State Street Trust Co. v. MUSKOGEE ELECTRIC TR. CO.

• Decision Date: 15 June 1953
• Docket Number: No. 4547.,4547.
• Citation: 204 F.2d 920
• Parties: STATE STREET TRUST CO. v. MUSKOGEE ELECTRIC TRACTION CO. et al.
• Court: U.S. Court of Appeals — Tenth Circuit

204 F.2d 920 (1953)

STATE STREET TRUST CO. v. MUSKOGEE ELECTRIC TRACTION CO. et al.

No. 4547.

United States Court of Appeals Tenth Circuit.

May 15, 1953.

Rehearing Denied June 15, 1953.

C. A. Ambrister, Muskogee, Okl., and George B. Rowell, Boston, Mass., for appellant.

W. R. Banker, Muskogee, Okl. (A. Camp Bonds and Andrew Wilcoxen, Muskogee, Okl., on the brief), for appellees.

Before PHILLIPS, Chief Judge, and MURRAH and PICKETT, Circuit Judges.

MURRAH, Circuit Judge.

The sole question presented by this appeal is whether the intentional destruction of negotiable instruments by the holder, believing them to be valueless, works a cancellation and discharge of the debt evidenced thereby. The facts are not in dispute.

In October 1939, Florence K. Twombly was the owner of sixteen bonds of a series issued May 1, 1912, by the Muskogee Electric Traction Company. At that time the bonds had long since been in default of both principal and interest, and being advised by a representative of the State Street Trust Company that they were valueless, she burned them. Ten years later, while the Traction Company was in bankruptcy for reorganization, the trust officer for the State Street Trust Company learned that the bonds had some value, whereupon he wrote to the Traction Company advising them of the destruction of the bonds by Mrs. Twombly while under the impression they were worthless, and inquired what steps could be taken to put the bonds in line for payment. He was informed by the Trustee for the Traction Company that he did not know of any steps for presenting a claim for the lost or destroyed certificates. Under the confirmed plan of reorganization, the bonds of this series were exchangeable for the sum of $400.00 in cash and $600.00 in preferred stock upon their surrender to the designated depository. The Trust Company made application and demand for the payment of the bonds in accordance with the plan of reorganization, tendering to the designated depository an indemnity bond against wrongful payment. When the depository refused to exchange the bonds in the absence of an order of the court decreeing Mrs. Twombly to be the rightful owner, and directing payment to her, this suit was instituted to recover the value of the bonds under the plan of reorganization. Since the institution of the suit, the State Street Trust Company has been substituted as conservator of Florence Twombly's estate.

The trial court held that "when the plaintiff intentionally destroyed or burned the bonds in question, she thereby cancelled the debt created or represented by the instrument"; that "at least, a presumption of an intention to cancel the indebtedness arises from the intentional destruction of the instruments and the plaintiff did not sustain the burden of proof to overcome this presumption." This appeal is from a judgment for the Traction Company.

Conceding the uniform rule, applicable in Oklahoma, that a negotiable instrument is discharged "by the intentional cancellation thereof by the holder", 48 O.S.A. § 261, subd. 3, the appellant strenuously denies that the intentional physical destruction of the bonds in these circumstances worked a cancellation or discharge of the debt. It is said that to effect the discharge of the debt, the physical destruction of the negotiable instrument must be accompanied by an intention to forgive, and that the mere physical destruction of the bonds, believing them to be worthless, is no evidence of such intention.

It is undoubtedly true that there can be no discharge by cancellation without an intent to wipe out or nullify the obligation, for an unintentional or mistaken cancellation is inoperative. 48 O.S.A. § 265. But, it has been uniformly held that intentional destruction of a negotiable instrument is the highest evidence of an intention to discharge and cancel the debt represented thereby. Larkin v. Hardenbrook, 90 N.Y. 333, 43 Am.Rep. 176; 8 Am.Jur.Sec. 787, p. 442. Most, if not all, of the cases which sustain the discharge of the debt by physical destruction of the evidence, involve a gratuitous or beneficent renunciation, usually amounting to a gift. Norton v. Smith, 130 Me. 58, 153 A. 886; Darland v. Taylor, 52 Iowa 503, 3 N.W. 510; Wilkins v. Skoglund, 127 Neb. 589, 256 N.W. 31; McDonald v. Loomis, 233 Mich. 174, 206 N.W. 348; Sullivan v. Shea, 32 Cal.App. 369, 162 P. 925; Henson v. Henson, 151 Tenn. 137, 268 S.W. 378, 37 A.L.R. 1131.

But, discharge by intentional cancellation under Section 261, Title 48 O.S.A., need not rise to the dignity or meet the requirements of an unconditional renunciation under Section 264. See Wilkins v. Skoglund, supra. In determining whether there has been an intentional cancellation, "The purpose or intent of the holder beyond intent to destroy his evidence of indebtedness is immaterial." This rule is derived from the concept that the intentional destruction of a note or other security destroys the rights of action upon it. McDonald v. Loomis, supra. To hold that an intentional destruction does not work a discharge in the absence of a gratuitous or beneficent motive would greatly weaken, if not nullify, the explicit words of the statute.

Clearly, by the intentional destruction of the bonds, Mrs. Twombly did not thereby intend to forgive the obligation in the sense of conferring a gratuity or bounty upon the Traction Company. Her intentional destruction of these bonds was nevertheless the highest evidence of her intention to forgive the obligation, at least in the sense of forgetting it or wiping it out.

This evidence can be overcome by showing to the satisfaction of the trier of the facts that the bonds were destroyed unintentionally or under mistake within the meaning of Section 265. The court held, and there can be no doubt, that Mrs. Twombly actually intended to burn these particular bonds. The appellant earnestly contends, however, that the destruction of the bonds was a mistake within the meaning of the statute and therefore inoperative.

Taken in its ordinary accepted meaning, and given its full legal significance, mistake means some unintentional act, omission or error arising from ignorance, surprise, imposition or misplaced confidence. 27 Words & Phrases, page 365. And, as used in Section 265, it may be one of law as well as fact. Fitzgerald v. Nelson, 159 Or. 264, 79 P.2d 254; Gleason v. Brown, 129 Wash. 196, 224 P. 930; In re Philpott's Estate, 169 Iowa 555, 151 N.W. 825. But in either event, the burden of proof lies with the party relying upon mistake to avoid cancellation. Section 265. Clarendon County, S.C. v. Curtis, 4 Cir., 46 F.2d 888; Morris v. Reyman, 55 Ind. App. 112, 103 N.E. 423; Drake Lumber Co. v. Semple, 100 Fla. 1757, 130 So. 577, 75 A. L.R. 687.

There is no contention that the destruction was induced in any way by the maker or its agent. They were admittedly destroyed upon the advice of the holder's financial agent, appellant here. The appellant's only claim to excusable mistake is that she destroyed the bonds under the mistaken belief that they were worthless. There is no evidence even tending to show that Mrs. Twombly was mistaken,...