Mercantile Trust Co. v. Donk

• Decision Date: 01 June 1915
• Docket Number: No. 16672.,16672.
• Parties: MERCANTILE TRUST CO. v. DONK et al.
• Court: Missouri Supreme Court

178 S.W. 113

MERCANTILE TRUST CO. v. DONK et al.

No. 16672.

Supreme Court of Missouri.

June 1, 1915.

Rehearing Denied June 29, 1915.

In Banc. Appeal from St. Louis Circuit Court; Chas. Clailin Allen, Judge.

Action by the Mercantile Trust Company against B. C. Donk and another. Judgment for defendants, and plaintiff appeals. Reversed and remanded.

This is a suit on two promissory notes for $12,500 each, bearing 5 per cent. interest, brought by the plaintiff against two of the indorsers, E. C. Donk and Otto F. Stifel. The plea of the defendants, two of the indorsers of the notes sued on, was to the effect:

First. That the notes were held "ay plaintiff as collateral security for four notes of the Ice Company, presently to be described, representing the $25,000 it had borrowed from the plaintiff; also that this $25,000 had been further secured by a warehouse receipt covering ice, alleged to have been worth $30,000, which the plaintiff in August, 1904, returned to the Ice Company, which pledge, it was claimed, was intended for the benefit of defendants, and was ample to pay plaintiff the entire $25,000 of borrowed money; and it was further alleged that, by the surrendering of that pledge or warehouse receipt without their consent, they thereby became released from all liability for the money so borrowed.

Second. That the surrender by plaintiff of the original four notes of the Ice Company, representing the $25,000 borrowed, and the taking of the $25,000 note, dated March 4, 1904, in lieu thereof, bearing 6 per cent. interest, payable monthly, constituted an extension of the debt, which without their consent released them as securities on the notes in suit.

They also claimed the right of subrogation to the warehouse receipt, etc.

The trial resulted in a judgment in favor of the defendants, and the plaintiff appealed. The facts are few, and most of them are not disputed:

By reason of the ravages of a flood in the year 1903, the East St. Louis Ice & Cold Storage Company, a corporation, sustained severe damages, which necessitated the raising of $25,000 to pay outstanding indebtedness, repair the plant, and to resume business. Consequently, on November 14, 1903, at a special meeting of the board of directors, composed of Donk and Stifel, the defendants, and Decker, Murphy and Scullin, they unanimously authorized the Ice Company, through its president, Mr. Scullin, to borrow $25,000 for the use of the company and to pledge as security therefor the two notes sued on, each dated St. Louis, Mo., November 16, 1903, for the sum of $12,500, bearing interest from maturity, payable to the plaintiff, due March 1, 1904, duly signed by the company and indorsed at the time by all of the directors previously mentioned, who were also the sole stockholders.

Scullin was also authorized to pledge as additional security all the ice then on hand (which was not any) and all thereafter to be manufactured, which amounted to some 8,500 tons—a warehouse receipt for which was subsequently delivered to the plaintiff. This receipt, however, was later by the plaintiff surrendered to the Ice Company, which sold the ice,. the amount of the proceeds not appearing, and used the same for purposes of the company different from that of paying the $25,000. Defendants' evidence tended to show this was done without their knowledge or consent, while that of the plaintiff tended to show to the contrary, and if we were authorized to pass upon the weight thereof, we would have no hesitation in finding that fact for the plaintiff; but the jury found for the defendants, which for the purposes of this case we must regard as true.

At divers times the company, through Mr. Scullin, borrowed $25,000 from plaintiff on various notes, all maturing on March 1, 1904, which was also the date of the two collateral notes of $12,500 each. The various notes made to the plaintiff not having been paid when due, payment was demanded, and after a consultation with the other directors, as some of the evidence tended to show, Mr. Scullin, on April 4, 1904, for the company, executed to the plaintiff a note for $25,000, payable on demand, bearing 6 per cent. interest, and thereby took up and canceled all the notes previously executed to the plaintiff by the company. The latter note was dated March 1, 1904, instead of April 4th, the date it was actually executed.

The evidence for the defendants tended to show that they had no knowledge whatever of the execution of this $25,000 note, but that of the plaintiff tended to show that they did. The evidence totally fails to show that the plaintiff knew anything of the transactions or dealings that took place between Scullin, Stifel, Decker, Donk, and Murphy in regard to the indorsing of the collateral notes—those sued on. All the knowledge the plaintiff had of these two notes was what appeared upon their faces and backs when presented.

The $25,000 note ran until November 30, 1908, without demand of payment. However the interest in the meantime was paid by the Ice Company monthly, the rate of which varied from 5 to 7 per cent., as the company from time to time agreed orally with the plaintiff to pay. Neither the two $12,500 notes nor any of the four notes of the Ice Company having been paid when due, the two former were duly protested. From that time negotiations looking to their payment continued practically until April, 1909, when this suit was instituted on the two $12,500 notes.

Richard L. Goode, Morton Jourdan, and Douglass W. Robert, all of St. Louis (Robert & Robert, of St. Louis, of counsel), for appellant. Schnurmacher & Rassieur, of St. Louis, for respondents.

WOODSON, P. J. (after stating the facts as above).

I. There are many legal propositions presented and discussed by counsel for the respective parties to this suit; but the views we take of the case render it necessary for us to consider and dispose of but few of them.

By reading this record it clearly appears therefrom that this corporation, the Ice Company, using a homely expression, practically belonged lock, stock, and barrel to its board of directors, and that when they indorsed the two notes of $12,500 each, as collateral security for the $25,000 to be borrowed, they did so as indorsers, and not as sureties, for the use of the Ice Company. The law of this state is well settled, as this court has repeatedly held, that such an indorser of a promissory note is not a surety within the meaning of the act of the Legislature concerning securities. Clark v. Barrett, 19 Mo. 39; Devinney v. Lay, 19 Mo. 646; Miller v. Mellier, 59 Mo. 388; Faulkner v. Faulkner, 73 Mo. loc. cit. 338; Priest v. Watson, 75 Mo. loc. cit. 316, 42 Am. Rep. 409; Maffat v. Greene, 149 Mo. loc. cit. 54, 50 S. W. 809. Also see Ross v. Jones, 89 U. S. 576, 22 L. Ed. 730; Maddox v. Duncan, 62 Mo. App. loc. cit. 477; Daniel, Neg. Inst. (5th Ed.) § 707.

Much stronger are the facts of the case at bar in favor of the plaintiff here than were those in the cases cited, for here the plaintiff had no knowledge of the alleged agreement between the indorsers on the two $12,500 notes. Even though such agreement and equities contended for by defendants did exist, yet the authorities are uniform in holding that actual knowledge of such equities is necessary in order to charge a bona fide holder of such a note for value. Daniel on Neg. Inst. (5th Ed.) § 796, 1885; Mayes v. Robinson, 93 Mo. 122, 5 S. W. 611; Bank v. Eubanks, 124 Mo. App. loc. cit. 503, 101 S. W. 687; Stewart v. Givens, 128 Mo. App. loc. cit. 391, 107 S. W. 422; Link v. Jackson, 158 Mo. App. 63, 139 S. W. 588; Horton v. Bayne, 52 Mo. 531; Hamilton v. Marks, 63 Mo. 167; Jennings v. Todd, 118 Mo. 303, 24 S. W. 148, 40 Am. St. Rep. 373; Wright v. Frisco, 178 Mo. 80, 77 S. W. 296; Houghton v. Pierce, 203 Mo. loc. cit. 738, 102 S. W. 553. Under this view of the law, as previously stated, the defendants were indorsers, and not securities, on those two notes, and their liability thereon became absolute when they were duly protested, which was done March 4, 1904, and as such indorsers they are liable on the two $12,500 notes, the same as they would be on any other ordinary note.

II. But there' is another view of this case which grubs up the defendant's defenses root and branch, and that is the evidence conclusively shows that there was no extension of the maturity of the principal indebtedness. All of the four notes made by the Ice Company to the plaintiff, aggregating $25,000, matured March 4, 1904, and the demand note for the $25,000, which was given by said company to the plaintiff to take up the other four notes mentioned, was not actually executed until April 4, 1904, yet for convenience it was dated back to March 4, 1904, the date (with grace added) when the...