Bank of Kansas City v. Mills , 24 Kan. 604 ( 1880 )

The opinion of the' court was delivered by

Horton, C. J.:

A preliminary question, is presented by the defendant in error, Mary E. Mills, challenging the record by a motion to eliminate from the consideration of this court the bill of exceptions. It is alleged and proved that the original bill contained none of the pleadings, motions, affidavits or other papers now inserted in the copy of the transcript attached to the petition in error, and that the bill, when allowed and signed, was what is familiarly known as a “skeleton bill.” The court below appears to have recognized the right to interplead, but treated the motion in the nature of a demurrer, and sustained it on the ground that the facts stated in the interplea were not sufficient to entitle -the interpleader to any relief in the action. Now the office of a bill of exceptions is to bring upon the record only proceedings which do not of right and of course go upon the record; the petition, interplea, motion and journal entries are a part of the record, independent of any bill of exceptions; and as the clerk of the^ district court has certified to us that the transcript contains all the pleadings, orders and entries of record in the case, and as we are only called upon ■to review the order of the court upon the motion or demurrer to the interplea, the omission of the affidavits, and all ■other matters not of right of record from the “skeleton bill,” •does not prevent our considering the ruling of the court.

From the allegations in the interplea, admitted to be true, it is conclusively shown that on the 23d of June, 1879, F. W. Frasius, one of the defendants, under the firm-name of Frasius & Withaup, drew a sight draft for $353.45 in favor"' ■of Mary E. Mills, on Wm. Young & Co., of Chicago; thereafter, Mrs. Mills sold and indorsed said draft (without recourse) to one F. A. Farnham. Before said draft was presented for payment, Farnham, for value received, indorsed and delivered the same to the Bank of Kansas City. On the 27th of June, 1879, the Bank of Kansas City caused the draft to be duly presented to Wm. Young & Co. for payment, which was refused, and whereupon the draft was duly and legally protested, and notice of the presentation and nonpayment given to F. W. Frasius. Thereafter, the Bank of Kansas City returned the draft to J. A. Farnham, from whom it had received it, for collection against the drawers.' After, the receipt of the draft, Farnham attempted fraudulently to convert the same to his own use without the knowledge or ■consent of the Bank of Kansas City; and by falsely representing to F. W. Frasius that he was the owner of the draft, procured him to execute and deliver to Mrs. Mills the notes and mortgage sued upon by her in this case, Farnham at the time being indebted to Mrs. Mills. The said notes of Fra■sius so procured were then turned over to Mrs. Mills, in satisfaction of the debt due her from Farnham. At the time of this transaction, Frasius & Withaup were not indebted to Farnham, and the notes and mortgage were executed and delivered solely for the purpose of discharging the liability of Frasius & Withaup, as drawers of the draft in favor of Mrs. Mills on Wm. Young & Co., under the false and fraudulent representation of Farnham, that he was the owner of said draft; Farnham was insolvent, and unable to pay his debts when the notes were executed to Mrs. Mills. No part of said draft of $353.45 has been paid to the Bank of Kansas City.

As Farnham was an indorser of the draft, and was in the possession thereof when he presented it to the drawers for payment, and as the drawers had no notice to the contrary, F. W. Frasius had the legal right to regard him as the bona fide holder and proprietor thereof, and to pay or settle with him upon any terms mutually satisfactory. This, upon the principle that the possession of a draft by any subsequent indorser is prima faeie evidence that he is the true and lawful owner thereof, and that he has re-acquired the full title, and being the ostensible owner as to the drawers, and all persons liable on the bill prior to his indorsement, such indorser has the right to settle the claim upon such terms as he and the drawer, or other prior indorser (liable in the bill), may agree upon, (Story on Notes, §452; Dugan v. United States, 3 Wheat. 172; 2 Daniel on Neg. Inst., §1229.) Therefore, F. W. Frasius, acting for the firm of Frasius & Withaup, and dealing with Farnham in good faith, cannot be held liable to the bank for the fraud of Farnham, or responsible in any way for his acts. The drawers are therefore no longer liable on the draft. If they had been notified, prior to the execution of the notes and mortgage to Mary E. Mills, that Farnham held the draft for collection only as the agent of the bank, then they could have discharged their liability on the draft only by the payment of money, as an agent authorized to collect a draft, in the absence of special authority, can receive in absolute payment thereof nothing but that which the law declares to be a legal tender, or which by common consent is considered and treated as money, and passes at par. (Ward v. Smith, 7 Wall. 452; Herriman v. Shomon, ante, p. 387; 2 Daniel on Neg. Inst., § 1245.)

Mary E. Mills occupies a different position. After she had transferred the draft, under the name of Mrs. Fred. Mills, by indorsement, without recourse, she was not liable thereon. After such transfer of all her title, and after she had relieved herself of all liability on such draft, she obtained the notes and mortgage at the procurement of Farnham, to pay the individual debt of Farnham to herself. Frasius & Withaup owed her nothing; the Bank of Kansas City owed her nothing; her debt was solely against Farnham. He held the draft only as agent of the bank; and while the drawers, by commercial usage, had the legal right to treat Farnham as the owner, and settle with him accordingly, Mrs. Mills had no legal right to take the proceeds of the draft, or the notes and mortgage executed to her virtually as the proceeds or fruits of the draft, to apply on Farnham’s debt, as such property belonged to the bank, and not to Farnham. He could have used any other personal property of the bank in his possession as agent, as lawfully in payment of his debt, as the draft, or the notes given in payment of it.

Counsel for defendant in error argue that as Mrs. Mills was not a guilty party to the fraudulent conduct of Farnham, and as it does not appear in the interplea that she had notice of his fraudulent acts prior to the execution of the notes and mortgage, she ought to recover thereon. The good faith of Mrs. Mills does not concern the controversy. She had no legal right to obtain the property of a principal, in the possession of the agent, to discharge a personal debt of the agent, without consent of the principal, however innocently she may have acted in the transaction. She may be innocent in fact, but not in law. When property has been applied thus wrongfully by the agent, the creditor cannot retain it if the principal pursues his proper remedy to recover it. Again, Mrs. Mills suffers no injustice by the enforcement of this well-recognized doctrine. She will .fail, as she ought, to recover her debt from Farnham out of the property of the bank; but- she has not lost her claim against Farnham, which has in fact never been paid. It still exists. Furthermore, the delay growing out of her accepting, innocently, the notes and mortgage upon her claim has not greatly prejudiced its collection, as the allegations of the interplea show Farnham was insolvent at the' time of the procurement of the notes and mortgage.

The bank is entitled to have the notes and mortgage or their proceeds turned over to it, and the interplea ought' not to have been stricken from the files.

The order and judgment of the district court will be reversed.

All the Justices concurring.