Case v. McKinnis

• Decision Date: 27 February 1923
• Parties: CASE v. MCKINNIS.
• Court: Oregon Supreme Court

213 P. 422

107 Or. 223

CASE v. MCKINNIS.

Supreme Court of Oregon

February 27, 1923

In Banc.

Appeal from Circuit Court, Union County; J. W. Knowles, Judge.

Action by W. J. Case against J. L. McKinnis. Judgment for plaintiff and defendant appeals. Affirmed in part, and in part reversed and remanded.

This action is prosecuted by W. J. Case, a joint accommodation indorser, against J. L. McKinnis, another joint accommodation indorser, to compel the latter to contribute a proportionate share of three several amounts which the plaintiff paid to the holders of three promissory notes. A jury trial resulted in a verdict for the plaintiff, and the defendant appealed from the consequent judgment.

The complaint contains three causes of action involving three promissory notes. The first two causes of action involve two notes delivered to the United States National Bank of La Grande; and the third cause of action relates to a note executed and delivered to J. N. Smith. The Union County Telephone Company was the maker of all the notes. The telephone company, on May 18, 1918, borrowed $1,000 and $2,550 from the United States National Bank of La Grande, and gave to the Bank two notes, for the respective amounts indorsed in blank before delivery by J. T. Wickens, J. L McKinnis, and W. J. Case, and made payable six months after date. Each of these two notes contains a provision appearing on the face of the instrument, expressly waiving "notice, demand and protest, and notice of nonpayment." Case paid these two notes in full on March 18, 1919, or after the maturity of the note; and subsequently Wickens contributed to Case one-third of the amount so paid by the plaintiff to the bank. The plaintiff alleges and the defendant admits that Wickens, McKinnis and Case were joint indorsers before delivery of the two notes. The amended complaint is based upon the theory that the indorsers agreed that they would be equally liable if the maker failed to pay. The plaintiff demanded judgment for the amount paid to the bank on these two notes together with interest on the amount so paid at the rate of 6 per cent. per annum from the date of payment. The defendant now concedes that, as a result of the trial, he is liable to the plaintiff for one-third of the amount paid by the plaintiff to the United States National Bank of La Grande, but the defendant contends that he is not liable for interest on that amount from the date of payment by the plaintiff to the date of the judgment; and, therefore the only question we are required to answer concerning the two notes executed to the United States National Bank of La Grande is whether the plaintiff is entitled to interest during the period beginning with March 18, 1919, and ending with the date of the verdict and judgment.

The defendant vigorously contests the third note. This instrument was executed at Elgin on May 3, 1918, by the Union County Telephone Company; it was for $2,500 and was made payable at Elgin, Oregon, on or before one year after date to the order of J. N. Smith. It was indorsed in blank before delivery by J. L. McKinnis and W. J. Case. Smith for value sold, and by his indorsement in blank transferred, the note, prior to maturity, to the State Bank of Imbler. On November 4, 1919 Case paid $2,762.99, the full amount, principal and interest due on the note, to the State Bank of Imbler, and the bank surrendered the note to Case, after first writing on the back: "State Bank of Imbler, H. H. Dickson, Cashier. Without recourse." This note is different from the other two notes in that it does not contain any provision waiving presentment, demand, protest, and notice of nonpayment. The plaintiff alleges that "prior to the delivery of said note, this plaintiff and this defendant jointly indorsed said note and agreed each with the other that they would be jointly liable for the amount thereof," and that on November 4, 1919, he "was compelled to pay and did pay the same in full" to the State Bank of Imbler. The plaintiff demanded judgment for one-half of the amount paid to the bank together with interest at the rate of 6 per cent. per annum from November 4, 1919, the date when he paid the bank. The defendant admitted that the telephone company executed the note as maker, and that he and the plaintiff jointly indorsed it prior to delivery, and that Smith transferred it to the State Bank of Imbler; but he specifically denied that--

"Defendant agreed with the plaintiff to become jointly liable thereon except as obligated by law, by the mere fact of plaintiff and defendant's jointly indorsing said note before delivery."

The defendant has insistently contended by demurrer to the amended complaint, and by appropriate motions, objections, and requests, made during the progress of the jury trial, that the amended complaint failed to state a cause of action arising out of the third note, and that the evidence not only failed to fasten any liability upon him, but that it affirmatively established his freedom from liability.

Among the most important questions claiming attention are those arising out of the indorsements made by the litigants, and those involving presentment for payment and notice of dishonor; and, consequently, it will be appropriate to give an account of the business methods followed by the telephone company and its officers, and of all the circumstances under which Case paid the State Bank of Imbler.

A better understanding of the questions presented for decision may be acquired, if we first describe the business methods usually followed by the telephone company and its directors in the issuance of negotiable paper; and it will be especially appropriate if we give the history of the Smith note and the circumstances under which Case paid it. We infer from statements in the record that the telephone company was organized in 1914. The company continued to exist and transacted business until 1920. Case was a member of the board of directors from 1914 until 1920, and McKinnis was a member of the board from 1914 until some time in 1919, and possibly later, for it is not entirely clear whether he resigned as a member of the board of directors, although it does appear that in 1919 he resigned the office of president, which he had held from the time of the organization of the company. When McKinnis resigned the presidency, Case, who had been serving as vice president, was chosen to fill the office of president. In May, 1918, the board of directors was composed of the two litigants, John T. Wickens, W. F. Hug, M. C. Levy, and Jesse Crum. When the money was borrowed from the United States National Bank of La Grande, the telephone company "had no credit" and the company was enabled to borrow the money only by giving "the security of J. T. Wickens. J. L. McKinnis, and W. J. Case on each note." Two of the directors never indorsed any of the telephone company's notes; but the other directors appear to have given their names as security to many of the company's notes. Indeed, nearly all, if not all, of the notes executed by the telephone company during its existence were indorsed by the names of two or more directors, including the litigants, Wickens, and Hug; and in every instance except one, where the name of any director appeared in his individual capacity, it was written on the back of the note in the form of a blank indorsement. The one exception was where four or five signed one note "on the face." Every director did not indorse each note; but it appears that some notes were indorsed by two, others by three, and still others by four of the directors. Frequently, if not usually, the company's notes when renewed were renewed by the company giving a new note indorsed by the same directors who had indorsed the old note. Although Case and McKinnis did not indorse all of the notes, they appear to have indorsed many of them between 1914 and 1919. The three notes described in the complaint were executed by the telephone company by McKinnis as its president and by the secretary; and when explaining how he and Case came to sign their names on the back of the Smith note McKinnis stated:

"We had been in the habit of signing some of these company notes that way, and usually when I would sign it as president, you know, I would just turn the note over and sign it as indorser."

W. F. Hug testified:

"The understanding was that each one stood for his part, whatever he signed on the note; that was always the understanding I had, and the understanding amongst the members--the directors. Sometimes there would be two or three on the note, and whatever there was on the note, each one stood his proportion."

And the witness also testified that McKinnis was a party to such understanding. Hug further declared in substance that he heard McKinnis say: "He would stand for his part" of whatever notes, including the Smith note were signed by him. Jesse Crum said:

"I know that Mr. McKinnis often spoke of the amount of his proportionate share of security that he was on the notes for."

According to the testimony of Case, the "common statement" of members of the board of directors about indorsing the notes was: "I will stand for my part if you will stand for yours."

The history of the J. N. Smith note for $2,500 begins when the telephone company borrowed $3,000 from Helen Smith and gave to her its note for that amount, with the indorsement of 18 persons, including Case and McKinnis, written on the back. This note matured May 3, 1917, and when it was about to become due McKinnis, according to the testimony of Case requested Case "to locate the money to take up the note with. * * * I located the money with J. N. Smith. Mr. McKinnis told me if I could locate the money he would sign the note with me to get it;" and "we just...