142 Ky. 792 | Ky. Ct. App. | 1911
Opinion of the Court by
Reversing.
On October 17, 1908, R. J. Finck was indebted to the American National Bank upon two notes wbieli were.
It developed that Minor & Son had merely loaned the notes in question to Finck as a matter of accommodation to enable him to secure the desired extension on the payment of his $2,759.43 indebtedness, and before the Taylor notes matured Mr. Minor called at the bank and had a conversation with the president relative to this overplus, and, while there is some difference in their testimony as to exactly what was said, it is certain that at that time the bank was advised that the notes were the property of Minor & Son and had been loaned to Finck as an accommodation, and that they were looking to the bank for the surplus 'after the $2,759.43 had been paid. Upon advice, the bank refused to pay this overplus to Minor & Son, but appropriated it as above indicated. Hence this law suit. The trial in the lower court resulted in a verdict and judgment in favor of Minor & Son, and ■ the bank appeals.
Plaintiff's bottomed their case upon the charge that, through fraud or mistake, the collateral note for $2,-759.43 had been signed by Finck. They pleaded, that while the note stated that the Taylor notes pledged as collateral should be held as security for any other liability of Finch’s to the bank, he did not so understand the
J. S. Minor, of Minor & Son, testified that they owned these notes pledged as collateral, 'and that they were loaned to Finck with the distinct understanding that they were to be pledged as security for the $2,759.43 debt alone. Finck was dead, and this testimony was in favor of plaintiffs, and tended to establish their claim to the money in dispute in this litigation. The bank objected to it as violative of Section 606, sub-section 2 of the Code, but the court overruled the objection and permitted the evidence to go to the jury. So much of this section of the Code as is pertinent provides that “no person shall testify for himself concerning any verbal statement of .or transaction with one who is dead when the testimony is offered to be given.” ' All of this testimony objected to was concerning a conversation that took place between .Minor & Son and Finck 'at the time the notes were loaned to him and endorsed by them so that he could use them in securing credit. The bank knew nothing of this conversation or arrangement between them and could in no Avise be bound by it, even if the purposes for which the Taylor notes were loaned were limited by plaintiff's, unless knowledge of this fact was brought home to the bank at or before the date upon which the notes were pledged to it. The status of the bank’s claim to and Interest in this collateral is fixed and determined by the information which the bank had concerning said collateral notes at the time they were pledged to it. Plaintiffs had endorsed them and delivered them to Finck, and if he
There being neither fraud nor mistake shown in the» transaction, and plaintiffs’ right being measured by the information it had at the time the Taylor notes were pledged to it, the contract must be enforced as written, for the bank’s right to make such a contract cannot be seriously questioned. In 1.Morse on Banks and Banking, 4th Ed., section 332, it is said:
“General liens are not favored, and must rest upon special 'agreement, course of dealing between the parties, or genera] usage.
“And if there is any eircilmstance inconsistent with the claim of a lien, it will not be upheld, as where securities are delivered to a bank for a specific purpose.”
Accepting this as a correct exposition of the law, and measuring plaintiffs ’ rights thereunder, it seems its con-
The case of the Hanover National Bank v. Suddath, 215 U. S., 110, cited and relied upon by appellee, is not in conflict with this view, but rather supports it. In that case there was an attempt on the part of the Han•over bank to hold and apply certain notes to the payment of an indebtedness which it held against the Abilene bank when these notes were offered for discount. They were not pledged at all but were offered for sale, as it were, and the court simply held, that when they were offered to it for one purpose they could not be held for another ■over the protest of the owner. There was no such, agreement in that case as here, but the right of the Hanover hank to make the application sought was denied for the very reason that, instead of an agreement authorizing such an application, there was a positive instruction to Ihe contrary.
It is urged that there was no consideration for the agreement to pledge the collateral to secure other debts. 'Section 25 of the Negotiable Instruments Code- provides that:
“Value is aüy consideration sufficient to support a ■simple contract. An anteciedent or pre-existing debt constitutes a value, which is deemed such, whether the instrument is payable on demand or at a future time.”
And section 27 of said act further provides that:
“Where the holder has a lien on the instrument, ■arising either from contract or by implication of law, he is deemed a holder for value to the extent of his lien.”
The agreement not to sue, but to extend the time for i;he payment of the debt then due, to-wit, $2,759.43, is ample consideration for the pledge of the notes in the way and manner provided in the contract.
The consideration being sufficient, the bank cannot he denied its right to apply the proceeds of the Taylor notes as the contract provides, unless it is shown that it did not become a holder in due course. Section 52; subsection 4, of the Negotiable Instruments Code provides that, to constitute one a holder in due course, it must appear:
No noticé was brought home to the bank of plaintiffs’ claim or ownership until long after it had accepted these notes as collateral and its interest had attached.
Upon this showing we conclude that the bank had a perfect right to make the application of the proceeds of the Taylor notes in the way and manner in which it did, and the motion for a peremptory instruction should have been sustained. Judgment reversed and cause remanded for further proceedings consistent herewith.