Franklin Bank v. St. Louis Car Co.

• Decision Date: 06 October 1928
• Parties: FRANKLIN BANK, Appellant, v. ST. LOUIS CAR COMPANY.
• Court: Missouri Supreme Court

9 S.W.2d 901

FRANKLIN BANK, Appellant, v. ST. LOUIS CAR COMPANY.

Supreme Court of Missouri. Division Two.

October 6, 1928.

Appeal from Circuit Court of City of St. Louis. — Hon. William H. Killoren, Judge.

AFFIRMED.

Rassieur & Goodwin for appellant.

(1) Upon the pleadings and the evidence the plaintiff was entitled to a directed verdict. (a) The contract of September 19, 1919, did not provide that after a mere breach thereof by Skelton any note covered by it made by the Car Company to Skelton was to become void and non-payable. (b) The contract nowhere refers to or mentions the note sued on. (c) If, by a subsequent parol agreement, a series of a different kind of notes, including the note sued on, was substituted for the note called for in the contract of September 19, 1919, and it was a part of this subsequent oral agreement that the note sued on was to be void and non-payable in any contingency, then the defense bottomed upon such a theory must fail, because no such defense is pleaded, no such defense is proved, and had it been pleaded and proved, in law it would have been inadmissible. (d) In an action by the payee against the maker of a note parol evidence that the note was not to be a binding obligation is inadmissible where the note was actually delivered by the maker to the payee. Massman v. Holscher, 49 Mo. 87; Henshaw v. Dutton, 59 Mo. 139; Jones v. Shaw, 67 Mo. 667; Hurt v. Ford, 142 Mo. 283; Montgomery v. Schwald, 177 Mo. App. 75; Bank v. Limpp, 288 S.W. 958. (e) The foregoing propositions are upon the assumption that the note in suit is non-negotiable within the meaning of Section 1293, which is the most favorable view to defendant, but it is settled law in this State that the instrument in suit is not within Section 1293 merely because it was negotiated after maturity. Cutler v. Cook, 77 Mo. 388; Powers v. Woolfolk, 132 Mo. App. 354. (f) The note sued on was indorsed in blank and delivered to Traves, who was consequently clothed with legal title. (g) Assuming that Traves did transfer the note in violation of some condition, this at best would not affect the legal title to the note, and would only mean that the true owner in equity was entitled to it or its proceeds. (h) The defense of defect in title in plaintiff is not here available, because the defendant does not support this claim by showing that it has some equity or defense against the alleged real owner which it cannot maintain against this plaintiff. 1 Joyce on "Defenses to Commercial Paper" (2 Ed.) 839-847; Giselman v. Starr, 106 Cal. 651. (i) The Negotiable Instruments Act relating to defenses available to a maker against a transferee after maturity only relates to the defenses to the obligations contained in the instrument itself, and does not cover and include equitable rights of ownership in the instrument. Brannan's "Negotiable Instruments Law" (4 Ed.) 504 et seq.; 31 Harvard Law Review (1918), 1104 et seq. (j) Skelton, the original owner of the note in suit, having clothed Traves with the usual evidence of ownership (by indorsing it in blank) and the Franklin Bank having thereby been led into dealing with such apparent owner and having received a transfer of this note, the Franklin Bank will be protected in its title and ownership. This is true even though the transfer took place after maturity. Lee v. Turner, 89 Mo. 489; Neuhoff v. O'Reilly, 93 Mo. 164; Miller v. People's Savings Bank, 193 Mo. App. 498; Priest v. Garnett, 191 S.W. 1048; Keim v. Vette, 167 Mo. 389. (2) The court erred in refusing to give Instruction 4, requested by the plaintiff, for the reason that at best the only question for the jury was the question of plaintiff's title. (3) The court erred in giving defendant's Instruction 2, because it authorized a verdict for the defendant upon a mere finding that Skelton violated his contract with the Car Company.

Lehmann & Lehmann for respondent.

(1) While the contract of September 19, 1919, nowhere refers to or specifically mentions the note sued on, it does specifically refer to its predecessor, and the written instrument executed by Dr. Skelton December 18, 1919, ties the note to the contract of September 19, 1919. (2) The terms of a written instrument, including a promissory note, cannot be varied by parol. The defense if construed as attempting to vary a written instrument is not based on parol, but on the written instrument executed by Dr. Skelton December 18, 1919, at the time he received the note, and on the written contract of September 19, 1919. (3) The note was delivered to Traves as Skelton's employee and agent to negotiate for Skelton a settlement with the Car Company. (a) There is concrete evidence of the terms and conditions under which Traves received the note. (b) Appellant in effect asserts defendant has no defense against what defendant claims to be the real owner of note and therefore cannot defend against the spurious owner. This is a non sequitur, because: It is beyond argument that defendant has a defense against the thief of a note, even though no defense against the real owner. Ford v. Phillips, 83 Mo. 523; Julian v. Calkins, 85 Mo. 202. (c) The defendant has shown appellant does not own the note. (d) The Franklin Bank paid nothing for the note and took it after maturity with, under the evidence, inferential knowledge that defendant did not owe it. (e) The defendant claims it does not owe this note. It does not claim to own it. It is good so far as defendant is concerned in plaintiff's hands as against the Woodwork Company on that company's indorsement after maturity. Light v. Kingsbury, 50 Mo. 331. (f) If the Franklin Bank does not have title to the note that is a defense. Furthermore, defendant claims it does not owe the note. (4) This note was past due as a matter of law when it came into the possession of the Franklin Bank, and therefore subject to all defenses and set-offs. Gruiser v. Emmons, 178 Mo. App. 28; Leight v. Kingsbury, 50 Mo. 331; Morey v. Wakefield, 41 Vt. 24; Bull v. Bank, 14 Fed. 612; Herrick v. Wolverton, 41 N.Y. 581; La Due v. National Bank, 31 Minn. 33; Carlton v. Bailey, 27 N.H. 230; Nevins v. Townsend, 6 Conn. 5; Atlantic Co. v. Tredick, 5 R.I. 171.

DAVIS, C.

This is an action by an indorsee against the maker to recover on a $10,000 promissory note. Tried to a jury, the verdict was for defendant, plaintiff appealing from the judgment entered thereon.

It is unnecessary to summarize the petition further than to state that it is an ordinary action on a note. The amended answer is a general denial, and a plea that plaintiff did not receive said note before maturity and for value, but after maturity and without adequate consideration and with notice that the note was subject to defenses.

The amended answer further avers that, on September 19, 1919, defendant and one L.S. Skelton executed a contract which involved the note sued on. The note sued on was exchanged on December 18, 1919, for the original note delivered in accordance with the contract, subject to the terms of a supplementary agreement, as hereinafter set forth, and also subject to the terms of the original contract, which stated that the note was to be paid at the rate of $25 as each automobile was manufactured and delivered, providing that, if the contract was not fully performed by Skelton, nothing was to become due or payable on the note. It was alleged that the contract was not performed by Skelton and nothing ever became due on the note. The other defenses may be summarized by the statements that plaintiff had no title to the note sued on and that set-offs existed, arising out of both a general indebtedness and a judgment indebtedness in favor of defendant against Skelton's estate. The reply was a general denial. The note sued on reads:

                "$10,000.00                          No. 5529
                              St. Louis, Mo., Sept. 20, 1919
                

"On demand after date, the undersigned promises to pay to the order of L.S. Skelton, ten thousand dollars, for value received, negotiable and payable without defalcation or discount with interest at the rate of six (6) per cent per annum from date. Payable at the office of the St. Louis Car Company in St. Louis.

                            "ST. LOUIS CAR COMPANY
                "[Signed]  By A. DICKMANN, Sec'y. & Treas
                "Approved: JOHN I. BEGGS, President."
                

Said note was indorsed on the face thereof, as follows:

"Protested for Nonpayment July 31, 1922.

[Signed] FRED H. SALZMANN, Notary Public."

Said note was indorsed on the back thereof, as follows:

                                     "L.S. SKELTON
                                     "W.F. TRAVES,
                   "THE R.N. COLLINS VEHICLE WOODWORK CO.
                                "By B.L. CRAIG, Pres."
                

The testimony warrants the finding that, on or about September 19, 1919, defendant and L.S. Skelton entered into a contract, hereinafter termed auto contract, for the manufacture of automobiles. It provided, in substance, that defendant was to manufacture automobiles for Skelton to be known as the Skelton car. Skelton agreed to pay for such cars as were manufactured and shipped according to schedule prices for labor, material and parts. The auto contract provided for an advancement of $100,000 by Skelton to defendant to purchase material and parts, for which defendant was to execute what is termed an explanatory demand note, drawing six per cent interest, to be repaid, commencing six months after date, by monthly payments at the rate of not less than $25 per automobile delivered the preceding month.

It may be inferred from the testimony that during the latter part of 1920 and the early part of 1921 Skelton, who, it was assumed, was worth $15,000,000, became financially involved and desired to terminate the auto contract. One W.F. Traves, who had theretofore been in Skelton's employ, approached Skelton, proposing to adjust and settle the auto contract with defendant. Skelton's wife, plaintiff's witness, testified, in substance, that Skelton indorsed the note sued on, turning it over to Traves about...