Walmer v. First Acceptance Co.

• Citation: 212 N.W. 638,192 Wis. 300
• Parties: WALMER v. FIRST ACCEPTANCE CO.
• Decision Date: 08 March 1927
• Court: Wisconsin Supreme Court

192 Wis. 300

212 N.W. 638

WALMER

v.FIRST ACCEPTANCE CO.

Supreme Court of Wisconsin.

March 8, 1927.

Appeal from Circuit Court, Milwaukee County; Otto H. Breidenbach, Judge.

Action by Floyd W. Walmer against the First Acceptance Company. From an order overruling the demurrer of defendant, defendant appeals. Order reversed.--[By Editorial Staff.]

The complaint recited, so far as material here, in substance, as follows: That the defendant corporation purchases notes and other obligations taken on the purchase of automobiles. That plaintiff had executed his promissory note and conditional sales contract transferred to the defendant's predecessor, which entered judgment in March, 1921, against plaintiff for some $1,500, upon which over $900 had been paid. That thereafter defendant succeeded to all the rights of the judgment creditor. That in the summer of 1921 the plaintiff, at the request of defendant's attorney in charge of the collection of said judgment, “signed, indorsed, and transferred to the defendant,” as collateral to secure the payment of said judgment, a promissory note dated March 1, 1921, signed by two residents of Monroe, Wis., for $1,200 (the date of its maturity is not alleged). That defendant failed, neglected, and refused to take any action or make any effort to collect the collateral note, either at maturity or thereafter. That at maturity, and for a long time thereafter, the makers of said note were solvent. That plaintiff demanded that defendant bring action on and enforce collection of such note or return the same to plaintiff, and that defendant refused to use reasonable diligence in the collection of said note. That the makers thereof are now insolvent, and, through such negligence and carelessness of defendant and defendant's attorney, the note has become uncollectible. That thereby plaintiff has sustained a loss and damage to the amount of said note with interest, for which sum judgment was demanded.

Defendant appeals from an order overruling its demurrer.Bloodgood, Kemper & Bloodgood, of Milwaukee (Eric Wm. Passmore, of Milwaukee, of counsel), for appellant.

Earl Rogers, of Whitewater (Thomas H. Dorr, of Milwaukee, of counsel), for respondent.

ESCHWEILER, J.

The complaint is silent as to whether or not the defendant, upon the maturity of the $1,200 note, took the proper and necessary steps, by way of presentment and demand on the makers and notice of default to the plaintiff, in order to make the plaintiff as indorser liable under the law of negotiable instruments.

Appellant contends that upon its demurrer the presumption should be indulged in that there was such due demand and notice of default because of what is claimed to be the general rule that, as to such, there must be specific allegations or specific denials in order to make such issuable facts. No contention to the contrary is made by respondent here and, whatever be the rule in that regard, a question not now determined, it is the evident desire of the parties to have that assumption made in disposing of the substantial question of law presented.

The question now presented, then, is whether or not one who in due and proper form indorses, transfers, and delivers to another a promissory note before maturity and as collateral security, can compel the pledgee thereof, at his own expense, to proceed to collect against the makers of such note after maturity, disregarding the indorser, and for default by defendant in so doing, followed by the maker's insolvency, a liability thereby arises against the pledgee indorsee to the full amount of such note.

[1] The general rule has been stated quite uniformly by the authorities that a pledgee is required, in the exercise of ordinary care, to take such action as is necessary to collect such note, and certainly it is to take such steps as presentment, demand, and notice in order to fix the liability of other parties thereto than the maker, and also that ordinarily negligence in collecting and subsequent insolvency of the parties make the pledgee liable (Dobie on Bailment, p. 220; Van Zile [2d Ed.] § 316; Elliott on Bailment, par. 56; 31 Cyc. 832; and 21 R. C. L. 667), and such general statements may be found in cases therein cited and in still later decisions (Guffey v. F. & M. State Bank [Tex. Civ. App.] 250 S. W. 301;Gray v. Hafale [Tex. Civ. App.] 273 S. W. 647;Robertson v. First N. B. of Jackson, 67 Colo. 517, 186 P. 542).

Where the security pledged involves other than negotiable instruments, such as in case of insurance policies or mortgages, real or chattel, there seems no dispute as to such being the rule. Charter Oak Life Ins. Co. v. Smith, 43 Wis. 329, 331;Scott v. First Nat. Bank, 5 Ind. T. 292, 82 S. W. 751, 68 L. R. A. 488.

[2] A distinction sometimes overlooked is noted between the note of a third person when taken as collateral security and when taken as a conditional payment on another obligation, and it is held that failure to present and give notice in the former case does not operate as pro tanto satisfaction of the principal obligation in Coleman v. Lewis, 183 Mass. 485, 67 N. E. 603, 68 L. R. A. 482, 97 Am. St. Rep. 450, with note of some cases contra.

Most of the decisions, however, upon which such a broad rule of liability of a pledgee of commercial paper is based, are of a comparatively early date. In most if not all of them the question is discussed or disposed of upon the general rules governing the respective duties and liabilities of pledgors and pledgees of personal property, and without apparent consideration of the precise relationship created by the indorsement, before maturity, of negotiable paper, under the provisions of the Negotiable Instruments Law. Neither has it been much discussed whether, under circumstances such as are disclosed by the complaint here, one like the plaintiff has not by his own actions placed himself in what might be deemed a dual capacity, namely: First, that of indorser in the usual and customary manner of commercial paper before maturity and in compliance with and under the provisions of the Negotiable Instruments Law; and secondly, as pledgee of personal property to secure the payment of his obligation.

[3] Under the language of the complaint, it must be assumed that the note in question being “signed, indorsed, and transferred,” there was a compliance with sections 116.36 (1676--1) and 116.37 (1676--2), St. 1925, making an entire and complete indorsement as distinguished from one with restrictions, qualifications, or conditions, as described in section 116.38 (1676--3) et seq. The scope of the contract made by such an indorsement is declared by section 116.71 (1677--6), and is expressed in Palmersheim v. Hertel, 179 Wis. 291, 295, 191 N. W. 567, which case is cited with others to the same effect in the recent case of Routier...