Story Case

W. L. Grubb, of Rochelle, Illinois, ordered a suit of clothes from a Chicago clothing company. The company made the suit in accordance with measurements taken, forwarded the suit to Mr. Grubb for his approval, and directed him to remit the purchase price immediately. It was also stated, in its letter, that payment should be made by certified check or New York exchange. Mr. Grubb did not care to go to the trouble and expense of preparing either form of payment requested, and inserted two ten dollar bills in a posted letter by way of payment for the suit. The letter was never received by the clothing company, and it sued him for the price of the suit. He pleaded that his obligation was discharged because he had made one payment. What should be the decision of the court in this case?

Ruling C0urt Case. Union Biscuit Co. Vs. Springfield Grocer Co., Volume 143 Missouri Appeal Reports, Page 300

The Springfield Grocer Company had bought about $212.46 worth of goods from the Union Biscuit Company during the year 1904. The Union Biscuit Company admitted payment of the account, except as to the sum of $86.48. It appeared that the grocer company drew a draft upon the National Bank of Exchange of Springfield, Missouri, to its own order for this sum of $86.48. This draft was endorsed to the Union Biscuit Company and mailed to it. One H. E. Bixby was at that time in the employ of the Union Biscuit Company as a bookkeeper and by some means obtained possession of this draft. He erased the name "Union Biscuit Co." in the endorsement, inserted his own in its place, and cashed the draft as and for his own. The draft was paid in due course by the National Bank of Exchange. When the Union Biscuit Company discovered what had been done, it, nevertheless, demanded payment from the grocer company. The latter refused to pay. This suit was then brought for the $86.48.

The grocer company contended that it had paid the amount and that the Union Biscuit Company should not be permitted to recover.

Decision

Payment of money due under a contract discharges the contract. But it is not an easy question to determine what constitutes payment. When the creditor accepts the payment made by his debtor, and agrees that the debt shall thereby be discharged, it is discharged. Payment of money and acceptance by the creditor constitute a discharge of the contract. When negotiable paper, such as checks, drafts, bills or notes, are given in payment of a debt, the debt is not actually discharged until such negotiable paper is actually paid, unless the parties expressly agree that it shall operate as an immediate discharge. So, in this case, there was no payment, because the draft was never actually paid to the Union Biscuit Company; it may recover this amount from Springfield Grocer Company. This does not mean, however, that the grocer company is the loser. The endorsement was forged and the bank must repay the grocer company for paying out this money upon a forged instrument, to a person not entitled to it.

Mr. Justice Nixon said: "In order to constitute a payment, as that word is used in law, there must be (1) a delivery, (2) by the debtor or his representatives; (3) to the creditor or his representatives; (4) of money or something accepted by the creditor as the equivalent thereof; (5) with the intention on the part of the debtor to pay the debt in whole or in part; and (6) accepted as payment by the creditor.

"The taking of a check, bill of exchange, or note for a debt is not payment of the debt, unless the creditor expressly agrees to take it as such; it is not payment until the money is received on it".

Judgment was given for Union Biscuit Company.

Ruling Law. Story Case Answer

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Where the obligation of a contract consists in the payment of money, the payment of that sum in the manner authorized in legal tender obviously discharges the contractual obligation. Payment in counterfeit money, accepted by the other party and believed at the time by both to be good money, is not a payment discharging the contract. When the person receiving the payment discovers that the money is false, he is entitled to another payment in good money, provided he is not negligent in notifying the other party of the fact that the money was counterfeit. Unless expressly agreed upon, the acceptance of a negotiable instrument, as a bill, note or check is not absolute, but only conditional payment. The obligation is not absolutely discharged until the instrument is actually paid in money to the person to whom the debt is owed.

In the Story Case, the payment was not made in the manner authorized, and, consequently, there was no payment. If the clothing company had said that payment might be made by sending money through the mail in an unregistered letter, the posting of the letter, containing the money, would have been a payment. Otherwise it is not a payment. Judgment should be given in the case for the clothing company.