Marquardt Savings Bank v. Freund

SMITH, P. J. Statement. This is a suit in equity which was brought to foreclose a deed of trust on certain real property, situate in Buchanan county in this state. The promissory note, which the said deed of trust was given to secure, was dated February 24, 1896, for $700 due four months after date, payable to the People’s Savings Bank of Des Moines, Iowa, and signed by Otto Kermehs, Mamie Kermehs and the defendant, Kate Freund, who, it is admitted, was surety thereon. The answer pleaded, first, payment of the note; and, second, that defendant was a surety on the note and was released by an extension of time given thereon by the holder without her consent. The decree was for the plaintiff and the defendant appealed. Whether or not the deed of trust note was paid off and discharged prior to the commencement of the suit is the principal question presented for our decision. The material facts — 661 — of the case, as disclosed by the evidence, are about as follows: That Otto Kermehs and his wife, two of the makers of the said note, are husband and wife, the latter being the daughter of the defendant; that said Kermehs, desiring to use $700, applied to the People’s Bank, the payee in the note, for a loan of that amount, proposing that if the said bank would loan him the amount applied for, that he would give his mother-in-law, the defendant, as surety on his note, and that she would give a deed of trust on certain valuable real property situate in Buchanan county, in this state, to secure the payment of such note; that the said bank, after having made inquiry in respect to the value of said real property sufficient to satisfy it as to the truth of the representations made by said Kermehs, agreed to make the loan and accordingly the said note and deed of trust sued on were executed and delivered to it and the money paid over to said Kermehs; that when the said note became due the bank declined to renew it and thereupon said Kermehs went to the German Savings Bank of Des Moines and had a talk with Mr. Gonoser, the cashier thereof, about changing the loan he had procured from the People’s Bank to the German Savings Bank. He explained the matter very fully to the cashier. The latter testified that the former came in and made application for the loan, and said “he would give as collateral to secure us the same as the People’s Savings Bank had, which was a deed of trust on some property down in St. Joseph.” Pie said that he would have the papers assigned and put them up as collateral. He further testified that he did not then agree to enter into the arrangement proposed by said Kermehs, but took the application under r^lvisement, and while so, Mr. Kohler, who was one of the directors of the bank, and a friend of' said Kermehs, requested him to make the loan, provided he was satisfied with the security. It appears that a few days after the application for the loan had been made by said Kermehs, the cashier informed — 662 — liim that' he was willing to extend the accommodation requested; that said Kermehs thereupon went to the People’s Bank and inquired of the cashier whether or not, if his bank got the face of the note and interest, he would indorse the note over without recourse, and to which inquiry he received a favorable response. It may be fairly inferred that Kermehs immediately reported to the cashier of the German Savings Bank the response of the cashier of the People’s Bank to his inquiry,for it appears that on that day the German Savings Bank let said Kermehs have $700, taking his note therefor, and that said Kermehs took the money over to the People’s Bank, where it was received and the note indorsed by the cashier “without recourse” and handed -over to said Kermehs, who delivered it'to the cashier of the German Savings Bank. The deed of trust was later on delivered to Kermehs who turned the same over to the German Savings Bank. The note which said Kermehs made to the German Savings Bank was a collateral note in form, in which was described the note and deed of trust which had been given to the People’s Bank. The cashier of the People’s Bank testified that in the transaction by which he received the $700 and indorsed the note “without recourse” he represented the bank, and that Kermehs represented the other parties. When the note was indorsed by the cashier of the People’s Bank", he was requested by said Kermehs not to release the deed of trust until requested by him to do so; that the cashier of the German Savings Bank testified that he thought that said Kermehs was entitled to some credit but perhaps not to the extent of the loan made to him and that he did not rely wholly on the collateral note and deed of trust in extending credit to him. It further appears that the German Savings Bank did not place the amount of money it loaned to said Kermehs to his credit on its books but paid the same over to him; that it relied upon his statement to the effect that he would take the — 663 — money so received to the People’s Bank and with it procure the note and deed of trust, with indorsement of the cashier on the note, and bring the same over to the German Savings Bank. It further appears that the cashier of the People’s Bank, when requested by defendant to release the deed of trust refused to do so unless he was first satisfied that the note Avas paid. It further appears that when the individual note of Xermehs to the German Savings Bank matured, he paid $200 thereon and gave another collateral note in lieu thereof for $500, payable on demand; that this note, with the collateral note and deed of trust, was held by the said bank until it Avent into a receiver’s hands; that the receiver required said Xermehs to pay the note,- and thereupon he requested of the plaintiff bank a loan of $500 to pay off his note held by the receiver, and to secure such loan he offered the plaintiff the same security that was held by the receiver. The plaintiff bank agreed to make the loan on the terms proposed. The transaction was consummated by Xermehs giving the plaintiff his collateral note, payable on demand, for $500. This amount was placed to the credit of Xermehs on the books of the bank. The cashier of the plaintiff then went to the receiver and gave him a certificate payable to his order and received the Xermehs notes and the deed of trust. The individual note was paid off and delivered by the cashier to said Xermehs. The other note secured by the deed of trust was retained by- the cashier as collateral security to the demand note which said Xermehs had given the bank for the loan. There was no indorsement by the receiver of either of the notes to the plaintiff. Said Xermehs failed to pay either the demand note or the deed of trust note. Bills and notes: stranger: payment v. purchase: maker. If Xermehs, the principal in the deed of trust, acting in his individual capacity, paid off the deed of trust note held by the People’s Bank, that, of course, discharged the defendant as surety and killed the security. But if he was acting for the German Savings Bank in pursuance of an agreement — 664 — entered into by him with it, then the transaction was not a payment but a purchase. Where, a note is paid by a stranger, it will, in general, be held to be a purchase and not a payment. And whether it is one or the other is a question of fact. And in such transaction the intention of the parties ihereto governs. Randolph on Com. Pap., secs. 1438, 1439 and 1440; Barbour’s Law of Payment, secs. 10, 11; Campbell v. Allen, 38 Mo. App. 27; Swope v. Leffingwell, 72 Mo. 348; Allen v. Dermott, 80 Mo. 56; Thomas v. Furton, 5 Dow. & L. 28; Dodge v. Freedman, 3 Otto, 379; Ramsay v. Daniels, 1 Mackey, 16; Hartshorn v. Brace, 25 Barb. 126; Horton v. Manning, 37 Tex. 23. It seems to us that the facts and circumstances shown by the undisputed evidence in this case are such as to render irresistible the conclusion that it was the intention of all the parties that the transaction should be a purchase and not a payment. It is clear that it was the intention and understanding of both the German Savings Bank and Kermehs that the $700 which it placed in his hands was to be taken by him and used in the purchase of the note and deed of trust held by the People’s Bank. There is nothing in the evidence satisfactorily showing that it was the intention of the German Savings Bank, in making the loan to Kermehs, to furnish him with money to pay off his secured note to the People’s Bank. The loan would not have been made by the German Savings Bank had it supposed that it would not acquire title to the note held by the People’s Bank. It was induced to make the loan on the strength of the assurance that the People’s Bank, in consideration of the payment to it of the $700, would pass by indorsement and delivery the title of the note to it. We think Kermehs acted for . the German Savings Bank and not for himself in the transaction. The cashier of the People’s Bank, as he testified, understood that Kermehs was acting not for himself but for others. This is further shown by his refusal to release the deed of trust. If he had understood that the money received by him — 665 — of Kermehs was a payment by him of the note, why did he, after the note had passed out of his hands, refuse to release the deed of trust until satisfied that the note had been paid? He knew that Kermehs in the transaction was representing some one who was thereby acquiring title to the note. We have no difficulty in arriving at the conclusion that the intention of all the parties to the transaction was that it should be a purchase and not a payment of the note, and if in determining whether the transaction was a purchase or a payment the intention of the parties governs, then we must hold that the German Savings Rank by purchase acquired the title to the said note and deed of trust, and that the same was then a live security in its hands. -: principal and surety: extension of time: new note. But it is contended that the effect of the act of the German Savings Bank in taking from Kermehs a new note payable four months after date, for the same debt which was evidenced by the note and deed of trust that had been given by Kermehs and the defendant, which 1 1 was then overdue, was to discharge the de0 fendant as surety on the deed of trust note. When the bank acquired by purchase the note and deed of trust it thereby became the owner of the debt so evidenced, and when it took Kermehs individual note for the same debt it thus had two notes to evidence "'but a single debt. The taking of the individual note of Kermehs, payable four months after date, at a time when the deed of trust note was due, could have no other effect than to extend the time of the payment of the debt so evidenced. The- object of taking the individual note was to give Kermehs more time in which to pay the debt. The defendant could have paid off the deed of trust note at any time, but she could not thereby have acquired any right of action against Kermehs, the principal, until after the maturity of his individual note to the German Savings Bank. If a surety pay the debt of his principal before that debt becomes due, — 666 — he can have no right of action against his principal until the maturity of such debt. White v. Miller, 47 Ind. 385. Had defendant paid off the debt of Kermehs, she would liave been subrogated to the rights of the German Savings Bank, but it had no right to sue Kermehs until the maturity of the debt evidenced by his individual note. The defendant, by making the payment would, by subrogation, have taken the place of the German Savings Bank, and been compelled to wait until the maturity of the individual note of Kermehs before she could sue. Her right of action was therefore suspended until that time. She would have no right to proceed immediately against her principal on the payment of the deed of trust note. H the bank had sued Kermehs on the deed of trust note he could have successfully defended the suit on the ground that the debt thereby evidenced had been extended by the taking of the new note. If the defendant had required the bank to bring suit against Kermehs on the deed of trust note it could not have done so for the reason the debt was not then due. The bank tied its own hands — it had disabled itself to take any step towards enforcing the collection of the debt until the maturity of the new note. The taking of the new note of Kermehs, under the authorities, we think, had the effect to extend the time of the payment of the debt and the consequent discharge of the defendant as surety on the collateral note. Bank v. Wood, 56 Mo. App. 214; Barrett v. Davis, 104 Mo. 549; Bank v. Leavitt, 65 Mo. 567; Kincaid v. Yates, 63 Mo. 45. —:—: revivingdead security'!1"8' The security was dead when it reached the hands of the plaintiff. It was then overdue and the plaintiff succeeded to exactly the same rights, and none other, in respect thereto, that the German Savings Bank had. It was a dead security which could not be revived or made available Py plaintiff for any purpose. Even if the security was alive in the hands of the Germau Savings Bank, yet the payment by plaintiff of the individual — 667 — note of Kermehs, then in the hands of the receiver, resulted in the discharge of the defendant and the release of the collateral security. The security was thereby set free, and neither Kermehs nor any one else could have pledged it to plaintiff for any purpose without the consent of the defendant. It follows that the judgment will be reversed. Gill, J., concurs; Ellison, J., concurs in result.