Brown's Valley State Bank v. Porter

• Decision Date: 17 March 1916
• Docket Number: 4192.
• Citation: 232 F. 434
• Parties: BROWNS VALLEY STATE BANK et al. v. PORTER. [a1]
• Court: U.S. Court of Appeals — Eighth Circuit

232 F. 434

BROWNS VALLEY STATE BANK et al. v. PORTER. ^[a1]

No. 4192.

United States Court of Appeals, Eighth Circuit.

March 17, 1916

F. W Murphy, of Wheaton, Minn. (J. O. Andrews, of Sisseton, S.D and Purcell, Divet & Perkins, of Wahpeton, N.D., on the brief), for appellants.

Frank McNulty, of Aberdeen, S.D. (Howard Babcock, of Sisseton S.D., on the brief), for appellee.

Before SANBORN and SMITH, Circuit Judges, and TRIEBER, District Judge.

SMITH Circuit Judge.

The Independent Elevator Company was organized under the laws of South Dakota, and engaged in the grain and coal business at various points in that state, and owned elevators at Wilmot, Peever, and Wecota. The nominal headquarters of the corporation were at Sisseton, S.D. The stockholders were A. J. Norby, his wife, E. E. Norby, appellee Clement F. Porter, and Frank McNulty, who later became circuit judge of the Fifth judicial circuit of South Dakota. About 1907 the corporation established its actual managing office at Minneapolis, Minn. At that time Mr. A. J. Norby moved to Minneapolis, and thereafter, at least, was secretary, treasurer, and general manager of the company. While Mr. Porter and Judge McNulty were nominal directors, they never performed any substantial duties as such, but Norby practically conducted the business as he thought proper. On or about May 10, 1907, a loan was made by the Independent Elevator Company with the Browns Valley State Bank, of Browns Valley, Minn., of $5,000 upon a note signed upon its face by the Independent Elevator Company, by A. J. Norby, Secretary, and upon the back by Mr. Norby, Mr. Porter, and perhaps by Judge McNulty in the same way. This note was signed by Mr. Porter at Minneapolis. It was renewed from time to time, the last renewal being on October 14, 1910. This last renewal was signed on its face by the Independent Elevator Company, by A. J. Norby, secretary, and upon the back by A. J. Norby, C. F. Porter, and Frank McNulty. The signature upon the face and that of A. J. Norby on the back were both signed at Minneapolis, and the note sent to Clement F. Porter or to Frank McNulty in South Dakota. It was there signed by the recipient and forwarded to the other individual who was to sign it, and signed by him, and then sent to the Browns Valley State Bank in Minnesota, where it was accepted. This note was for $5,000, with interest at 8 per cent., and was payable on demand. It was dated at Minneapolis, and provided it was payable to the order of Browns Valley State Bank, Browns Valley, at its banking house in Minneapolis, Minn. The last provision was a part of the form of note utilized, which was a form of note used in executing obligations to the Scandinavian-American National Bank of Minneapolis.

About July, 1911, upon application of Clement F. Porter, a receiver was appointed for the Independent Elevator Company, and Mr. A. J. Norby departed, as was reported, going to Calgary, an early in 1912 died. On August 24, 1911, Mr. Clement F. Porter paid the interest on the $5,000 note referred to and gave his own note to Peter Nelson, then president, but now vice president, of the bank, for the amount of the note of October 14, 1910, and secured his note by mortgages on lands in Roberts and Grant counties, in South Dakota. In October, 1912, Mr. Porter brought suit against the Browns Valley State Bank and Peter Nelson to cancel the note and mortgages and recover the cash paid, upon the ground that the note of October 14, 1910, had been paid in whole or in part without his knowledge at the time he gave his note for the sum of $5,000. In the complaint it was alleged:

'That plaintiff was not on said 24th day of August, 1911, or at any other time, indebted to said Browns Valley State Bank or to said Peter Nelson in any sum or amount whatever, and plaintiff did not then or at any other time receive any consideration, either money, property, or thing of value, whatever for indorsing said note of the Independent Elevator Company to the Browns Valley State Bank, or any other note to said Browns Valley State Bank, or for giving said $5,000 note and the mortgages aforesaid to Peter Nelson to secure the same, or for paying said sum of $335 to said Browns Valley State Bank.'

The defendants filed separate answers, and Mr. Nelson also filed a cross-bill, asking for judgment for the amount of his $5,000 note and interest, and foreclosure of his mortgages. To this cross-bill the plaintiff filed answer, to which Nelson made replication. This was the state of the issues when the case was tried in June, 1913.

On September 20, 1913, and while the case was still under advisement, plaintiff filed application to amend his answer to the cross-bill by setting up that plaintiff had been discharged from liability upon the note of the Independent Elevator Company by the failure to protest the same and give him notice of the nonpayment. On September 22d the court granted this leave, and on the same day it entered a decree for the plaintiff canceling the note and mortgages in question and awarding plaintiff judgment against both defendants for $335 and interest and the costs of suit. On October 24, 1913, complainant filed an amended answer to the cross-bill, in which he somewhat changed his previous allegations and alleged the lack of protest and notice of nonpayment to him on the note of the Independent Elevator Company.

The parties have argued many questions and have cited numerous authorities, but those points hereafter considered are conclusive of the case, and therefore the others will not be passed upon. It appears from the evidence that after the first note of $5,000 was given by the Independent Elevator Company to the Browns Valley State Bank it wished to increase its borrowings, but was notified that the bank had only $36,000 capital, and was prohibited from making loans to a single person in excess of 15 per cent. of its capital, and that no more money could be loaned to the Elevator Company in its own name for that reason. Thereupon it was arranged that some additional advances should be made upon notes signed by A. J. Norby and usually secured by collateral. From that time on Norby would give his note to the Browns Valley State Bank, and the Elevator Company would then draw on the bank for the amount of the loan and deposit the draft in its bank account. It seems that Norby, like too many failing debtors, to a certain extent manipulated the books of the Independent Elevator Company. For instance, when the first loan of $2,000 of this character was made, in place of entering it among the bills payable of the Independent Elevator Company, he directed the bookkeeper to credit the $2,000 thus obtained upon his individual account, upon which there was a heavy balance against him. It was his practice to pay all his personal expenses by checks drawn upon the funds of the Independent Elevator Company. Such checks, however, were charged to his account on the books of the company for aught that appears. It very satisfactorily appears that the loans made in the name of A. J. Norby were in fact for the Independent Elevator Company, and it received the funds therefrom, and they were deposited to its credit in its bank.

It is the contention of the complainant that, as these sums were paid by the Independent Elevator Company upon the individual notes of Norby, they should now be applied upon the Elevator Company's obligations, and as they exceeded $5,000 in amount the note of October 14, 1910, should be treated as paid in full. The indebtedness in the name of A. J. Norby was in fact the indebtedness of the Independent Elevator Company. It may be conceded an action could not have been maintained by the Bank against the Elevator Company upon the note of Norby. Cragin v. Lovell, 109 U.S. 194, 3 Sup.Ct 132, 27 L.Ed. 903. But no authority has been cited that, when the real debtor pays his indebtedness, he can recover it back upon the ground that the obligation was given in some one else's name. While Norby had no right to pay his individual debts with the money of the Independent Elevator Company, he had the right to pay the debt of the Independent Elevator Company with its funds, and if the Elevator Company had received the entire proceeds of the Norby notes, he had a right to pay them from its funds, and he especially ordered in the case of each remittance that the same should be applied on those notes. The payments on these took place through a course of years, and all appear upon the face of the books and files of the ...