Kaw Valley State Bank & Trust Co. v. Riddle

The appellee purchased construction equipment from dealer, Co-Mac. A number of the purchases were made on credit and Co-Mac discounted and sold the notes to the appellant. In May 1971, the appellee negotiated for the purchase of two pieces of equipment. The appellee was informed it would be necessary for Co-Mac to have a signed note and security agreement to complete the sale. Ten days after the note was signed, the machinery had still not arrived. The appellee then contacted Co-Mac and negotiated the purchase of two more pieces of equipment in place of those previously ordered. Co-Mac agreed to the new purchase and agreed to destroy the May 11, 1971 papers and sell other machinery to appellee. However, the May 11, 1971 papers were never destroyed and the note was discounted and assigned to the appellant. The sale of this substitute machinery was completed and the machinery was delivered after the execution of an additional note and security agreement. Thereafter Co-Mac , who was in financial trouble, made regular payments on the first note to Kaw Valley. The note was thus kept current by Co-Mac and Riddle had no knowledge of the continued existence of that note. Because the original equipment was never delivered, the appellee received no consideration for the May 11, 1971 note and no lien attached under the security agreement because the machinery never came into possession of the appellee. In February 1972, the appellee met with the appellant and Co-Mac to consolidate his indebtedness. On February 24, 1972, a renewal note and security agreement for $44,557.70 was drawn consolidating and renewing seven notes. It was not until March 12, 1972 that the appellee was informed by the appellant that it held a security agreement dated May 11, 1971, the security agreement thought to have been destroyed by Co-Mac. The appellee informed the appellant that he never received the equipment outlined in the security agreement. Prior to the time this action was filed, the appellee granted a security agreement in all of his construction equipment to Planters Bank & Trust. This included the machinery included in the consolidation dated February 24, 1972. Eventually, all the equipment was sold and $22,200.00 from the proceeds of the sale was given to the appellant in satisfaction of the note dated February 24, 1972. The appellant claims that $21,904.64 of the $25,371.15 remaining from the sale is owed on the transaction dated May 11, 1971. The remaining, $3,466.51 was given to Planters to apply to their claim. The amount of $21,904.64 was placed in escrow pending the outcome of the case.