The Farmers State Bank v. Miller

• Decision Date: 05 December 1927
• Parties: THE FARMERS STATE BANK, RESPONDENT, v. G. L. MILLER, APPELLANT. [*]
• Court: Kansas Court of Appeals

300 S.W. 834

222 Mo.App. 633

THE FARMERS STATE BANK, RESPONDENT, v. G. L. MILLER, APPELLANT. ^[*]

Court of Appeals of Missouri, Kansas City

December 5, 1927

Appeal from the Circuit Court of Platte County.--Hon. Guy B. Park Judge.

Judgment affirmed.

James H. Hull and Harding, Murphy & Tucker for appellant.

Terrence Riley for respondent.

FRANK C. Williams, C., concurs. Trimble, P. J., absent.

OPINION

FRANK, C.

This is a suit upon a promissory note. The verdict in the trial court was for defendant. On motion of plaintiff, a new trial was granted and defendant appealed.

The note reads as follows:

"$ 1500.00

Kansas City, Missouri, May 23, 1921

"One year after date I promise to pay to the order of Robert Mitchell Co. Exactly Fifteen Hundred Dollars . . . Dollars. For value received with interest from date at the rate of 8 per cent per annum. Interest payable.

"G. L. MILLER."

The following indorsement appears on the back of the note.

"Robert S. Mitchell Co., by Paul L. Mitchell."

The petition, after alleging the corporate existence of plaintiff bank and the execution of the note, pleads that before the maturity of said note the payee, Robert S. Mitchell Company, endorsed the same in writing across the back thereof, and delivered it to plaintiff for value, whereby plaintiff became the owner of said note. The answer admits the incorporation of plaintiff bank and the execution of the note, then denies generally all other allegations in the petition. The answer also pleads the following affirmative defenses: (1) that the note sued on was given to the payee for fifteen shares of preferred and fifteen shares of common stock in E. J. Hunter Company, a corporation and that the consideration of said note failed for the reason that defendant never received the stock or which said note was executed; (2) that there was an agreement between defendant and E. J. Hunter Company (through Paul Mitchell, its authorized representative) by virtue of the non-performance of which, on E. J. Hunter Company's part, the note is void; (3) that plaintiff never purchased said note or gave anything of value therefor, but obtained possession of same with full knowledge of said agreement between defendant and said E. J. Hunter Company and with full knowledge that no consideration passed to defendant for the execution of said note at the time or since the execution thereof; (4) that said stock was worthless and defendant relying on the false and fraudulent representations of said Paul Mitchell was induced to and did execute said note.

Defendant Miller's testimony is to the effect that on May 23, 1921, one Paul Mitchell approached him and represented that he, Mitchell, was the agent of E. J. Hunter Company, a corporation; that he represented to defendant that said corporation owned rich and valuable gold mines and solicited defendant to purchase stock in said corporation; that relying upon the representation made by said Mitchell, defendant purchased fifteen shares of common and fifteen shares of preferred stock in said corporation and executed the note in suit in payment of the purchase price of said stock; that prior to and contemporaneous with the execution of said note it was orally agreed between the defendant and E. J. Hunter Company, through its agent, Mitchell, that within six months from the date of said note said E. J. Hunter Company would pay defendant $ 1500 for the fifteen shares of common stock and that defendant was to use said $ 1500 so received to pay off and discharge the note in suit and that neither said E. J. Hunter Company nor the Robert Mitchell Company, payee in said note, would ever demand payment of any other or further sum from defendant but would deliver to defendant the note in suit marked paid in full and satisfied; that after the execution and delivery of the note Mitchell told defendant that he would mail to him the certificates representing the shares of stock for which said note was given; that defendant never received said stock or any other consideration for said note.

Before the organization of plaintiff bank the Platte County State Bank, a banking corporation was conducting a banking business in Ferrelview, Platte county, Missouri. On July 5, 1921, Paul S. Mitchell executed his promissory note in the sum of $ 1500 payable to the Platte County State Bank. Some time after Mitchell acquired the note in suit from defendant, he pledged it to Platte County State Bank as collateral to secure the payment of the $ 1500 note that he, Mitchell, had executed to said bank on July 5, 1921. At the time of this pledge, there was $ 500 due on the $ 1500 Mitchell note.

In October, 1921, the Platte County State Bank was indebted in the sum of $ 35,000 for money borrowed from other banks, which it was unable to pay. Notes to the amount of $ 35,000 were taken out of the bank and delivered to the directors and they in turn placed the sum of $ 35,000 in cash to the credit of the bank which was used to pay said indebtedness. The Mitchell note was among the notes delivered to the directors. On October 22, 1921, the plaintiff bank was organized and took over all the assets of the Platte County State Bank and assumed the payment of its deposits. This transfer was approved by the Commissioner of Finance. The directors of the old bank executed to plaintiff bank a bond in the sum of $ 32,000 to guarantee it against loss by reason of the assumptions of said deposits and by separate written assignment pledged the notes, amounting to $ 35,000 which had been theretofore taken out of the old bank, as collateral to guarantee the payment of said bond. Defendant testified that before plaintiff acquired the note in suit, he notified the directors of the old bank, who also became directors of plaintiff bank, not to buy the note; that he never received any consideration for it; that it was procured by false and fraudulent representations and that he did not intend to pay it. The directors denied receiving such notice from defendant and each testified that they had no talk with defendant about the note until after the old bank acquired it and after it had been assigned to the plaintiff.

Appellant contends that respondent accepted the note as collateral security for a pre-existing debt and for this reason was not a holder for value. This contention involved the construction of sections 812 and 838 of the Negotiable Instrument Law, Revised Statutes 1919. Said sections read as follows:

"Sec. 812: Valued is any consideration sufficient to support a simple contract. An antecedent or pre-existing debt constitutes value, and is deemed such, whether the instrument is payable or demand or at a future time.

"Sec. 838: A holder in due course is a holder who has taken the instrument under the following conditions: (1) that it is complete and regular upon its face; (2) that he became the holder of it before it was overdue and without notice that it had been previously dishonored, if such was the fact; (3) that he took it in good faith and for value; (4) that at the time it was negotiated to him he had no notice of any infirmity in the instrument or defect in the title of the person negotiating."

Plaintiff's evidence tends to show that the note in suit was complete and regular upon its face and was transferred to the Platte County State Bank by Paul Mitchell, before maturity and without notice to said bank of any infirmity therein or defect in the title of said Mitchell. Later, the directors of said Platte County State Bank acquired title to said note in the manner heretofore stated and before maturity of said note, assigned and transferred it to plaintiff as collateral security to a $ 32,000 bond which the directors of the Platte County State Bank had theretofore executed to plaintiff for the purposes heretofore stated. At the time the note was transferred to plaintiff, it had no notice of any infirmities in said note or of any defect in the title of the directors of the old bank, who transferred the note to plaintiff. The evidence of plaintiff and defendant relative to the facts attending plaintiff's acquisition of the note being conflicting, the question of whether or not plaintiff acquired the note before maturity, without notice of any infirmity therein or defect in the title of the persons negotiating same, was one of the facts to be determined by the jury.

It is conceded by both parties that plaintiff holds the note as collateral security for a pre-existing debt. The weight of authority is that such holding constitutes plaintiff a holder for value. In Bank v. Railroad, 172 Mo.App. 662, 675, the court said:--

"Each note was complete and regular upon its face, and plaintiff became the holder thereof before maturity. Under our Negotiable Instrument Law, an existing antecedent debt affords sufficient consideration to make one accepting a negotiable instrument, before maturity, as collateral security for such pre-existing debt, a holder for value. [Rev. Stat., sections 9996 and 9998; National Bank of Commerce v. Morris, 156 Mo.App. 43, 135 S.W. 1008.] The contrary doctrine which formally obtained in this State (see Loewen v. Forsee, 137 Mo. 29, 38 S.W. 712; Johnson v. Grayson, 230 Mo. 380, 130 S.W. 673) has been abrogated by the enactment of the Negotiable Instrument Act. Therefore, in the instant case, plaintiff in taking the note as a collateral security for a pre-existing debt became a holder thereof for value."

To the same effect: Bank v. Morris, 156 Mo.App. 43, 135 S.W. 1008; Bank of Columbia v. Lyda, 191 S.W. 245; Thomas v. Goodrum, 231 S.W. 571; 8 C. J., page 488 sec. 703. We have examined the cases cited by appellant from both the Supreme and appellate courts of this State, announcing a contrary doctrine and find that in each...