Swope v. Leffingwell

• Decision Date: 31 October 1880
• Citation: 72 Mo. 348
• Parties: SWOPE v. LEFFINGWELL et al., Appellants.
• Court: Missouri Supreme Court

72 Mo. 348

SWOPE

v.LEFFINGWELL et al., Appellants.

Supreme Court of Missouri.

October Term, 1880.

Appeal from St. Louis Court of Appeals.

REVERSED.

Noble & Orrick for appellants.

We claim most confidently that the record discloses clearly, that the first note discounted by the Atlas Bank, was the note of Bowen alone, and was not indorsed by Honoré; that there was no loan to Honoré in fact, form or intention; and that neither the Atlas Bank nor Mr. Doane, its agent, had any notice that Honoré was under any personal liability to pay the Swope notes; and the bank did not, in fact, pay the Swope notes, but purchased them.

To constitute payment something valuable must be delivered by the debtor to the creditor for the purpose of extinguishing the debt, and the creditor must receive it for same purpose. Pacific Bank v. Mitchell, 9 Met. 297; Byles on Bills, 175; Burr v. Smith, 21 Barb. 262; Chitty on Bills, 392; Dodge v. Freedman's S. & T. Co., 93 U. S. 379; Harbeck v. Vanderbilt, 20 N. Y. 395; Thompson v. Kellogg, 23 Mo. 284; Howard v. Jones, 33 Mo. 583; Appleton v. Kennon, 19 Mo. 637.

There is another thread to be considered, that, at the time of these transactions, one of the Swope notes, involved, was not due. It was a note to the amount of some $11,000 or $12,000. It was negotiable paper, and passed before its maturity into the custody of the Atlas Bank for a valuable consideration. It was unaffected by any equities, and whatever conclusion, by any possibility, may be reached as to the two matured notes, cannot affect this one unmatured. The one note unmatured would be unaffected, for Honoré had made no agreement in fact with any one to pay it before maturity, and so no notice of any such agreement could possibly have come to the Atlas Bank. Moreover, the existence of this note thus unmatured is a most prominent fact to prove there was no payment or intended payment. It would have been indeed strange had Honoré, who was unable to meet two notes matured, intended not only to pay these but the third unmatured one also; and that the bank should have loaned him the money to do this, and he should have cleaned off so very promptly this land, upon which were resting subsequent mortgages securing his (Honoré's) own paper to the amount of some $36,000.

The security in the hands of the bank was available against the property, even if in form paid, under the circumstances of this case. Wolff v. Walter, 56 Mo. 292; White v. Knapp, 8 Paige 173; Hoy v. Bramhall, 19 N. J. Eq. 567; Peltz v. Clark, 3 Pet. 482.

E. B. Sherzer and Glover & Shepley for respondent.

If it be admitted that the insurance company intended a sale, still that would not make the transaction a sale; for it would be a sale to Honoré, a party bound to pay the note. It would be not a sale, but a legal satisfaction and payment. The company, however, did not intend a sale, but a payment, as the letters and contemporaneous memoranda show. It knew that Honoré had assumed the payment of the Swope notes.

The notes were delivered to Honoré or to his use. They were attached to a draft drawn upon him as the debtor bound in law to pay them. The draft was in the full amount, of the notes which were attached to it. By paying the draft he became entitled to the notes. As soon as he paid the draft, which was the consideration represented by the notes, the notes vested in him. As soon as they vested in him, they were paid as to this plaintiff. He could not sue on them if he retained them. And certainly his assignee, with knowledge of payment, could not have any greater right than he had.

As soon as the consideration of the delivery of the notes was paid--that is, the draft, the title passed to Honoré and as against Swope it was extinguished. This was Swope's equity against Honoré and Honoré's transferee. Schnake v. Kellogg, 56 Mo. 136; 1 Daniel on Negot. Instr., 539; Story Promissory Notes, (6 Ed.) 205, 206; McCabe v. Swap, 14 Allen 188; Strong v. Converse, 8 Allen 559; Brown v. Lapham, 3 Cush. 554; Putnam v. Collamore, 120 Mass. 454; Carlton v. Jackson, 121 Mass. 592; Russell v. Pistor, 7 N. Y. 171; Smith's Merc. Law, 318; Wolff v. Walter, 56 Mo. 292.

The cashier of the Atlas Bank testifies that the Bowen-Honoré note was discounted, and the proceeds of discount took up or paid the draft. If this be true--and there can be no doubt thereof--then the money was loaned upon the Bowen-Honoré note, and the Swope notes were pledged by Honoré and Bowen as collateral security, after they had been taken up by the proceeds of the discount. A discount, however, in banking “ ex vi termini,” imports and implies a loan. Farmers' etc., Bank v. Baldwin, 4 Cent. Law Jour. 119; Niagara Co. Bank v. Baker, 15 Ohio St. 69; Fleckner v. Bank, 8 Wheat. 338. And the fact that the notes were held as collaterals is itself conclusive of a loan. Who was the borrower? Certainly not the insurance company. Honoré and Bowen were the borrowers of the money paid on the discount.

The fact that the Swope notes were pledged as security of the Bowen-Honoré note, and were purchased at a sale under a power in a paper to which they were collateral, is conclusive of two things: 1st. That the Atlas Bank did not take title from the insurance company as purchaser. Its title is declared in the Bowen-Honoré note. The idea of a purchase by the bank from the insurance company, is excluded by the import of the Bowen-Honoré note discounted by them without respect to the question whether the Swope notes so pledged came from Bowen or from Honoré. In either case the bank is not a buyer. It is also conclusive of the fact that the title to the notes, whether pledged to the bank by Honoré or by Bowen, had to come from and through Honoré.

There is but one construction to be placed upon the testimony, as contained in the contemporaneous correspondence of the parties. Throughout, it speaks of payment, not sale.

The notes were acquired by the Atlas Bank as a pledge for a loan after two of them were due. They were, therefore, subject to the equities relating to them now claimed by plaintiff.

The question in this case also involves the equities relating to a mortgage. When the notes were pledged to the Atlas Bank, two of them were dishonored paper. The deed of trust was also a broken and dishonored security. There has been two advertisements under it.

Doane, agent of the bank, had knowledge of Honoré's relation to the notes, as debtor, having assumed them Doane had knowledge of the equity to which the notes were subject, whether due or not due, and the bank is bound by this knowledge. The bank itself had knowledge of Honoré's relation to the notes as debtor.

HENRY, J.

On the 25th day of May, 1872, Logan O. Swope was the owner of block 24 of Peter Lindell's second addition to the city of St. Louis, incumbered by a deed of trust, by which said block was conveyed to Leffingwell to secure three promissory notes executed by said Swope to Robert C. Gordon, in the aggregate for the sum of $35,839.95. Each of said notes was dated December 26th, 1871; one for $12,586.65, payable December 26th, 1872, one for $11,946.65, payable December 26th, 1873, and the other for $11,336.65, payable December 26th, 1874. On said 25th day of May, 1872, Swope sold and conveyed the said block to Henry H. Honoré for $80,000, subject to said trust deed to Leffingwell, and, by another agreement in writing of that date, Honoré obligated himself to Swope to pay off said notes secured by the deed of trust from Swope to Leffingwell. Honoré on the 27th day of May, 1872, executed a deed of trust to Ed. B. Sherzer, conveying said block to him in trust to secure two notes executed by said Honoré to Andrew McKinley, one for $10,040, the other for $4,000, dated 27th day of May, 1872, and payable three years after their date, and one for $3,000 to Logan O. Swope of same date, and payable three years after its date. This deed of trust from Honoré was, by its terms, subject to two prior deeds of trust made by Honoré, one to Edwin Sherzer, dated May 25th, 1872, to secure a note of that date for $18,500, payable to Swope, three years after its date; the other deed of same date to same trustee, to secure a note of that date for $11,500, payable to Andrew McKinley, one year after its date, who subsequently assigned it to C. T. Bowen.

The notes of Swope to Gordon, by assignment, became the property of the St. Louis Life Insurance Company. When the first two became due the holder caused the property to be advertised for sale under the deed of trust, but Honoré interposed, and, by paying expenses and interest, induced the holder to suspend proceedings, that he might get some one to purchase the notes who would not force a sale of the property. Honoré then opened negotiations with John W. Doane, of Chicago, who was acting as agent of the Atlas National Bank, of Boston, in purchasing commercial and other paper. Doane at first declined to purchase the Swope notes, because he had instructions from the Atlas Bank to buy no paper running more than four months. It was finally arranged between them that Honoré was to get C. T. Bowen to execute his note for the aggregate amount of the Swope notes, payable three months after its date, for discount by the Atlas National Bank, and the Swope notes to be held by Doane as collateral security for its payment. This note of Bowen was dated in July, and fell due October 19th, 1874, before the maturity of the last of the three Swope notes. A. M. Britton, vice-president of the St. Louis Life Insurance Company, agreed with Honoré that the Swope notes and the deed of trust should be sent to New York with a view to the consummation of the arrangement with Doane, and through the National Bank of the State of Missouri the notes and deed of trust, with a draft on Honoré for the aggregate of the three notes, were sent to the Bank of Commerce, New York. The notes were indorsed “without recourse in law or equity, W. J. Lewis, President,” as agreed by Britton and...