The Elmo State Bank v. Hildebrand
| Decision Date | 09 November 1918 |
| Docket Number | 21,663 |
| Parties | THE ELMO STATE BANK, Appellee, v. C. M. HILDEBRAND, Appellant, et al |
| Court | Kansas Supreme Court |
Decided July, 1918.
Appeal from Shawnee district court, division No. 1; ALSTON W. DANA judge.
Judgment affirmed.
SYLLABUS BY THE COURT.
1. PROMISSORY NOTE--Failure of Consideration--Evidence. In an action on a promissory note given in payment of insurance policies, where the defense is failure of consideration because the insurance company was insolvent when the policies were issued, held, on the facts stated in the opinion, that the admission of certain testimony was not prejudicial error.
2. SAME--Holder in Due Course--Set-off as between Maker and Payee. The purchaser of a promissory note is not prevented from being a holder in due course by the knowledge of the fact that, as between the maker and the payee, there may, before the note matures, arise a set-off or counterclaim in favor of the maker.
3. SAME -- Violation of Statute -- No Defense to Promissory Note. The fact that a bank has violated the provisions of the statute prohibiting it from lending to one person or corporation more than fifteen per cent of its capital stock and surplus is not a defense available to one who is sued by the bank upon a promissory note.
4. SAME--Finding of Good Faith of Holder--Sustained by Evidence. A bank purchased farmers' notes before maturity, which it knew were given in payment of premiums on policies of insurance, and that in case of loss under the policies the makers would have a set-off or counterclaim against the notes. The insurance company was insolvent when the notes were executed. Held, on the facts stated in the opinion, there was sufficient evidence to support a finding that the bank purchased without notice of any infirmity in the notes.
S. M. Hutzel, of Wakeeney, Lee Monroe, James A. McClure, and C. M. Monroe, all of Topeka, for the appellants.
Edwin Anderson, of Council Grove, and Frans E. Lindquist, of Kansas City, Mo., for the appellee.
OPINION
The bank recovered judgment against C. M. Hildebrand on a promissory note, and he appeals.
Hildebrand gave his note for $ 367.50 in payment of premiums for policies of insurance issued by the Topeka Mutual Live Stock Insurance Company upon live stock owned by him. He claims that there was no consideration for the note, and that the bank was not a purchaser in good faith. On September 9, 1915, at the time the policies were issued, the Topeka Mutual Live Stock Insurance Company was insolvent. The losses under Hildebrand's policies amounted to $ 205, for which he never received anything. The state insurance department made an investigation of the company in February, 1915, and each month thereafter; and the reports on file in the office of the superintendent show that at no time after February, 1915, was the company solvent, and that its liabilities were $ 64,000, its assets practically nothing. Notwithstanding the insolvent condition of the company, it was permitted to do business until December, 1915, when an action was brought by the state and the company placed in the hands of a receiver.
J. H. White, who organized the company, was its president, and also president of the White Insurance Agency, which appears to have been a trade name under which the insurance company transferred its premium notes. The day following the issuance of the policies the note in question was indorsed by the insurance company to the White agency, and transferred the next day by that agency to the bank. At the same time seventy other premium notes, given by various farmers throughout the western part of the state, were transferred to the bank; thirty-five of these aggregated $ 1,962.56, and thirty-six aggregated $ 2,001.97. The vice-president of the insurance company negotiated the delivery of the notes to the bank, and at the same time gave the bank two notes signed by the White Insurance Agency, one for $ 1,962.56, and the other for $ 2,001.97, receiving from the bank certificates of deposit for like amounts. The bank claimed to hold the two notes of the insurance agency, indorsed by the insurance company, as collateral to the seventy-one farmers' or premium notes. The latter, as well as the two large notes, bore 10 per cent interest; the certificates of deposit which the bank gave in exchange for the notes bore 3 per cent interest. The bank had been in the business of purchasing the insurance company's premium notes in the same manner, and had already issued certificates of deposit to the amount of over $ 4,000, in exchange for notes, which, together with those issued at the time the Hildebrand note was purchased, amounted to over $ 8,000; and this was 44 per cent of the bank's capital stock and surplus. The cashier testified that she knew the bank was permitted to loan upon the security of any one person or corporation no more than fifteen percent of the bank's capital stock and surplus, and knew the Hildebrand note represented the payment of premiums on live stock, and understood that if a loss occurred the maker would have a claim against the insurance company as a set-off against the note, if held by the insurance company, and knew also that there would probably be losses under the policies.
In answer to special questions, the jury found that the bank acted in good faith and without knowledge of any infirmity in the paper.
The contentions of the appellant are, first, that there was error in the admission of testimony; second, that the court should have directed a verdict; third, that the court erred in refusing to give certain instructions.
The bank was permitted to introduce a letter written by Clay Hamilton, receiver of the insurance company, to Hildebrand dated March 22, 1916. The letter was an apology for a former one asking Hildebrand to pay a note which Hamilton found among the papers of the insurance company, and which, it seems, was given in renewal of the first premium note. The letter stated that the receiver, not knowing the earlier history of the transactions, assumed the original note had been surrendered to Hildebrand, and that there was due the company the amount stated in the first letter; but informed him that he would not be called upon to make any payment on that note. The portion of the letter objected to was the statement that the receiver, after making...
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