Fox v. The Bank of Kansas City

• Decision Date: 01 July 1883
• Citation: 30 Kan. 441,1 P. 789
• Parties: I. D. Fox v. THE BANK OF KANSAS CITY
• Court: Kansas Supreme Court

1 P. 789

30 Kan. 441

I. D. Fox v. THE BANK OF KANSAS CITY

Supreme Court of Kansas

July 1, 1883

Error from Lyon District Court.

ACTION brought by the Bank of Kansas City against Fox and the First National Bank of Emporia, upon a promissory note. Trial at the September Term, 1882, of the district court, and judgment for the plaintiff bank, against defendant Fox, who brings the case here. The opinion states the facts.

Judgment affirmed.

C. N Sterry, and T. N. Sedgwick, for plaintiff in error.

Cunningham & McCarty, and Scott & Lynn, for defendant in error.

BREWER J. All the Justices concurring.

OPINION

BREWER, J.:

This was an action brought by defendant in error, plaintiff below, upon a promissory note, which, with its indorsements, reads as follows:

$ 346.

EMPORIA, KANSAS, January 7, 1881.

February 14, 1881, for value received, I promise to pay to the order of L. Severy three hundred and forty-six & no-100 dollars, at the First national bank of Emporia, with interest, at the rate of twelve per cent. per annum after maturity until paid; also cost of collection, including reasonable attorney's fees, if suit be instituted on this note.

I. D. Fox.

No. 9812. Due Feb. 17.

[Indorsed as follows]: L. Severy. Without recourse. Pay to the order of Joseph S. Chick, Pres't of Bank of Kansas City, Mo. H. C. Cross, Pres't."

The action was commenced February 22, 1881. The defendant answered, setting up that the consideration of the note was an executory contract, through the breach of which on the part of the actual payee, the consideration of the note had failed. Of the nature and effect of this contract and its alleged breach we may have occasion to say more hereafter. The defendant, in addition to the failure of consideration by the alleged breach, claimed that the plaintiff was not a bona fide purchaser for value before maturity. Upon the trial the court instructed the jury peremptorily to find for the plaintiff, and the defendant alleges error.

We shall first inquire whether the plaintiff was a bona fide bolder for value, and before maturity. The note, as will be perceived by its terms, was payable February 14. It was indorsed, and transferred to plaintiff on February 15, two days before the time at which the note, counting days of grace, was payable. If the ordinary rule of the law-merchant obtains, it will not be doubted that one who purchases before the expiration of the days of grace is entitled to the ordinary protection of the bona fide holder. (Crosby v. Grant, 36 N.H. 273; 1 Daniel on Neg. Inst., § 787.) The claim is, that our statute creates a departure from that rule. Section 2 of the statute concerning bills and notes authorizes, in terms, a full defense to a bill or note which is indorsed or delivered "after the day on which it is made payable." The statute, section 4, also provides that negotiable bills and notes shall be entitled to three days of grace. We think, putting these two sections together, no departure was intended from the ordinary rule of the law-merchant. In 1 Daniel, supra, § 614, the author says:

"By custom, however, they became universally recognized; and although still termed 'days of grace,' they are now considered, wherever the law-merchant prevails, as entering into the constitution of every bill of exchange and negotiable note, both in England and the United States, and form so completely a part of it that the instrument is not due in fact or in law until the last day of grace."

We think all that is meant by the language of the sections above cited is an affirmation of the general rule of the law-merchant.

Again, it is claimed that the plaintiff was not a purchaser for value--that it paid nothing. The facts are, that the note was transferred by Severy, the payee, to the First national bank of Emporia, and by it indorsed to the plaintiff. The plaintiff was the correspondent of the Emporia bank, and the latter had a general account with it. No money was forwarded to the Emporia bank at the time the note was discounted; but the amount of the discount was simply credited to its account. Now it is claimed by counsel for plaintiff, that the action of a bank in crediting a party's account is in effect a payment, or at least creates the bank a purchaser for value. We have had occasion in the case of Mann v. The Bank, ante, p. 412, to consider this question and have nothing more to add to the opinion therein expressed. The mere crediting of an account by a bank to its depositor, where the effect of the credit is only to increase the balance due the depositor, is not a payment and does not make the bank a purchaser for value. Nor is the rule changed by the fact that the depositor is itself a bank, and the discounting bank its regular correspondent.

But it is claimed by counsel for plaintiff that if the mere fact of passing the amount to the credit of the Emporia bank was not of itself a payment, the amount of the credit was in fact drawn out by the Emporia bank before the plaintiff had notice of any infirmity in the paper. From the monthly account rendered by the plaintiff to the Emporia bank, which was offered in evidence, and which was the only evidence bearing upon the question, it appears that the note was discounted, and the amount credited to the Emporia bank on February 15; that at the close of that day the amount on the credit side of the account, from the first of February, was $ 52,802.36. The amount on the debit side was $ 32,479.58, leaving a balance due the Emporia bank of $ 20,322.78; that during the subsequent five days, ending February 21, the Emporia bank drew out $ 26,774.67, which but for subsequent deposits by the Emporia bank would have overdrawn the account, and left the Emporia bank in debt to the plaintiff. In other words, within five days after this discount everything then due the Emporia bank was paid to it; and it is claimed by plaintiff that at that time, if not before, the plaintiff had fully paid the note, and was entitled to the full protection of a purchaser for value. This claim we think is correct. The general rule as to the application of payments, there being no special facts to interfere, is that the first payments go to the oldest debts; so all the money drawn out by the Emporia bank, in the absence of some special facts, was a payment by the plaintiff of the oldest deposits and discounts; and when, at the close of February 21, the balance due February 15, had been fully checked out, the plaintiff had paid for every deposit and discount made by the Emporia bank prior to February 15. ( Shellabarger v. Binns, 18 Kan. 345.) The question then is, if the plaintiff had fully paid at the close of February 21, had it before that time any notice of infirmity in the paper? There are only three matters that can be considered as giving any knowledge, or affording any intimation, to the plaintiff of any claimed infirmity in the paper prior to the close of February 21. These are, first, that the Emporia bank when it forwarded the note to the plaintiff for discount, wrote this letter:

"EMPORIA, KANSAS, Feb. 12, 1881.

Jos. S. Chick, Esq., Kansas City--DEAR SIR: Herein find note of I. D. Fox, for discount and credit. I charge your account $ 345.50, discount 50c: 2-15. Please attend to this immediately on receipt. I attach a waiver of protest, fearing note might not be returned in time for protest, owing to storms. The maker of this note is good.

Respectfully,

H. C. CROSS, President."

Second, that when after protest it returned the note, it sent this letter:

"FIRST NATIONAL BANK, EMPORIA, KAS., 7-18--1881.

Jos. S. Chick, Esq., Kansas City--DEAR SIR: I return your collection on Fox, protested. You will please forward this to Cunningham & McCarty, attorneys at this point, with instruction to collect at once, saying to them to consult with me as to particulars. This will draw you 12 per cent. until paid. We of course have a point in this, which we will explain when I see you.

Respectfully,

H. C. CROSS, President."

And third, the note was protested for non-payment.

The first two of these matters may be considered together; and in reference to them it may be stated generally that they contain no information which a party might not act upon without any imputation of bad faith, and the most that can be said in...