Wichita National Bank v. Weeks

Milton, J. The issue before the trial judge was this: Was the action prematurely brought? The briefs of counsel present the same issue. Under paragraph 406, General Statutes of 1889, when an insolvent bank contracts a. debt, it becomes the debt of each of the officers who had knowledge of the bank’s condition, or who in the discharge of his [698] duties ought to have known its condition; and if such officer is sued in a proper case the only defenses allowed are that the bank was not insolvent, or that he did not know its condition and could not have known it by the exercise of proper care. It is necessary for us to inquire somewhat as to the nature of the bank’s obligation upon the two notes which are the basis of this action. By the indorsement in the nature of a guaranty the bank became both an indorser and a guarantor of the notes. Considered as an indorser — and the briefs of both parties consider it such — the bank’s liability on the notes was conditional. In Swartz v. Redfield (13 Kan. 556), Mr. Justice Brewer, in the opinion of the court, quotes the following from Smith’s Leading Cases, vol. II, p. 61: “The well-settled principle that bankruptcy or notorious insolvency will not excuse notice (to the indorser) ... is settled beyond the possibility of question.” And in the same case he says : “ The indorsement effectuates two things — it transfers the title, and creates a conditional liability. The first is often, in the contemplation of the parties at the time of the transfer, the only thing sought; and if afterward recourse is sought on the indorser, he may well insist on an exact compliance with all the steps necessary to change the conditional to an absolute liability.” And in the same case it is stated in a quotation from Kent’s Commentaries, that knowledge by the indorser, when he indorsed the paper, of the insolvency of the maker of the note or drawer of the bill, does not dispose of the necessity of notice to charge such indorser. [699] In Doolittle v. Ferry (20 Kan. 231), the court, by Mr. Justice Brewer, says : “That from such indorsement [to John Doe or order] the law implies a well-defined contract, and that such contract casts a conditional liability on the indorser, is conceded. . . . The law gives to an indorsement a twofold force. It operates to transfer title ; it is the assumption of a conditional liability.” As a guarantor, the bank’s liability of course differs from that of an indorser, and, as is said by a text writer, “is more onerous.” In vol. II, section 1753, Daniel’s Negotiable Instruments, it is said : “ The guarantor’s liability . . . is secondary and collateral. And, in general, the guarantor contracts to pay, if, by the exercise of due diligence, the debt cannot be made out of the principal debtor.” We observe that the petition does not allege that the maker of the notes was insolvent when they were made or indorsed, nor that the indorser knew such to be the fact. So far as we can gather, the action was brought on the theory that the defendant’s liability had accrued at the time, and by reason of, the indorsement of the notes by the bank. In view of the fact that the bank’s liability, either as indorser or guarantor, was conditional or collateral, an action could not have been brought against it upon the notes until they were due. Hence, it would seem to follow that an action to recover under paragraph 406, General Statutes of 1889, cannot be maintained until the primary liability of the bank has accrued. Section 190 of the Code provides that the plaintiff in a civil action may have an attachment against the property of the defendant upon certain grounds. The ninth ground is that the debt was fraudulently contracted, or the obligation fraudulently incurred. [700] The provisions of section 230 of the Code allow an action upon a claim before it is due and an attachment for causes therein stated, but these causes do not embrace the ground of fraud as stated in section 190. It seems proper, therefore, to regard the indorsement and guaranty in this case as being governed by the rules ordinarily applicable to such transactions. We conclude that the petition and affidavit in attachment were insufficient to support the attachment proceedings, that the action was prematurely brought, and that the ruling of the trial court upon the motion to discharge the attachment was correct. The order and judgment discharging the attachment will be affirmed.