South Bend Iron Works v. Paddock

• Decision Date: 05 November 1887
• Parties: THE SOUTH BEND IRON WORKS v. A. W. PADDOCK, et al
• Court: Kansas Supreme Court

15 P. 574

37 Kan. 510

THE SOUTH BEND IRON WORKS v. A. W. PADDOCK, et al

Supreme Court of Kansas

November 5, 1887

Error from Marion District Court.

THE note, the subject of this action, was given by Joseph Sylvester to the firm of Lockwood, Paddock & Co., and was transferred without indorsement by said firm to the firm of W. C. Lockwood & Co. Afterward, and while the note was the property of W. C. Lockwood & Co., and while both firms were in existence, W. C. Lockwood & Co. wrote the name of Lockwood, Paddock & Co. across the back of said note. This was done without the knowledge or consent of Lockwood, Paddock & Co. Said indorsement was made by said W. C. Lockwood for the purpose of placing said note with other notes in the First National Bank of Marion as collateral security for a loan which W. C. Lockwood & Co. were endeavoring to secure through said bank. The loan was not made, and the notes were returned to the possession of W C. Lockwood & Co. Afterward this note was turned over to the plaintiff, South Bend Iron Works, as collateral security for a debt owing by W. C. Lockwood & Co. to the plaintiff. At the time of the transfer of the note to the plaintiff by W. C. Lockwood & Co., the firm of Lockwood Paddock & Co. had been dissolved. Said firm was composed of W. C. Lockwood, Henry Seibert, A. W. Paddock, and H. P Paddock. The firm of W. C. Lockwood & Co. was composed of W. C. Lockwood and Henry Seibert. Sylvester made default, and judgment was rendered against him on said note in favor of the plaintiff. The defendants, Paddock & Paddock, denied the indorsement of the firm-name of Lockwood, Paddock &amp Co., under oath. Trial by jury, at the November Term, 1885, and judgment for the defendants. The plaintiff brings the case here.

Judgment affirmed.

L. F. Keller, for plaintiff in error.

J. S. Dean, for defendants in error.

CLOGSTON C. All the Justices concurring.

OPINION

CLOGSTON, C.:

The first question to be determined is, whether the note sued on was a negotiable promissory note. It reads as follows:

"$ 141.34.

HILLSBORO, KANSAS, Nov. 20, 1884.

"Six months after date, I promise to pay to the order of Lockwood, Paddock & Co. one hundred and forty-one and 34/100 dollars, at the office of Lockwood, Paddock & Co., Hillsboro, Kansas, with interest at ten per cent. per annum until due; and if not paid at maturity, to draw 12 per cent. on the amount then due. The conditions of this sale of book accounts for which this note is given, are such that the title and ownership or right of possession does not pass from the said Lockwood, Paddock & Co. until this note and interest is paid in full. The said Lockwood, Paddock & Co. have full power to declare this note due, and take possession of said at any time they may deem themselves insecure, even before the maturity of the note; and if said Lockwood, Paddock & Co. from any cause retake into their own possession the property for which this note is given, then it is expressly agreed that the makers and indorsers of this note shall pay to the said Lockwood, Paddock & Co., a sum of money equal to the difference in value of said property at the time of its sale, and the time of its return to the said Lockwood, Paddock & Co.

JOSEPH SYLVESTER."

The court held that this note is a non-negotiable note. We think this ruling is correct, and comes directly within the rule laid down in Killam v. Schoeps, 26 Kan. 310. At the trial below the defendants were permitted, over the objection of the plaintiff, to show that at the time of the dissolution of the firm of Lockwood, Paddock & Co. there was an oral agreement between said firms of Lockwood, Paddock & Co. and W. C. Lockwood & Co. that on all the notes turned over by the former to the latter, the defendants A. W. and H. P. Paddock were not to be held liable; and that on the notes and accounts retained by A. W. and H. P. Paddock at said dissolution, said Lockwood, Paddock & Co. were not to be responsible. At the time of this agreement the note in question was the property of W. C. Lockwood & Co. Plaintiff insists that the ruling of the court was erroneous, for the reason that it received this note before maturity from W. C. Lockwood & Co., without notice of this agreement, and that the note when so received bore the indorsement of Lockwood, Paddock & Co. At the time plaintiff received this note, the firm of Lockwood, Paddock & Co. had been dissolved, and of this dissolution the plaintiff must take knowledge. Plaintiff then had knowledge that the firm that purported to have indorsed this note was out of existence. This was notice sufficient to put plaintiff upon inquiry.

The law presumes that the indorsement made upon this note was made at the time it was delivered to the plaintiff, and it stood in no better position than W. C. Lockwood & Co., but took the note subject to whatever notice or knowledge W. C. Lockwood & Co. had in regard to it. Daniel, in his work on Negotiable Instruments, § 371, says:

"As a note takes effect by delivery, it has been held that a note signed in the partnership name before the dissolution, and delivered to the payee after the dissolution, without the consent of other members of the firm, would not bind them. And in like manner, if the paper was indorsed before dissolution of the firm and not...