Local Acceptance Co. v. Kinkade

• Decision Date: 14 November 1962
• Docket Number: No. 49363,49363
• Citation: Local Acceptance Co. v. Kinkade, 361 S.W.2d 830 (Mo. 1962)
• Parties: LOCAL ACCEPTANCE COMPANY, Appellant, v. David E. KINKADE and Bonnie Kinkade, Respondents, Ted LAIS, doing business as Melody Sewing Center, Third-Party Defendant.
• Court: Missouri Supreme Court

Page 830

361 S.W.2d 830

LOCAL ACCEPTANCE COMPANY, Appellant, v. David E. KINKADE and Bonnie Kinkade, Respondents Ted LAIS, doing business as Melody Sewing Center Third-Party Defendant.

No. 49363.

Supreme Court of Missouri, En Banc.

Nov. 14, 1962.

Douglas & Douglas, Neosho, for appellant.

Johnson, Johnson & Landis, Neosho, for respondent.

EAGER, Judge.

This case was transferred here by order of this court from the Springfield Court of Appeals. The opinion of that court appears at 353 S.W.2d 123. We shall state only such of the facts as are necessary in order to outline the issues and, where pertinent, to supplement the facts stated by the Court of Appeals.

The suit is one, purportedly, on an instalment note for a balance of $285, with interest and attorneys' fees. We say 'purportedly' because defendants deny that the instrument is a negotiable note. The verdict was for the defendants and judgment was entered accordingly. A third-party proceeding against Ted Lais was not tried, in view of the principal judgment. The Court of Appeals reversed this judgment, directed that judgment be entered for plaintiff, and ordered the third-party issue tried.

The instrument was most peculiar in form; it consists of a 'negotiable promissory note' appearing in the upper right corner of the face of the paper, a computation of the price at the left, and a skeleton form of chattel mortgage below, along with a description of the property; beneath all this the defendants signed, with 'Ted Lais' signing as a witness. On the back of the sheet appears almost a full page of 'Conditions'; the 'indorsement,' appearing below these conditions, and referred to as such in the opinion of the Court of Appeals, was as follows: 'For Value received, the within contract, the property therein described, on the reverse side, and all monies to become due thereunder, are hereby sold and assigned:

'WITH RECOURSE TO Local Accept Co.

'Dealer Melody Sewing Center Ted Lais Address Joplin Mo.'

The essential defense was that Ted Lais, operating as Melody Sewing Center, had sold to the defendants a sewing machine for which the instrument was given, upon his agreement that their payments could be made by sewing pre-cut garments which he would furnish each month; that for a period of five months Lais had furnished these, Mrs. Kinkade had done the sewing, and Lais had paid them according to the agreement; that thereafter Lais had defaulted, although they (Mrs. Kinkade, to be specific) had remained ready and willing at all times to perform; that Lais could not collect on the note because of the contemporaneous agreement which must be considered with the note, and that plaintiff, having actual notice thereof, was not a holder in due course, and stood in no better position than Lais. Defendants also insisted that the note was not negotiable, that it was not payable to bearer, that it had not been endorsed, and that plaintiff had not paid value for it.

On the vital question of notice, the only testimony came from Mr. Rapp, plaintiff's manager, and from Ted Lais, the seller. The conclusion of the Court of Appeals as to the testimony of Ted Lais was: 'Ted Lais' testimony does not establish any facts which would give actual knowledge to plaintiff of any infirmity, defect or knowledge of any such facts that its action in taking the instrument amounted to bad faith.' We find from the record that Mr. Lais testified in substance as follows: that he had been a salesman for one Keith Wilkerson who operated the Melody Sewing Center; that he had heard Wilkerson talk with plaintiff's local manager, Mr. Rapp, about selling sewing machines on a plan whereby the purchaser would sew pre-cut garments in order to earn the payments; that Wilkerson showed Rapp some of the garments and a form of the 'sew' contract, which was similar to the one used in this case, and explained the proposed method of selling; that Rapp replied that it was a 'good deal'; that thereafter Lais acquired the business and went to see Mr. Rapp; that he told Rapp that he proposed to handle his sales on the 'sew plan,' in the same manner as Wilkerson had, and that he would need financing; that he wanted to know if Rapp would handle the paper as he had for Mr. Wilkerson; that Mr. Rappknew (so stated without objection) that his proposal was that the customers would sew garments to earn the money to make the payments; that Mr. Rapp, after waiting to consult his supervisor, told him that 'they would go ahead and handle it,' and that Rapp agreed to that proposition; that his conferences with Rapp occurred before he made any sales at all. Lais further testified: that from time to time Rapp asked him if he had outlets for the garments; that the note and chattel mortgage forms were furnished to him by Mr. Rapp; that he filled out one of those forms when he made the Kinkade sale, and that he executed the 'sew' contract; that he made the sale on the representation of that agreement, and that the purpose was to enable the Kinkades to avoid cash payments; that he went 'broke' and was unable to pay for more sewing of garments, having no suitable sales outlets. Lais' evidence, though produced primarily in his own behalf as third-party defendant, was not in any way limited by objections or instructions. It is, therefore, in the case generally, and available to defendants. We are unable to take the same view of the evidence as the Court of Appeals took. It held, in substance, that the evidence did not make a submissible jury issue on the question of plaintiff's actual knowledge of any infirmity, or of plaintiff's good faith.

By Instruction No. 3 the jury was told, in substance: that if defendants executed both the 'note and chattel mortgage' and the sew 'agreement,' and performed the terms of the sew agreement so long as it was possible for them to do so and made payments on the note accordingly, but that Lais defaulted thereon, although defendants were ready to perform,--then plaintiff stood in the position of Lais and could not recover on the instrument because of Lais' breach, provided (our italics) the jury further found that plaintiff 'had knowledge of the plan * * * prior to the time' it received the note and chattel mortgage from Ted Lais. In Instruction No. 5, obviously offered by plaintiff, it was hypothesized that if Lais had acted in good faith and had later gone 'broke,' plaintiff should recover unless it had 'actual knowledge' of the sewing agreement at the time of its purchase of the note. We thus see that the jury, by its verdict, found the facts on the question of knowledge substantially as testified to by Lais.

It has often been held that a contemporaneous written contract, entered into between the original parties to a note, and connected with the note by direct reference or by necessary implication, may affect the payee's right to recover against the maker, and that the two instruments should be considered together as the entire contract. Citizens' Bank of Edina v. Kriegshauser, 211 Mo.App. 33, 244 S.W. 107; Williams v. Kessler, Mo.App., 295 S.W. 482; National Refining Co. v. Zuckerman, Mo.App., 183 S.W.2d 390; Simpson v. Van Laningham, 267 Mo. 286, 183 S.W. 324; Bank of Mountain View v. Winebrenner, Mo.App., 189 S.W.2d 429 at loc.cit. 439 (discussion in dissenting opinion); Leesemann v. Schulte, Mo.App., 24 S.W.2d 1083; People's Bank of Ava v. Rankin, Mo.App., 30 S.W.2d 638. There is no controversy whatever here concerning the execution of the 'sew' agreement or of the intent of the parties thereto. It provided that pre-cut garments be furnished to Mrs. Kinkade for twenty-four months (the same period as the note instalments) except for 'months when * * * cash payments are made'; also, that she be paid for the sewed garments $15 per month, the precise monthly payment due on the note; also, that Mrs. Kinkade might terminate the agreement by notice and by payment for any retained materials, 'and payment of balance due Finance Company.' There is no doubt that this agreement and the note were connected, at least by 'necessary implication,' if not by 'direct reference.' Lais certainly could not have recovered the balance on this note, if considered as the payee, free of his obligations under the 'sew' contract. See the cases last cited. We consider it immaterial that only Mrs. Kinkade and Lais signed the sew contract. Her husband had signed the note and mortgage, he was present at and a party to all the proceedings connected with the sale, and the effect of the contemporaneous contract was to operate in his favor as well as his wife's. This point...