National Bank of Commerce v. Kenney , 98 Tex. 293 ( 1904 )

This suit was brought by the plaintiff in error against J.H. Kenney, P.W. Kenney and J.W. Lambert as makers of a promissory note and to enforce a chattel mortgage upon a stock of cattle, which was executed by J.H. Kenney to secure the note. We speak of P.W. Kenney and J.W. Lambert as makers, though they merely indorsed the note before delivery. As such indorsers they are makers under our law. Latham v. Houston Flour Mills, 68 Tex. 130 [68 Tex. 130], and cases cited. The Third National Bank of Springfield, Mass., was also made a party defendant.

The defendants J.H. Kenney, P.W. Kenney and Lambert pleaded their discharge in bankruptcy. The pleadings need not be further stated in this connection. In this connection it need only be said that they were sufficient to present the issues which were developed by the evidence upon the trial of the cause.

Stripped of irrelevant matter, the facts disclosed by the evidence are as follows:

In November, 1899, J.H. Kenney, being indebted to one Moody, who held a mortgage for his debt upon a stock of cattle in Hemphill County, Texas, applied to Ladd, Penny Swazey, a firm who were doing business in Kansas City, Mo., to pay the debt. This the latter agreed to do, he at the same time agreeing in consideration of their assumption to execute to them a note for the amount, together with a mortgage on the same cattle to secure its payment; all of which was accordingly done. It was upon this note and mortgage that this suit was brought. Ladd, Penny Swazey paid the Moody debt; though it is probable that this was not immediately done. The note was transferred by delivery — but without indorsement — by the payees to the plaintiff in order to secure an indebtedness then due by them to it. The time of this transfer is a matter about which the testimony is conflicting.

On the 8th day of February, 1900, the makers of the first note, at the request of Ladd, Penny Swazey, executed a second note in renewal of the first. The two notes were for the same amount, in the same form and in the same words, except that the first was dated November 29, 1899, and the other February 8, 1900, and that the second was payable at the Interstate National Bank, whereas the place of payment of the first was the American National Bank. The effect was to extend the time of payment a little more than two months. This note was secured by J.H. Kenney's mortgage on the same cattle. It passed into the hands of the defendant bank in due course of trade, and without notice of the previous note.

As to the time of the delivery of the first note to the plaintiff one Patton testified, in effect, that he attended to this business as the representative of the plaintiff, and that it was his impression that the note was placed as collateral with the plaintiff bank about the time of the maturity of a large note due from Ladd, Penny Swazey to the plaintiff, which it was intended in part to secure. The note to be secured fell due December 11, 1889. He also testified that on February 7th he made a list of the collaterals held for the security of that debt and that the note was among the number. On the other hand defendant P.W. Kenney testified that he came to Kansas City on February 8th, and was requested by Ladd, Penny Swazey to have executed a new note in lieu of the old, together with a like mortgage to secure it and to take the papers back to Texas for the signatures of his comakers and for the execution of the new mortgage, and to return them to Kansas City. Upon their receipt Ladd, Penny Swazey were to return the first note. He also testified that when he was in their office, he saw the old note in their possession. The new note was written in Ladd, Penny Swazey's office, was carried by P.W. Kenney to Texas and there executed, as also the mortgage as agreed upon, and the papers were immediately forwarded to the payees at Kansas City. The first note was not returned.

The note sued on was made payable at the American National Bank, Kansas City; but it does not show upon its face whether Kansas City, Mo., or Kansas City, Kan., was meant. However, it was admitted in open court upon the trial that there is a bank of that name in Kansas City, Mo., and it does not appear that there was a bank of the same name in Kansas City, Kan. Therefore we think it must be assumed that the note was to be paid in the State of Missouri, and that the contract is to be construed according to the laws of that State. In the presentation of the case in this court it was argued upon both sides upon that assumption.

It is well settled that in the courts of this State, in the absence of pleading and proof to the contrary, the laws of another State are presumed to be the same as the laws of Texas.

As to the law of Missouri, the defendants, the Kenneys and Lambert, pleaded that "by the law of the State of Missouri where said note is payable, and where said Ladd, Penny Swazey and plaintiff bank were then and there engaged in business and where said plaintiff bank acquired possession and control of said note and mortgage, all transfers of notes and mortgages as collateral security for a pre-existing indebtedness leave such collateral notes in the hands of the transferee subject to all defenses existing between the parties to such collateral note, and that all the rights, if any, which plaintiff had to said note and mortgage sued upon were acquired under the laws of Missouri, and plaintiff's rights, if any, were and are governed by said laws of Missouri aforesaid, and that plaintiff took said note subject to the rights and defenses of these defendants against said firm of Ladd, Penny Swazey." In the pleadings of the defendant bank so much of the answer of their codefendants as has been quoted was adopted.

The testimony adduced upon the trial in support of this averment is very meagerly given in the statement of facts. Ex-Judge Robinson, who was one of the attorneys for plaintiff, and a practicing lawyer in Kansas City, Mo., was called by the defendants and testified, in effect, that he only knew the law of commercial paper in the State of Missouri in a general way; that "the courts were always changing" and that "he was not certain about anything;" that "the common law is in force in the State of Missouri as modified by the statute." He also identified a book handed him by counsel as a Missouri report, but what report it was and what it contained the statement of facts does not inform us.

Mr. Kohler, one of the defendant's attorneys, also testified that he was familiar with the laws of Missouri on the subject of negotiable paper and presented the statutory provisions upon the subject, which were introduced in evidence. It is also stated in the statement of facts that "the defendant introduced in evidence article 4488, Revised Statutes of Missouri, 1899, and pages 29, 30 and 31, Missouri Supreme Court Report No. 137."

Though not necessary to a decision of the case as here presented, we take occasion to say that we are of opinion that we are not at liberty to go outside of the statement of facts and to consult the references there found in order to ascertain the contents of the statute or of the opinion of the Supreme Court of Missouri, to which such references are there made. Suppose that in a statement of facts there should be a reference to the pages of a certain volume of the county records as containing a copy of a deed and that its contents should not be given, would we be authorized to examine the book in order to ascertain the nature and effect of the deed? We think not. However, we think that in this case we should apply the rule, which was followed in Lee v. Kingsbury, 13 Tex. 68. There it appeared, that a judgment and execution were introduced in evidence, but by express agreement of counsel they were omitted from the statement of facts. The court held that under the circumstances it was to be presumed that their contents were such as would support the judgment. So here counsel for both parties have agreed to the statement of facts and it has been approved by the trial judge; and the contents of the statute and of the opinion of the Supreme Court of Missouri have been omitted; and therefore, as we think, we should hold that the statute and opinion were such as would support the ruling of the court. However a difficulty arises under the pleadings of the defendant as to the Missouri law. The answers, as we have seen, allege that "all transfers of notes and mortgages as collateral security for a pre-existing indebtedness, leave such collateral notes in the hands of the transferee subject to all defenses existing between the parties to such collateral note." This may mean defenses existing at the time of the transfer or defenses existing at the time of the trial. The former would seem to be the more natural construction. At all events, the construction is doubtful, and such being the case, the doubt must be resolved against the pleader. We conclude, that since as we think the answers should be construed as alleging only that under the law of Missouri the note was subject to defenses existing at the time of the transfer, even if it had been shown that that law went further and made the note subject to subsequent defenses also it could not benefit the defendants. They must be confined to the pleadings.

After instructing the jury, in effect, that the holder of a promissory note, which had been transferred as collateral, has the right to collect the note, so long as the debt intended to be secured remains unpaid, the court in its charge proceeded as follows: "If such a note so put up as collateral is not indorsed by the original drawee at the time of its delivery to the person or corporation holding the debt against the original drawee, then in such case the drawer of the note and his indorsers have the right to plead and receive the benefit of all the equities and defenses in their favor against the note which existed or arose at any time, and they may plead such defenses and equities against the holder in the same manner and receiving the same benefits under them as if they were contesting the note in the hands of the drawee." Error is assigned upon this charge and we think the assignment should be sustained.

The charge is not in accordance with the law of Missouri as pleaded. The pleading alleged, as we have seen, the law of Missouri as to notes transferred as collateral to secure a pre-existing indebtedness; and did not allege the law of that State as to notes transferred as collateral without indorsement. Therefore the instruction is erroneous, unless the proposition be correct under the laws of Texas. The law of Missouri as to promissory notes transferred without indorsement having been pleaded upon neither side, it is presumed that it is the same as the law of Texas. Under our law it matters not how a negotiable note has been assigned. Though the transfer be not evidenced by a writing it is placed upon the same footing as a transfer by indorsement. Word v. Ellwood, 90 Tex. 130. If transferred without notice of any defenses as against the transferer it is subject to none. It follows, as we think, that the instruction complained of is erroneous; and that it is fatal to the judgment and should result in its reversal — provided the note sued upon be negotiable by the law merchant. It is only negotiable notes, to which the article of our Revised Statutes construed in Word v. Ellwood, above cited, applies. See arts. 304, 307, 308, Rev. Stats.

The question therefore presents itself, is the note in question a negotiable promissory note? The Court of Civil Appeals held that it was not. In this ruling, however, we do not concur. The ground upon which it is claimed that the note is nonnegotiable is that the time of its payment is uncertain. This claim is predicated upon the following provision in the note. "The makers and indorsers hereof hereby severally waive protest, demand and notice of protest, and nonpayment in case this note is not paid at maturity, and agree to all extensions and partial payments before or after maturity without prejudice to holder." If as is argued the effect of the stipulation is to give the right to the maker without the consent of the holder, or to the holder without the consent of the maker, to appoint another day of payment and thereby extend the time, it may be, that it would render the instrument not negotiable. But we do not think it capable of that construction. It does not say that either the holder or the maker may extend the note. It merely makes a provision in case the time of payment may be extended. How extended? It seems to us the extension meant is that which takes place when the debtor and creditor make an agreement upon a valuable consideration for the payment of the debt on some day subsequent to that previously stipulated. The obvious purpose of the provision taken as a whole was merely to relieve the holder of the paper from the burdens made necessary by the rigid requirements of the mercantile law in order to secure the continued liability of the indorsers and sureties upon the paper. Therefore what was meant by the stipulation as to the extension of time was simply that in case the holder and the maker should agree upon an extension, the sureties and indorsers should not be discharged. The holder and maker of any note may at any time agree upon an extension; therefore the fact that they may have that right does not affect the negotiability of the paper. It is usually said that in order to make an instrument negotiable under the law merchant, the time of payment must be certain. But a note payable "on or before" a certain date is negotiable. The maker of such a note has the right to pay before the day named, but the holder can not demand payment before that day. So in that case, the time at which the maker may elect to pay is uncertain, but the time at which the holder may demand payment is certain. It follows that if the holder has the absolute right to demand payment at a certain day, the note is negotiable. This is but an illustration of what we understand to be the general rule. There being nothing in the stipulation under consideration which gave anyone the right to demand of the holder of the note an extension of the time of payment, we think the time at which he could demand payment was fixed and that therefore it was a negotiable note.

From what has been said it would seem that in order to defeat this suit the defendant bank must show that the law of Missouri as to commercial paper is different from the law of Texas. In order to do so, it must plead the law of that State and prove it as pleaded. Therefore what the precise issues may be upon another trial we can not foresee. In addition to this the plea in reconvention of J.W. Lambert goes out of the case. There was a verdict and judgment against him on his cross-action and he has not appealed. For these reasons we do not deem it necessary to pass upon all the other assignments of error. The questions presented by many of them may not arise upon another trial. We will notice some of them briefly.

We think that the assignment that "the court erred in permitting the defendant's witness, J.L. Stratton, to testify that a check for the proceeds of the sale of the second note to the Third National Bank of Springfield was placed in the National Bank of Commerce," should have been sustained. The fact that Ladd, Penny Swazey deposited the money arising from the second note with the plaintiff without letting them know whence it came, or that it was to be applied to the note in suit, was no defense to the action.

On the other hand, we do not think it was error to permit the Kenneys to testify as to the circumstances which led them to execute the second note.

During the course of the trial the plaintiff's counsel asked the court to give a special instruction, which in part is as follows: "The plaintiff asks the court to charge the jury that certain evidence has been admitted as to the statements made by Kenney and others to the defendant, the Third National Bank of Springfield, as to the conditions under which they executed the second note and mortgage, and as to the agreement and understanding between the Kenneys and Ladd, Penney Swazey, you are charged that this evidence was only admitted for the purpose of showing that the Third National Bank of Springfield obtained its note and mortgage without any notice of the note and mortgage held by the Bank of Commerce, and you are also instructed to consider said testimony for no other purpose." We think so much of the charge as has been quoted should have been given. We incline, however to the opinion that the part of the request not quoted would have been misleading.

The Kenneys pleaded a discharge in bankruptcy and it was admitted in open court that they were discharged. Therefore the judgment can not be disturbed as to them. Lambert also pleaded a discharge in bankruptcy, but if the statement of facts shows any proof or admission of such discharge, we have failed to find it.

Therefore the judgment will be affirmed as to the Kenneys on their plea of discharge in bankruptcy; but as to the defendants in error Lambert and the Third National Bank of Springfield, it will be reversed and the cause will be remanded.

Reversed and remanded.