First Nat. Bank v. Power Equipment Co.

Decision Date18 November 1930
Docket Number40495
Citation233 N.W. 103,211 Iowa 153
PartiesFIRST NATIONAL BANK, STATESVILLE, NORTH CAROLINA, Appellant, v. POWER EQUIPMENT COMPANY, Appellee
CourtIowa Supreme Court

Appeal from Polk District Court.--O. S. FRANKLIN, Judge.

Suit by the indorsee of a trade acceptance. The defense claimed was that the trade acceptance was nonnegotiable, and affirmative defenses growing out of a claimed collateral agreement respecting the renewal of said trade acceptance were pleaded. The plaintiff pleads an estoppel, in its reply. The court directed a verdict in behalf of the defendant.

Affirmed.

Maxwell & Ryan and Lehan T. Ryan, for appellant.

Brammer Brody, Charlton & Parker, for appellee.

FAVILLE J. MORLING, C. J., and EVANS, KINDIG, and GRIMM, JJ., concur.

OPINION

FAVILLE, J.

The Turner Manufacturing Company is located in Statesville, North Carolina. The Power Equipment Company is located in Des Moines. On December 1, 1928, the Equipment Company executed and delivered to the Manufacturing Company a certain trade acceptance, which is in words and figures as follows:

"No. 394

Statesville N. C. 12/1/1928

"(City of Drawer) (Date)

"To Power Equipment Company, Des Moines, Iowa.

"On (Date of Maturity) March 1, 1929, Pay to the order of (Name of Payee) C. H. Turner Mfg. Co. Twelve Hundred Eighty-five and 34/ Dollars ($ 1,285.34)

"The obligation of the accepter hereof arises out of the purchase of goods from the drawer, maturity being in conformity with the original terms of the purchase.

"Accepted at Des Moines, Iowa, (Date) on December 1, 1928.

"Payable at (Name of Bank) Des Moines Nat'l Bank

"C. H. Turner Mfg. Company

(Signature of Drawer)

"D. C. Ritchie.

"Power Equipment Company, by O. R. Beach, Cashier."

On the reverse side thereof appears the following indorsement: "C. H. Turner Mfg. Company, by D. C. Ritchie, Sec' y."

Before March 1, 1929, the Turner Manufacturing Company duly indorsed said trade acceptance to the appellant bank, which was a purchaser thereof in due course. The trade acceptance was presented for payment at the Des Moines National Bank, where by its terms it was made payable, on March 1, 1929, and was protested for nonpayment. This action is brought to recover the amount due on said trade acceptance.

I. The first question for our determination is whether or not the trade acceptance is a negotiable instrument. If it is, then the court erred in sustaining appellee's motion for a directed verdict. It is to be observed that the trade acceptance contains the following sentence:

"The obligation of the accepter hereof arises out of the purchase of goods from the drawer, maturity being in conformity with the original terms of the purchase."

Two clauses are embraced in this sentence, which are separated by a comma. The first clause is as follows: "The obligation of the accepter hereof arises out of the purchase of goods from the drawer." This clause is one which is frequently inserted in trade acceptances.

Section 9463, Code, 1927, which is a part of the Negotiable Instruments Act, provides in part as follows:

"An unqualified order or promise to pay is unconditional within the meaning of this chapter, though coupled with: * * *

"2. A statement of the transaction which gives rise to the instrument."

Under this provision of the Uniform Negotiable Instruments Act, such a clause does not render the instrument nonnegotiable. Mercantile Protective Bureau v. Specht, 58 N.D. 239 (225 N.W. 794); Wakem v. Schneider, 192 Wis. 528 (213 N.W. 328); McCornick & Co. v. Gem State Oil & Prod. Co., 38 Idaho 470 (222 P. 286); Coopersmith v. Maunz, 227 A.D. 119 (237 N.Y.S. 1).

II. Does the clause "maturity being in conformity with the original terms of the purchase" render the instrument nonnegotiable? This identical clause in a trade acceptance has been the subject of consideration by three courts, so far as we are advised. In Heller v. Cuddy, 172 Minn. 126 (214 N.W. 924), the Supreme Court of Minnesota, considering this clause, said:

"Each of the acceptances contained this statement: 'The obligation of the acceptor hereof arises out of the purchase of goods from the drawer, maturity being in conformity with original terms of purchase.' By reason of G. S. 1923, Section 7046 (N. I. L. Section 3), the promise of a negotiable instrument is not made conditional, and its negotiability is not destroyed by 'a statement of the transaction which gives rise to the instrument.' Such a statement is all that was incorporated in these acceptances. So there is no ground for the contention that this statement in the acceptances put the plaintiffs upon inquiry concerning the terms of the underlying contract of purchase or its status at the time being with respect to performance or breach by the parties thereto. The situation is very different from that presented by an instrument which by reference makes another and underlying contract a part of itself, and so becomes subject to its terms. That was the case in King Cattle Co. v. Joseph, 158 Minn. 481, 198 N.W. 798, 199 N.W. 437."

In Lane Co. v. Crum (Tex.), 291 S.W. 1084, the Commission of Appeals of Texas considered a trade obligation containing the clause under consideration, and the court said:

"In our opinion the clause has effect to render the trade acceptances nonnegotiable under the law merchant, as well as under the Negotiable Instruments Act. * * * The obligation of the acceptor, according to the terms of said clause, arises not from the instruments themselves, but from a collateral transaction. For an instrument to be negotiable, the obligation of the maker must arise exclusively from the instrument. No obligation arising from a collateral transaction can be imported into the terms of the instrument without destroying the negotiability of the instrument. 8 Corpus Juris, pp. 113, 114. A negotiable instrument has been termed 'a courier without luggage,' whose countenance is its passport. This apt metaphor does not fit these trade acceptances, for the reason they are laden with the equipment of a wayfarer who does not travel under safe conduct. By their express terms, these instruments bear burdens whose nature must be sought for beyond the four corners of the instruments themselves. The clause in question is more than a mere 'statement of the transaction which gives rise to the instrument,' as permitted by Paragraph 2, Section 3, of Article 5932 of the Revised Statutes. So far from being a mere descriptive reference to the transaction which gave rise to the instrument, the clause, in definite terms, points to that transaction as the source of the acceptor's obligation to pay the amount named in the instrument. The legal effect of the clause is to render the paper subject to all the rights and equities of the parties to the collateral transaction from which the obligation of the acceptor arises."

In Westlake Merc. Fin. Corp. v. Merritt, 204 Cal. 673 (269 P. 620), the Supreme Court of California considered a trade acceptance containing the clause in question here. The court said:

"In other words, is said clause the expression of a contingency as to the maturity of the acceptances, or does it merely refer to the consideration for which they were given? Particularly, does the expression 'maturity being in conformity with original terms of purchase' refer to the date set up in the body of the trade acceptance, or does it refer to the underlying contract between the parties? It will be observed that these acceptances were made payable to the drawers themselves. The question further arises: For what reason were these paragraphs inserted? Without them the instruments are perfect trade acceptances,...

To continue reading

Request your trial
2 cases
  • Rubio Sav. Bank of Brighton v. Acme Farm Products Co.
    • United States
    • Iowa Supreme Court
    • 5 April 1949
    ... ... the face of the $6,500 check when first" received by plaintiff ...         RPT.CC.1949105266.00010 ...  \xC2" ... Code of Iowa 1946, § 541.3(2), I.C.A.; First ... National Bank v. Power Equipment Co., 211 Iowa 153, 155, 233 ... N.W. 103; Williamson v. Craig, ... Moreover, it ... is not the rule in this state. Midwest Nat. Bank & Trust Co ... v. Niles & Watters Savings Bank, 190 Iowa 752, 180 ... ...
  • First Nat. Bank v. Power Equip. Co.
    • United States
    • Iowa Supreme Court
    • 18 November 1930
    ...211 Iowa 153233 N.W. 103FIRST NAT. BANK, STATESVILLE, N. C.,v.POWER EQUIPMENT CO.No. 40495.Supreme Court of Iowa.Nov. 18, 1930 ... Appeal from District Court, Polk County; O. S. Franklin, Judge.Suit by the indorsee of a trade acceptance. The defense claimed was that the trade acceptance was nonnegotiable, and affirmative defenses growing out of a claimed collateral ... ...

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT