D'Oench, Duhme & Co. v. Federal Deposit Ins. Corp.

Decision Date27 March 1941
Docket NumberNo. 11779.,11779.
Citation117 F.2d 491
PartiesD'OENCH, DUHME & CO., Inc., v. FEDERAL DEPOSIT INS. CORPORATION.
CourtU.S. Court of Appeals — Eighth Circuit

John W. Giesecke and Harold C. Ackert, both of St. Louis, Mo., for appellant.

Chester H. Farthing, of Belleville, Ill., and Wm. O'Herin and Leahy, Walther & Hecker, all of St. Louis, Mo., for appellee.

Before GARDNER, WOODROUGH, and JOHNSEN, Circuit Judges.

JOHNSEN, Circuit Judge.

Two questions are determinative of this appeal: (1) Whether the promissory note involved is governed by the law of Illinois or of Missouri; and (2) whether, under the law of the applicable state, the indorsee of a demand note, given for the accommodation of the payee and negotiated more than five years after its execution, may have the status of a holder in due course.

Plaintiff (appellee) has a corporate existence under 12 U.S.C.A. § 264, Act of June 16, 1933, c. 89, § 8, as amended. Defendant (appellant) is a Missouri corporation.

The action was one upon a promissory note, which defendant had executed as maker, in favor of Belleville Bank & Trust Co., as payee, and of which plaintiff claimed to be a holder in due course. The instrument was in the face amount of $5,000, was dated Belleville, Illinois, January 1, 1933, and was payable on demand, with interest semiannually, at the office of the payee, in Belleville, Illinois. It was indorsed by the payee to plaintiff, at Belleville, Illinois, on April 4, 1938, as collateral, with other assets, for a loan made by plaintiff, under 12 U.S.C.A. § 264 (n) (4), to facilitate a transfer of the deposit liabilities of Belleville Bank & Trust Co. and their assumption by another bank. By the terms of the loan transaction, plaintiff was authorized to make collection of the collateral in its own name, on any default in the payment of the principal obligation.

After such a default by Belleville Bank & Trust Co., plaintiff made demand upon defendant for payment of its note, and then instituted this action. Suit was brought in federal court under the provisions of 12 U. S.C.A. § 264 (j) Fourth, and 28 U.S.C.A. § 42. The case was tried without a jury. The trial court held that the note was governed by the law of Illinois, and that, under the law of that state, plaintiff had the status of a holder in due course. Judgment was rendered in favor of plaintiff, and defendant has appealed.

From the evidence, it appeared that defendant was a dealer in securities, and that Belleville Bank & Trust Co. had been one of its customers. In 1926, some Arkansas and Mississippi drainage district bonds, which defendant had sold the bank, went into default, and, to prevent their showing as delinquent assets on its records, the cashier requested defendant, as an accommodation, to execute two demand notes in favor of the bank, in an amount equal to the face of the bonds, to which the securities were to be carried as purported collateral. The bank gave defendant receipts for the notes, which recited, "This note is given with the understanding it will not be called for payment. All interest payments to be repaid." Subsequent renewals of the notes were executed. Defendant made interest payments to the bank until 1932, which were retained by the bank, though it appears that some years later and before the note here involved was negotiated, defendant requested that these sums be returned. The original notes were executed at St. Louis and contained a recital that they were negotiable and payable at the office of defendant in that city. The contents of the intermediate renewal notes are not shown. The note here involved consolidated the amounts of the original notes and, as previously indicated, was dated Belleville, Illinois, and was made payable at the office of the Belleville Bank & Trust Co. in that city. Since 1935, the bank had carried the note as a charged-off asset.

Defendant contends that the original notes were Missouri contracts, and that all renewals should therefore be held to be governed by the law of that state. But an accommodation note, like any written instrument, is subject to competent modification. And where, on a renewal of accommodation paper, its terms and recitations are so changed as to make applicable other or different principles of law, their effect cannot be escaped by mere inferences from the original paper. An instrument that is complete, unambiguous and unimpeached must be governed by its own applicable law.

Where a negotiable instrument is executed and is payable in the same state, and there are no other controlling provisions in it, it elementarily must be held to be governed by the law of that state. A contract is regarded as having been executed where the last act necessary to make it a legal obligation has been and, under the terms of the instrument, was entitled to be done. Hogue-Kellogg Co. v. G. L. Webster Canning Co., 4 Cir., 22 F.2d 384; 1 Williston on Contracts, Rev. Ed., 309, § 97. In the case of accommodation paper, this is the place where it has been, and where the parties must be held to have intended it could be, negotiated for value to a third person. Tilden v. Blair, 88 U.S. 241, 21 Wall. 241, 22 L.Ed. 632; Gay v. Rainey, 89 Ill. 221, 31 Am.Rep. 76; Restatement Conflict of Laws, § 320; 2 Beale Conflict of Laws 1059, § 320.1; 7 Am.Jur. 808, § 34.

Here, the original notes were issued at St. Louis, Missouri, and contained a recital that they were negotiable and payable there. The renewal note involved in this action, however, was dated and made payable at Belleville, Illinois. It contained no provision indicating that it was not intended to be negotiated there. From the face of the instrument, it was properly in the hands of the payee in that state. In this situation, if the instrument was legally subject to negotiation, a transferee necessarily was entitled to assume and claim that the resulting contract between the maker and himself was an Illinois contract and would be governed by the law of that state.

The remaining question then is whether, under the law of Illinois, plaintiff is a holder in due course or has a status equivalent thereto.

Section 52 of the Uniform Negotiable Instruments Law provides that a holder in due course is one who, among other things, has taken the instrument before it was overdue. Section 53 provides that, "Where an instrument payable on demand is negotiated an unreasonable length of time after its issue, the holder is not deemed a holder in due course." Section 29 provides that an accommodation party "is liable on the instrument to a holder for value, notwithstanding such holder at the time of taking the instrument knew him to be only an accommodation party." These provisions are in force in Illinois (Smith-Hurd Ill.Ann.St. c. 98, §§ 72, 73, 49) under the Negotiable Instruments Law of that state, with a clause added by the legislature to Section 29 providing, "and in case a transfer after maturity was intended by the accommodating party notwithstanding such holder acquired title after maturity."

Defendant contends that five years ought to be held to be an unreasonable time for the negotiation of a demand note, as a...

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4 cases
  • Oench, Duhme Co v. Federal Deposit Ins Corporation
    • United States
    • United States Supreme Court
    • March 2, 1942
    ...contract; and it decided that under Illinois law respondent was the equivalent of a holder in due course and entitled to recover. 8 Cir., 117 F.2d 491. Petitioner contends that under the rule of Klaxon Company v. Stentor Electric Mfg. Co., 313 U.S. 487, 61 S.Ct. 1020, 85 L.Ed. 1477, a feder......
  • Gunter v. Hutcheson, Civ. A. No. C76-1702.
    • United States
    • United States District Courts. 11th Circuit. United States District Courts. 11th Circuit. Northern District of Georgia
    • May 12, 1980
    ...in a purchase and assumption transaction like the one in issue here." FDIC's brief of November 30, 1979 at p. 9 n.* (citing D'Oench, 117 F.2d 491 (8th Cir. 1941), aff'd on other grounds, 315 U.S. 447, 62 S.Ct. 676, 86 L.Ed. 956 (1942). This holding could have been known to Congress when it ......
  • Collins v. American Red Cross, Civ. A. No. 89-1704.
    • United States
    • United States District Courts. 3th Circuit. United States District Court (Eastern District of Pennsylvania)
    • October 25, 1989
    ...of subject matter jurisdiction on their own, the parties never questioned jurisdiction or put it at issue. See D'Oench below at 117 F.2d 491 (8th Cir.1941). 7 In this regard, it is interesting to note that in the language accompanying Recommendation No. 21 that the charter make clear that t......
  • Civic Plaza National Bank v. First National Bank in Dallas
    • United States
    • United States Courts of Appeals. United States Court of Appeals (8th Circuit)
    • November 4, 1968
    ...to make it a legal obligation has been and, under the terms of the instrument, was entitled to be done." D\'Oench, Duhme & Co., Inc. v. FDIC, 117 F.2d 491, 492 (8 Cir. 1941). "In the case of an informal unilateral contract, the place of contracting is where the event takes place which makes......

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