Murray v. Third Nat. Bank of St. Louis

• Decision Date: 20 July 1916
• Docket Number: 2771.
• Citation: 234 F. 481
• Parties: MURRAY et al. v. THIRD NAT. BANK OF ST. LOUIS.
• Court: U.S. Court of Appeals — Sixth Circuit

234 F. 481

MURRAY et al. v. THIRD NAT. BANK OF ST. LOUIS.

No. 2771.

United States Court of Appeals, Sixth Circuit.

July 20, 1916

[Copyrighted Material Omitted]

A. C Cassatt and Miller Outcalt, both of Cincinnati, Ohio, for plaintiffs in error.

Jos. S Graydon and S. T. McPherson, both of Cincinnati, Ohio, for defendant in error.

Before KNAPPEN and DENISON, Circuit Judges, and SESSIONS, District judge.

KNAPPEN Circuit Judge.

This is a suit brought by the Third National Bank of St. Louis against the maker and indorsers of a promissory note growing out of this situation:

Previous to February, 1909, the Second National Bank of Cincinnati was capitalized at $500,000; steps were taken to increase the capital stock to $1,000,000; $300,000 of the new stock was offered to existing stockholders at $150 per share, the remaining $200,000 to the public at $275 per share; all the stockholders took their respective allotments of new stock at 150. There remained unsubscribed of the stock offered the public $20,000 par value. Davis, the president of the Second National Bank, took this stock in his name. It was paid for in this way: Davis signed a demand note for $55,000 (the price of the stock), payable to himself, or order, with interest (rate not stated); the note was indorsed upon the back by Davis and by each of the directors. This note, accompanied by the stock as collateral, was negotiated at its face with the plaintiff bank by Galbreath, who was vice president and one of the directors of the Second National Bank, and the proceeds turned into the capital stock account of the latter bank. Three per cent. quarter-yearly dividends were regularly paid upon the stock on the 1st days of May, August, November and February of each year, including February 1, 1912; the checks therefor being turned into an account carried on the books of the Second National Bank in the arbitrary name of 'Williams, Guardian'-- Williams being the bank's cashier. From this account quarter-yearly interest to December 31, 1911, at 5 per cent. per annum, was regularly paid to the plaintiff bank through the officials or employes of the Second National Bank. According to this practice the next installment of interest would be due March 31, 1912. The Comptroller of the Currency took charge of the Second National Bank on April 10, 1912, up to which time the directors had remained the same as when the note was indorsed, except that Kennedy had died August 23, 1910. The note was presented and payment demanded May 16, 1912. The pledged stock was afterwards sold, realizing less than $2,000 net. Suit was brought against all the parties to the note, Kennedy being represented by his executrix.

The amended complaint set up substantially the facts already stated, with the further allegation that all the defendants had agreed among themselves to purchase the stock and take title to it in Davis' name, with the intention of holding it until they could sell it at a profit, and that the note was to be paid out of the proceeds of the sale.

Davis and Galbreath made no defense. Brooks died after beginning of suit, which was dismissed as against his administrators as improperly revived. John F. Robinson compromised his liability under sections 8079-8084 of the General Code of Ohio. The remaining defendants other than Davis contended that they were mere indorsers for his accommodation and without consideration, that presentment for payment was not made within a reasonable time, and that they were thereby prejudiced in the fact that, had presentment been so made, the note would have been paid and the indorser saved harmless, either through Davis' personal responsibility or the sale of the stock. Motion by defendants for directed verdict, made at the close of the testimony, was overruled. The jury was instructed that, if the defendants other than Davis were indorsers for their own accommodation, no demand was necessary; otherwise, they would be liable or not according as demand of payment was or was not made within a reasonable time-- both questions of fact being left to the jury. The verdict was for the amount of the note with accrued interest, less the amount realized on sale of the stock and less the amount paid by Robinson.

1. The jury was instructed that plaintiff had withdrawn its claim that defendants intended by the transaction in question to make for themselves a profit on the 200 shares of stock taken in Davis' name. Whether or not such action by plaintiff clearly appears, the question was properly withdrawn from the jury's consideration. There was no evidence to support the claim. Davis testified that the purchase was his individually; the indorsers Omwake, Albert, and Murray testified to the same effect. There was not only no direct testimony to the contrary, but no circumstances from which a contrary inference could properly be drawn. A finding of joint purchase could only rest upon conjecture, which of course is an insufficient basis for a verdict. Smith v. Ill. Central R.R. Co. (C.C.A. 6) 200 F. 555, 556, 119 C.C.A. 33; Toledo, St. L. & W.R. Co. v. Howe (C.C.A. 6) 191 F. 776, 782, 112 C.C.A. 262.

The Ohio Negotiable Instruments Act (G.C. Sec. 8175) provides, however, that 'presentment for payment is not necessary in order to charge the person primarily liable on the instrument,' although, 'except as herein otherwise provided, presentment for payment is necessary in order to charge the drawer and indorsers'; and by section 8185 'presentment for payment is not required in order to charge an indorser when the instrument was made or accepted for his accommodation, and he has no reason to expect that it will be paid if presented.'

The concrete proposition in this regard, asserted by plaintiff, and submitted to the jury, is that the indorsing directors were interested in or benefited by Davis' purchase of the stock, in that the capital increase was thereby carried through and the indorsing directors thus enabled to obtain a large profit by 'getting new stock at 150 which was selling in the market at about 275'; and plaintiff contends that the instrument was thus made for the accommodation of the indorsers within the meaning of the statute, and that the proceeds of the note thus really went to the indorsing directors as well as to Davis.

The generally accepted construction of provisions in negotiable instruments acts, similar to section 8185, is that they apply only to cases where the indorser is the primary debtor, the reason for the rule being that no one is bound to indemnify the primary debtor, and he is thus no more entitled to presentment, demand, or notice than if his true character had appeared on the paper. Bunker on Negotiable Instruments, p. 142. We think section 8185 must be construed as at least limited to cases where the indorser is a primary debtor; that is to say, one who intended to assume the capacity of either a sole or a joint maker.

But by section 8168 a 'person placing his signature upon an instrument otherwise than as maker, drawer or acceptor is deemed to be an indorser, unless he clearly indicates by appropriate words his intention to be bound in some other capacity. ' Similar provisions have been construed as requiring that the words indicating such intention appear on the instrument itself. Milling Co. v. Farmers' Co., 130 La. 950, 58 So. 825; Hopkins v. Commercial Bank, 64 Fla. 310, 60 So. 183; First National Bank v. Bickel, 143 Ky. 754, 137 S.W. 790; Id., 154 Ky. 11, 156 S.W. 856. See, also, Rockfield v. Bank, 77 Ohio St. 311, 327, 328, 83 N.E. 392, 14 L.R.A. (N.S.) 842. But there is authority to the contrary. Bank v. Busby, 120 Tenn. 652, 660, et seq., 113 S.W. 300. But were we to assume that the 'appropriate words' indicating the intention to be bound otherwise than as indorser need not appear upon the instrument itself, we think it clear that under section 8168 one who signs in form as an indorser cannot be held liable as primary debtor, either sole or joint, unless he has 'in appropriate language, used for that express purpose, indicated an intention to be bound in some other capacity,' and that such intention is 'not to be inferred from conduct or from language that is equivocal, much less from that which is consistent with an intent to assume only the secondary liability of an indorser, and not the primary liability of a maker. ' McDonald v. Luckenbach (C.C.A. 3) 170 F. 434, 437, 95 C.C.A. 60.

Tested by that rule, we think there is a total absence of substantial testimony tending to show that the indorsing directors intended to assume the primary obligation of joint makers with Davis. As already said, there is no evidence that they were directly interested in the purchase of the stock in question. The proceeds of the note were not, in any proper sense, paid to them; and we find no substantial evidence that the maker and indorsers regarded themselves as ultimately jointly liable as between themselves. While the dividends did not quite take care of the interest, there is no evidence that the indorsers helped make it up. The only testimony having even a plausible tendency to show that the indorsers were primary makers is the statement in Galbreath's letter inclosing the note to the plaintiff bank, referring to the stock as 'some stock we are holding and which we desire to place where it will bring business to us'; but this statement (assuming its competency as evidence) falls short of an assertion that the directors had the interest mentioned. It is at least as consistent with the idea that Davis was holding the stock, or even that it was being held by the bank.

Moreover assuming, as we should, that the capital increase was regarded as for the bank's benefit and that of stockholders, the record fails to show that the...