text:
    Arkansas Valley Bank v. Kelley.
    Opinion delivered February 27, 1928.
    1. Banks and banking — effect of accepting check. — Where a bank receives, a check, not for collection, but as so much money, and places the amount to the credit of a customer, it assumes liability for such amount to all persons to whom the customer may give checks.
    2. Principal and agent — ratification. — Ratification of the unauthorized acts of an agent, in order to render them binding-on the principal, must have been made with the knowledge of all material facts, and ignorance of such facts will render an alleged ratification ineffectual.
    3. Principal and agent — liability of principal for agent’s overdraft. — Where a bank permitted an unauthorized agent to overdraw his account, it cannot recover the amount of the overdraft from the agent’s principal upon a mere showing that the principal received the proceeds of the overdraft, without knowledge of all the circumstances, as, when demand for restitution is made, the principal cannot be placed in statu, quo.

    • 4. Principal and agent — liability for agent’s overdraft. — A bank crediting a check to an agent’s account as a cash deposit, and not for collection, could not, after such check proved to be worthless, recover from the undisclosed principal who had innocently received the proceeds thereof by the agent’s check, where the' prin-. cipal could not be placed in statu quo.

    Appeal from .Sebastian 'Circuit Court, Fort Smith District; J. Sam Wood, Judge;
    affirmed.

      Warner, Hardin & Warner, for appellant.

      Daily & Woods, for appellee.
   Smith, J.

At the trial from which this appeal comes the court made a finding- of fact which presents the issues in the case. "Without reciting the testimony, it may be said that the finding of fact is largely in accord with the undisputed testimony, and," as to any matters about which there was a conflict, is supported -by substantial testimony. We -therefore assume the facts tó be as found by the court. ' This finding is as follows:

“During the season of 1925 H. J. Payne acted as agent for Leigh Kelley for the sale of the latter’s potatoes, under a verbal contract, by the terms of which Payne was required to find purchasers, deliver to them the potatoes, collect the purchase price, and remit the proceeds, less his commission, to the defendant Kelley. That, pursuant toi such contract, Payne sold, among others, three cars of potatoes belonging to Kelley, Patty and Rogers to one H. W. Burrough, and took the latter’s check for the sum of $1,664.68 to cover the purchase price, said check being drawn on the Bank of Lavaca and payable to ‘H. J. Payne & Sons’; that said sale was made on the sole judgment of Payne, and the identity of the purchaser was not known to Kelley and associates. That said check was indorsed by Payne, the name of Kelley and his associates not appearing thereon, and deposited in his (Payne’s) checking account with plaintiff bank in the name of H. J. Payne, Agent. That Payne was acting as agent for some fifteen or twenty other growers of potatoes under similar contract, and deposited the proceeds of all sales made by him for all growers in this same checking account; that he remitted to all such growers by check drawn on said account; that Kelley and his associates had no knowledge of the fact that collection from Burrough had been made by check payable to Payne; that, in accepting such check from Payne and in crediting the amount thereof to Payne’s checking account, plaintiff had no knowledge of Payne’s agency for Kelley.and associates in the matter of the sale of potatoes, nor of his agency for various other potato growers; that, in so crediting such cheek to the account of Payne, plaintiff relied solely on the indorsement and credit of Payne; that, subsequently to the indorsement, deposit and crediting of the Burrough check, as aforesaid, Payne remitted to Kelley by checks drawn on said account for seven or eight cars of potatoes which he had sold for Kelley, such remittances including, among other cars, the three cars sold to Burrough; that said checks so'drawn by Payne to Kelley on the plaintiff bank were presented by Kelley to plaintiff for payment and were b3^ plaintiff paid; that thereafter the Burrough check was returned to plaintiff unpaid, resulting in an overdraft in the said account of Pa3me with plaintiff; that plaintiff made demand on Payne to make good the overdraft, ¡but made no demand on Kelley for nearly two months after the overdraft was created. That plaintiff did not notify Kelley or his associates that it would look to them for payment of the overdraft for said period of nearly two months; that, after demand was made on- Kelley, plaintiff accepted a payment of $100 from Burrough on said overdraft account. That the checks given by Payne to Kelley were accepted by Kelley in good faith in payment of amounts which he was entitled to receive from Pane; that said checks were presented by Kelley in good faith to plaintiff for payment, and were deliberately paid by plaintiff.”

Upon this finding of fact the court declared the law as follows:

“That, in the transaction between plaintiff and Payne, Payne was acting for himself, and not for Kelley and associates; that Kelley and associates are not liable to plaintiff as undisclosed principals of Payne; that, in accepting Burrough’s check and crediting it to Payne’s checking account, and in paying the checks of Payne drawn against it, plaintiff elected to rely solely on the credit of Payne; that the return of the Burrough check unpaid merely resulted in an overdraft of Payne’s account wdth plaintiff, for which overdraft plaintiff’s recourse is against Payne and Burrough alone.”

Upon this finding of fact and declaration of law, judgment was rendered in favor of Kelley and his tenants, all of whom were sued by the bank for the amount . of the check drawn by Burrough in payment of the three cars of potatoes sold by Payne to Burrough belonging to Kelley and his tenants, for which cheek the bank had given Payne credit, who remitted the proceeds to Kelley by check drawn upon the account of Payne, as agent, with the plaintiff bank, and this appeal is from that judgment.

Appellant insists, for the reversal of the judgment of the court below, that the declaration of law is not supported by the finding of fact made by the court, as it appears from the facts found by the court that Kelley and his tenants were the undisclosed principals of Payne, their agent, and received the benefits of the transaction by . which Payne procured the money from the plaintiff bank. It is insisted that, as Payne was the agent for an undisclosed principal who received the proceeds of the worthless check deposited by him, the principal should be held liable for the amount of this check as for money had and received to the account of the principal. The plaintiff bank asked findings to this effect, which the court-refused to make, and the plaintiff duly excepted to this refusal.

Payne and Burrough were made defendants to this suit, and judgment was recovered against them for the want of an answer.

It appears that, before the institution of this suit, Burrough had agreed with the plaintiff bank to repay the amount of his worthless check at the rate of $100 per week, and that, pursuant to this agreement, a payment of $100 was actually made, but, as Burrough defaulted in the subsequent payments, the bank brought this suit, and has recovered judgment against both Payne and Bur-rough for the amount of the overdraft, less the hundrcddollar credit.

Appellees insist that, the bank having elected to sue Burrough and Payne, cannot also pursue the inconsistent remedy of suing them. As we have concluded that the declaration of law above quoted is correct, we do not consider or decide whether the bank is barred from suing Kelley, having sued Kelley’s agent and Burrough.

It will be borne in mind that Payne employed his own method of making collections for the potatoes sold for the account of Kelley and his tenants and other-potato growers, and all money so received by Payne was placed to the credit of his account as agent. But Kelley was not Payne’s only principal, as all growers for whom Payne sold potatoes were also his principals, and there was no disclosure to the bank that Kelley was one of these. It was within the discretion of the bank to have accepted Burrough’s check for collection for Payne’s account, or to accept it as a cash deposit for that amount, and it elected to take the latter action. It was not induced to do so upon the faith of Kelley’s credit or Payne’s agency for Kelley, as Kelley was not known in the transaction. •

In the case of J. M. Robinson & Co. v. Bank of Pikeville, 146 Ky. 538, 142 S. W. 1065, it was held by the Court of Appeals of Kentucky (to quote a syllabus) that, “where a- bank receives, not for collection, but as so much money, a check, and places the amount to the credit of a customer, it assumes liability for such amount, to all persons to whom the customer may give checks.” The opinion in that case quoted from the case of First Nat. Bank of Cincinnati v. Burkhardt, 100 U. S. 686, 25 L. ed. 766, as follows:

“When a check on itself is offered to a bank as a deposit, the bank has the option to accept or reject it, or to receive it upon such conditions as may be agreed upon. If it be rejected, there is no room for any doubt or question between the parties. If, on the other hand, the check is offered as a deposit and received as a deposit, there being no fraud and the check genuine, the parties are no less bound and concluded than in the former case. Neither can disavow or repudiate what has been done. The case is simply one of an executed contract. There are the requisite parties, the requisite consideration, and the requisite concurrence and assent of the minds of those concerned.”

No question is made here about the good faith of the bank, or of that of Payne or Kelley. A loss has been sustained, which some innocent person must suffer, and the question is, Where must that loss fall?

In the case of First Nat. Bank of Detroit v. Burkham, 32 Mich. 328, the facts were that the drawees of a bill, the genuineness of which was not disputed, sought to recover from the payees the amount of the bill, which they had accepted and paid. The ground upon which the drawees sought to recover was that they had paid under a mistake of fact, which mistake consisted in their security from the drawer of the bill being fictitious, when they supposed it to be genuine and reliable. Upon these facts Judge Cooley,-speaking for the Supreme Court of Michigan, there said:

“It is no.t claimed in this case that, if the drawees had relied upon the responsibility of the drawer, and that had failed them, they would have had any ground of recovery against the payees. But we think it would be an exceedingly unsafe doctrine in commercial law, that one who has discounted a bill in good faith, and received in its payment the strongest possible assurance that it was drawn with proper authority, should afterwards hold the moneys subject to such a showing as the drawee might be able to make as to the influences operating upon his mind to induce him to make payment. The beauty and value of the rules governing commercial paper consist in their perfect certainty and reliability; they would be worse than useless if the ultimate responsibility for such paper, as between payee and drawee, both acting in good faith, could be made to depend on the motives which influenced the latter to honor the paper.
“The best view that can be taken of this case for the plaintiffs below is that there was a mutual mistake of fact under which the bank discounted and the drawees paid the bill. Conceding this, why should the drawees be allowed to transfer the loss, to the bank? Usually, when one of two parties equally innocent must suffer, the law leaves the loss where it has chanced to fall; but, in a case like this, if the law should assist either party on the ground of mutual mistake, it certainly should not be the drawees. This suit seeks to reverse the rule of commercial law, and transfer from the acceptor to the payee the responsibility which the former assumes by acceptance, and which the law leaves there.
“So far we have assumed that the bank discounted the bill in good faith and for value. We think this not open to question on the facts. The amount was put to the credit of the drawer, and drawn against. The previous transactions cannot affect this unquestionable fact.”

Appellant concedes that the transaction would be' a closed incident, and that the loss would be upon the bank, where it fell, but 'for the fact that Payne was the agent of Kelley and his tenants in selling the potatoes, and it is insisted that, inasmuch as Kelley and his tenants received the benefits of the transaction, they are liable as for money had and received.

It does not appear, however, that the law supports this contention under the facts as found by the, court.

In 2 O. J., chapter “Agency,” after stating the proposition that the principal must ratify the whole of the agent’s unauthorized act or not at all, and cannot accept its beneficial results and at the same time avoid its burdens, and that if the principal, with full knowledge of all the material facts, takes and retains the benefits of the ° unauthorized act of the agent, he thereby ratifies such • act, it is said, at § 115 of this chapter:

“Nor does the general rule apply where the principal is legally entitled to what he has received without assenting to the act of the agent, and he does not otherwise .give his approval to such act, or where the benefit received by the principal is merely incidental and arises out of a credit extended by a third person to the agent individually, or where the other party to the transaction did not deal with the agent as such, but in his individual capacity.” And further: “The mere fact that the principal has received or enjoyed the benefits of the unauthorized act will not amount to a ratification if he did so in ignorance of the facts. * * * A principal also has a right to receive money from an agent in payment of' a debt due from the latter, without inquiry as to the source from which it came, and, if it is in good faith so received and applied by the principal, its' subsequent retention, after he learns that it was procured through an unauthorized transaction entered into by the agent in his name, will not amount to a ratification of such transaction.”

Among the cases cited in the note to the text quoted is that of Martin v. Hickman, 64 Ark. 217, 41 S. W. 852. In that case Hi clonan sued Martin upon an alleged contract made by Clary as agent of Martin, whereby Hickman conveyed a town lot to Martin, it being alleged that Clary agreed that Martin would assume the payment of a certain note for $147 which Hickman owed. On conflicting testimony the jury found that Clary had made the agreement, and that finding was not disturbed on the appeal. It was denied by Martin that he had authorized that action, or had ratified it, but the jury also found against Martin on that contention. In holding* that the last finding* was not sustained by the testimony, although Martin had accepted the benefits of Clary’s trade, the court there said:

“It is well settled that ratification of the unauthorized acts of one who assumes to be an agent, in order to render them binding on the principal, must have been made with the knowledge of all material facts, and that ignorance of such facts will render an alleged ratification ineffectual and invalid. Lyons v. Tams, 11 Ark. 189; Combs v. Scott, 12 Allen (Mass.) 493; 1 Am. & Eng. Enc. Law (2 ed.), 1189, and cases cited.

“A principal will not be considered as having ratified an unauthorized act of his agent merely because he receives property and avails himself of the advantages derived from such act, when he did not learn that such agent had exceeded his authority until after he had sold the property, and after the circumstances were such as to put it beyond his power to return or restore the property. Bryant v. Moore, 26 Maine 84, 45 Am. Dec. 96; Thacher v. Pray, 113 Mass. 291, Am. Rep. 480; Brown v. Wright, 58 Ark. 20, 22 S. W. 1022, 21 L. R. A. 467. In this case the evidence is uncontradicted, not only that Martin had never authorized Clary to agree for him that he would assume and pay tile- $147 sued for, but also that he had no notice of such a claim on the part of Hickman until long* after he had sold the property received from Hickman. ’ ’

In Case v. Hammond Packing Co., 105 Mo. App. 168, 79 S. W. 732, the facts were that King was the agent of the packing* company, with authority to sell meats and to collect and remit the sales price to the packing company. The plaintiff, Case, was engaged in the banking business, and King opened an account with him in the name of “The Hammond Packing Company- — -W. A. King,” to the credit of which King deposited his individual funds and his collections for the packing -company, and against which he checked in his individual business. Prom time to time King drew checks on this account in his individual name, which he sent to the packing company as proceeds of meats sold by him. This mode of business continued for several months, until King finally drew two checks, aggregating $1,581, which overdrew the account that amount. , The bank demanded that the packing company make the overdraft good, upon the theory that it had received the benefit thereof from its agent. In other words, the suit was for money had and received, as in the instant ease. The packing company refused to pay, upon the ground that it had never authorized the opening of the account, and did not know that it had been opened until the bank demanded payment of the overdraft. The testimony showed that the agent King did not have any authority to represent the packing company, except to sell its meats and -collect and remit the proceeds of such sales.

So here, there was the same limitation upon Payne’s authority, and the cases are therefore identical, except that, in the packing company case, the bank knew who the agent’s principal was, a fact unknown to the appellant bank in the instant case, and except also that Payne did not have an account with appellant bank in his principal’s name, as did the agent King in the packing company case.

In holding that the packing company was not liable for this overdraft, although it had received the proceeds of the checks which produced it,- the court said: “Such agency (as King had) did not authorize him to open a bank account for defendant (the packing company), nor to borrow money for it. Nor did such agency confer an apparent authority on King, justifying plaintiff (the bank) in believing réal authority existed.” It was there further said:

“But it is said that defendant received King’s checks on the plaintiff bank, and must have known of the account. The cheeks were notice.to defendant that King had an account with plaintiff, but not that it had. Indeed, King’s individual checks could not lead one to suppose they were drawn on his principal’s account, for such checks would not authorize payment out of the principal’s money. Ihl v. Bank, 26 Mo. App. 129. There was nothing shown from which it can be inferred that defendant ratified King’s act in overdrawing. As has been already stated, the defendant did not know that King had opened an account in its name. It did not know that the money which it received was an overdraft on such account. It received and accepted the money as money due from King, which he had collected from customers. Money is a current fund, which any one, without notice, has a right to.receive in good faith in payment of a debt, without inquiry into the source from which it comes; and the person so receiving it cannot be compelled to restore it to him who was the true owner. Stephens v. Board of Education, 79 N. Y. 183, 35 Am. Rep. 511; Hatch v. Bank, 147 N. Y. 184, 41 N. E. 403; Justh v. Bank, 56 N. Y. 478; Smith v. Bank, 107 Iowa 620, 78 N. W. 238. But it is said by plaintiff that defendant received and kept the money represented by the overdraft. That fact does not create a liability against defendant. If money due a principal from his agent is obtained by such agent by the unauthorized use of the principal’s name, and'paid over to the principal, who receives it in good faith, without notice, he is not liable to the party from whom the agent got the money. The fact that he keeps the money after being informed of how the agent obtained it is not a ratification. Thacher v. Pray, 113 Mass. 291, 18 Am. Rep. 480; Baldwin v. Burrows, 47 N. Y. 212; Gulick v. Grover, 33 N. J. Law 463, 97 Am. Dec. 728; Bohart v. Oberne, 36 Kan. 284, 13 Pac. 388; Pennsylvania Co. v. Dandridge, 8 Gill & J. 323, 29 Am. Dec. 543; Lime Rock Bank v. Plimpton, 17 Pick. 159, 28 Am. Dec. 286.”

We are not required to approve all that was there said to find authority in that case for denying appellant bank the right to recover from Kelley.

Another case very similar in principle to the instant case is that of First Nat. Bank of Owenton v. Sidebottom, 147 Ky. 690, 145 S. W. 404. We do not review the decision of the Court of Appeals of Kentucky in that case, as it would unduly lengthen this opinion to do so, but we quote a syllabus which reads as follows:

“A deputy sheriff, having an account with a bank, drew his checks on other banks payable to it, and gave to the sheriff two checks equal in amount to the checks so drawn, and, on presentation by the sheriff’s bank, they were paid before one of the cheeks drawn by the deputy was returned not paid for want of funds. Held, in the absence of any agreement on the -part of the sheriff, that, if the checks drawn -by his deputy were not paid he would refund to the bank the money paid to him, the bank could not recover; the fact that the drawer of the checks was a deputy of the defendant not conferring any greater rights on the bank.”

As bearing upon this question and supporting the view that a bank, which permits an unauthorized agent to overdraw his account, cannot recover the amount of the overdraft from the principal, upon a mere showing that the principal received the proceeds of the overdraft, where, when demand for restitution is made, the principal cannot be placed in statu quo, see the following cases: Merchants’ Nat. Bank of Peoria v. Nichols & Shepard Co., 223 Ill. 41, 7. L. R. A. (N. S.) 752, 79 N. E. 38; Guaranty Bank & Trust Co. v. Beaumont, etc. (Tes. Civ. App.), 218 S. W. 638; Sanborn v. First Nat. Bank, 115 Mo. App. 50, 90 S. W. 1033.

Here Payne employed his own means of collecting and remitting the proceeds of potatoes sold by him. Kelley had no control over Payne’s account with the bank, and could only credit Payne’s account with the Checks drawn in his favor against it. Kelley was not advised of the overdraft until two months thereafter, during which time the potatoes had, no doubt, been eaten or planted or otherwise consumed, and the status quo could not be restored.

Some innocent person must suffer, and, as the bank’s eleotion to treat as a cash deposit the check from Payne by Burrough, instead of receiving it for collection, as it might have done, caused the loss to fall upon it, the loss must remain there. This was the judgment of the court below, and it will therefore be affirmed.


source: Caselaw Access Project

author: Kirby, J.

license: Public Domain

text:
    Lindsey v. State.
    Opinion delivered February 27, 1928.
    1. Larceny — sufficiency of evidence. — Evidence held sufficient to sustain a conviction of grand larceny.
    2. Criminal law — hearsay testimony. — Though it is competent for defendant to introduce proof tending to show that the crime was committed by another, a statement or even an extrajudicial confession of the latter was inadmissible, being merely hearsay.
    3. Criminal law — error not assigned in motion for new trial.— Alleged error in rendering a judgment on a verdict, as being indefinite and uncertain as to. the offense charged, will not be considered, where it was not assigned as error in the motion for new trial.
    . 4. Criminal law — sufficiency of verdict. — Under an indictment charging grand larceny and knowingly receiving- stolen property, a verdict of guilty as charged in the indictment was not so indefinite and uncertain as to render a judgment thereon erroneous, where the State’s testimony was directed, and the court’s instructions related, to the charge of grand larceny.
    Appeal from Pulaski Circuit Court, First Division; Abner McGehee, Judge;
    affirmed.

      John D. Shackleford, for appellant.

      H. W. Applegate, Attorney General, and Darden Moose, Assistant, for appellee.
   Kirby, J.

This appeal comes from, a judgment of conviction for the crime of grand larceny. It is assigned as error that the evidence is insufficient to support the verdict, and that the court erred in excluding certain testimony.

The testimony discloses that a Ford touring car, of the value of $400, was stolen from P. N. Wilkenson, in the city of Little Rock, about 10 o'clock on the night of Marsh 5, 1927. The car was later found in July in possession of one Mun Hunter, near Toltec, Arkansas, who testified that he purchased it from appellant, agreeing to pay him $125 therefor, and did pay him $12 of the purchase money and kept the car from March to July. Stated that Henry Ploward was present when he purchased the car, and also that he knew Son Hunter, who lived in North Little Rook, and was present at the dance the night he purchased the car.

Henry Howard testified that he was present when Mun Hunter purchased the car from appellant, and saw him make the payment and take charge of the oar.

Lindsey testified that he did not steal the car, and denied that he had sold it to Mun Hunter, and that he had anything to do with it at all. Said that the statement made by Mun Hunter and Henry Howard was untrue; that he knew nothing about the taking of the car, and the first time he ever saw it Mun Hunter and Son Hunter were riding in it in town, and denied that Mun Hunter had ever paid him a cent on the car. Stated that Son Hunter had the car at his girl’s house, in North Little Rock, and hung around there for nearly a year. Parked the oar in front of her house, and sometimes in the back yard. Said that Son and Mun Hunter were supposed to be brothers; that he never talked to Mun Hunter about the car, but did ask Son Hunter where he got it, while the car was kept at the girl’s house, and he replied that he 'bought it. Said also that Son Hunter told him, during the conversation, that he, appellant, knew nothing about the car. Denied that he saw Mun Hunter at a dance in March. Admitted that he knew the car Son Hunter had at the girl’s house was the car that was taken from Mun Hunter, and which wais claimed to have been stolen.

Another witness testified that he knew the Hunters and the girl, and that Son Hunter lived with her, and that he had seen this car at her place, kept there by Son Hunter, as. much as two or three weeks at a time. That he had seen Son and Mun Hunter in the car together at the girl’s house several times. That he first saw Son Hunter with the oar at the girl’s house before it ever went to Toltec, and that, after it was taken down there, he saw both Son and Mun Hunter riding in it.

The evidence is not disputed that the car was stolen recently before it was found in the possession of Hunter, who, with other witnesses, testified he had purchased it’ from appellant, who admitted that he knew the car taken from Mun Hunter was claimed to have been stolen.

The jury evidently believed Hunter’s story about having purchased it from appellant, and found accordingly, and the evidence is legally sufficient to warrant the conviction. Daniels v. State, 168 Ark. 1083, 272 S. W. 833; Mays v. State, 163 Ark. 232, 259 S. W. 338; Sons v. State, 116 Ark. 357, 172 S. W. 1029.

The second assignment, that the court erred in excluding from the jury appellant’s statement that Son Hunter had said to him, while he was in jail, “I know you don’t know anything about it yourself,” referring to the taking of the automobile. This was a self-serving declaration, and, although it was competent for the defendant, in order to show his imlocence, to introduce proof tending to show the .crime was committed by another person, the statement of such third person, or an extrajudicial confession even, would merely have been hearsay, and was not admissible. Tillman v. State, 112 Ark. 236, 166 S. W. 582; Spurgeon v. State, 160 Ark. 112, 254 S. W. 376.

It is argued that the court erred in rendering a judgment upon .the jury’s verdict, which, it is claimed, is not definite and certain as to the offense of which appellant was found guilty. It is true appellant wTas charged with grand larceny and knowingly receiving’ stolen property, and the jury rendered a verdict finding him “guilty as charged in the indictment,” hut this was not assigned as error in the motion for a new trial, and need not be considered. The State’s testimony, however, was directed to the charge of grand larceny, and the court’s instructions related thereto, and virtually amounted to an election to prosecute upon that charge.

We find no prejudicial error in the record, and the judgment is affirmed.


author: W. H. Rector, Special Judge. Humphreys, J.

text:
    Briscol v. American Southern Trust Company.
    Opinion delivered April 2, 1928.
    1. Bills and notes — transfer of note after maturity. — The fact that a note is transferred after maturity is of no importance except as to equities between the prior parties, the rule being thatan indorsee or transferee after maturity takes subject to defenses between the original parties.
    2. Bills and notes — transfer after death of maker. — The death of the maker of a note does not in any way affect its negotiability.
    3. ' Pledges — transfer of collateral security. — Where a hank had •a right to sell a note secured by a certificate of deposit, it was authorized to transfer the collateral security as an incident of the sale.
    4. Subrogation — rights of one secondarily liable on note. — One who is compelled to pay a note on which he is secondarily liable is subrogated to all the rights of the payee.
    5. Subrogation — payment of note. — The right of subrogation to the payee’s right on payment of a note extends, not only to indorsers, but also to sureties and guarantors.
    6. Subrogation — rights of party subrogated. — Where one who is secondarily liable is required to pay a note, secured by collateral, he acquires title to the note, and becomes owner of attached collateral.
    7. Pledges — sale of note secured by collateral. — In a sale of a note secured by collateral, the collateral passes as a mere incident of the sale of the note.
    8. Pledges — transfer of collateral. — Where a bank held a note secured by collateral, the note being past due and the maker dead, held that it had a right to deliver the note with attached collateral when paid by any one whose liability thereon was fixed, either as surety, guarantor, or indorser.

      9. Bills and notes — effect of signing note after maturity.— Where a bank had a note of a dead maker which was past due, and the brother of the maker and the administrator of the maker’s estate signed their names on the note, held that the brother so signing was not an indorser, within the Negotiable Instruments Law (Crawford & Moses’ Dig., § 7830), defining the liability of an irregular indorser, and § 7832, fixing the liability of general indorsers.
    10. Contracts — collateral contract. — -Where a brother and administrator of decedent’s estate signed a note of decedent after maturity, and executed another note in their name in consideration of the hank’s foregoing foreclosure of collateral given by decedent to secure his note, held that the undertaking was a distinct contract collateral to the original undertaking of the decedent and supported by sufficient consideration.
    11. SkiBROGATiON — right to collateral. — Where the brother of a deceased maker of -a note indorsed the note, which was secured by collateral, after its maturity, held that, on being- compelled to pay the note, whether as guarantor or surety, he would he subrogated to the rights of the payee and to receive the collateral.
    12. Bills and notes — guaranty.—Where a brother of the deceased maker of a matured note signed it after maturity, in consideration that the- bank holding the note should agree to forego foreclosure of collateral security, he was a guarantor.
    13. Subrogation — rights of guarantor. — One who becomes guarantor of another’s note without the knowledge or consent of such other and who by reason of his guaranty pays- the note becomes by operation of law the purchaser of the debt, stands in the shoes of the principal creditor, and as such is entitled to all collateral.
    14. Principal and surety — -liability of guarantor. — Under Crawford & Moses’ Dig., § 7762, designating those primarily liable on a note, the liability of a guarantor as distinguished from that of surety is secondary.
    15. Subrogation — right of guarantor. — The right of a guarantor to subrogatio-n by reason of payment of the principal’s debt does not exist unless the payment was made by one who was at the time required to- pay it; and, if he paid it prior to the maturity of the debt, he will be regarded as a stranger to the debt.
    16. Pleading — motion to make complaint more definite. — In an action against a bank for conversion of collateral, if the complaint failed to show that, at the time of delivery of the collateral to the guarantor, he was legally obligated to pay thg debt, held that the hank should have, by motion in lower court, requested that plaintiff be required to allege facts with more definiteness.

      17. Bills and notes — eights op stranger purchasing negotiable paper. — -A stranger may purchase negotiable paper, either before or after maturity, in which event the paper is not discharged, and he becomes the holder of the same with all the rights of the assignor, including the right to receive such collateral as his assignor may have had.
    18. Bills and notes — purchase op note by stranger. — -Where a stranger pays another’s note, he is presumed to have purchased the same, and the note is not discharged.
    19‘. Bills and notes — -presumption as to purchase op note by stranger.- — While the payment of another’s note by a stranger is presumed to have been a purchase, suoh presumption is not one of law, but of fact, and may be rebutted.
    20. Pledges — effect op payment op another’s note. — In an action against a bank for conversion by delivery of collateral to the brother of deceased maker of a matured note, where the complaint was silent as to whether the note was delivered to the brother, and it did not appear from the complaint whether the note was marked “Paid,” or whether it was delivered with intention that it was not being discharged, but that title thereto was merely being transferred together with collateral, held that as a matter of law -the court could not say that such payment was made by a purchaser.
    21. Bills and notes — payment op note-by stranger. — -Under Crawford & Moses’ Dig., § 7885, providing that payment by or on behalf of the maker of a note will discharge it, payment of a note by a stranger, if made for and on behalf of the maker, will discharge the debt.
    22. Bills and notes — payment op note by stranger. — Under Crawford & Moses’ Dig., § 7885, providing that payment of a note by or on behalf of a maker will discharge it, payment by a stranger on behalf of himself with intention.of acquiring title to note and collateral attached does not discharge the note and debt, justifying delivery of the collateral to him.
    Appeal froga Pulaski Circuit Court, Third Division; Marvin Harris Judge;
    reversed.

      Kirby & Hays, for appellant.

      Trieber & Lasley, for appellee.
   W. H. Rector, Special Judge.

Appellant sued appellee in trover, charging it with the conversion of certain collateral which had been deposited with it to ' secure a note executed by his intestate. A g*eneral demurrer to the complaint was. sustained, and, the plaintiff refusing: to plead further, the action was dismissed. This appeal therefore involves the sufficiency of the complaint as tested fay the demurrer.

Briefly stated, the allegations in the complaint were as follows: The appellee, a hank at Little Bock, held a negotiable promissory note of appellant’s intestate, M. C. Pappas, in the principal sum of $700. This note was secured by a certificate of deposit in the Banque Nationale de Greece of the alleged value of $5,000. When this note matured, its maker had died, and the appellant, as administrator, was without funds with which to pay the note a,nd redeem the collateral. At this time the appellant and IT. C. Pappas, a brother of the deceased, entered into an agreement with the bank whereby they indorsed their names upon the past-due note of the deceased, and at the same time gave a new note executed by them individually, to serve as a renewal or a continuance of the old note.

The allegations, with respect to the new note were as follows: “Plaintiff states that, after the death of the said M. C. Pappas, he, together with the said H. C. Pap-pas, a brother of deceased, put their indorsement upon said note past due, and also executed a new note individually to cover said loan and to serve as a renewal or continuance of said original note.”

The complaint further alleges that the bank did not present its claim for allowance by the administrator and did not have it probated.

After the extension agreement above referred to, but before the expiration of the time for probating claims against the estate, the complaint alleges that the appellee “accepted payment of its note from H. C. Pappas, the brother of the deceased, and wrongfully delivered *at the time to H. C. Pappas the said security held by it, which was of the value of $5,000, against his directions and over his protest, and refused to deliver same to this plaintiff, upon proper demand made therefor, thus converting said securities unlawfully to its own use.” It is further alleged that the estate of the deceased was insolvent.

Appellant contends for a reversal of the judgment upon the ground that, after the maturity of the note and the death of the maker, it ceased to be negotiable, and that the delivery of the note, with the collateral attached, amounted to a conversion,, for which the appellee was liable. He cites the case of Union & Mercantile Trust Co. v. Harnwell, 158 Ark. 295, 250 S. W. 321, as controlling the judgment in this case. The appellant also contends that H.' C. Pappas was not an indorser of the old note within the méaning of the law relating to the rights and liabilities of an indorser of commercial paper.

Whether or not an instrument is negotiable or non- . negotiable depends upon our statute (§ 7767, C. & M. Dig.). An instrument once negotiable continues to be negotiable until it is discharged in the manner prescribed by the law (§ 7885-7886), or until it is restrictively indorsed. The note of the deceased at the time it was negotiated was without question a negotiable instrument, and, there being no contention that there was ever at any time a restrictive indorsement thereon, it continued to be negotiable, unless it had been discharged. Whether the act of H. C. Pappas, the brother of the deceased, in paying the note, operated as a discharge thereof, will be considered in a later portion of the opinion. We are now concerned with the effect, if any, upon the negotiability of. the note of the fact that it had matured and its maker had died at the time of the execution of the so-called renewal note.

A majority of the court is of the opinion that the death of the maker and the maturity of the note did not destroy its negotiability. “The fact that a bill or note is transferred after maturity is of no importance except as to equities between prior parties, the rule being that an indorsee or a transferee after maturity takes subject to defenses between the original parties.” 8 C. J., Bills and Notes, paragraph 58.

To hold that a note, once negotiable, becomes nonnegotiable after maturity or after the death of the maker, would- entirely destroy that security which heretofore has attended the making and negotiation- of commercial paper. The channels of commerce are daily flooded with millions of such instruments, and it is indispensable to the transaction of business that one who acquires such an instrument shall .be protected in his ownership and shall not be required to ascertain what in the greater majority of cases would be an impossible thing, to-wit, whether the maker or drawer had died. One who makes and negotiates a promissory note obligates himself to pay the amount named therein upon its maturity, or at any time thereafter, until the paper is discharged in one of the ways recognized by the statute. The death of a maker of a note does not in any way affect its negotiability. Clark v. Thayer, 105 Mass. 216, 7 Am. Rep. 511. We therefore hold that the fact that the maker of the note was dead and the note was past due did not in any wise affect the rights of the bank with respect to its transfer, and that it had a right to sell this note, although its maker was dead and it was past due; and, having a right to sell the note, it also had the right to transfer the collateral as an incident of the sale.

A majority of the court is also of the opinion that any one who was secondarily liable on the note would, when- compelled to pay the same, be subrogated to all the rights of the payee. It is conceded by the appellant that this is true with respect to indorsers, but it is contended that H. C. Pappas was not, in contemplation of law, an indorser. The right of subrogation extends not-only, to indorsers but also to sureties and guarantors. 37 Cyc. 402; Talbot v. Wilkins, 31 Ark. 411, 12 R. C. L., p. 1098.

It is thoroughly settled that, when one who is secondarily liable is required to pay a note secured by collateral, he acquires title to the note, which is not discharged by his payment, and becomes the owner of the attached collateral. In Goss v. Emmerson, 23 N. H. 38, a note was paid by an indorser who was secondarily liable thereon, and it was delivered to him, together with the attached collateral, and he had thereafter wrongfully converted such collateral to his own use. The court held that the indorser, being required by law to pay the note, was entitled to all of the rights against the principal creditor which had previously been held by the holder of the note, including the collateral, and that the fact that the indorser wrongfully converted this collateral to his own use would not render the holder of the note liable as for conversion. In Waddle v. Owen, 43 Neb. 489, 61 N. W. 731, the note, secured by collateral, was paid by an indorser, and was by the holder transferred to the indorser, tog-ether with the attached collateral. The court held that the holder of a negotiable instrument secured by collateral had a right to negotiate it and to transfer the securities with it at any time before payment or tender of payment. The court said:

“The bill being negotiable, Waddle had a right to transfer it by indorsement to Hainer, and to transfer with it the accompanying securities. There is a vast difference between the position of a pledgee who retains the principal debt and wrongfully parts with the securities pledged thereto, and that of one who, in the regular course of business, transfers the debt, and with it the securities, without diverting the latter from the purpose for which they were pledged. The first act constitutes a conversion, the latter does not.” See also Chapman v. Brooks, 31 N. Y. 75; Jones on Collateral Securities (3d .ed.) §§ 418, 421, 425.

It is equally well settled that the holder of negotiable paper secured by collateral may sell the paper with the collateral attached, and his purchaser takes title to the paper and such rights as he had in the pledged collateral. That was in effect the holding of this court in Whitney v. Peay, 24 Ark. 22.

In Bank of Forsyth v. Davis, 113 Ga. 341, 38 S. E. 836, 84 Am. St. Rep. 248, the holder of negotiable paper secured by collateral sold the paper and transferred the collateral to a third person. The court held that this was not a conversion of the collateral, but that the purchaser ' of the note took title thereto and that the collateral passed to him as an incident of the transfer. “As the security (collateral) is a mere incident of the original debt, just as a mortgage is a mere incident of the debt secured, an Assignment of the debt passes either a legal or an equitable interest in the pledge, unless it is otherwise agreed between the parties.” Jones on Collateral Securities (3d ed.), § 418. And the same author, at § 425, says: “ A payee of a negotiable • note, holding other notes as collateral security, may lawfully transfer the collateral notes to an indorsee of the principal note, * * * and if the indorsee to whom the securities are transferred converts them to his own use, the original payee is not liable in trover for such conversion.” See also on the general proposition: 31 Cyc. 849; Hawkins v. Fourth National Bank, 150 Ind. 117, 49 N. E. 957.

When the maker of a note negotiates the same, with collateral attached, he is presumed to know that, under the law, the original payee has the legal right to sell the note and transfer the collateral, and this right exists in the original payee by virtue of his contract with the maker. “One who makes a negotiable promissory note and delivers it to another is charged 'by the law with notice that the payee of such note has the right to transfer it, by sale or otherwise, to whomsoever he may see proper.” Bank of Forsyth v. Davis, supra. And, as. stated above, the purchaser takes such collateral as may be attached as security to the note as a mere incident of the sale and transfer.

From what we have said above it is obvious that the aupollee had the legal right to deliver the note, with attached collateral, upon its payment -by any one'whose liability thereon had been fixed either as surety, guarantor or indorser, and that it equally had the right to sell the note to a stranger and to transfer the collateral to the purchaser of the note. It is therefore now necessary to determine whether H. C. Pappas was liable as surety, guarantor or indorser, and, by reason of such liability, was required to pay the note, or whether H. C. Pappas was a stranger to" the note, and, if so, whether, as such stranger, he paid the note in such a manner as would discharge it, or whether he purchased the same.

"We are of the opinion that H. C. Pappas was not an indorser within the meaning of the Negotiable Instrument Law. Before the adoption of that law in this State, one who indorsed commercial paper after it had been put in circulation was not an indorser, but a guarantor. Killiam v. Ashley, 24 Ark. 511, 91 Am. Dec. 519; Scanlon v. Porter, 64 Ark. 470, 42 S. W. 897. The adoption of the Negotiable Instrument Law does not, in our opinion, change that rule. .Section 7830, C. & M. Digest, prescribes the liability of an irregular indorser; that is, one who, not otherwise a party, places his name upon an instrument, and this indorsement must be before delivery of the paper. The liability of a general indorser is fixed by % 7832, C. & M. Digest, and, under this section, such indorser “engages that, on due presentment, it shall- be accepted or paid, or both, as the case may 'be, according to its tenor, ’ ’ etc. The note being past due at the time H. C. Pappas placed his name upon it, he could not have engaged that., upon due presentment, it would be paid according to its tenor. At that time there could be no due presentment and the note could not be paid “according to its tenor.” But, because H. C. Pappas was not an indorser, it does not necessarily follow that he was a stranger to the note. He could, and did, make himself liable thereon to the bank by signing his name thereon and by executing the so-called renewal note. That, in our opinion, under the allegations of the complaint, was a separate and distinct contract, collateral to the original undertaking of the deceased, and supported by a sufficient consideration — the agreement of the bank‘temporarily to forego its undoubted right to foreclose its collateral.

It is sometimes hard to say whether a given contract is one of surety or guaranty. The terms are frequently loosely employed by the courts and in the textbooks. There are, however, certain well recognized distinctions between the two relations. The subject was considered by this court in Hall v. Equitable Ins. Co., 126 Ark. 535, 191 S. W. 32; Shores-Mueller Co. v. Palmer, 141 Ark. 64, 216 S. W. 295; Broomer Lbr. Co. v. Hickman, 71 Ark. 549, 76 S. W. 559; Wilks v. Vaughan, 73 Ark. 174, 83 S. W. 913. See 28 C. J. 889-894.

But, whether H. C. Pappas was a guarantor or a surety, his. right, upon being compelled to pay the note, to be subrogated to the rights of the payee and to receive the collateral, was the same. 37 Cyc. 402.

It is sufficient here for us to say that we believe the contract between the bank and H. C. Pappas, which was undoubtedly made for the benefit of the estate o.f the deceased, was a contract of guaranty.

We find it unnecessary to pass upon the question as to whether the administrator could consent to H.’ C. Pappas becoming a guarantor. One who becomes the guarantor of another’s contract without the knowledge or consent of such person, and who, by reason of his guaranty, pays the principal creditor, becomes by operation of law the purchaser of the debt, stands in the shoes of the principal creditor, and, as such, is entitled to all collateral. Leslie v. Compton, 103 Kan. 92, 72 Pac. 1015, L. R. A. (N. S.) 1918F, 706; Teberg v. Swinson, 32 Kan. 24, 4 Pac. 83; Carter v. Jones, 40 N. C. (5 Ired. Eq.) 196, 49 Am. Dec. 125; Wright v. Garlinhouse, 27 Barb. (N. Y.) 474; Marsh v. Hayford, 80 Me. 97, 13 A. 271; Hecker v. Mahler, 64 Ohio St. 176, 60 N. E. 555; Snell v. Warner, 63 Ill. 176; Peak v. Dorwin, 25 Vt. 28.

It therefore becomes immaterial whether the administrator consented to the contract of guaranty or whether in law he could consent thereto.

The liability of a guarantor is secondary. C. & M. Dig., § 7762; Crawford v. Turnbaugh, 80 Ohio St. 43, 98 N. E. 858; 2 Daniel, Negotiable Instruments, §§ 1753-1754. It is otherwise with a surety. Hall v. Equitable Ins. Co., supra; Shores-Mueller Co. v. Palmer, supra. As said in the last cited case: ‘ ‘ The contract of a surety starts with the agreement, and the liability of a guarantor is established for the first time with the default of the principal debtor.”

In this case the act of the appellee bank in taking a new note executed by the appellant personally and by H. C. Pappas, the brother of the deceased, amounted to an extension of the debt. Until this extension note, which was in itself the contract of guaranty, matured, the appellee bank had no right to proceed against the 'estate of the deceased, nor had it any right to proceed against H. C. Pappas. His guaranty was that the estate of the deceased would pay the note on or before the maturity of his note. There was no liability upon his part to pay until his note matured. If he paid the note prior to that time, his act was tantamount to the act of a stranger, against whom there was no liability. In order that the guarantor may be subrogated to the rights of the creditor, upon paying the debt, the payment must be made at a time when he was legally required to make it. 37 Cyc. 375 et seq.; 37 Cyc. 407. The right to subrogation does not exist unless the payment was made by one who at the time was required by law to pay. 5 Pomeroy’s Equity Juris., § 2345 et seq., 2 Story’s Eq. Juris. (14 ed.), § 717 et seq. Of course, if Pappas was not subrogated to the rights of the bank, it was not justified in delivering him the collateral. He was not legally required to pay the note of the deceased until the renewal note which he had executed matured, and if he paid it prior to that time, he will be regarded as a stranger to the debt. Martin v. Monger, 112 Ark. 394, 166 S. W. 566.

From this view of the law it becomes important to ascertain whether the complaint shows upon its face that, at the time H. C. Pappas paid the note of the deceased, he was legally required to pay the same — that is to say, that his note had matured. If this appears from the complaint, we unhesitatingly say that no cause of action was alleged against the appellee.

We are, however, from a careful examination of the complaint, unable to find any allegations from which a reasonable inference can be drawn that H. C. Pappas paid the note at a time when he was required to pay it under his contract with the bank. Indeed, the necessary inferences from the complaint are to the contrary. The complaint does not allege that H. C. Pappas was required by the bank to pay the note. On the other hand, it alleges that the appellee “accepted payment of its note from JEL C. Pappas, the ‘brother of the deceased, 'and wrongfully delivered at the time to IT. C. Pappas the said security,” etc. The inference is that the payment by H. C. Pappas was the result of a voluntary act upon his part, one not required by his legul obligation. The complaint alleges that the bank “accepted” payment, from which we are led to infer that the payment of the note by H. C. Pappas was not the result of his obligation, which might not yet have matured. The allegations as to the estate’s insolvency, being referable to the date the complaint was filed (January, 1926) cannot aid us in reaching a conclusion contrary to the one expressed. We are therefore unable to say, from the facts alleged, giving them every possible intendment in favor of the correctness of the lower court’s ruling on the demurrer, that it appears with certainty that at the time he paid the note he was legally bound to do so.

If the appellee ‘bank desired to justify its act in delivering the collateral to a guarantor, and the complaint failed to show, as we hold, that at the time of the payment of the note and the delivery of the collateral the guarantor was legally bound and obligated to pay the debt, it should have, by motion in the lower court, requested, that the plaintiff 'be required to allege the facts with more particularity.

It is earnesly insisted by the appellee that, if Pap-pas be considered a. stranger to the transaction, his payment of the note and the assignment to him thereof, together with the attached collateral, would make him a purchaser of the debt and entitle him to receive the collateral.

It is undoubtedly true, as shown above, that a stranger may purchase negotiable paper either 'before or after maturity, in which event the paper is not discharged, and he becomes the holder of the same with all the rights of his assignor, including the right to receive such collateral as his assignor may have had. It is also undoubtedly true that, where a stranger pays another’s note, he is presumed to have purchased the same, and the note is not discharged. Chappell v. McKeough, 21 Colo. 275, 40 P. 769; Bank v. Friend, 80 Mo. App. 657; Van Standt v. Hobbs, 84 Mo. App. 628; Ketchum v. Duncan, 96 U. S. 659, 24 L. ed. 868; Wood v. Guaranty Trust Co., 128 U. S. 416, 9 S. Ct. 131, 32 L. ed. 472; Barney v. Clark, 46 N. H. 514; Dent v. Matthews, 202 Mo. App. 451, 213 S. W. 141; People’s State Bank v. Dryden, 91 Kan. 216, 137 Pac. 928; McDonald v. Burns, 83 Fed. 866. The last cited' case is an opinion by the Circuit Court of Appeals for the Eighth Circuit (judgment was rendered by Sanborn and Thayer, Circuit Judges). See also on this point, 3 Randolph on Commercial Paper, §§ 1438-1440.

An examination of the authorities just cited will disclose the fact that, while the presumption is, as stated above, that the payment of a note by a' stranger is a purchase thereof and not a discharge, yet, in the final analysis, it is a question of the intent of the parties, which is to be gathered from all the facts and circumstances. This presumption is not one of law, it is a presumption of fact, and may be rebutted.

In construing the allegations of the complaint with respect to whether or not the act of H. C. Pappas in paying the note (assuming that he was a stranger in so doing) amounted to a purchase thereof and not a discharge of the paper, we find that the complaint is silent on the question as to whether the original note, or any note, for that matter, was delivered to H. C. Pappas. It does not appear from the complaint whether the note was marked paid by the bank or whether it was delivered to Pappas with the intention and understanding that the note was not being discharged but that the title thereto was merely being transferred to Pappas as a purchaser, together with the collateral, which he was to hold as security for the payment of the note. We cannot say, as a matter of law, and in the teeth of allegations apparently to the contrary, that the payment of the note by H. C. Pappas made him a purchaser thereof, although, when the facts and circumstances are fully shown, such may be the legal effect thereof.

Our statute provides that payment of a note by or on behalf of the maker will discharge it. C. & M. Dig., § 7885. Hence payment of such note by a stranger, if made for and on behalf of the maker, would discharge the debt. If H. C. Pappas paid this note for and on behalf of his brother, the note was discharged, and he was not entitled to the collateral. If, on the other hand, he paid it for and on behalf of himself, with the intention thereby of acquiring title to the note and its attached collateral, the note'was not discharged, and the bank was justified in delivering him the collateral. .

The complaint might have been fuller on this point, and a motion to make more definite and certain would lie. We cannot say, however, that it was bad upon demurrer, whether H. C. Pappas be treated as a party secondarily liable or as a stranger.

We may add that if H. C. Pappas was a purchaser of the, note, or if he paid the same at a time when he was leg'ally required to do so, the case of Union & Mercantile Trust Co. v. Harnwell, supra, has no application.

From what has been said it follows, that the judgment of the lower court is reversed, and the cause remanded with directions to overrule the demurrer and for further proceedings in accordance with law and not inconsistent with this opinion.

Mr. Justice .Smith, Mr. Justice Humphreys and Mr. Justice McHaney dissent.

Mr. Justice Kirby did not participate.

dissenting opinion.

Humphreys, J.

This is an appeal from a judgment dismissing appellant’s complaint against appellee upon a failure to amend same, after a demurrer had been sustained thereto upon the ground that it did not state a cause of action. The complaint, omitting caption, is as follows:

. “Comes the plaintiff, Andrew Briscol, and states that M. C. Pappas departed this life on the —— day of --, 192|2, intestate, and that he was appointed administrator of the estate of the said M. C. Pappas on the 7th day' of June,_ 1922, by the probate court of Pulaski County, Arkansas, and duly qualified as such administrator; that at the time the Bapk of Commerce & Trust Company was a corporation, organized under the laws of the State of Arkansas, and doing a general banking business; that, subsequent to ■ said time, the American Southern Trust Company has become the owner and successor of the American Bank of Commerce & Trust Company, and is and has been, since its succession to the ownership of said American Bank of Commerce & Trust Company, engaged in the banking business in the city of Kittle Rock, Arkansas. Plaintiff states that, at the time of the death of said M. C. Pappas, the said American Bank of Commerce & Trust Company held a promissory note of said Pappas for the sum of $700, and to secure said -note he, the said Pappas, had placed as collateral a certificate of deposit, executed by the Banque Nationale de Greece, which certificate of deposit cost the said M. C. Pappas the sum of $5,000 of American money, and was of that value; said certificate maturing about April, 3924. Plaintiff states that, after the death of the said M. C. Pappas, he, together with the said H. C. Pappas, a brother of deceased, put their indorsement upon said note past due, and also executed a new note individually to cover said loan and to serve as a renewal or continuance of said original note. Plaintiff states that the said American Bank of Commerce & Trust Company failed ■ and refused to • present its debt for allowance by the administrator and to have same probated as the law directs, and that said claim of $700 has never been probated against said estate. Plaintiff states that, some time about the first day of April, 1923, the defendant, or the American Bank of Commerce & Trust Company, of which the defendant is successor, accepted payment of its note from H. C. Pappas, the brother of the deceased, and wrongfully delivered at the time to IT. C. Pappas the said security held by it, which was of the value of $5,000, against his directions and over his protest, and refused to deliver same to this plaintiff, upon proper demand made therefor, thus converting said securities unlawfully to its own use. Plaintiff states that there is a large amount of indebtedness against said estate, and that the other property belonging to same is wholly insufficient to pay same indebtedness, and that the said American Bank of Commerce & Trust Company is indebted to him, as administrator, in the sum of $5,000, the value of the said security held and wrongfully converted by the defendant, for his cost, and all proper and general relief.”

Appellant contends for a reversal of the judgment upon the ground that, after maturity of the note and the death of the maker, it ceased to be negotiable, and that the delivery thereof, with collateral attached, to an indorser who paid the note, amounted to a conversion of the collateral, and that appellee is responsible for the value thereof, less the amount of' the note and interest.

. The death of the maker and maturity of the note did not render it non-negotiable. The death of a maker does not affect the negotiability of paper, so far as transferring it is concerned, the only effect being that the assignee takes it after maturity subject to all defects and defenses the maker or prior holders might have. The indorsement of the note by appellant and H. C. Pappas and the execution of a new note by them for the purpose of renewing or continuing the original loan note with collateral attached had no other effect than obtaining an extension of the original note by giving additional security. The complaint does not allege that the new note was given in settlement of the old and that the collateral was released, but, on the contrary, alleges that it was given in continuation or renewal of the old note. The payment of the note by one of the indorsers, and the' delivery of the old note with collateral attached, amounted to a transfer of negotiable paper which carried the collateral as an incident, and did-not amount to a conversion of the collateral by appellee. The administrator still had and has the right to follow the collateral in the hands of H. C. Pappas, and recover any equity there might be after paying the note. The rule announced is sustained by the following cases: Bank of Forsyth v. Davis, 113 Ga. 341, 38 S. E. 836, 84 Am. St. Rep. 248; Goss v. Emmerson, 23 N. H. 38; Waddle v. Owen, 43 Neb. 489, 61 N. W. 731.

'The case of Union & Mercantile Trust Co. v. Harnwell, 158 Ark. 295, 250 S. W. 321, cited by appellant in support of his contention, is not in point. In that case the collateral was sold contrary to the pledged agreement, and the court ruled that it was an unlawful conversion of the collateral, while in the instant case there was no sale of the collateral at all. The note was assigned to H. C. Pappas by the bank when he paid the debt, and the collateral attached to the note passed tó H. C.. Pappas as an incident.

Mr. Justice Kirby not participating.


author: Mehaffy, J.

text:
    Pelt v. Dockery.
    Opinion delivered February 27, 1928.
    1. Deeds- — construction to give effect to every part. — In construing a deed, every part of the instrument should be given effect, if the same can he done consistently with the rules of law.
    2. Deeds — construction.—The fundamental rule in construction of deeds is to give effect to the intention of the party executing the instrument to be arrived at through the language used in the entire writing, and in some eases aided by extrinsic evidence of the maker’s intention, subject, however, to the general rule that an intention plainly expressed by the face of the instrument cannot be contradicted by parol.
    3. Deeds — construction to give effect. — A construction of an instrument which will deprive it of any effect will not be adopted, if it can be reasonably avoided, and the practical construction given the instrument by the parties may also be considered.
    4. Deeds — construction of instrument. — Where a husband “granted, bargained, sold, and conveyed” certain real estate to •his wife, with a statement that it was understood and agreed that the deed was to take effect and be enforced after his death, but that the title should remain in him as long as he lived, which instrument was not only executed and delivered, but was recorded, it was held to be a deed, and not a will.
    Appeal from Lafayette Chancery Court; J. T. Stevens, Chancellor;
    affirmed.

      R. T. Boulware, for appellant.

      Searcy & Searcy, for appellee.
   Mehaffy, J.

Appellants, plaintiffs below, filed suit in Lafayette Chancery Court against the appellees, defendants below, alleging, in substance, that A. B. Dockery and Minnie Dockery, his wife, being indebted to said John D. Pelt in the sum of $2,276, did on January 6, 1921, execute their promissory note for said sum, due in one year and two years after date thereof, bearing interest at the rate of 10 per cent, per annum from date until paid, and that, to secure the payment of said .indebtedness, defendants executed and delivered to plaintiff a deed of trust whereby they conveyed to Louie Pelt, as trustee, the northeast quarter of 'section-20, township 15 south, range 22 west, in Lafayette County, Arkansas. At the time suit was begun there was a balance due on said indebtedness of $1,948.87 and interest: Deed of trust was recorded. Minnie Dockery joined with her husband in said conveyance, and waived her rights of dower and homestead. A. B. Dockery died in 1923, leaving as his only heirs Ester Dockery, Lester Dockery, Jim Dockery, Berry Dockery, Dary Dockery, Daniel Dockery, Groodley Dockery and Odessa Wesley, the appellees, and others who were made parties and summoned, but who did not appear or make any defense.

The appellees claimed title to one-half of the above described land under the following instrument:

“Know all men by these presents: That I, A. B. Dockery, of Lafayette County, Arkansas, for and in consideration of the sum of one dollar to me in hand paid by Ju'lia Dockery, receipt of which is hereby acknowledged, -and for the further consideration of the love and affection I have and bear for my said wife, Julia Dockery, do hereby grant, bargain, sell and convey unto the said Julia Dockery and unto her heirs and assigns forever, the following lands lying in the county of Lafayette, and State of Arkansas, to-wit: East half of the northeast quarter of section twenty, in township fifteen south, range twenty-two west, containing 80 acres of land, more or less. It being understood and agreed that this deed is to take-effect and be in force after my death, and that the title to said land is to remain in me so long as I may live. To have and to hold the same unto the said Julia Dockery and unto her heirs and assigns forever, with all appurtenances theréunto belonging. And I hereby covenant with said Julia Dockery that I will forever warrant and defend the title to the said lands against all lawful claims whatever.

“Witness my hand and seal on this 22d day of September, 1906. (Seal) A. B. Dockery.”

Said deed was properly acknowledged and recorded on the same day.

Appellees were the only heirs of Julia Dockery. Julia Dockery died in 1910. Appellees asked that said deed of trust to Louie Pelt be canceled in so far as it concerned the land described in deed of A. B. Dockery of September 22, 1906. Plaintiff J. D. Pelt died while the suit was pending, and J. H. Landes was appointed administrator ad litem, and suit was revived in the name of the administrator ad litem.

Plaintiffs filed a general demurrer to defendants’ answer. Court overruled the demurrer, and rendered judgment in flavor of defendants. Plaintiffs exceppted, prayed appeal to the .Supreme Court, which was granted.

The only question for the consideration of this court is whether the instrument above set out is a valid deed, or whether it is of a testamentary nature, and void. The appellant contends that the following clause in the instrument, “it being understood and agreed that this deed is to take' effect and be in force after my death, and that the title to said land is to remain in me as long as I live,” makes it void because it is contended that it conveys nothing in praesenti. Appellant states that it does not appear that the precise question involved here has ever been before this court,' but attention is called to the case of Cribbs v. Walker, 74 Ark. 104, 85 S. W. 244. In that case the court said:

“The form is that of a deed, the words, ‘grant, bargain, sell and convey’ used, being appropriate to the office of the deed and inappropriate in a will. * * * The only words in them that can be said to be evidence of intention to make a will are, ‘and the deed shall go into full force and effect at my death,’ but we are to construe these words in connection with the whole deed. Every part must have its effect, if the same can be done consistent with the rules of law. ’ ’

The deed in the instant case has the clause, “it being understood and agreed that this deed is to take effect and be in force after my death, and that the title to said land is to remain in me so long as I live.” There is practically no difference between this clause and the clause in the ease above referred to, but in the instrument we are considering it is in the form of a deed, and uses the'words, “grant, bargain, sell and convey”; in fact all of the words necessary to make a valid deed. It was executed by Dockery on September 22, 1906, acknowledged the same day, and filed for record and recorded on the same day. It must be kept in mind that every part of the instrument must have its effect, if the same can be done consistent with the rules of law. Construed in this way, it was evidently the intention of Dockery to give the. land to his wife.

The appellant cites and relies on Murphy v. Gabbert, 166 Mo. 596, 66 S. W. 536, 89 Am. St. Rep. 733. The court held in that case that it was not the intention of the grantor to pass any present interest in the property.

There is a conflict in authorities on this question, but the decisions of this court are controlling, and settle the question in accordance with the decision in. the case of Cribbs v. Walker, supra.

When the whole deed is considered, it seems clear > that it was the intention of the grantor to deed the property to his wife. The rule of construction is that effect must be given to the intention of the party. “The fundamental rule in the construction of both wills and deeds is to give effect to the intention of the party executing the instrument, to be arrived at through the language used as found in the entire writing, construed in the light of all the attending circumstances, and in some oases aided by extrinsic evidence of the maker’s real intention; or, where the language of the instrument is doubtful, as to how he regarded the transaction, such aider, however, being subject to the general rule that intention plainly expressed by the face of the instrument cannot be contradicted by parol. ” 8 R. C. L., p. 931.

“There is more or less conflict of authority as to the effect of recitals attempting to postpone the operation of a deed until the grantor’s death. Many cases are to be found in which instruments containing such words have been construed as being testamentary, while others treat the words that the instrument is not to take effect until the death of the grantor, as a clumsy way of expressing’ that the deed is not to take effect in possession or in the enjoyment of the property until the grantor’s death. If it is necessary to hold that the instrument is a deed in order to uphold it, the general rule applies, of course, that the court will, if possible, so construe the instrument as to give it effect, and that a construction of an instrument which would deprive it of any effect will not be adopted if it can reasonably be avoided; and the practical construction given the instrument by the parties may also be considered, as where the grantor allows it to be recorded and permits the gradtee to sell the land, or where, in a partition suit brought by the grantor, both parties to the instrument treat it as a deed.” 8 R. C. L., p. 932-3.

When we consider the whole instrument, and keep in mind the fact that it was not only executed and delivered but recorded, and that there was no power of revocation, and the further fact that we should give the instrument such a construction as will uphold it if possible, it seems to us that the instrument must be construed as a deed. In the’case of Bunch v. Nicks, 50 Ark. 367, 7 S. W. 563, in construing a deed which provided, among other things, that it should not go into full force and effect until the grantor’s death, the court said:

“We think the instruments in question were valid deeds, and conveyed a present title to the donees, with the postponement of the right of the use and possession until the donor’s death. It is obvious that the intention of the donor was to give his property to the children •mentioned in the deeds, reserving the right to use and hold the same and to enjoy the profits thereof during his life. The evidence of this intention, afforded by the instruments themselves, are:' (1) The form is- that of a deed, the words, ‘grant, bargain, sell and convey,’ used, being .appropriate to the office of the deed, and inappropriate to a will. (2) They (contain a covenant of warranty, whereby the donor agrees to forever warrant and defend the title to the land to the donees and their heirs and assigns, against all lawful claims whatsoever. (3) The-donor himself calls them deeds of conveyance; and it is unreasonable to suppose he would call what he intended as a will deeds of conveyance. (4) They were executed, delivered and acknowledged as deeds. The only words used in them that can be said to be evidence of an intention to make a will are, ‘and the deed shall go into full force and effect at my death.’ But we are to construe these words in connection with the whole deed. Every part must have effect, if the same can be done consistently with the rules of law. Construed in this way, it is evident that the intention of Nicks was to give the land and sell the personal property he had at the time they were executed, to the grantees, and to reserve the use and enjoyment thereof for and during his life.”

Numerous authorities are cited in the above case, and it has since been followed by this court. See also, Seals v. Pierce, 83 Ga. 787, 10 S. E. 589, 20 Am. St. Rep. 344; Love v. Blauw, 59 Pac. 1059, 61 Kan. 496, 48 L. R. A. 257, 78 Am. St. Rep. 334; Pentico v. Hays, 88 Pac. 738, 75 Kan. 76, 9 L. R. A. (N. S.) 224.

The court below was correct in overruling the demurrer and in rendering the decree for appellees, and the decree is therefore affirmed.


text:
    Security Mortgage Company v. Harrison.
    Opinion delivered February 27, 1928.
    1. Mortgages — purchase op land by second mortgagee. — Where, after mortgaged lands had been sold at tax sale, the second mortgagee purchased them at a foreclosure sale, subject to the first mortgage, and thereafter purchased the lands from the tax purchaser, he gained a title clear of the first mortgage, where, not being in possession of the land, he was under no obligation to pay taxes or redeem from the tax sale.
    2. Mortgages — duty op second mortgagee to pay taxes. — A second mortgagee in possession, receiving the rents and profits from the mortgaged property, has -the duty to pay the taxes and prevent a forfeiture of the land through a tax sale.

      Appeal from Sevier Chancery Court; G. E. Johnson, Chancellor;
    affirmed.

      DuLaney Steel, for appellant.

      Steel & Edwards, for appellee.
   Mehaffy, J.

In March, 1919, T. A. Harrison and his wife, Bessie Harrison, being indebted to the Security Mortgage Company, a -domestic corporation, in the sum of $1,000, executed and delivered to said Security Mortgage Company á note bearing interest at the rate of 6 per cent, per annum, with coupon notes for interest, and to secure the payment of said notes, T. A. Harrison and Bessie Harrison executed and delivered to the Security Mortgage Company their real estate mortgage upon the south half of the northwest quarter of the northeast quarter of the southwest quarter and the west half of the southeast quarter and the east half of the southwest quarter, in section 35, township 8 south, range 30 west, containing 220 acres. The said Bessie Harrison, wife of the said T. A. Harrison, joined with her husband, and relinquished dower and homestead. The right of appraisement and redemption was waived.

After the execution of said mortgage, in .September, 1919, T. A. Harrison and Bessie Harrison, his wife, executed and delivered to M. A. Janes a warranty deed to the land described in the mortgage, and the said Janes assumed the mortgage debt as a part of the price of said land, land also executed his note for the sum of $550 for the balance of the purchase money, the grantors retaining a vendor’s lien for the unpaid purchase price. The mortgage company brought suit to foreclose its lien, alleging that its mortgage lien was superior and paramount to that of Janes.

Janes and wife, in January, 1921, executed and delivered a mortgage to C. E. Kitchens for $889.35. The Bank of Lockes'burg became owner of the notes, and brought suit and foreclosed the vendor’s lien, and a sale was ordered, subject to the lien of the mortgage of the Security Mortgage Company. The bank became the purchaser at the sale. The mortgage company asked that its lien be declared superior to the other liens mentioned. The Bank of Lockesburg answered, and filed a cross-complaint, alleging that the land was in Road Improvement District No. 2 of Sevier County, and that the benefit assessments were not paid, and the road improvement district brought suit to collect the assessments and a decree was rendered in the Sevier Chancery Court adjudging the .amount of taxes, penalties and costs against the lands above described, and ordering them to be sold in satisfaction thereof. A commissioner was appointed, the lands were sold by said commissioner and purchased by the road improvement district. Thereafter the commissioner -executed a deed conveying said lands to said improvement district, and this deed was acknowledged and approved in open court. Thereafter, on the 21st day of April, 1925, the commissioners of said district sold and conveyed the land to the said Bank of Lockesburg. A deed was executed and delivered by the road improvement district to the Bank of Lockesburg. The chancery court rendered a decree to the effect that the Bank of Lockesburg was the owner of the land involved, free and clear of any right, title, claim, interest or equity of the plaintiff; dismissed the plaintiff’s complaint for want of equity, and decreed the title to the land to be in the Bank of Lockesburg. The case was tried on an agreed statement of facts.

It is not necessary to copy the agreed statement of facts or to set out the facts in this opinion. The only question involved in the case is whether the bank, by purchasing the land from the road improvement district, acquired a title which was superior to the mortgage of the plaintiff. The bank had foreclosed a lien on the land, procured its sale, and purchased it subject to the mortgage of the Security Mortgage Company. The testimony shows that the bank paid the interest to the mortgage company for September, 1923, and March and September, 1924, and March, 1925. In April, 19'25, the road improvement district made a deed to the bank. The bank had purchased under foreclosure sale. Appellant’s contention is that, the bank being’ in possession of the land, and it being- its duty to pay the taxes in order to protect its own interest, its purchase from the road improvement district operates as a redemption, and that the lien of appellant is superior to any claim of the bank.

Road. Improvement District No. 2 of Sevier County was a road improvement district formed under the general laws, and the taxes became delinquent for the year 1921, a decree was rendered in November, 1922, against the delinquent lands, and a sale was made in December, 1922. On April 5, 1923, the Bank of Lockesburg purchased at foreclosure sale, subject to the plaintiff’s mortgage, and on that day a commissioner’s deed was executed and delivered to the Bank of Lockesburg to said land. The bank of Lockesburg’ thereby became the owner of said land on April 5, 1923. The deed from the commissioner to Road Improvement District No. 2 was on December '2, 1924, and in April, 1925, the road improvement district conveyed to the Bank of Lockesburg.

Appellee in its brief states: ‘ ‘ The only question for this court to determine is whether or not the appellee owed any duty to appellant to pay the taxes and special assessments charged against said lands for the year 1921. If it was under obligation to pay the taxes, then its purchase from the road improvement district should be treated as a redemption, but, on the other hand, if it owed no such duty to pay said taxes, its title, so 'acquired from the .improvement district, is superior to the title of appellant.”

At the time the lands became delinquent, in 1921, • the appellee was not the owner of the land, but he became the owner on April 5, 1923, after the lands had been sold for the payment of taxes and purchased by the district. If the -Bank of Lockesburg had been the owner at the time of the sale to the district, it would have been its duty to pay the taxes, but its interest at that time was the same as a-mortgagee. It held a note given for the purchase price of the land, it brought suit and foreclosed on this note and became the purchaser, but it did not become the purchaser until after the road improvement district had purchased the property, and it was therefore under no obligation to the mortgagee, Security Mortgage Company, to pay the taxes.

This court has recently said:

“The holder of the second mortgage was under no obligation to the holder of the first mortgage to redeem the lands in possession of the mortgagor from their sale for delinquent taxes, notwithstanding the owner was bound to the' payment of such taxes by the terms of the first mortgage. The appellant, under its mortgage, could have paid the taxes before the lands were sold as delinquent and charged them against the mortgagor, and it could have redeemed the lands in the manner provided by the act from the tax sale within the time allowed therefor for such sale. Appellant makes no showing of having been prevented'from either paying'the taxes or redeeming the lands by any conduct of the holder of the second mortgage calculated to lull him into security in the belief that such taxes would be paid or redemption would be made for his benefit. ’ ’ Security Mortgage Co. v. Herron, 174 Ark. 698, 296 S. W. 363.

At the time the taxes became delinquent and at the time the lands were purchased by the district, the Bank of Lookesburg was not the owner, and therefore under no duty to pay the taxes.

“A bidder to whom property has been struck off at a judicial sale may assign his bid before the deed has been delivered, and the deed will be made directly to the assignee and pass title to him.” 24 Cyc. 31; Wiltsie on Mortgage Foreclosure Sales (3 ed. vol. 1, § 678). “In the case of Wells v. Rice, 34 Ark. 346, the court said that a safe made under a decree of the chancery court is not completed until confirmed by the court, and a deed to the purchaser confers on him no right to the property. ” Purcell v. Gann, 113 Ark. 332, 168 S. W. 1102.

Appellant calls attention to the case of McFaddin v. Bell, 168 Ark. 826, 272 S. W. 62. This case holds that, when one purchases subject to a mortgage, this amounts to a recognition by the purchaser or second mortgagee that such mortgages as were on record were prior valid liens on the lands, so, when the Bank of Lockes'burg purchased the land, it purchased with the knowledge of the existence of the mortgage of appellant; but this does not mean that he owed any duty to the prior mortgagee to either pay the taxes or redeem from tax sales. Appellant argues that, since the Bank of Loekesburg was in possession of the land under its foreclosure of its second lien, receiving all rents and profits of "the land, it became and was the duty of the bank to pay the taxes, but we do not find any evidence supporting the position or contention that the bank was in possession, receiving the rents and profits. Of course, where one is in possession, receiving rents and profits from mortgaged property, he has money received from property itself with which to pay the taxes, and it has been held that, under such circumstances, he owes the duty to pay the taxes, but the evidence in this case does not show that the bank was in possession and does not show that it received any rents or profits from the property. Cotton v. White, 131 Ark. 273, 199 S. W. 116.

It is contended also by the appellant that the letters introduced show that the bank intended to pay the first lien. E. K. Edwards, who is said to have been the attorney for the bank at- the time, advised the mortgage company of the time of the sale, and stated that, if the bank became the purchaser at the sale, as it probably would, then the bank would pay the accrued interest on the loan and meet the other payments. This was a recognition of the prior lien of the mortgage company, but, even if competent evidence, it would not bind the bank to pay the taxes or redeem the land from tax sale. This letter was written in 1923, and the taxes 'became delinquent for the year 1921. Moreover, there is not any testimony that the bank authorized the letter or authorized any statement to be made justifying the conclusion that the bank had made'a promise to pay appellant’s debt or to redeem the land from tax sale. Besides, nothing in the letter indicates that the bank intended to pay the taxes or that the mortgage company could construe as a promise to pay the taxes or to redeem from the tax sales.

As said in the case of Security Mortgage Co. v. Herron, supra, “appellant makes no -showing of having been prevented from either paying the taxes or redeeming the lands by any conduct of the holder of the second mortgage calculated to lull him into security in the belief that such taxes would be paid or redemption would be made for his benefit.”

The appellant could have paid the taxes, it could have prevented any delinquency, it could have paid the taxes before the lands were sold as delinquent and charged them against the mortgagor, or it could have redeemed the lands in the manner provided by law, but it did not undertake to do either. It suffered the lands to become delinquent, permitted them to be sold, the sale to be confirmed, a deed executed to the road improvement district, and apparently took no-steps whatever to protect its interests.

We agree with contention of appellant that, if the bank was bound to pay the taxes to protect the prior mortgagee and permitted the same to forfeit, it would be treated as a redemption. It is also true that, if the proof showed that the bank was in possession, receiving the rents and profits, receiving the -money with which to pay the taxes, or if the bank had been the owner when the taxes became delinquent and the land sold, it would have -been its duty to pay.

We do not deem it necessary to call attention to other authorities, because we think the rule announced in Security Mortgage Company v. Herron, supra, is controlling in this case. We fincl no error in the decree of the chancery court, and it is therefore affirmed.