Gate City National Bank v. Schmidt

• Decision Date: 09 December 1912
• Citation: 152 S.W. 101,168 Mo.App. 153
• Parties: GATE CITY NATIONAL BANK, Respondent, v. FRANK F. SCHMIDT, Appellant
• Court: Kansas Court of Appeals

152 S.W. 101

168 Mo.App. 153

GATE CITY NATIONAL BANK, Respondent, v. FRANK F. SCHMIDT, Appellant

Court of Appeals of Missouri, Kansas City

December 9, 1912

Appeal from Jackson Circuit Court.--Hon. Jas. H. Slover, Judge.

REVERSED.

Judgment reversed.

Chas R. Pence for appellant.

McCune Harding, Brown & Murphy for respondent.

OPINION

JOHNSON, J.

This is an action against the indorser of a negotiable promissory note. The material facts are as follows:

Defendant Schmidt sold a restaurant in Kansas City to Frank J. Turnbull, Jr., and Ormus L. Brockett for $ 6000 and accepted the promissory notes of the vendees for part of the purchase price and at the same time received a chattel mortgage executed by them to secure the payment of the notes. The mortgage covered all the personal property included in the sale. The notes and mortgage were executed and delivered to defendant June 15, 1905. All of the notes except the one in suit were paid by Turnbull and Brockett and their vendee, Frank Hubbard, to whom they afterwards sold the business.

The note in suit was for the principal sum of $ 1500, bore interest from date at eight per cent per annum and by its terms fell due July 1, 1906. The interest was paid to June 30, 1906, and a payment of $ 300, on the principal was made June 25, 1906. At the time of those payments, which were indorsed on the back of the instrument, defendant indorsed an agreement to extend the time for the payment of the remainder to July 1, 1907. The note was not paid on the latter date and though Hubbard, in purchasing the business, had not assumed the payment of the indebtedness secured by the chattel mortgage, he had bought the property subject to that indebtedness and was the person to whom defendant was looking for the payment thereof. The amount due on the note on July 1, 1907, was about $ 1300 and being pressed by defendant for payment, Hubbard applied to the plaintiff bank for a loan of that amount and plaintiff agreed to make the loan on condition that its repayment be secured by an assignment of the note in suit and the chattel mortgage to the bank as collateral security. On July 8, 1907, Hubbard accompanied by defendant and his attorney, went to the bank and closed the transaction. Hubbard executed his promissory note to the bank for $ 1300, due in four months, and with the proceeds paid defendant the amount of the note in suit, whereupon defendant indorsed his name on the back and delivered the note and mortgage to the bank with the understanding that they would be held as collateral security for Hubbard's note. Defendant admits he was present during the entire transaction. He is a man of experience in business affairs and we shall not listen to his contention that he did not know he was assuming a liability to the bank when he indorsed the note without restrictions and delivered it to the bank. We shall assume that he knew Hubbard was borrowing money from the bank partly on the credit of his indorsement and that he lent his credit to Hubbard for the purpose of obtaining the money due him. Hubbard did not pay his note in full at maturity. He made a partial payment and obtained a renewal and continued to make partial payments until he had reduced the loan to $ 875, when he quit paying and became a bankrupt. Plaintiff then presented the note in suit at the bank where, by its terms, it was payable, and demanded payment. The demand was refused and thereupon the note was duly protested and notice of protest was given defendant. This occurred July 7, 1908, before the maturity of the last renewal note Hubbard had given plaintiff and was the first demand plaintiff made for the payment of the note in suit. The explanation offered by plaintiff for this long delay is that it was orally agreed by plaintiff, Hubbard and defendant when the loan was made, that Hubbard was to be allowed to pay off the loan gradually and to be granted necessary renewals of his note.

There are other facts in the record but those stated control the disposition of the case. The circuit court tried the case without the aid of a jury and rendered judgment for plaintiff. Defendant appealed. Counsel for plaintiff rely on certain provisions of the act relating to Negotiable Instruments enacted by the Legislature in 1905 (sec. 9971, et seq., R. S. 1909) to support their position that defendant should be held as an indorser of the note in suit, but we find that law has no application to this case. The act did not go into effect until June 16, 1905. [See Session Acts, 1905, pp. 243, 265 and 330.] It contains the express enactment that "the provisions of this chapter do not apply to negotiable instruments made and delivered prior to the passage hereof." [Sec. 10164, R. S. 1909.]

The note in suit was made and delivered June 15, 1905, the day before the act went into effect. True the obligation of defendant as an indorser did not arise until after the act had become effective and the indorsement constituted a new and independent contract, but that contract grew out of the note which became an integral part of it and an action for the enforcement of such contract falls within the purview of the provision quoted which clearly was intended to except all negotiable instruments in existence at the time of the enactment of the new law from being, or in any wise becoming, subject to the operation of its provisions. The rights of the parties, therefore, are to be measured by the rules of law pertaining to negotiable instruments that were in force before the new act became a law.

Defendant the payee of the note in suit, indorsed and delivered it to plaintiff after maturity as collateral security for the repayment of a loan made by plaintiff to Hubbard in part, at least, on the credit of that indorsement. Hubbard used the proceeds of the loan to pay defendant but instead of cancelling the debt and the note which evidenced it, defendant agreed by his indorsement that the note and its incident, the chattel mortgage, should not be discharged but should be kept alive and that the legal title to them should vest in plaintiff as security for Hubbard's debt to plaintiff. Defendant cannot be regarded as the party for whose accommodation the loan to Hubbard was made. He received the proceeds of Hubbard's loan, not as an accommodation from Hubbard but as the...