Kellogg v. Douglas County Bank

Allen, J.

The sufficiency of the record to present the errors complained of is challenged. If there are really three separate cases, it is difficult to see how all may be prosecuted on one record. Parkhurst v. National Bank, 55 Kan. 100. As all of the cases were tried together in the District Court, and all the parties laid claim to the attached property, and as all of the parties necessary to a consideration of the questions involved are made defendants in error in one or another of the petitions in error which are attached to the single case-made, we are inclined to treat the case here as a single one, and the three petitions in error as really one in substance. This practice, however irregular it may be, does not appear to prejudice the rights of any of the parties.

1. Petition presumed ammended, „ .... to”uppo™teflndí mgs ot court. I. A copy of the note attached to the petition of the Douglas County Bank fails to show any indorsement by Ewing to the plaintiff. It is urged that the note was entirely without consideration as between Kellogg and Ewing, and that there was neither allegation nor proof of such a negotiation as'would cut off Kellogg’s defense of -want of consideration. In answer to this, it is said that leave was taken by the plaintiff to amend the petition, and that, in support of the finding and judgment of the court, it must be inferred that an amendment was made showing that the note was properly indorsed. In the second paragraph of the facts as found by the trial court, we find the following : “ Said note was duly indorsed to the plaintiff herein, and said plaintiff became the owner and holder of said note before the maturity thereof, in good faith, for value, and in the regular course of trade and business, without notice of any defense that Kellogg might have to said note as against 0. T. Ewing.” On the trial, Mr. Sparr, the president of the Bank, testified, without objection, that the indebtedness to his bank on the note sued on was forty-one hundred dollars and accrued interest; that the Bank purchased it from Ewing’s Bank as a rediscount, and was the owner and holder thereof. The cross-examination was solely as to whether there should be a credit on the note. We find no statement in the case-made to the effect that it contains all the pleadings, nor is there anything from which we are required to infer that the petition was not amended so as to show a proper indorsement of the note. There is nothing indicating that the attention of the court was ever called to the want of a proper indorsement, and it seems altogether improbable that'the question now presented was ever really before the trial court. All presumptions are in favor of the judgment.

2 Bank may bind itself before authorfze°dby commissioner II. It was not necessary for the plaintiff to show that Ewing’s Bank had received a certificate from the Bank Commissioner, authorizing it to transact business, nor that the bank had transmitted the statement required by the Banking Law. It would be a strange construction of the act to hold that securities negotiated by a bank would be rendered void by the failure of the banker to comply with the law. It would be absurd to visit on innocent purchasers of its paper, penalties for a failure of the officers or proprietors of a bank to perform their duty. The law was intended to protect the public. The construction we are asked to place on it would aid in defrauding those who might deal with an unlawfully conducted bank.

3. Guaranty of paL“setui°enasaoli; negotiable. III. The indorsement to the Chemical National Bank was sufficient. It was placed on the back of the uote> and wMle ü was a guaranty of payment, it was also an indorsement of the note. The guaranty itself would be senseless and wholly inoperative unless the note was transferred by the payee to a third party. Such indorsements are not at all uncommon. The cases of Briggs v. Latham (36 Kan. 205) and Hatch v. Barrett (34 id. 223) are not in point. One was a transfer of a mortgage, the other a mere assignment of a note without recourse. This was both a guaranty, and an indorsement which passed a full title to the note. 2 Daniel on Negotiable Instruments (4th ed.), 1781; Robinson v. Lair, 31 Iowa, 9 ; Heard v. Dubuque County Bank, 8 Neb. 10. And an indorsement as collateral security for a debt contracted at the time of the indorsement, protects the indorsee to the extent of the debt, the same as if the purchase were absolute. Savings Association v. Hunt, 17 Kan. 532.

4. Fraudulent organization of corporation controlled by debtor disregarded. IV. It is insisted that, in order to avoid the transfer of the property from Kellogg to the Kellogg Mercantile Company, actual fraud, must be shown; that constructive fraud is insufficient, and that there is no showing in this case of actual fraud. It is contended that the organization of the Mercantile Company was suggested by the attorney for the National Bank of Kansas City, as a means of securing Kellogg’s indebtedness to it. It appears that Kellogg was asked, by the attorney for the Bank, to secure his note by chattel mortgage on his stock; that he refused to do so ; and that the representatives of the Bank afterward suggested the organization of a corporation, and the transfer of a part of the stock as security for Kellogg’s note to the Bank. After the corporation was organized, he did assign to the bank $10,000 of the stock in the Mercantile Company to secure a new note for $6,500, due in one year after date, with seven per cent, interest. The fact that the organization of the corporation was suggested by the representatives of the Kansas City bank, does not conclusively prove good faith on the part of Kellogg in acting on the suggestion. He refused to give a chattel mortgage, on the ground that it would result in closing his business. He adopted the other course, and organized a corporation in order to shield himself from the attacks of his creditors, and enable him to cany on his business and enjoy the income therefrom. The incorporation seems to have been little but a paper scheme devised in his own interest. His wife and clerks were mere instruments in his hands, contributing no real capital and obtaining no substantial interest in the property. Clearly, a fraud may be committed in the transfer of a debtor’s property to such a corporation, as well as by a transfer to another individual for the purpose of placing it beyond the reach of creditors. In such case, the court was clearly warranted in closely scrutinizing the transaction and declaring its real purpose, notwithstanding the elaborate fabrications of charters, by-laws, and paper transfers. There is no force in the contention that it Was not a fraud-as to the Chemical Bank because the note sued on was not given until after the creation of the corporation. The note was merely a renewal of a px'ior obligation, and the debt existed before the fraudulent transfer was made. No ei’ror appearing in the record the judgments are affirmed.

Case Details

Case Name: Kellogg v. Douglas County Bank

Court Name: Supreme Court of Kansas

Date Published: Apr 10, 1897

Citation: 48 P. 587

Docket Number: No. 9494; No. 9495; No. 9496

Court Abbreviation: Kan.