German American Bank v. Smith

OPINION. While the defendant has not appealed, his learned counsel argue that this instruction was wrong and that the note was void by reason of the failure of the Powder Company to take out a license under the laws of our State. If this is so, then, as an appellate court, we would be bound to hold that plaintiff could not recover on this note. So the Kansas City Court of Appeals held in Ehrhardt v. Robertson Bros., 78 Mo. App. 404, as also in Fay Fruit Co. v. McKinney Bros. Co., 103 Mo. App. 304, 77 S.W. 160. The authorities sustaining the proposition are so fully compiled in these decisions, that we do not think it necessary to repeat them here. Our Supreme Court, in Chicago Mill Lumber Co. v. Sims, 197 Mo. 507, 95 S.W. 344, refers to the case of Ehrhardt v. Robertson Bros., supra, approvingly, as also to that of Tri-State Amusement Co. v. Forest Park Highlands Amusement Co., 192 Mo. 404, 90 S.W. 1020, as correctly holding that the contract entered into in this State by a foreign corporation, without having complied with the laws of this State, was non-enforceable, overruling the decision of our court in the same case as reported 101 Mo. App. 569, 74 S.W. 128.

The question before us, then, is: Is this contract between the Powder Company and the defendant of such a character as to render the notes void, the Powder Company at the time a corporation of the State of Illinois, not having a license to do business in this State? We do not think it is.

It is true that that contract purports to constitute an agency in the defendant to transact business in this State for the Powder Company, but when we look at the contract and what was actually done under it, and inquire as to what the transaction really was, we find that in point of fact there was an absolute sale of articles, stock powder, etc., by the Powder Company to defendant, and as evidence of the amount, in part, due on the purchase, this note was given by the defendant to the Powder Company, the articles sold to be delivered f.o.b. cars at Bloomington, Illinois, consigned to defendant. So here was an absolute sale of articles then in Illinois, delivered there to defendant, shipped from there to this State. That was of interstate commerce. To carry it on, no license is required by our law. That has been very fully determined by the Supreme Court of our State in International Text Book Co. v. Gillespie,229 Mo. 397, 129 S.W. 922, and United Shoe Machinery Co. v. Ramlose,231 Mo. 545, 132 S.W. 1143; Wulfing v. Armstrong Cork Co.,250 Mo. 723, 157 S.W. 615, and British-American Portland Cement Co. v. Citizens Gas Co., 255 Mo. 1, 164 S.W. 468. So the United States Supreme Court has held in cases cited in the foregoing.

When we come to examine this contract and inquire into what was actually done under it, we find that while it purports to establish an agency in defendant for the Powder Company in Warren County, this State, in point of fact, it was a mere agreement by the Powder Company, that, during the term of the contract, it would not sell its product to anyone else in that county, and that it would sell this product to defendant during the term, at an agreed price. When the defendant received and sold this product, he was selling it as his own; was in no manner whatever accountable to the Powder Company for the proceeds of the sale, limited however, to a minimum price at which he could sell it. That limitation was nugatory. From the time the material was loaded on the cars at Bloomington, Illinois, it was the sole property of the defendant, and the Powder Company had no interest whatever in it, and no right over it, except the right of stoppage in transit. If we had before us the case of the defendant attempting to make sales for the Powder Company, as agent, we would have a very different case. But that is not this case. The case we have is the one between the Powder Company and the defendant, going to the consideration of this note and the consideration of this note was this powder or material, which was the subject of interstate commerce, and came into this State with all the attributes and privileges and rights pertaining to an interstate shipment.

It follows, therefore, that this note was not void but was executed on a good and valid consideration and for a lawful purpose; the purchase by a citizen of Missouri of articles then in the State of Illinois, to be shipped from that State to him in this State. The transaction here comes very close to that before the court in Wulfing v. Armstrong Cork Co., supra. This note was not void, as given for a transaction prohibited by the laws of our State. It required no license to do this business in this State, and so the learned trial judge very correctly instructed the jury in the case at bar.

The question then recurs, has defendant brought home to plaintiff a knowledge of such fact amounting to fraud in connection with the procuring of these notes and of this contract?

We have set out the testimony substantially as given on this matter by the defendant and his witnesses, and we are compelled to hold, on consideration of it, that while it probably presented evidence of fraud sufficient to take this issue of misrepresentation or fraud in connection with the procuring of the note and the contract, to the jury, if this was a case between the original parties to the note, it should not have been submitted to them on the evidence produced by defendant, as against this plaintiff.

There is not a particle of evidence in the case to bring home to the bank a knowledge of any of these matters, or of the terms of the contract between the defendant and the Powder Company. The very most that can be said about that is, that defendant introduced evidence tending to prove that the bank, plaintiff here, knew that the Powder Company took these notes on account of sales of its products, but that is far from charging the plaintiff bank with knowledge of the terms of those contracts, or that there was any fraud, misrepresentation or failure of consideration in connection with the note. Even if plaintiff bank may have had its suspicion as to the character of the Powder Company's mode of business, that is not sufficient to charge the bank with notice. [Leavitt v. Taylor, 163 Mo. 158, l.c. 170,63 S.W. 385; Link v. Jackson, 164 Mo. App. 195, l.c. 202,147 S.W. 1114.] Furthermore, not only is the testimony on the part of plaintiff clear that the bank (plaintiff) acquired this note before maturity, but the answer admits this, and clear that the bank took it as collateral security to notes it then held, the debt evidenced by which notes had not yet been paid and is in excess of this collateral.

Failure of consideration is no defense to a note in the hands of a holder for value before maturity. See section 99,990, Revised Statutes 1909, part of our negotiable instrument law.

Section 10,022, of that law provides:

"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 it."

Section 10,024 provides:

"Where the transferee receives notice of any infirmity in the instrument or defect in the title of the person negotiating the same before he has paid the full amount agreed to be paid therefor, he will be deemed a holder in due course only to the extent of the amount therefor paid by him."

Section 10,025 provides:

"The title of a person who negotiates an instrument is defective within the meaning of this chapter when he obtained the instrument, or any signature thereto by fraud, duress, or force and fear, or other unlawful means, or for an illegal consideration, or when he negotiates it in breach of faith, or under such circumstances as amount to a fraud."

Section 10,026 provides:

"To constitute notice of an infirmity in the instrument or defect in the title of the person negotiating the same, the person to whom it is negotiated must have had actual knowledge of the infirmity or defect, or knowledge of such facts that his action in taking the instrument amounted to bad faith."

These sections of our law are conclusive against the defense here attempted.

As before said, there is not a particle of testimony in this case to show that the plaintiff bank had any knowledge of any infirmity or defect in this instrument, or of any such facts that its action in taking the instrument amounted to bad faith. There was no substantial evidence that the bank took these notes in to aid the Powder Company in defrauding defendant, as charged. At the very most, all that the defendant attempted to prove, that from the dealings of the bank with the Powder Company, and of the latter with defendant or its customers, and from the provision that the Powder Company was to pay the cost of collection on collaterals the plaintiff bank should have been put on guard and should have suspected that there was something wrong with this note. That is not the law and cannot sustain this defense. As we have seen, mere suspicion is not knowledge. Very much the same state of affairs occurred, as far as this transaction is involved, in McLean County Bank v. Brown, 187 S.W. 785, a case not to be officially reported.

Our conclusion is that the judgment in this case should be reversed and the cause remanded, with directions to the trial court to ascertain the amount due on the note, with interest, and having done that, enter up judgment for the amount as found in favor of the plaintiff and against defendant, with costs, and it is so ordered.

Allen and Becker, JJ, concur.

Note: Certiorari issued in the above cause by the Supreme Court, on hearing, was quashed, December 1, 1919. See 216 S.W. 773.