American Nat. Bank v. Kerley

Decision Date07 November 1923
Citation220 P. 116,109 Or. 155
PartiesAMERICAN NAT. BANK v. KERLEY ET AL.
CourtOregon Supreme Court

In Bank.

Appeal from Circuit Court, Umatilla County; Gilbert W. Phelps Judge.

Action by the American National Bank against Joe Kerley and others. From an order granting the defendants other than the one named a new trial, plaintiff appeals. Affirmed.

The plaintiff, the American National Bank, a corporation, engaged in the banking business at Pendleton is attempting in this action to recover on an alleged promissory note signed by Joe Kerley, Abe Molstrom, and W. H. Shannon. Kerley, although named in the pleadings as a party defendant, was not served with process, and for that reason the action has thus far been prosecuted against only Molstrom and Shannon who signed as accommodation makers. A trial in the circuit court resulted in a verdict and judgment in favor of the plaintiff and against Molstrom and Shannon for the full amount of the note. The court, upon the motion of Molstrom and Shannon, set aside the verdict and judgment, and ordered a new trial, and the plaintiff appealed from that order.

The complaint follows the form usually adopted in an action on a promissory note, and, among other things, it alleges that--

"On the 15th day of October, 1920, for valuable consideration the defendants made, executed and delivered to the plaintiff herein their joint and several promissory note in words and figures substantially as follows to wit:

"Pendleton Oregon, October 15, 1920.

"Twelve months after date without grace for value received I promise to pay to the order of the bearer at the American National Bank at Pendleton, in Pendleton, Oregon, five thousand dollars, with interest after date at the rate of 8 per cent. per annum until paid. Principal and interest payable in United States gold coin; and, in case suit or action is instituted to collect this note or any portion thereof, I promise to pay such additional amount as the court may adjudge reasonable as attorney's fees in said suit or action. Interest payable semiannually.

Joe Kerley,

"Abe Molstrom,

"W H. Shannon."

The defendants Molstrom and Shannon joined in an answer in which they admit that they signed the instrument sued on, but deny any liability, for the reasons set forth in a further and separate answer, in which the respondents allege, in substance, as follows:

That on October 15, 1920, and for a long time prior thereto, Joe Kerley had been engaged in the insurance and brokerage business in Pendleton, and had what appeared and was reputed to be a large and lucrative business; that he did his banking with the plaintiff, and had theretofore borrowed considerable money of the bank on notes given by him to the bank; that from some time prior to October 15, 1920, Kerley had, unknown to the respondents, been losing large sums of money, and had been guilty of embezzling and appropriating large sums of money intrusted to his care, and coming into his possession in the course of his business; that the bank secured knowledge of his financial condition, and of his defalcations, prior to October 15, 1920, and found that he was indebted to the bank in a large amount, and that he had no property or means with which to pay in full his indebtedness to the bank, and that he was insolvent and bankrupt; that the bank upon ascertaining these facts conferred with Kerley, and informed him of its knowledge of his financial condition and of his criminal defalcations, and instructed Kerley to prepare a promissory note with blanks for 20 or more signatures of financially responsible persons as comakers with him, to be held as additional security by the bank for the sums of money theretofore advanced and loaned to Kerley by the bank; that the bank instructed Kerley to keep from his friends and the public his financial condition and the fact of his criminal defalcations, and further instructed him that, if he did not prepare the promissory note and secure signatures thereto as required by the bank, the bank would cause his immediate arrest prosecution, conviction, and imprisonment for his defalcations; that the bank also instructed Kerley to secure signatures to the note by telling his friends that the bank desired a little additional security to continue financing him in his business and their signing would be conditioned upon 20 or more financially responsible parties signing as comakers, and until 20 or more so signed no liability whatever would attach; that Kerley, being intimidated by the threats of the bank, and acting pursuant to its instructions, directions, and under duress, prepared a memorandum resembling the instrument sued on with 20 or more blanks for signatures thereon, and, after signing the instrument as maker, took it to Molstrom and Shannon, and requested them to sign as comakers with him, stating to them that the bank desired a little additional security in order to continue financing him, and that at its suggestion and behest he was securing the signatures of 20 or more of his friends as comakers with him, and that no obligation would attach to them or either of them until 20 or more signatures of financially responsible friends had been secured to the memorandum, and that he would not deliver the instrument to the bank until 20 or more signatures of financially responsible parties had been secured and placed upon the document, so that the liability of any one signer would not exceed the sum of $250; that, acting upon the instructions, directions, and under the duress of the bank, and its threats of prosecution, Kerley did not advise either of the respondents of his financial condition or of the threatened criminal charges, or of any of the matters touching his true financial condition and his liability to prosecution; that, relying upon the representations of Kerley, the respondents signed the instrument conditionally, and for no purpose other than that relied upon, and without receiving any consideration whatever; that, in violation of the agreement, Kerley placed the instrument in possession of plaintiff without securing any additional signatures, and that the bank refused to allow Kerley to take the instrument from its possession for the purpose of securing additional signatures; that the bank knew at all times of the condition and agreement under which the respondents had signed the instrument, and knew that the condition precedent to the delivery of the instrument to the bank had never been complied with; that the bank paid or parted with no new consideration of any kind or character whatever, and that there is an entire want and failure of consideration for the instrument, and that the instrument is void and illegal because of the alleged duress and threats, and because of the concealment and misrepresentation of facts; and the respondents aver that the plaintiff is estopped by reason of its alleged acts and conduct from asserting or claiming any right or interest under the instrument as against the respondents.

In its reply the bank denies any knowledge or information sufficient to form a belief as to whether or not Kerley had been losing large sums of money, as to whether or not such losses, if any there were, were unknown to the respondents, as to whether or not Kerley had been guilty of embezzling or misappropriating any sums of money, and as to whether or not the respondents had knowledge or information of such matters. The plaintiff also denies that prior to October 15, 1920, it secured knowledge of any defalcations on the part of Kerley, and denies that at that time the plaintiff found that Kerley had no property or means with which to pay his indebtedness to the bank or that he was insolvent or bankrupt. The plaintiff denies making the threats charged against it by the respondents, and denies that it took the note with knowledge that the respondents had signed on the condition or with the understanding that the instrument should be signed by any other persons, and denies that it took the paper in bad faith or with knowledge of any defect or infirmity.

For a further reply the bank alleges, in substance, as follows:

That on October 15, 1920, Kerley was indebted to the bank, and that he had been a customer of the bank and had been carrying a checking account therein; that during the fall of the year 1920 financial conditions were difficult, and Kerley had not liquidated his obligations to the bank as they fell due; that it was not possible to carry the dishonored and overdue paper for a long period of time, and for that reason the bank "demanded that the defendant Joe Kerley should make a new note to the plaintiff in the sum of $5,000, and that he should get some responsible signers thereon;" that pursuant to such demand, Kerley made out a note, and upon his own responsibility, without the knowledge of the plaintiff, he made the note so that there was room for 15 or 20 or more signatures; that he took the instrument to Molstrom and Shannon, who were his friends, and procured them to sign it, and he then brought the note to the bank, whereupon the plaintiff took and accepted the note, "and on account thereof gave the defendant Kerley credit for the sum of $5,000 upon notes then held by the plaintiff against said defendant"; that the bank took and accepted the note on the same date upon which it was made, or within one day thereafter, "and accepted same for valuable consideration, to wit, the credit upon other obligations of the defendant Kerley," and accepted the same in due course of business without knowledge of the transactions between the defendant Joe Kerley and the respondents, Molstrom and Shannon, and without knowledge of the representations, if any, that had been made by Kerley to Molstrom and Shannon, and without...

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