Morrison Co. v. F. M. Bank , 9 Okla. 697 ( 1900 )

Opinion of the court by The plaintiff in error, A. Morrison, was a wholesale fruit dealer in Oklahoma City, doing business as A. Morrison Co. Porter Brothers company were fruit jobbers in Chicago, Illinois, and Los Angeles, California. The defendant in error, the Farmers and Merchants Bank of Los Angeles, was a banking corporation, organized under the laws of the state of California, and doing business at Los Angeles. In December, 1897, Morrison ordered a carload of oranges and lemons from Porter Brothers company, to be shipped from California to Arkansas City, Kansas. The fruit was shipped on December 15, and on the same day Porter Brothers company made a draft on Morrison for the full value of the shipment, $711.25, payable to the order of the Farmers and Merchants Bank of Los Angeles, due in fifteen days, and delivered the draft with the bill of lading attached, to that bank. The bank took the draft and also an assignment of the bill of lading, and gave the Porter Brothers company credit on their deposit account with the bank for the face value of the draft. The draft was then forwarded by the payees to the State National bank at Oklahoma City, for presentation to Morrison for acceptance. The car of fruit had not arrived as promptly as Morrison had anticipated, and he claimed to have been damaged by the delay; but he accepted the draft, obtained the bill of lading, and received the fruit. When the draft became due he refused payment, and the Bank of Los Angeles sued him on the acceptance. The bank claimed to be a bona fide holder for value before acceptance or notice of infirmaties.

Morrison answered, denying that the bank of Los Angeles was a bona fide holder for value, but alleged that the bank held the draft as agents for Porter Brothers company, for collection, and also set up claim for $300 damages by way of set-off, occasioned by alleged breach of contract in shipment of the fruit.

The case was tried to the court, and judgment rendered in favor of the bank for full amount of draft, with interest. Morrison appeals.

Two questions are presented and argued in the briefs. First. Was there such a breach of contract as would entitle Morrison to damages as against Porter Brothers company? Second. Was the Farmers and Merchants Bank a bona fide holder for value of the draft so as to cut off any defense that Morrison had against the drawers of the draft?

In our judgment the determination of the latter question is decisive of the case. This is an action on a foreign bill of exchange by the payees against the acceptor. It is a well-settled rule of law, that an acceptor of a bill of exchange will not be permitted to vary his liability from that which is apparent upon the face of the bill, by setting up against bona fide holders for value, who took the bill before maturity, statements made by the drawers to the drawees whereby they were induced to accept the bill, and we have been unable to find that any distinction is made in this respect between holders of bills who took them before acceptance, and those who took them afterwards.

Failure of consideration as between the drawer and drawee is no defense in an action by the payee or holder against an acceptor, if the payee or holder took the bill before maturity in good faith and for value. (Hoffman Co. v. Bank ofMilwaukee, 12 Wallace, 181; Goetz v. Bank of Kansas City,119 U.S. 551; The United States v. The Bank of Metropolis, 15 Peters, 114; Heuertematte v. Morris, 101 N.Y. 63; Dreilling, v.First Nat'l. Bank, 43 Kans. 197; Fort Dearborn Nat'l. Bank v.Carter, Rice Co. 152 Mass. 34; Arpin v. Owens,140 Mass. 144.)

The Bank of Los Angeles was in this case both the payee and holder of the bill at the time of its acceptance, and at the time suit was brought.

No defense that Morrison had for damages against Porter Brothers company could have been set up in this case against the holder of the bill, unless it was shown that the bank was not a bona fide holder for value.

Section 3297, Statutes Oklahoma, 1893, provides:

"The signature of every drawer, acceptor and indorser of a negotiable instrument is presumed to have been made for a valuable consideration, before maturity of the the instrument, and in the ordinary course of business."

Under this rule the Bank of Los Angeles is presumed to have taken the draft for a valuable consideration before maturity, and in the ordinary course of business, or in other words, the holder of a bill of exchange is presumed as against the acceptor to be a bona fide holder for value. The burden was on Morrison to overcome this presumption by proof, otherwise the bank was entitled to judgment for the face value of the draft with interest.

It appeared from the evidence that at the time the draft was taken by the bank no money was actually passed to Porter Brothers company. This firm had been doing business with the bank for about ten years, and was one of its regular customers. It was the practice of the bank during the fruit shipping season to allow the company to make drafts on its customers to whom shipments were made for the value of the shipment, and on assigning the bill of lading to the bank as collateral security and attaching the same to the draft, the bank cashed the draft by giving the company credit on its deposit account for the full amount of the draft. The company was permitted to check against this deposit to its full amount. When the draft was paid, the proceeds belonged to the bank. In the particular transaction under consideration, when the company made its shipment of fruit to Morrison, it made a draft on Morrison payable to the bank after fifteen days, for the sum of $711.25 and assigned the bill of lading to the bank. The bank took the bill of lading and draft, and gave the company credit on its deposit account, with $711.25. The bank became the owner of the draft with the bill of lading as its security. Did this transaction constitute the bank a holder for value? By entering the value of the draft to the credit of the company on deposit, it parted with nothing of value. The relation of debtor and creditor was created; but this was only a promise to pay on check, and did not constitute an actual payment.

The adjudications are to the effect that a mere discount and credit does not constitute a bona fide purchaser for value. To be such, the holder of the bill must actually part with something of value for it; and where a bank cashes a bill of exchange for the drawer, and places the proceeds to the credit of the drawer without actually paying out any funds, such bank does not become a bona fide holder for value until the deposit is drawn on or checked out. (Manufacturers National Bank ofRacine v. Newell, 71 Wis. 309; Mann v. The Second National Bankof Springfield, 30 Kansas, 412; Fox v. Bank of KansasCity, 30 Kansas, 441.)

But if the bank pays such deposit before it receives notice of any infirmities, it does become a purchaser for value, and its right to recover cannot be defeated by reason of any defense against the drawers of the bill or draft. (Goetz v.Bank of Kansas City, 119 U.S. 551; First National Bank ofDetroit v. Burkham, 32 Mich. 328; Mann v. Second National Bank,34 Kan. 746.)

From the evidence introduced in relation to the state of the bank's account with the Porter Brothers company, it is not made clear whether or not the funds placed to the credit of the company were paid out by the bank prior to the acceptance of the bill of exchange by Morrison. The draft was cashed on December 15, 1897, and the deposit entered as of same date. The company was not in debt to the bank, and it was checking against its deposit regularly in due course of business. The depositions of the cashier of the bank and the manager of the Porter Brothers company at Los Angeles were taken in March, 1898. At that date there was still a balance to the credit of the company more than sufficient to pay the draft in question. How this account stood between the date of the draft and time of taking the depositions is not made to appear. It may have been all drawn out the next day after the draft was taken by the bank; or it may have been overdrawn or the balance may have been increased and kept above the sum called for by the draft at all times since. We are unable to tell from this testimony whether or not the bill was paid for by the drawers drawing out the amount of the draft before the acceptance.

What is the effect of this state of the evidence? The presumption is that the bank was a purchaser for value. In order to overcome this presumption and let in Morrison's defense as against the drawers of the draft the burden was cast upon him of showing that the bank was not a holder for value. This could not be done by showing that the bank entered the proceeds of the draft as a credit on its bank books. It was necessary to go further, and show that the deposit was not withdrawn by the drawers or on their orders, prior to the acceptance of the bill by Morrison.

This same question was before the supreme court of Kansas in the case of Mann v. Second National Bank of Springfield, 34 Kansas, 746, and in the syllabus it is said:

"Mere evidence that at the time when such instrument was discounted by a bank, the bank merely gave credit for the amount of the instrument to the person selling the same, who had an account with the bank, without showing the state of the account at that or at any other time, will not of itself and alone prove that the bank was not a purchaser for value."

In the case of Dreilling v. National Bank, 43 Kan. 197, it was held that although the balance due the depositor from the bank continued to remain equal to or greater than at the time the discount was made, and credit given, yet if the sum on deposit at the date of the credit was drawn out prior to the acceptance, the paying out of such deposit would constitute the bank a purchaser for value, so as to cut off equities of the acceptor.

And in the case of Fox v. Bank of Kansas City, Mr. Justice Brewer said the rule of applying payments to the oldest debts is applicable in a case of this character, and if the bank exhausted the amount on deposit in the bank at the time it became the owner of the bill, including the credit given for the purchase of the paper in question, the paying out of such deposit would constitute the bank a purchaser for value, although by other deposits made there was still a balance due the depositor.

As there is no evidence to show that the bank had not paid on checks of Porter Brothers company an amount equal to their balance of deposits to their credit at the time it purchased the draft from them, including the amount credited as proceeds of draft, we cannot say that the evidence is sufficient to overcome the presumption which the law furnishes in favor of the bank.

The law applicable to and governing negotiable instruments and commercial paper must not be liberally construed in order to enable one who has voluntarily become obligated on such paper to escape liability. When Morrison accepted the draft in question, he entered into a new contract with the Bank of Los Angeles, based upon the consideration from Porter Brothers company to him, by which he undertook to pay the bank the full amount of the draft. By this means he obtained possession of the bill of lading which was the bank's security, and accepted the property described in the bill of lading; at the time he wrote the acceptance he had full knowledge of all the matters he now relies upon to defeat the effect of his acceptance. There are no equities in his favor as against the bank, whatever they may be as to Porter Brothers company.

There is a suggestion in the brief to the effect that Morrison had a right to revoke his acceptance. There is no evidence that he ever made any effort to revoke his acceptance. He has attempted to defeat it, but not to revoke it. Both under the statute and the adjudicated cases, an acceptance must be revoked before delivery to the holder. When Morrison endorsed his acceptance on the draft and delivered it to the State Bank, the agents of the holders of the draft, the delivery was complete to the holders, and he could not then revoke his acceptance.

We find no error in the record. The judgment of the district court is affirmed, at costs of plaintiff in error.

Burwell, J., having presided in the court below, not sitting; all of the other Justices concurring.