Rubio Sav. Bank of Brighton v. Acme Farm Products Co.

• Decision Date: 05 April 1949
• Docket Number: 47335.
• Citation: 37 N.W.2d 16,240 Iowa 547
• Parties: RUBIO SAV. BANK OF BRIGHTON v. ACME FARM PRODUCTS CO. et al.
• Court: Iowa Supreme Court

37 N.W.2d 16

240 Iowa 547

RUBIO SAV. BANK OF BRIGHTON v. ACME FARM PRODUCTS CO. et al.

No. 47335.

Supreme Court of Iowa

April 5, 1949

Appeal from District Court, Washington County; J. G. Patterson Judge.

T. A. Michels, of Washington, and Edward L O'Connor, of Iowa City, for appellants.

Edmund D. Morrison, Jr., of Washington, for appellee.

OLIVER Justice.

Defendant Acme Farm Products Company is a partnership composed of defendants Paul M. Ross and Hannah Ja. Ross husband and wife, of Chicago, Illinois, at which place the partnership is engaged in the produce business. Weisz Produce was a trade name under which Maurice Weisz operated a produce business at Brighton, Washington County, Iowa. Early in 1947 Weisz Produce made a number of sales and shipments of eggs and poultry to Acme Farm Products Company. The checks received in payment were deposited by Weisz Produce in its account in plaintiff Rubio Savings Bank, of Brighton. The two checks in suit, for $6,500 and $5,000, respectively, were made to Weisz Produce by Acme, April 1, and April 3. Weisz Produce indorsed them, deposited them in its account in plaintiff bank and received credit for the amounts thereof.

Plaintiff forwarded the checks for collection, through channels. Before they were presented to the Chicago bank upon which they were drawn, Acme ordered payment stopped: 'Reason: Merchandise for which these vouchers were advanced was diverted to other outlets (dealers)'. In the meantime Weisz Produce had withdrawn from its account in plaintiff bank the amounts of these checks. Several days later the unpaid checks were returned to plaintiff and were charged back against Weisz Produce account, in which certain deposits had been made during the interim. The balance due plaintiff bank was $3,097.84. Weisz disappeared and was adjudicated a bankrupt. Thereafter plaintiff brought this action for $11,500. Apparently the right of plaintiff to charge back the checks was challenged by another party in an action then pending and there was some thought the trustee in bankruptcy for Weisz might have rights in the matter.

Defendants' answer alleged the checks were without consideration and were procured by fraud. In reply plaintiff alleged it was a holder in due course. The questions of fact involved in these issues were submitted to a jury. There was a verdict and judgment for plaintiff for $3,201.10 ($3,097.84 with interest). Defendants have appealed.

I. The trial court overruled various contentions and pleaded defenses based upon defendants' theory the checks were not negotiable and instructed the jury they were negotiable. Defendants assign error to these orders and instructions. Except for the statement stamped thereon, 'Protested for non-payment, April 7, 1947', etc., the following photograph shows substantially the appearance of the face of the $6,500 check when first received by plaintiff bank.

RPT.CC.1949105266.00010

(Image Omitted)

The check is approximately 7 inches by 6 inches in size. The space for indorsement is the lower half of the front. The back of the check is ruled with horizontal and vertical lines similar to a statement of account. It recites (at the top): 'To Weisz Produce--Apr. 1, 1947'. (In the body): 'Eggs Lot No.' (At the bottom): 'Remarks: P. M. R.' (and) '$6,500.00'. The other check is dated April 3 1947, is for $5,000 and is stamped: 'Protested for Non- Payment April 9, 1947.' On the back.: 'To Weisz Produce--Apr. 3, 1947--Advance on Mdse. to arrive--5000--Remarks: P.M.R.--$5,000.00.'

Defendant Paul M. Ross testified they had devised this form of 'procurement draft' for their protection 'where we paid for goods or on account for goods to be delivered at future time into our possession, * * *.' In the beginning he had talked with Weisz and agreed 'I would mail a procurement draft as a payment on merchandise if he had it on hand, in transit to us or in Chicago delivered to us * * * and Mr. Weisz agreed (if he) * * * in any way diverted the merchandise for which that was advanced, the draft would not be deposited in his bank * * *. Thereafter, the transactions were carried on entirely by telephone. Mr. Weisz would phone me * * * what was in transit * * *. We would agree the value of that shipment would be estimated. Upon such telephone requests of Mr. Weisz informing us that he had so much poultry or eggs for shipment to us * * * we would then send one of them (produce vouchers) out to him by mail.' Ross ordered payment of the two checks in suit stopped, April 4, 1947, when 'I learned that contrary to a gentleman's agreement between Mr. Weisz and myself, these drafts had been deposited in his bank, * * * for which we were to receive nothing.'

It is apparent this form of check was devised with the thought it could be 'deposited' in a bank and placed in circulation, but Acme need not pay it to any holder should the payee breach his 'gentleman's agreement' that he would not deposit it if he 'in any way diverted the merchandise for which that was advanced * * *.' In considering whether this form of instrument is sufficient to deprive others of their rights as holders in due course, it will, of course, be construed most strongly against Acme, because Acme prepared it.

Another established rule of construction is that courts resolve doubts in favor of negotiability. 10 C.J.S., Bills and Notes, § 13, page 424, § 86, page 527; 7 Am.Jur. 789, Bills and Notes § 3. Williamson v. Craig, 204 Iowa 555, 562, 215 N.W. 664, 667, states: 'Since the adoption of the Uniform Negotiable Instrument Law and since negotiable instruments have taken such a prominent part in the business of the commercial world, the tendency of the courts is to hold instruments negotiable where they can be reasonably so held. It is apparent from the citation of authorities above that this is the drift of the modern holdings.'

In the language of Townsend v. Adams, 207 Iowa 326, 329, 222 N.W. 878, 879, 77 A.L.R. 1079, 'Within the bounds of reason, then, liberality of construction must be exercised in favor of negotiability.'

On the face of the checks is printed: 'Endorsement: Guarantee delivery in good order, weight and count merchandise listed opposite side.' Defendants contend this language makes payment conditional upon the delivery of the merchandise. We disagree. Paper non-negotiable by reason of its conditional character is commonly distinctly conditional in form with language such as--on condition that--if--in the event, etc. 10 C.J.S., Bills and Notes,§ 86a, page 525. See Home State Bank v. Martin, 196 Iowa 1092, 195 N.W. 977. Defendants do not point to any specific language as expressly or impliedly supporting their contention. They argue merely that this is the tenor of these instruments. A like argument would be equally applicable to any check which refers to an executory consideration. The absence of any language in the instruments indicating payment was conditional upon delivery of the merchandise requires a conclusion to the contrary.

A mere reference in the instrument to an extrinsic agreement or a statement of the origin of the transaction does not impair negotiability. Code of Iowa 1946, § 541.3(2), I.C.A.; First National Bank v. Power Equipment Co., 211 Iowa 153, 155, 233 N.W. 103; Williamson v. Craig, 204 Iowa 555, 215 N.W. 664; 7 Am.Jur. 849, Bills and Notes § 112; 10 C.J.S., Bills and Notes, § 86c, page 527. 'The negotiability of a negotiable promissory note is not affected by the mere fact that it is given pursuant to an unperformed executory agreement'. Home State Bank v. Martin, 196 Iowa 1092, 1097, 195 N.W. 977, 979; 8 Am.Jur. 139, Bills and Notes § 402.

The memoranda on checks describing the funds and the source from which they come or the payment intended by the checks do not act as a notification to one discounting them of any facts which he is bound to investigate. Bost v. Block, 195 Okl. 198, 156 P.2d 610. Knowledge that an instrument was given for the sale of goods warranted or guaranteed by the seller does not deprive an indorsee of his status as a holder in due course, if the warranty or guaranty is breached, where the holder had no knowledge of the breach prior to taking the instrument. 10 C.J.S., Bills and Notes, § 330a, page 829; 7 Am.Jur. 890, Bills and Notes § 178; Home State Bank v. Martin, 196 Iowa 1092, 1097, 195 N.W. 977, and authorities cited.

Plaintiff argues there was no 'merchandise listed' on the back of the checks. Whether it was so 'listed' need not be determined. We hold the checks were negotiable in either event.

Various decisions in analogous cases support this conclusion. Some of them are Coffin v. May, 104 N.J.L. 347, 140 A. 331, 333, 61 A.L.R. 819. 'This trade acceptance covers 222 radio cabinets and benches which are absolutely guaranteed and are to be replaced * * * if found damaged * * *.' Critcher v. Ballard, 180 N.C. 111, 104 S.E. 134, 'This note is for the purchase of stallion, and said Ames warrants him * * *.' First Bank of Marianna v. Havana Canning Co., 142 Fla. 554, 195 So. 188. Check made June 7. 'For berries to be delivered to us June 8th.' Citing many decisions.

Todd v. State Bank, 182 Iowa 276, 165 N.W. 593, 3 A.L.R. 971, and Omaha Bank for Cooperatives v. Novotny, 236 Iowa 54, 17 N.W.2d 836, cited by defendants are not factually in point. In the Todd case the bank secured with the note an unperformed executory agreement which showed the delivery of the note was conditional. The reasons why that case is not here applicable are more fully stated in Home State Bank v. Martin, 196 Iowa 1092, 1097, 195 N.W. 977. In the Novotny case the court concluded the note and attached receipt showed the note was to be paid by certain deductions and held the maker's liability should be limited accordingly.

II....