it should be so expressed. In our opinion when a note contains special stipulations and its payment is subject to contingencies, it fails to possess the character of a negotiable instrument and is subject in the hands of an assignee to any defense which would be available if it were still held by the original payee. See McClelland v. Norfolk Southern R. R. Co., 110 N. Y. 469, 18 N. E. 237, 1 L. R. A. 299, 6 Am. St. Rep. 397. And, as bearing especially upon the facts in this case, we think that whenever the payment of a note is expressly made subject to the equities growing out of, and defenses based upon, an existing or contemporaneous agreement, a person taking such note holds it subject to such equities and defenses.

The distinction between conditions precedent, performance of which must be alleged in bringing the action, and contingencies and equities which must be set up by way of defense and which yet serve to qualify the obligation to pay the note and deprive it of negotiability, may be shown by illustration. Thus, let us suppose that the note in suit contained the following stipulation: "This note in the hands of all holders is subject to all defenses which would be available to the maker based upon the contract between the maker and the payee of October, 1905, in the same manner and to the same extent as if it were held by the payee."

Such a provision would not constitute a condition precedent. It would not be necessary to plead performance of the contract in a suit upon the note. And yet it could hardly be claimed that an assignment of the note would shut out the defenses which the parties had stipulated should exist in the case of an assignment. Any such claim, if sustained, would deprive the parties of their right to make lawful contracts. The obligation to pay in such a case as this would be qualified and conditional, but would not depend upon the fulfillment of any condition precedent.

The real inquiry in the present case is whether the promise in the note should be treated as the substantial equivalent of the suppositious promise we have examined. Manifestly if the provision "subject to terms of contract between maker and payee" constitutes merely a reference to the agreement or a statement of the consideration for the note, it does not impair the negotiability of the latter. So, if it merely constitutes notice of the existence of the contract and not of the breach thereof, it would not affect negotiability. But the evident purpose of the parties to this note was to go further and make it subject to and to impress upon it the defenses to which the maker would be entitled under the contract. The assignee took it in that condition. To deprive the maker of those defenses, upon the ground of the negotiability of the note, would work great injustice. And we think that we are not required to reach such result. As between the maker and the payee of a note, payment is, as a matter of law, subject to existing equities and

defenses even in the absence of any statement to that effect in the note. It is not too much to hold that when a promise is expressly limited by a provision in the note itself, assignees should take it subject to such limitation. In our opinion, the special stipulation in the present note limits and qualifies the obligation to pay so that it is not absolute, but is a prima facie obligation subject to be defeated by the maker's defenses.

Authorities cited by the plaintiff as well as by the defendant support these views. Thus in Jewett v. Lyon, 3 G. Greene (Iowa), 577, referred to by the plaintiff, it was said in a suit by the assignee of a promissory note containing a stipulation for a deduction from the amount thereof in a certain contingency: "The obligation to pay is in all respects a promissory note, and the stipulations attached to it do not change in any respect its character, or weaken the liability of the maker. It only provides for a certain contingency, the onus to establish which lies upon the defendant. Upon the introduction of this note in evidence, the plaintiffs made out a prima facie case, and in the absence of any rebutting testimony on the part of the defendant, the plaintiffs were entitled to recover, and hence the court did not err in overruling the motion for a nonsuit."

So, in Cushing v. Field, 70 Me. 50, 35 Am. Rep. 293, it was held that a note payable to order on the face of which was the following indorsement: "This note is subject to a contract made November 13, 1874”— was not negotiable, and that an assignee took it subject to all the equities between the original parties.

In American Exchange Bank v. Blanchard, 7 Allen (Mass.) 333, an instrument containing a promise to pay a stipulated sum at a fixed time "subject to the policy" was held-in a suit by the indorsee-not to be a negotiable promissory note because the promise was not absolute. The court said: "Thus interpreted, it is too plain for discussion that the promise is in its nature contingent, and dependent for its fulfillment on other stipulations than those which are inserted in the body of the contract. To determine whether at its maturity any money would become due upon it, it would be necessary to have recourse to the policy therein referred to, and to ascertain whether any loss had occurred which would constitute a valid claim against the company in favor of the promisors, and operate as payment or set-off in whole or in part for the amount which the defendants had agreed by their promise to pay to the company."

In McComas v. Haas, 107 Ind. 512, 518, 8 N. E. 579, 582, the note contained the following clause: "This note is given in consideration of, and is subject to, one certain contract, etc.," and the court said: "Although the note in suit was, by its terms, payable at a bank in this state, with the clause or condition quoted on its face, it was not negotiable as an inland bill of exchange and was not governed by the law

merchant; but the appellant, as the assignee thereof before maturity, took such note subject to all the equities existing between the appellee as its maker, and S. B. J. Bryant as the payee and assignor thereof."

In Dilley v. Van Wie, 6 Wis. 209, 212, a note contained the following provision: "Subject to the provisions contained in an agreement this day made between said Carter and myself." In a suit by the indorsee the court said: "The instrument in writing on which judgment was rendered is not a promissory note. Its payment is made subject to a contingency, or rather to the equities between the parties growing out of a contemporaneous agreement between the same parties. This is expressed upon the face of the (so-called) note, and deprives it of its commercial character."

In Bringham v. Leighty, 61 Ind. 524, a note contained the following provisions: "This note was given for purchase money on said estate. If title defective note void." In an action on the note by an indorsee, it was held that it was not necessary to allege in the complaint that the title to the real estate referred to was not defective; the subject of title in such connection being entirely a matter of defense.

Upon principle and upon what we regard as the weight of authority, we reach the conclusion that the note in question was not negotiable, and that the trial court erred in its rulings.

The judgment of the Circuit Court is reversed.

SNELLING STATE BANK v. CLASEN.

(Supreme Court of Minnesota, 1916. 132 Minn. 404, 157 N. W. 643, 6 A. L. R. 1663.)

Action by the Snelling State Bank against Mathias Clasen. From an order denying a new trial, defendant appeals. Affirmed.20

DIBELL, C. Action upon a promissory note. The court directed a verdict for the plaintiff. The defendant appeals from the order denying his motion for a new trial.

The note was made by the defendant Clasen on February 7, 1913, to one Harris. Harris indorsed it in blank. It was delivered by the holder, one McGray, who received it from Harris, to the plaintiff bank as collateral security to a note then owing to the bank and as collateral security for future advances. McGray did not indorse it. On the back of the note, and above the indorsement of Harris, appear the words "as per contract." They were put on the note at the time of its execution. This note was one of four notes of equal amount given by 28 Part of the opinion is omitted.

Clasen to Harris as a part of the consideration of a written contract for the sale of lands in British Columbia. On the same day another agreement in writing was made by Clasen and Harris, providing, in effect, that if upon inspection Clasen was not satisfied with the lands, or with other lands shown him, Harris would return the notes and pay back the cash payment made.

Afterwards Clasen demanded the return of the notes, pursuant to this agreement, and Harris failed to return them. The sale contract accompanied the note at the time McGray gave it to the bank. The other agreement did not.

1. Under our decisions the indorsee of negotiable paper, taken as collateral security for an antecedent debt, is a purchaser for value, and has such title as a purchaser for a consideration paid at the time. Rosemond v. Graham, 54 Minn. 323, 56 N. W. 38, 40 Am. St. Rep. 336; German-American State Bank v. Lyons, 127 Minn. 390, 149 N. W.

658.

2. The presence of the words "as per contract" on the back of the note did not affect its negotiability, using the word "negotiability” in its large sense as including the passing of title free of equities in favor of the maker and against the payee, as well as the transfer of title by indorsement; that is, the right of a bona fide purchaser for value before maturity and in due course of business was not affected. It is essential to the negotiability of an instrument that the promise be to pay a definite sum in money, absolutely and not contingently, and generally and not out of a particular fund. Hillstrom v. Anderson, 46 Minn. 382, 49 N. W. 187. A recital of the consideration does not destroy negotiability. Wright v. Traver, 73 Mich. 493, 41 N. W. 517, 3 L. R. A. 50; Clanin v. Esterly, etc., Co., 118 Ind. 372, 21 N. E. 35, 3 L. R. A. 863; Hillstrom v. Anderson, 46 Minn. 382, 49 N. W. 187; 7 Cyc. 580. In Taylor v. Curry, 109 Mass. 36, 12 Am. Rep. 661, the words "on policy No. 33,386," written on the face of the note, were held not to affect its negotiability. To the same effect are Union Ins. Co. v. Greenleaf, 64 Me. 123; Bresee v. Crumpton, 121 N. C. 122, 28 S. E. 351; Kirk v. Dodge, etc., Ins. Co., 39 Wis. 138, 20 Am. Rep. 39. In First Nat. Bank v. Lightner, 74 Kan. 736, 88 Pac. 59, 8 L. R. A. (N. S.) 231, 118 Am. St. Rep. 353, 11 Ann. Cas. 596, the words "on account of contract," written on the face of the note, were held not to effect negotiability. We do not find a case like the one before us, but the conclusion we reach is right.

3. The words quoted, however, are not to be disregarded. The purchaser cannot overlook them and then claim that he had no notice of what an observance of them and fair inquiry would disclose. The sale contract accompanied the note and went to the bank. The bank knew its contents. It appeared from it that the note was one of four notes given upon the purchase of the British Columbia lands. Nothing in

it affected Clasen's liability on the note. The agreement relating to the return of the notes did not go to the bank, and it was not informed of it. Nothing in the situation suggested further inquiry, and it was not chargeable with notice of the agreement for a return of the

notes.

*

Affirmed.27

(II) As To CERTAINTY

AYREY v. FEAMSIDES.

(Court of Exchequer, 1838. 4 Mees. & W. 168.)

Debt on an instrument (declared on as a promissory note) whereby the defendants jointly and separately promised to pay to the plaintiffs, or order, the sum of £13. on demand, for value received, with interest at £5. per cent., "and all fines according to rule." There was also a count on an account stated. The defendant pleaded to the first count, payment; to the second, nunquam indebitatus; and at the trial, before the undersheriff of Yorkshire, the plaintiff had a general verdict, W. H. Watson having obtained a rule nisi to arrest the judgment, on the ground that the instrument declared on could not be considered as a promissory note within the statute, but only as an agreement, for which no consideration was shown in the declaration.

Wightman showed cause. The words, "and all fines according to rule," are altogether insensible, and may be rejected as surplusage; their presence, therefore, does not vitiate the instrument, which, in all other respects, is a complete promissory note. It was certainly held in Smith v. Nightingale, 2 Stark. N. P. 375 (which appears to be the nearest case to the present), that an instrument whereby the party promised to pay a sum certain, "and also all other sums that might be due," was not a promissory note within the statute. But there, the last words, although not capable of any definite construction, were not so insensible as that they could be rejected as surplusage, since they

27 "The note sued on contained the following recital: "This is one of a series of notes of the same tenor and of even date herewith, said series representing the balance of purchase money for a tract of land on No. 82 Rice Street, Atlanta, Ga., as 'fully described in a bond for title of even date from payee to maker thereof, which bond for title is hereby referred to and made a part hereof; and all makers hereof and indorsers and securities hereon are hereby firmly bound by all the conditions and agreements of said bond.' This was enough to put the purchaser of the note upon such inquiry as would have led him to knowledge of the fact that the note had been fully paid off and satisfied. Per curiam, Glover v. Wesley, 20 Ga. App. 814, 93 S. E. 513 (1917).