Sargent v. Wood

. The opinion of the court was delivered by Ross, J. Prom the trustees’ disclosures it appears that the trustee Pierce, September, 30,1876, gave his promissory note to defendant Wood for $500, payable to Wood, or order, on or before April 1, 1877, with interest after that date. This note, by a contract of the same date between Wood and Pierce, was subject to a deduction of $58.42 as of April 1, 1877, leaving due on it at maturity $441.58. Pierce also claims a further deduction growing out of another stipulation of the same contract of $22. No [600] question is made but that this sum should be allowed him if he is to be holden as the trustee of Wood. December 19, 1876, the trustee Pierce was duly notified that Wood had turned the note out, and Wood had in fact turned the note out, to the Randolph National Bank as collateral security. He subsequently learned that it was collateral security for the payment of Wood’s note of $225. While this state of facts was existing, the trustee process was served on Pierce. Whatever Perrin had to do about the payment of the note subsequently, he did as the agent of Pierce, and we find nothing which shows that he should be holden as trustee, as he never held Wood’s money, nor was indebted toWood from anything arising out of this transaction. He must be discharged with costs. The question in the case is, whether Pierce, on this state of facts, can be holden trustee for the balance of the note above the deduction which he is entitled to have made, and the amount of Wood’s note to the bank, for the payment of which Pierce’s note was turned out as collateral security. The balance of Pierce’s note above what was necessary to discharge Wood’s note to the bank, the bank held for Wood. It was subject to attachment by the- trustee process. Fay v. Smith, 25 Vt. 610, Downer v. Tarbell, 32 Vt. 22, Perrin v. Russell, 33 Vt. 44, unless taken from its operation by the first proviso to section 47, c. 34, Gen. Sts., which is, “ Any negotiable paper which shall be actually assigned, negotiated, and transferred to any bank in this State before it becomes due, shall become exempt from attachment by the trustee process.” The trustee claims that this proviso, under the decisions, Hall v. Bowker, 44 Vt. 77, National Bank of Newbury v. Webster, 47 Vt. 43, exempts the whole note absolutely from attachment by the trustee process, on the facts existing in the case at bar. In neither of the cases last cited was the question at bar raised or discussed. The purpose of the enactment of this proviso as explained in these cases was, to enable banks to deal freely in such paper while current, and without fear from loss from some pending trustee suit unbeknown to the bank. At the same time the language of the proviso requiring that the paper shall be actually assigned, &c., clearly indicates that the Legislature did not intend that the exemption created should be used to [601] cover tip a debtor’s property. The object of the exemption will be fully accomplished if the banks, while dealing in such paper, are fully protected. The second proviso allowing the bona fides of the assignment to be inquired into, and compelling the assignee to testify to "the consideration upon which the sale or assignment was made, further indicates the scope which the Legislature intended should be given to the exemption. From the nature of the trustee’s obligation, Wood could not avail himself of it as a pledge, without parting with the possession of the note, and giving the bank the right to collect the whole of it. But he did not actually assign to the bank by pledging it as collateral security for the payment of his note, only so much of it as was necessary to make that payment. All received from the collateral note above what was necessary for the payment of Wood’s note, the bank would receive and hold, not as its own money, but as the money of Wood. Before the collection of the note, the.bank held the surplus of the trustee’s note above what was necessary to liquidate Wood’s note to the bank, for Wood and as his property. While as between Wood and the bank, the bank had the right to receive the pay on the whole note, because Wood had made it his agent for that purpose, it may be questioned whether as against another creditor of Wood who had seized his interest in the note by process of law, it had that right. So, too, the trustee had the right to pay the whole note to the bank, because of its agency for Wood, until the law seized it in his possession. Wc think the general policy of the law which subjects all negotiable paper, whether under or overdue, to the operation of the trustee process, will be best subserved, and the proviso in favor of banks exempting it from that process when actually assigned, &c., while current, equally well subserved, by holding the trustee Pierce chargeable for so much of the note as he had not the right to deduct, and as was not required to satisfy its pledge to the bank. The only hesitation we have had in coming to this result is, the fact that the bank has not been cited in as claimant of the note, so that it would be bound as well as the defendant and trustee Pierce by the adjudication. Pierce might have had it cited in by moving the court for that purpose. As the making of the bank party by [602] such citation is for the protection of Pierce, it is at his option to have the bank cited in or neglect it at his risk. The pro-forma judgment of the County Court is reversed, and judgment rendered that trustee Pierce is chargeable for $194.58, with interest from April 1, 1877, and that trustee Perrin be discharged with costs.