Legal Discount Corp. v. Martin Hardware Co.

• Decision Date: 07 July 1939
• Docket Number: 27542.
• Citation: 199 Wash. 476,91 P.2d 1010
• Parties: LEGAL DISCOUNT CORPORATION v. MARTIN HARDWARE CO. et al.
• Court: Washington Supreme Court

91 P.2d 1010

199 Wash. 476

LEGAL DISCOUNT CORPORATION v. MARTIN HARDWARE CO. et al.

No. 27542.

Supreme Court of Washington

July 7, 1939

Department 1.

Action by the Legal Discount Corporation against the Martin Hardware Company and another to recover on four trade acceptances. From an adverse judgment, the named defendant appeals.

Judgment reversed and case dismissed.

Appeal from Superior Court, Thurston County; John M. Wilson, judge.

Frank C. Owings, of Olympia, for appellant.

Earle C. Lassen, of Seattle, for respondent.

ROBINSON Justice.

Legal Discount Corporation brought this action to recover on four trade acceptances, aggregating $248.29. The four instruments were drawn by Martin Hardware Company on Capitol Park Building Company, payable to the order of the Martin Hardware Company at Olympia National Bank, and each was, on its date of issue, accepted in writing by the drawee. They were payable, respectively, on February 10, 16, 20, and 28, 1932.

The Martin Hardware Company indorsed the bills in blank and transferred them to the Olympia National Bank, which credited the amount of each, less discount charges, to the hardware company's account. On January 22, 1932, the affairs of the bank were taken over by the comptroller of the currency. The acceptances were not paid by the Capitol Park Building Company on their due dates, or otherwise. Late in 1937, or early in 1938, the exact date not being shown the assets of the bank remaining in its receiver's hands including cluding these acceptances, were sold by him to certain individual purchasers who assigned them to the plaintiff Legal Discount Corporation. In February, 1938, it brought this action against the Martin Hardware Company and Capitol Park Building Company, the acceptor. The building company, however, was not served with process and made no appearance in the suit. A separate cause of action was pleaded on each instrument. In each case, the plaintiff sued as a transferee of a holder in due course, alleging in the first cause, and similarly in the other three:

'That for valuable consideration the said Olympia National Bank of Olympia, Washington, became the holder in due course of said trade acceptance; that the plaintiff herein became the purchaser of said instrument through the Receiver of said Olympia National Bank and is now the owner and holder thereof; that said sum of $65.00 is now due and owing the plaintiff herein together with interest thereon at the rate of 6% per annum from February 16, 1932; that no part of said sum has been paid; that demand therefor has been made and payment refused.'

It was not alleged, however, in any of the four causes, that the defendant Martin Hardware Company was ever given notice that the acceptances had been dishonored by the acceptor, or even that the instruments were ever presented to the acceptor for payment.

The Martin Hardware Company demurred on several grounds, including want of sufficient facts, and its demurrer was overruled. It then answered, setting up various defenses to each cause, and among them, in each instance, that it was never served with any notice of protest, or of the failure of the acceptor, Capitol Park Building Company, to pay the acceptance on the due date thereof, and that it first learned, in January, 1938, that the obligation sued upon had not been paid.

At the trial, plaintiff called its president as a witness. His evidence was wholly devoted to establishing that the plaintiff got good title to the instruments by transfer from a holder in due course, and that the obligations had never been paid. The instruments were offered as exhibits, and the plaintiff rested. Defendant's counsel challenged the sufficiency of the evidence, pointing out that there was no evidence that his client had ever been notified that the instruments had been dishonored, and none that an attempt had ever been made to collect the obligation from the building company, the party primarily liable; and, furthermore, called attention to the fact that the plaintiff was not even attempting to do so in this action, since it was admitted that the building company, though nominally made a party, had not been served with process. This challenge was denied, and the defendant put to its defense.

Concerning the defendant's case, it is only necessary, for the present inquiry, to say that it submitted evidence that it was never given any notice of dishonor and was not even informally made aware that the acceptances had not been paid until its president received a telephone call from the receiver's office concerning them on or about October 5, 1937; that he went to the receiver's office and the acceptances were shown to him, and he was told that they had not been paid. This evidence was not in any way rebutted, nor is there evidence anywhere in the record that the bank or its receiver, or any successor in interest, ever presented them to the acceptor or demanded payment from the drawer, unless what occurred on October 5, 1937, five years and eight months after the acceptances, amounted to a demand.

The court found only the facts alleged in the complaint; that is to say, there is no finding that the instruments were ever presented for payment to the acceptor or notice of dishonor ever given to the indorser. Judgment was entered for principal and interest in accordance with the demand of the complaint.

In interposing its demurrer for want of facts, its challenge to the sufficiency of the evidence at the close of plaintiff's case, and in now urging that the findings did not warrant the conclusions or support the judgment, the defendant relied, and now relies, primarily upon § 89 of the uniform negotiable instruments law, which section appears in Rem.Rev.Stat. as § 3479:

' Except as herein otherwise provided, when a negotiable instrument has been dishonored by nonacceptance or nonpayment, notice of dishonor must be given to the drawer and to each indorser, and any drawer or indorser to whom such notice is not given is discharged.' (Italics ours.)

The plaintiff, at the trial, pointed to the opening words of the section, 'Except as herein otherwise provided,' and relied upon § 115 of the uniform negotiable instruments law which appears in Rem.Rev.Stat. as § 3505, the material part of which reads as follows:

'Notice of dishonor is not required to be given to an indorser in either of the following cases----

* * *

* * *

'3. Where the instrument was made or accepted for his accommodation.'

The court held that the Martin Hardware Company was not entitled to notice of dishonor by reason of the provision contained in subsection 3. The case turns wholly upon the proper interpretation and application of that subsection.

The following is a copy of the trade acceptance sued upon in the first cause of action. Each of the others is in the same form:

'No. 115072

Dec. 16, 1931

Olympia, Wash.

'To Capitol Parks Bldg. Co.

'On February 16, 1932, pay to the order of Martin Hardware Co. Sixty-five and no/100 Dollars ($65.00). The obligation of the acceptor hereof arises out of the purchase of goods from the drawer. The drawee may accept this bill payable at any bank, banker or trust company in the United States which he may designate.

'Martin Hardware Co.

'By G. D. Martin

'Accepted at Olympia on Dec. 16, 1931

'Payable at Olympia National Bank

'Bank Location Olympia

'Buyer's Signature Capitol Park Bldg. Comp.

'By Agent or Officer L. E. Dawley, Pres.

942

D 1.00'

The first indorsement on the back of the instrument reads: 'Martin Hardware Co. by G. D. Martin, Pres.'

This instrument is one of that type of bills of exchange technically known as a trade acceptance.

'A 'trade acceptance' is a recognized term. It is defined in Regulation A of the Federal Reserve Board, section V(a), August 1, 1930, 'as a draft or bill of exchange, drawn by the seller on the purchaser of goods sold, and accepted by such purchaser.' Its purpose is to make the book account liquid and permit the seller to raise money on it Before it is due under the terms of sale. * * *' Levitt v. Johnstown Office Supply Co., 103 Pa. Super. 76, 157 A. 804, 806.

They are commonly made use of in situations like the following: A has sold goods to B and needs cash to replenish his stock, but B is not able to pay for the goods immediately, though he will be able to do so in sixty or ninety days. A draws a bill on B, reciting that the obligation arises out of the purchase of goods from A. B accepts the bill in writing, thereby agreeing to pay the amount involved on a day certain. A indorses the instrument and discounts it at his bank, and thus acquires the needed funds. When the transaction is thus completed, the bank has become a party to the instrument, that is, the holder, and B is the other party, the maker. A is now only an indorser. B, of course, is primarily liable to pay the obligation when due. A is only secondarily liable. The situation is substantially the same as it would have been had B given A his promissory note and A had transferred it to the bank by indorsement.

'Until the bill has been accepted, the drawer is the primary debtor. After acceptance, the drawer becomes secondarily liable, and his liability is the same as that of a first indorser upon a promissory note. The effect of the acceptance of a bill is to constitute the acceptor the principal debtor. The bill becomes by the acceptance very similar to a promissory note--the acceptor being the promisor, and the drawer standing in the relation of an indorser.' Ogden, Negotiable Instruments, § 74, p. 71.

See, also, Daniels, Negotiable Instruments, 7th Ed., § 649; 8 Am.Jur., Bills and Notes, § 526, and cases cited in support of the text.

The first indorser of a negotiable...