Merchants' Bank & Trust Co. v. C. L. Thurman Motor Co.

MOORMAN, Circuit Judge. On February 22, 1919, the C. L. Thurman Motor Company, the sole o.wner of which was C. L. [Thurman, purchased two Bethlehem trucks from W. Irvin Young & Co., executing in payment therefor a trade acceptance of that date for $4,157.20, due 90 days after date. Young & Co. sold the acceptance to the Merchants’ Bank & Trust Company on May 14th, and the latter company caused it to be presented for payment, which was refused. It Avas protested and returned to Young & Co. Thereafter Young & Co. procured from Thurman,a renewal of the acceptance. The renewal was .taken tp the Merchants’ Bank & Trust Company July 1st, and accepted by it in lieu of the first acceptance. On December 30th, long after the acceptance was due, Young & Co. executed to the bank a note of $12,000 covering various items of indebtedness due the; bank, including the acceptance in question, which was surrendered, but at once attached to the new note as collateral. It was stated on the face of the note that, “having deposited with said bank the collateral stated hereon as security for payment of this or any other liability or liabilities of we) or either of us, to said bank, due or to beeome due, or which may- be hereafter contracted, with full power and authority to said bank to sell, assign and deliver the whole or any part thereof, etc.” The acceptance was listed on the back of the note as “collateral,” with other notes and some stock of a motor corporation. Prior to the pledg- • ing of it as collateral Thurman paid it to Young & Co. That company failed, and this suit was brought against defendants in error to recover ón the acceptance. There is no controversy as to the facts. Under the Negotiable Instrument Act of Tennessee (Laws 1899, e. 94),.if plaintiff was the holder of the acceptance in due course for value, without notice of infirmity, and had beeome such before the maturity thereof, it was not subject to the defense of payment to Young & Co. It was such holder pri- or to -December 30th, when it accepted the note of $12,000, which included, among other indebtedness, the amount of the trade acceptance. The District Judge was of opinion, after carefully considering the testimony of Maslin, the president of the plaintiff company, that in the transaction of December 30th the bank surrendered the acceptance as holder in due. course and reacquired it as collateral to secure the payment of the note— that is to say, the transaction ■ changed the status of the bank from -that of a holder in due course to the taker and holder of an overdue paper as collateral, which was subject to any valid defense that the acceptor had against it. In opposition to this finding plaintiff refers to Dies v. Bank, 129 Tenn. 89, 165 S. W. 248, Ann. Cas. 1915A, 1090. It was there held on undisputed authority that “the intention of the parties” controlled, and it was found that the note “was in point of fact not accepted by the bank even as a renewal, but only as an additional evidence of the indebtedness.” Here the weight of the evidence] we .think, discloses a different purpose. Upon the execution of the note the acceptance was marked paid, and disappeared from the books of the bank, remaining in the custody of the bank, so far as its records show, because attached to the note as collateral. These facts, with the testimony of Maslin, show, in our opinion, an intention to aqeept the note in satisfaction and discharge of the rights that accrued on the taking of -the acceptance. , In Melton v. Trust Co., 190 F. 126, 111 C. C. A. 166, the note was pledged before maturity, which under established rules was a. transfer for value in due course. In the .instant case the pledging occurred after the acceptance was due, and after plaintiff wa,s put on notice by nonpayment of probable defenses to it, a valid one being that it had theretofore been paid. On the evidence adduced, . it is clear that when the bank aceepted the note it surrendered its' right as a holder of the acceptance in due course, and became a taker and header thereof subject .to such defenses as might then have been asserted against it in the .hands of the original. payee. Judgment affirmed.