Houck v. Bank of Brinkley

REED, District Judge. This action was commenced originally in the United States District Court for the Eastern District of Missouri by the Bank of Brinkley, an Arkansas corporation, which will be called the plaintiff, against the defendants Louis Plouck and Mary PI. G. Houck, his wife, citizens and residents of Missouri, upon a promissory note which reads in this way: “$5,000.00. St. Louis, Missouri, May 1st, 1914. “Six months after date, for value received, I, we, or either of us, promise to pay to the order of ourselves five thousand and no/100 dollars at the office of Bankers’ Trust Company of St. Louis, at St. Louis, Mo., with interest from date at the rate of 8 per cent, per annum until paid. Interest payable annually. Defaulting interest to bear same rate of interest as principal. The makers, sureties, indorsers and guarantors of this note hereby severally waive demand, presentment for payment, notice of nonpayment, protest, notice of protest, and diligence in bringing suit against any party thereto, and consent that the time of payment may be extended without notice thereof, and further agree that, in case payment of this note shall not be made at maturity and the same is placed in the hands of an attorney for collection, they will pay the costs of collecting this note, including an attorney’s fee of 10 per cent, of the principal and interest thereof remaining unpaid. “Louis Houck. “Mary H. G. Houck.” Indorsed on the back of the note is the following: "Louis Houck. M. H. G. Houck.” The note was not paid at maturity, and shortly thereafter the bank had some negotiations with the makers looking to the payment of a part thereof, and an extension of time upon the balance, which were not consummated: The note was then placed in the hands of an attorney for collection, who on March 9, 1915, commenced suit against the defendants to recover the amount of such note and an attorney’s fee of 10 per cent, on the amount thereof. One of the plaintiff’s attorneys testified.upon the trial that: [883] “The note herein sued upon was sent to us for collection. Before filing-suit, we took up the matter of collecting this note with Mr. Houck, one of the defendants, and requested that it bo paid. Mr. Houck did not pay it, and he was notified that, unless it was paid, suit would he instituted. Mr. Houck offered to make arrangements to pay a part of the note, and offered to secure the balance, but would not pay the 30 per cent, attorney fee. He never made a legal tender of the money for the principal sum of this note, or any part of it, nor for the principal sum and the attorney’s commission of 10 per cent. for collection. The firm of Oliver & Oliver had a conference with Mr. Giboney Houck, son of the defendants, in our office, before the institution of this suit. I finally concluded that the defendants would not pay the note, and this suit was instituted. The note was not paid at maturity, and the law firm of Oliver & Oliver had considerable correspondence with the defendants with reference to the said note. In all we spent several days’ time in attempting to collect this note before bringing suit.” This is all of the testimony in the record. Thereupon, a jury having been waived, the court entered judgment in favor of the Rank of Brinkley against defendants for the principal sum of the note and interest, amounting to $5,347.77, and for 10 per cent, attorney’s fees, amounting to $534.77, making a total of $5,882.84, to which judgment the defendants excepted, and prosecute this writ of error to reverse the same. The only controversy between the parties is as to the attorney’s fee. The defendants maintain that the stipulation in the note to pay 10 per cent, attorney’s fee is in the nature of a penalty, only to cover the reasonable cost of an attorney’s fee for the collection of the note, of which cost there is no evidence, and therefore the judgment for the attorney’s fee is unauthorized, and cite Mechanics’ American National Bank v. Coleman, 204 Fed. 24, 122 C. C. A. 338, in support of their contention. In that case this court held, upon full consideration and citation of authorities, that under the Missouri statute: “A provision in a note, that it it is not paid when due, and is placed in ihe hands of an attorney for collection, the maker will pay the holder Xt> i>er cent, additional on the principal and interest due as an attorney’s fee, is in the nature of a penalty arid will not be enforced, except to provide indemnity fco the holder,” and “in general, no allowance will be made for attorney’s fees in an action on a note” containing a provision for such fees, “in the absence of evidence as to the value of the attorney’s services.” Whether or not that rule should be followed in this case we need not now determine, for, aside from this, there is an insuperable obstacle to-sustaining this judgment. The action, as before stated, was originally brought in the court below by the Bank of Brinkley, an Arkansas banking corporation, upon this note. That note is one payable to bearer upon its indorsement by the payees as makers, and negotiated by them, and the title thereto passed by delivery to the Bank, of Brinkley as shown at page 5 of the record. The Negotiable Instruments Law is in force in Missouri. Revised Statutes of Missouri 1909, c. 86. Section 10001 provides: “An instrument is negotiated when it is transferred from one person to another in such manner as to constitute the transferee the holder thereof. If payable to bearer it is negotiated by delivery; if payable to order it is negotiated by the indorsement of the holder completed by delivery.” [884] Section 10002: “The indorsement must be written on the instrument itself or upon a paper attached thereto. The signature of the indorser, without additional words, is a sufficient indorsement.” Section 10004: “An indorsement may be either special or in blank; and may also be either restrictive or qualified, or conditional. A special indorsement specifies the person to whom or to whose order the instrument is to be payable; and the indorsement of such indorsee is necessary to the further negotiation of the instrument. An indorsement in blank specifies no indorsee, and an instrument so indorsed is payable to bearer, and may be negotiated by delivery.” The note in suit is made by the defendants Houck to the order of themselves. Upon the back thereof they have written their names, which is an indorsement in blank, and is-payable to bearer upon its negotiation by the makers. Section 24 of the Judicial Code, defining the original jurisdiction of the District Courts of the United States, provides: “The District Courts shall have original Jurisdiction as follows: “First. Of all suits of a civil nature, at common law or in equity, * * * where the matter in controversy exceeds, exclusive of interest and costs, the ■sum or value of three thousand dollars, and * * * (b) is between citizens ■of different states. * * * No District Court shall have cognizance of any suit (except upon foreign bills of exchange) to recover upon any promissory note or other chose in action in favor of any assignee, or of any subsequent holder if such instrument be payable to bearer and be not made by any corporation, unless such suit might have been prosecuted in such court to recover upon said note or other chose in action if no assignment had been made. * * *” The note in suit 'would therefore be payable to bearer under the ■commercial law, or the law merchant, and is so payable under the Negotiable Instrument Daw in force in Missouri. The plaintiff alleges in the petition that by their promissory note, ■dated St. Douis, Mo., May 1, 1914, defendants promised and agreed for value received, to pay themselves, six months after the date of said note the sum of $5,000, a copy of which note is attached and marked Exhibit A. Plaintiff further states that afterwards defendants Douis Houck and Mary H. G. Houck severally indorsed said note in blank, by signing their names on the back thereof, and delivered the same to the Bankers’ Trust Company, which afterwards and before maturity sold and delivered the same for value and in the usual course of business to plaintiff. In Kolze v. Hoadley, 200 U. S. 76, 82, 26 Sup. Ct. 220, 222, 50 L. Ed. 377, the Supreme Court, in construing this clause of section 24 of the Judicial Code above set out, said: “Tbe decisions of tbis court bave settled tbe following propositions: (1) That a suit to recover tbe contents of a promissory note or other cbose in action is a suit to recover tbe amount due upon sucb note, or tbe amount claimed to be due upon an account, personal contract, or other cbose in action. * * » (3) jThat tbe bill or other pleading must contain an averment showing that tbe suit could bave been maintained by tbe assignor if no assignment bad been made.” [885] [\, 2] The note in question is payable to the order of the makers thereof, and is not a liability of such makers until it is negotiated or transferred by them,. The petition alleges that it was first indorsed by the defendants in blank, and delivered to the Bankers’ Trust Company, which afterwards and before maturity sold and delivered the same in the usual course of business to the plaintiff. The instrument in suit is made payable upon its face at the office of the Bankers’ Trust Company at St. Louis, Mo. From this it appears to be a corporation or association of Missouri, which could not maintain an action thereon in the federal court against the defendants as makers who are citizens of Missouri. The instrument, therefore, only became an obligation of the makers when it was indorsed by them, and put in circulation, and in this manner, under the allegations of the petition, came to the plaintiff, Bank of Brinkley, and as there is no averment in the petition that the Bankers’ Trust Company of St. Louis could have brought suit thereon in the federal court, the petition fails to show that the United States District Court for the Eastern District of Missouri had any jurisdiction of this controversy. It follows that the suit should have been dismissed by the District Court upon its own motion for want of jurisdiction. Mansfield, C. & L. M. Ry. Co. v. Swan, 111 U. S. 379, 382, 4 Sup. Ct. 510, 28 L. Ed. 462; Morris v. Gilmer, 129 U. S. 315, 325, 9 Sup. Ct. 289, 32 L. Ed. 690; Crehore v. Ohio, etc., Ry. Co., 131 U. S. 240, 9 Sup. Ct. 692, 33 L. Ed. 144; Swift v. Hoover, 242 U. S. 107, 37 Sup. Ct. 57, 61 L. Ed. 175. In New Orleans v. Quinlan, 173 U. S. 191, 193, 19 Sup. Ct. 329, 43 L. Ed. 664, the certificates sued upon were made by the defendant city, a corporation, and the Circuit Court therefore had jurisdiction because of that fact. The judgment of the District Court is reversed, at the cost of the defendant in error, Bank of Brinkley, and the cause remanded to that court, with directions to dismiss the suit without prejudice and at plaintiff’s costs of that court, for want of jurisdiction. Ordered accordingly.