liens, levies, judgments, or attachments emanating therefrom when the petition in bankruptcy was filed.

The question not being before us, no opinion is expressed with reference to the liability of respondent's assignee, whose judgment was fully satisfied two months before the petition in bankruptcy was filed.

The judgment appealed from is affirmed.

MINING CLAIMS-AGREEMENT FOR PURCHASE

-RESCISSION-BREACH-DAMAGES-
AGREEMENT-IMPROVEMENT.

1. An agreement for the purchase of mining claims stipulated that, if adverse claims were established to any portion of the land embraced in the agreement, the price should be reduced pro rata. The purchaser at the time of securing the option knew that title to portions of the land was in dispute. The seller claimed to own all the land included in the agreement, but some ground was subsequently adjudged to be the property of another. The agreement also made mistakes in the boundaries of certain lodes. Held, that the purchaser was not entitled to rescind the agreement.

2. Under Rev. Civ. Code 1903, § 1285, requiring a party, in order to accomplish a rescission of a contract, to act promptly on discovering the facts entitling him to rescind, a purchaser under an option agreement, if entitled to rescind because the title to a portion of the land had been adjudged to be in a third person, lost his right to rescind by his failure to offer to do so for about 15 months after discovering that such portion belonged to the third person.

3. An agreement for the purchase of a mining claim cannot be rescinded, after the selling price has greatly depreciated, by demonstrating its unproductiveness, as the purchaser cannot then restore to the seller everything of value which he received.

4. The word "improvements," in an agreement for the sale of mining claims, which stipulated that, if the purchaser failed to perform his agreements, the improvements should become the property of the seller, as rent for the occupation of the premises by the purchaser, and as damages sustained by reason of a breach of the contract, includes removable betterments placed on the land by the purchaser, and which he might, in the absence of an agreement to the contrary, take away.

5. Under Rev. Civ. Code 1903, § 1275, providing that parties to a contract may agree on the amount of damages sustained by a breach thereof, when, from the nature of the case, it would be difficult to fix the actual damage, the parties to an agreement for the purchase of mining claims may agree on the amount of damages that a breach thereof would occasion. Corson, J., dissenting.