Holt Bros. Mining Co. v. Stewart

Opinion of the Court by Judge Dietzman Affirming. Tbis is a suit under the Declaratory Judgment Act (Civil Code of Practice sec. 639a-l et seq.) to have determined the rights and obligations of the parties hereto under the following state of fact: On October 4, 1920,. the Holt Bros. Mining Company as a part of the consideration for the sale to it by the McHenry Coal Company, a corporation, of the latter’s business and assets, executed. and delivered unto the McHenry .Coal Company its promissory note dated October -4, 1920, by the. terms of which it agreed to pay to the order of the Mc-Henry Coal Company,. sixteen months, after date, the.sum of $18,750. This note became due on February 4,. 1922. Prior to the due date of the note, and for a valuable consideration, the McHenry Coal Company .duly-indorsed this note, “Pay to the order of L. ,L. Stewart, McHenry. Coal Company by A- J. Earley, President;: L. L. Stewart Secretary,” and delivered it to L. L. Stewart, who thereupon became the complete owner of' the note. Thereafter the McHenry Coal Company was. dissolved and all of its property and assets were distributed. Some time after he had come into the, ownership and possession of the note in question, Stewart lost, or misplaced it. Upon its maturity, the Holt Bros.. Mining Company desired to pay the note but wanted protection because of Stewart’s inability to surrender-the note upon its payment. In order to safeguard and protect the Holt Bros. Mining Company in. paying said, note, Stewart under date of February 23, 1922, executed and delivered to.the Holt Bros. Mining Company a. *200 bond of indemnity by tbe terms of which be placed in tbe bands of tbe Fidelity & Columbia Trust Company •of Louisville, $20,000 par value of United States government Liberty Loan bonds; Thereupon tbe Holt Bros. Mining’ Company paid Stewart tbe note in question. Matters remained in tbis status until a short while ago when Stewart needed bis bonds. He made demand upon ■the Holt Bros. Mining Company that it direct tbe trust company to return bis bonds to him but it declined to ■do so. Thereupon tbis suit was brought for a declaration of tbe rights of tbe parties. Whether or not Stewart is- entitled to a return of bis bonds depends, first, on whether after the indorsement to him of tbe note in •question it was yet a negotiable instrument, and, secondly, if it was a negotiable instrument, did the indorsement and delivery of it to him before maturity for a valuable consideration place it .upon tbe footing of a foreign bill óf exchange, for if it did tbe 5-year statute of limitations (Ky. Stats, sec. 2515) applies to any -cause of action upon it, but if not, tbe fifteen-year statute applies (Ky. Stats, sec. 2514). Southern National Bank v. Schimpler, 159 Ky. 372, 167 S. W. 148, on rehearing 160 Ky. 813, 170 S. W. 178. Tbe lower court found that tbe indorsement and delivery of the note to Stewart by tbe McHenry Coal Company did not render it a nonnegotiable instrument, and that such indorsement- and delivery before maturity for a valuable consideration placed it- upon tbe footing of a foreign bill of ■exchange, from wbicb it followed that tbe five-year statute of limitations applied.. It thereupon ordered tbe return to Stewart of bis bonds. From that judgment tbis appeal is prosecuted. It is argued first that tbe indorsement of tbe note by tbe McHenry Coal Company to L. L. Stewart was a restrictive indorsement within the meaning of section 8720b-47 of tbe Statutes, part of our Negotiable Instrument Act. That section reads: “An instrument negotiable in its origin continues to be negotiable until it has been restrictively endorsed or discharged by payment or otherwise.” Section 3720b-36 of tbe Statutes, also part of our .Negotiable Instrument Act, provides: “An endorsement is restrictive wbicb either: “(1) Prohibits the further negotiation' of tbe instrument; or *201 “(2) Constitutes the endorsee the agent of the endorser; or “ (3) Tests the title in the endorsee in trust for1 or to the use of some other person. But the mere absence of words implying power to negotiate does, not make an endorsement restrictive.” In the light of the foregoing, ibis obvious that the-indorsement to Stewart of the note here in question was not a restrictive one. It does not come within any of' the definitions of a restrictive ‘ indorsement ■ set out in section 3720b-36 of the Statutes, which being true, the-negotiable character of the note was not destroyed by the indorsement in question. That the indorsement and. delivery of this-note to- Stewart before maturity, and. for a valuable consideration placed it upon the footing of a foreign bill of exchange, there can now be no doubt.. In the case of Gahren, Dodge & Maltby et al. v. Parkersburg Nat. Bank, 157 Ky. 266, 162 S. W. 1135, 1136, speaking to this point, we said : “It being no longer necessary that a note shall be-payable and negotiable at a bank in..this.state, and. be actually indorsed to and- discounted by a bank: in this state, in order to place it on the footing of a bill of exchange, since section 483, Kentucky Statutes, so declaring, has been repealed by. the Negotiable Instrument Act (Williams v. Paintsville National Bank, 143 Ky. 781, 137 S. W. 535, Ann. Cas. 1912D, 350), it follows that as. the note in question was complete and regular on its face,’ and possessed all the requisites of a negotiable' instrument, and was .discounted by plaintiff in good faith and for value before it was overdue, and without, notice of' previous dishonor or of any infirmity in the instrument or defect in the title of the persons negotiating, plaintiff was a holder in due course, and the instrument was not subject to any defense that defendants might have against the trust- company. Section 3720b, subsecs. 52, 55, 56, 57, Kentucky Statutes.” Since, the note here iii question by the indorsement and delivery of it to' Stewart before maturity and for a. valuable consideration was placed upon :the' footing of' a foreign bill of exchange, ■ it follows that -the five-year and not the fifteen-year statute of limitations was the: *202 •one applicable to causes of action upon it. Southern National Bank v. Schimpler, supra. This being true, the lower court was correct in holding that Stewart was ■entitled to a return of his bonds. Its judgment is affirmed.