Crane v. Guaranty Finance Corp.

Anderson, J., delivered the opinion of the court. The appellee, Guaranty Finance Corporation, a Missouri corporation, brought.this action in the circuit court of Lee county against appellant, G. M. Crane, on three trade acceptances of one hundred and forty-five dollars each, and recovered judgment for the amount sued for with interest, from which appellant prosecutes this appeal At the conclusion of the evidence, at the request of the appellee, the court directed a verdict in its favor. The propriety of that action of the court is the only question involved. That question turns upon whether the trade acceptances which were the basis of the action were negotiable instruments under our Uniform Negotiable Instruments Act. . Chapter 244, Laws of 1916 (Hemingway’s Code, sections 2579-2774, inclusive). They were drawn by the Lawrence Phonograph Corporation iof St. Louis Mo., on appellant, and by the latter accepted. They were dated March 24, 1922, and payable respectively thirty, sixty, and ninety days after date. Appellee became a bona-fide holder of the acceptances for value in due course before their maturity. Appellant bought some phonographs from Lawrence Phonograph Corporaation, and executed the trade acceptances involved for the purchase money of the phonographs. At the same time the acceptances were executed by appellant a con-* tract in writing’ was entered into between appellant and Lawrence Phonograph Corporation containing stipulations to be performed by the latter, which, if written in the face of the acceptances, would have rendered them non-negotiable. That is conceded to be true by appellee. *698 The acceptances and contract were, before execution, filled out on a printed form, all on one sheet of paper. There were no' perforated lines between them. But each acceptance was complete within itself. There was no reference of any kind in the acceptances to the contract or its provisions. They were so printed on the one sheet as that they could be separated by clipping so that each would be complete within itself. That was done by Lawrence Phonograph -Corporation, and the acceptances were delivered to appellee before maturity for value without notice. Appellant’s position is that in view of the facts stated the acceptances and the contract together constituted one contract; that the contract is to be read into each of the acceptances; that when executed the acceptances were non-negotiable, and therefore could never become such; that the act of Lawrence Phonograph Corporation in clipping the acceptances from the contract was a material alteration of the former, and did not render them negotiable. Appellee’s position is that it was necessarily intended by the parties that the acceptances should be detached from the contract and become negotiable instruments in the channels of trade. Section 57 of the Negotiable Instruments Act (Chapter 244, Laws of 1916; Hemingway’s Code, section 2635) defines a holder in due course as one who holds the instrument “free from any defect of title of prior parties, and free from defenses available to prior parties among themselves,” and provides that the holder in due course may enforce payment of the instrument for the full amount against all parties liable thereon. And section 56 of said Act (PIeming:way’s Code section 2634,) provides that to constitute notice of an infirmity or defect in the title of the person negotiating the instrument to the person to whom it is negotiated the latter “must have had actual knowledge of the infirmity or defect or knowledge *699 of such facts that his action in tailing the instrument amounted to bad faith. ’ ’ The title of a person who negotiates an instrument under section 55 of the Act (Hemingway’s Code, section 2633), is defective when he obtained the instrument or signature thereto by fraud, duress, force of fear, or other unlawful means, or for an illegal consideration, or when he negotiates it in breach of faith or under circumstances that amount to fraud. There is no claim that appellee had actual knowledge of the fact that the acceptances were non-negotiable instruments before detached. Appellant claims, however that appellee had knowledge of such facts as that his action in taking the' instruments amounted to bad faith. The only fact shown that appellee had knowledge of what by any process of reasoning whatever could be claimed to have been such notice to appellee when it took the acceptances is the fact that they appeared from their margins to have been clipped from another paper. We hold that that was insufficient. We are of the opinion that although it was not expressly understood at the time of the execution of the acceptances and contract .that the former were to be detached by Lawrence Phonograph Corporation and become negotiable instruments in the ordinary course of trade, from the very nature of the transaction that was the purpose and intent of the parties. The acceptances were due thirty days apart; they had to be detached and separated in order to be collected in the usual way and through the ordinary channels. The parties could not in reason have intended that the acceptances and the contract to which they were attached should continue in that form. If they had continued in their original form, whenever one of the acceptances fell due all of them, including the contract to which they were attached, would have been required to be forwarded through the usual channels for collection of only one. It was held in Conqueror Trust Co v. Simmon, 62 Okl. 252, 162 P. 1098, that where negotiable promissory notes were attached to a contract *700 by perforations for the purpose of being detached it was not a material alteration to detach such notes. And it was held in Pratt v. Rounds, 160 Ky. 358, 169 S. W. 848, that knowledge by a holder of a negotiable instrument in due course that the payee had detached the note from a contract and that the contract authorized the payee to do this did not effect the purchaser even with -knowledge of a fraud practiced by the payee when the note was given. These cases, it is true, are not exactly in point on their facts; they are referred to as examples of how jealously the rights of a holder in due course of a negotiable instrument are protected. Appellant cites Bigelow on Bills and Notes (2 Ed.), .221, to the effect that marginal terms, conditions, and stipulations which are intended to be a part of the contract are to be treated as inseparable from the writing on which the signature is given, and that there is no dictinction between the alteration of the body of the instrument and detaching therefrom marginal agreements. And 1 Joyce, Defenses to Commercial Paper, page 341, is referred to, wherein it is stated that where a’written agreement modifying the terms of an accepted bill of exchange has been unlawfully detached, an innocent holder of a bill in due course may recover ‘ ‘ according to the import of the entire contract.” "We do not think the principles declared in those authorities are controlling under the facts in this case. The contract in question cannot be said to have been a marginal term, condition, or stipulation intended to be a part of the acceptances. And it cannot be said that the contract was unlawfully detached from the acceptances. On the contrary, as we have stated, looking at the transaction from its four corners, it can mean nothing else than that appellant and Lawrence Phonograph Corporation contemplated and intended that whenever it became necessary in the ordinary channels of trade to detach the contract from the acceptances that it should be done and the acceptances stand alone on the provisions *701 in their face. Perforations between the contract and the acceptances were not necessary. Each was complete in itself. There was no reference whatever in the acceptances to the contract. And furthermore, appellee, by executing the contract and acceptances in that form, put it in the power of Lawrence Phonograph Corporation to do exactly what it did, namely, detach the acceptances and negotiate them to a bona-fide holder for value before maturity. Which under the circumstances should suffer loss, the former or the latter? We think the former. Affirmed.