Meyer Milling Co. v. Strohfeld

• Decision Date: 20 January 1928
• Citation: 4 S.W.2d 864,222 Mo.App. 1194
• Parties: THE MEYER MILLING COMPANY, A CORPORATION, RESPONDENT, v. H. F. STROHFELD, APPELLANT. [*]
• Court: Missouri Court of Appeals

4 S.W.2d 864

222 Mo.App. 1194

THE MEYER MILLING COMPANY, A CORPORATION, RESPONDENT, v. H. F. STROHFELD, APPELLANT. ^[*]

Court of Appeals of Missouri, Springfield

January 20, 1928

Appeal from the Circuit Court of Lawrence County.--Hon. Charles L Henson, Judge.

REVERSED AND REMANDED.

Judgment reversed and remanded.

Rex McPherson, James E. Sater, Charles Farrar, C. W. Hamlin and Addison Brown for appellant.

Mann & Mann and John W. Miller for respondent.

BAILEY J. Cox, P. J., and Bradley, J., concur.

OPINION

BAILEY, J.

This is a suit by the endorsee of a promissory note against the maker. The note was for the sum of $ 100, dated October 29 1924, payable to the order of George W. Wilson, trustee, due one year after date with interest at the rate of eight per cent per annum.

The petition states that plaintiff is owner and holder of the note and acquired same in due course and for value and that the note is past due and unpaid. Defendant, by his answer, admits the execution and delivery of the note, but alleges that the note was given without consideration and was obtained by false and fraudulent representations (not set out) which defendant at the time believed and by which he was induced to sign and deliver the note. Defendant's answer further sets up that the facts and circumstances under which he signed and delivered said note and pleads the fraudulent transfer thereof, as follows:

"That F. E. Smith represented and pretended to the defendant that he had authority and was legally authorized to sell and issue stock in a proposed company and that George W. Wilson was to be the trustee of the fund provided for the incorporation of the said proposed mill company which was after its incorporation to buy and operate flour mills at Republic, Missouri, that such stock would be issued the defendant, but that no such authority existed and no such stock was in existence and that said stock was not issued to defendant and that there was no consideration for said note.

"Defendant states further that the plaintiff knew at the time the plaintiff purchased defendant's note from F. E. Smith that said note was executed to George W. Wilson, trustee, as part of a fund which was to be used to incorporate a milling company that was to buy certain milling properties and that said note was not the personal property of F. E. Smith, the person from whom it was obtained, but that it was a trust fund for the purposes hereinabove set forth and was being diverted from the trust fund purposes by the said F. E. Smith."

The reply was a general denial. Upon a trial of the issues to a jury the circuit court directed a verdict for plaintiff. Defendant has appealed from the judgment.

At the trial plaintiff first offered in evidence the note in question, duly endorsed, and rested its case. Defendant, to sustain the issues on his part, testified that he lived three miles west of Billings; that he signed the note October 9, 1924; that he was in town one day and a Mr. Smith asked him to take a share in the Billings or Republic Mill; that Smith told him, "it is an awful good thing. We can get the mill at half price now for what it is worth and it would be an awful good thing." Just how long before the note was given that this conversation took place is not shown. Smith also told defendant that he was going to organize a company to buy the big mill at Republic. At the time the note was delivered Smith gave defendant a receipt therefor reciting that it was "on payment of one share of stock in the Consolidated Mill Company." After the note was given Smith told defendant that they had actually purchased the mill at Republic, which statement proved to be false. As that statement was made after the note was executed and delivered it could have been no inducement to defendant in signing the note and, of course, constituted no proof of fraud in its procurement. In fact defendant failed to offer any proof to establish his general charge of fraud in the procurement of the note and it is not seriously urged here, or was not until defendant filed his final brief, that the evidence tends to establish that fact. There is evidence tending to prove total failure of consideration and breach of trust. The note was given for stock in a proposed corporation which was never organized. The payee in the note, George W. Wilson, trustee, some time prior to its maturity, returned the note, duly endorsed, to Mr. Smith from whom he had received it. It is not shown just when this endorsement was made or that Wilson intentionally was a party to any fraud. He testified that most of the notes were returned to the makers because it (the company) was not organized and they did not raise the fund; that he returned all the notes to the makers except what he "turned back to Smith."

There are a number of theories advanced by defendant in his three briefs filed in this case but, under the pleadings and evidence, the principal issue relates to the effect of the word "trustee" following the name of the payee in the note. This note was made payable to "George W. Wilson, trustee." The question is whether or not the word "trustee," following the name of the payee in the note, was a sufficient fact to place plaintiff upon inquiry and to make its action in taking the instrument amount to bad faith under the circumstances.

A similar question was before this court in the case of W. J. Howey Company v. A. B. Cole, Commissioner, No. 4336 (decided at this term but not as yet officially reported). In that case we considered the rule laid down by our Supreme Court in the case of Sanford v. Van Pelt, 282 S.W. 1022, wherein that court refused to be bound by the holding in Powell v. Morrison, 35 Mo. 244, and other cases which hold that the use of the word "trustee" following the name of the grantee or donee in an instrument of writing is mere descriptio personae and does not evidence a trust relationship. The Supreme Court said: "We regard those decisions from which we have quoted, and which hold that the word 'trustee' following the name of the grantee in a deed of conveyance or other instrument, is not merely descriptio personae, but evidences the fact or existence of a trust, as enunciation and stating the more logical, reasonable and equitable principle or doctrine of law." The Sanford suit was brought by the beneficiary of a trust; it involved a deed to real estate wherein the word "trustee" followed the name of the grantee in the deed and it was held that thereby the fact of the existence of a trust estate was evidenced.

It is argued that the same rule should not be applied to the holder of a promissory note because our Negotiable Instrument Law provides that, "To constitute notice of an infirmity in the instrument or defect in the title of the person negotiating same, the person to whom it is negotiated must have had actual knowledge of the infirmity or defect, or knowledge of such facts that his action in taking the instrument amounted to bad faith." [Section 842, Revised Statutes 1919.] It has been held, in a suit by the beneficiary of a trust, that the term "trustee" imports actual knowledge of sufficient facts, within the meaning of the section of the Negotiable Instrument Law above quoted. [Ford v. H. C. Brown & Company, 114 Tenn. 467; 88 S.W. 1036, 1 L. R. A. (N. S.) 188.]

In the case at bar, however, we are concerned with the rights of the maker of the note and not the rights of a beneficiary of the trust.

We may take the law as settled in this State, since the decision in Sanford v. Van Pelt, supra, that insofar as the beneficiary of a trust is concerned, the word "trustee" following the name of the grantee in a deed or following the name of the donee or payee in some other instrument signifies the existence of a trust and makes of the purchaser a constructive trustee for the benefit of the cestui que trust. But where the rights of the maker are concerned, we are dealing solely with the question as to the effect of the word "trustee" upon the negotiability of the instrument, and not with the question of notice of the trust character of the instrument and that rights of beneficiaries may be involved. The distinction is clearly shown in the case of Fox v. Citizens' Bank & Trust Company (Tenn.), 37 S.W. 1102, 25 L. R. A. 678 and note, also Ford v. Brown, supra, and note, 1 L. R. A. (N. S.) p. 188. In the Fox case the court uses this language: "The argument or proposition is advanced by implication, at least, that the fact that these notes are made payable to Anderson, trustee, impaired their negotiability, or put a transferee on notice of all equities existing as between the maker and the trustee. In a contest between the beneficiaries of these notes, assuming that Anderson was not their real owner, and the transferee of Anderson, the fact that the notes appeared on their face to be payable to him, as trustee, would put the transferee on...