McCornick & Co. v. Gem State Oil & Products Co.

• Decision Date: 31 December 1923
• Citation: 38 Idaho 470,222 P. 286
• Court: Idaho Supreme Court
• Parties: MCCORNICK & CO., Bankers, a Corporation, Respondent, v. GEM STATE OIL & PRODUCTS COMPANY, a Corporation, Appellant

222 P. 286

38 Idaho 470

MCCORNICK & CO., Bankers, a Corporation, Respondent, v. GEM STATE OIL & PRODUCTS COMPANY, a Corporation, Appellant

Supreme Court of Idaho

December 31, 1923

BILLS AND NOTES - NEGOTIABILITY - SUSPENSION OF PAYMENT - ACCELERATION CLAUSE-CONTINGENCY SOLELY WITHIN CONTROL OF MAKER-DOES NOT RENDER INSTRUMENT NON-NEGOTIABLE.

1. The term "suspending payment" means suspension of payment because of inability to pay in due course.

2. A written promise for the payment of money in ordinary terms of negotiability, containing certain additional clauses for the acceleration of the due date upon the happening of special events solely within the control of the maker, or not within the control of any party to the paper, is not by such stipulations rendered non-negotiable.

APPEAL from the District Court of the Fifth Judicial District, for Bannock County. Hon. O. R. Baum, Judge.

Action by McCornick & Co., bankers, a corporation, against Gem State Oil & Products Co., a corporation. From a judgment for plaintiff, defendant appeals. Affirmed.

Judgment affirmed, with costs to respondent.

Peterson & Coffin, for Appellant.

The instrument sued upon in this case is not a negotiable instrument. (Kimpton v. Studebaker Bros., 14 Idaho 552, 125 Am. St. 185, 94 P. 1039; Moyer v. Hyde, 35 Idaho 161, 204 P. 1068.)

The debtor or party liable on an assigned chose in action is not affected by the assignment until he has notice thereof, and consequently he may set up against the claim of the assignee any defense acquired before notice that would avail him against the assignor, or any compromise or release of the assigned claim by the latter before notice will be valid against the assignee, and discharge the debtor. (5 C. J. 934 and authorities cited; C. S., sec. 6635.)

Budge &amp Merrill, for Respondent.

The instrument sued upon in this case is a negotiable instrument. (Utah State Nat. Bank v. Smith, 180 Cal. 1, 179 P 160; Nickell v. Bradshaw, 94 Ore. 580, 11 A. L. R. 623, 183 P. 12; Farmers & Merchants' Bank v. Davis, 144 La. 532, 80 So. 713; Acceleration Provisions in Time Paper, vol. 22, Howard Law Review, p. 747.)

Payment of a negotiable instrument to one other than the holder is not a discharge of the instrument. (Astoria State Bank v. Madwood, 38 S.D. 437, 161 N.W. 815; Miles v. Dodson, 102 Ark. 422, 144 S.W. 908, 50 L. R. A., N. S., 83; Becker v. Hart, 129 A.D. 511, 113 N.Y.S. 1053.)

ADAIR, District Judge. McCarthy, Dunn and Wm. E. Lee, JJ., concur.

OPINION

ADAIR, District Judge.

--The plaintiff instituted this action against the defendant and appellant upon three certain written instruments known as trade acceptances. Three causes of action were set up, each having as its basis one of said papers, which were in the principal sums of $ 1,000, $ 1,000 and $ 593.54, respectively, and each was in the following language, except as to amounts:

"Date 5-3-20.

"No. . $ 1000.00

"On July 8, 1920, pay to the order of Utah Rubber Co. One Thousand & No 100 Dollars value received and charge the same to the account of

"UTAH RUBBER CO.

"J. W. FRANCIS.

"To Gem State Oil & Products Co.,

"Pocatello, Idaho."

Written across the face of each instrument is the following:

"Accepted May 3rd, 1920. Payable at Bannock National Bank. Gem State Oil & Products Co. M. V. Chapin."

On the margin of each instrument appears the following:

"Trade Acceptance.

"The obligation of the acceptor of this bill arises out of the purchase of goods from the drawer. Upon the acceptor hereof suspending payment, giving a chattel mortgage, suffering a fire loss, disposing of his business or failing to meet at maturity any prior trade acceptance, this trade acceptance, at the option of the holder, shall immediately become due and payable."

There is no controversy as to the facts in the case. It appears that on May 4, 1920, the Utah Rubber Company, for a valuable consideration, sold and delivered all three of these trade acceptances to the respondent Bank. The instrument involved in this appeal was duly indorsed by said Utah Rubber Company, but the other two were not so indorsed. After selling these instruments to the respondent bank, the appellant gave back to the drawer, as payment in full thereof, the goods for which the bills were originally given. This was done on June 1, 1920, and without notice of the assignment of said instruments to the respondent. The first notice which appellant ever received of the transfer of said instruments was about June 24, 1920. After maturity of these bills respondent instituted this suit to recover thereon from the appellant. Appellant pleaded payment, and after the submission of testimony, which was undisputed, the court directed a verdict in favor of the respondent and against appellant on the instrument which had been indorsed, and against the respondent and in favor of the appellant on the two instruments not indorsed. The appellant appealed from the judgment entered against it upon the verdict thus rendered.

The correctness of the ruling of the learned trial judge, and the verdict and judgment based thereon, requires the determination of the negotiability of the instrument hereinabove set out. If it was a negotiable instrument, the payment thereof to the original payee, Utah Rubber Company, before maturity, and without notice of its assignment, would not discharge it as against the holder in due course, the respondent herein. (Astoria State Bank v. Markwood, 38 S.D. 437, 161 N.W. 815; Miles v. Dodson, 102 Ark. 422, 144 S.W. 908, 50 L. R. A., N. S., 83; Becker v. Hart, 129 A.D. 511, 113 N.Y.S. 1053.)

If, on the other hand, the instrument is non-negotiable, the appellant could set up the defense of payment against the assignee thereof, the respondent herein, and since the payment and discharge of the instrument was made without notice of its assignment, and before maturity, it would be a valid and complete defense to said action.

C. S., sec. 6635, reads:

"In the case of an assignment of a thing in action, the action by the assignee is without prejudice to any set-off, or other defense existing at the time of, or before, notice of the assignment; but this section does not apply to a negotiable instrument, transferred in good faith and upon good consideration, before maturity."

See, also, 5 C. J. 934, and authorities there cited.

We are concerned, therefore, only with the one question as to the negotiability of said instrument. Aside from the printed matter on the margin, the paper is purely an ordinary bill of exchange, properly drawn and accepted, and complying in all respects with the requirements of the statute and the law-merchant as to negotiable paper. There is obviously no doubt but that it would be negotiable, except for such marginal matter, and to that, and that alone, we will direct our attention.

The law of bills and notes and other means of trade, like all other substantive law, is the creature of growth. Founded on the custom and needs of merchants, it is the combined result of reason and experience, and should keep pace with and respond to commercial usage. Judge Dawkins in Farmers' & Merchants' Bank v. Davies, 144 La. 532, 80 So. 713, very aptly said:

"The tendency of modern jurisprudence is to get away from the rigid rules of interpretation which seem to have prevailed when the famous expression of Chief Justice Gibson, that 'a negotiable instrument is a courier without luggage' was coined. The law of negotiable instruments, as a part of the law merchant, is based upon the necessities, usages and customs of business, and must develop with it. Whenever the additional stipulations are merely in aid of the collection of the note, and do not constitute an undertaking to give or do something else foreign to that end, they do not destroy its negotiability."

In the modern commercial world, trade acceptances are fast becoming an important form of contract, ranking with notes, checks, drafts and other mediums of trade. The matter contained therein, aside from the direct order to pay money, is often valuable and intended to facilitate its transfer, and an option similar to that inserted in the margin of the instrument in question might tend to assist the holder in its transfer or sale to another. The fact that it does contain matter other than an order for the payment of money does not in itself render it non-negotiable. The first sentence in the margin to the effect that "the obligation of the acceptor of this bill arises out of the purchase of goods from the drawer" does not affect nor deprive the instrument of its negotiability.

C. S., sec. 5870, subd. 2, provides:

"An unqualified order or promise to pay is unconditional within the meaning of this chapter, though coupled with a statement of the transaction which gives rise to the instrument."

The last sentence, providing for accelerating the time of payment upon the happening of certain contingencies or events, which may or may not take place, is the provision in the paper which appellant contends renders it non-negotiable. Does this clause render the time of payment undeterminable or indefinite?

The Uniform Negotiable Instruments Act, adopted by Idaho, as well as all the states of the Union with the exception of Georgia and Texas, makes definiteness in the time of payment one of the controlling factors in determining the question of negotiability. If the clause in question does not render the due date indefinite, the instrument is negotiable.

It is generally held that it is the duty of the courts to have in mind the purpose of securing uniformity in the law of commercial paper. That was the motive which actuated the various state legislatures when they adopted and passed the Uniform Negotiable...