
    A. Morrison & Co. v. The Farmers and Merchants Bank of Los Angeles, California.
    (Filed Feb. 8, 1900.)
    1. Bank Draft — Bill of Exchange — Law Governing. A bank draft drawn in California and payable in Oklahoma is a foreign bill of exchange, and governed by the law in relation .to negotiable instruments.
    2. Bill of Exchange — Acceptance—Presumption—Bona Fide Bolder. An acceptance of a bill of exchange is presumed to have been made for a valuable consideration before maturity, and in the ordinary course of business; and every holder of such bill is presumed to be ' a bona fide holder for value.
    3. Same — Action of Bolder Against Acceptor — Defense. In an action by a bona fide holder for value of a bill of exchange against an acceptor, the acceptor cannot set up defenses or equities which he may have against the drawer of the bill.
    4. Same — Purchaser in Good Faith. A purchaser in good faith for value of a bill of exchange takes the same free of any equities the acceptor may have against the drawer, whether he becomes the purchaser before or after the acceptance.
    5. Same — Burden of Proof. Defenses available between the acceptor and drawer of a bill of exchange, are not available in an action by the payee against the acceptor, if the payee is a bona fide holder for value, and the burden of overcoming the presumption that the payee is not a bona fide holder for value is on the acceptor, who seeks to set up such defenses against the payee.
    
      6. Same — Purchase of — Debtor and Creditor. Where a bank purchases a bill of exchange from the drawer before maturity, and gives the drawer credit on his deposit account in the bank for the face value of the bill, such transaction only creates the relation of debtor and creditor, and does not constitute the bank a purchaser or holder for value; but if the deposit is drawn or checked out before the bill is accepted, the bank then becomes a purchaser for value.
    
      1. Same — .Defense to Action — What Must be Shoton. In order to establish the fact that a bank which is the payee and holder of a bill of exchange is not a purchaser for value, it is not sufficient to show that ' when the bank took the bill it simply gave the drawer credit on his deposit account for the face of the bill, but it must be further shown that the amount of the deposit at that time had not been paid by the bank prior to acceptance of the bill.
    (Syllabus by the Court.)
    
      Error from the District Court of Olclahoma County; before B. F. Burwell, District Judge.
    
    
      J. P. Allen and Hays c£- Wilson, for plaintiff in error.
    
      H. H. Howard and F. J. Kearful, for defendant in error.
   Opinion of the court by

Burfoiid, O. J.:

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

Morrison answered, denying that the bank of Los An-geles was a bona fide holder for value, but alleged that the bank held the draft as agents for Porter Brothers company, for collection, and also set up claim for $309 damages by way of set-off, occasioned by alleged breach of contract in shipment of the fruit.

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

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

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

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

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

No defense that Morrison had for damages against Porter Brothers company could have been set up in this case against the holder of the bill, unless it was shown 1hat the bank was not a bona fide holder for value.

Section 3297, Statutes Oklahoma, 1893, provides:

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

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

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

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

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

From the evidence introduced in relation to the state of the bank’s account with the Porter Brothers company, it is not made clear whether or not the funds placed to the credit o'f the company were paid out by the bank prior to the acceptance of the bill of exchange by Morrison. The draft was cashed on December 15, 1897, and the deposit entered as of same date. The company wa.s not in debt to the bank, and it wras checking against its deposit' regularly in due course of business. The depositions of the cashier of the bank and the manager of the Porter Brothers company a.t Los Angeles were taken in March,' 1898. . At that date there was still a balance to the credit of the company more than sufficient to pay the draft in question. How this account stood between the date of the draft and time of taking the depositions is not made to appear. It may have been all drawn out the next day after the draft was taken by the bank; or it may have been overdrawn or the balance may have4 been increased and kept above the sum called for by the draft at all times since. We are unable to tell from this testimony whether or not the bill wa.s paid for by the drawers drawing out the amount of the draft before ike acceptance.

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

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

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

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

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

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

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

There is a suggestion in the brief to the effect that Morrison had a right to revoke his acceptance. There is no evidence that he 'ever made any effort to revoke his ac-' ceptance. He has attempted to defeat it, but not to revoke it. Both under the statute and the adjudicated cases, a-n acceptance must be revoked before delivery to the holder. When Morrison endorsed1 his acceptance on -the draft and, delivered it to the State Bank, the agents of the holders of the draft, the delivery was complete to the holders, and he could not then revoke his acceptance.

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

Burwel-1, J., having presided in the court below, not sitting; all of the other Justices concurring.  