Dilworth v. Fbderal Reserve Bank of St. Louis

• Decision Date: 30 April 1934
• Docket Number: 30731
• Citation: 150 So. 821,170 Miss. 373,154 So. 535
• Court: Mississippi Supreme Court
• Parties: DILWORTH v. FBDERAL RESERVE BANK OF ST. LOUIS

150 So. 821

154 So. 535, 170 Miss. 373

DILWORTH v. FBDERAL RESERVE BANK OF ST. LOUIS

No. 30731

Supreme Court of Mississippi

April 30, 1934

Division B

October 30, 1933

APPEAL from circuit court of Alcorn county, HON. THOS. E. PEGRAM Judge.

Suit by the Federal Reserve Bank of St. Louis against B. C. Dilworth wherein defendant counterclaimed. Judgment for plaintiff, and defendant appeals. Reversed and remanded to chancery court.

On suggestion of error. Judgment of the circuit court reversed and cause remanded to the chancery court for a new trial.

Reversed and remanded to chancery court. Reversed and remanded.

B. F. Worsham, of Corinth, for appellants.

It is a general rule of law, needing no authority to sustain it, that the allegations of the pleas are to be taken as true on the demurrers thereto.

U. S. F. & G. Co. v. First State Bank, 103 Miss. 91; State v. Nichols, 106 Miss. 419; Batesville, etc., R. Co. v. Mums, 111 Miss. 574; Polk v. Hattiesburg, 109 Miss. 872; Lumber Company v. Norton, 111. Miss. 720; Harrison County v. Marione, 110 Miss. 592.

The title of a person who negotiates an instrument is defective within the meaning of this chapter when he negotiates it in breach of faith or under such circumstances as amount to fraud.

Section 2711, Code of 1930; Sections 2708, 2712, 2713 and 2715, Code of 1930; Elmore County Bank v. Bank, 66 So. 509.

While the primary purpose of the law merchant may be to facilitate the use of instruments of credit, and while an endorsee of a note need not investigate matters of bad faith, such as fraud, failure of consideration as between the original parties to the instrument, yet the court seems to hold that where the endorsee is a direct party to the fraud, then the duty to make the inquiry into the full facts is placed on the endorsee.

Bank v. Clayton, 90 So. 899; Welmer v. First Acceptance Co., 212 N.W. 638.

Formal notice is not necessary, but any knowledge of the holder of defenses is equivalent to notice.

8 Cyc. 497, note (a), and 498, note 84, and 502, note 19, and 506; McNamara v. Jose, 28 Wash. 461; State Bank v. Lawrence, 42 L. R. A. (N. S.) 329; Goodman v. Simonds, 15 L. R. A. 934; Ward v. City Trust Co., 192 N.Y. 61; Cassedy v. Wells et al., 162 Miss. 102.

Under the law in Mississippi there is a difference between owning a note outright, and holding the note as pledgee for security. The appellee, in the case at bar, was the pledgee of the notes of appellants; this is not and cannot be denied, and is directly set out in the pleas. The notes of appellant were not rediscounted to appellee but were pledged to the appellee by the First National Bank.

Love v. Rogers, 150 So. 815; Van Winkle Gin & Machinery Co. v. Citizens Bank, 89 Texas 147, 33 S.W. 862; Live Stock State Bank, et al. v. Locke, 277 S.W. 405.

Lester G. Fant, Sr. & Jr., of Holly Springs, for appellee.

Overruling the motion to transfer the cause to the chancery court was not reversible error.

Constitution of State of Mississippi, Section 147; Federal Compress Co. v. Coleman, 143 Miss. 620, 109 So. 20.

Overruling the motion to require response to the interrogatories was no error.

McLean v. Letchford, 60 Miss. 169.

There was no plea of the general issue filed. The plea so styled merely denied "promising" and "owing" the notes. It did not deny the execution and delivery for valuable consideration. It therefore was not a plea of the general issue, or any other plea, since it merely attempts to argue a conclusion of law, i. e. whether the maker owed the notes duly executed and delivered. It was therefore a nullity. Moreover, though the action is founded on promissory notes, it was not verified. This plea, therefore, interposed no defense.

First National Bank of Gulfport v. Adams, 123 Miss. 279; Sec. 1587, Code of 1930.

No defense was pleaded to the action.

8. C. J., 805, par. 1064.

The doctrine of set-off and counterclaim as applied to negotiable paper is not available against a bona fide holder in due course. This is true, it is held, even though the transferee purchased with notice of the claim.

8 C. J., 487, par. 702, and 804, par. 1063; Sanders v. McAlister Bros., 101 Miss. 227, 57 So. 801; Sections 2681 and 2847, Code of 1930; Bank of Iowa City v. Jno. McGrath, 111 Miss. 873, 72 So. 701; Harrison et al. v. Pike Bros. et al., 48 Miss. 46; Stevens v. Stanley, 153 Miss. 801, 121 So. 814; Commercial Credit Co. v. Summers, 154 Miss. 501, 122 So. 541.

All the allegations attempting to charge the appellee with fraud are simple conclusions of the pleader, containing no facts properly pleaded which include any form of fraud or bad faith to the appellant, or for that matter to the payee; and it is well settled that the demurrer admits only those facts which are well pleaded, and does not admit the conclusions of the pleader or matters which are improperly and illegally pleaded.

First National Bank v. Adams, 123 Miss. 279, 85 So. 308; Barnes v. Jones, 139 Miss. 675, 103 So. 773; Pitts v. Baskin, 140 Miss. 443, 106 So. 10.

Nothing is more well settled in law than that a charge of fraud requires a specific statement of fraudulent acts; that fraud cannot be charged generally by using the word "fraudulent" or as a conclusion of the pleader, as was attempted to be done in this case.

Bush v. Vail, 2 Miss. Dec. 519; Jones v. Rodgers, 85 Miss. 802, 38 So. 742; Parker v. Tapscott, 142 Miss. 768, 107 So. 561; 8 C. J. 495, par. 705.

Appellant's entire theory seems to be based on the idea that since the note sued on was transferred as security, even though it was as security to a valid debt then existing that the maker of the note had equitable rights that he would not have had, had the note been in the hands of one who had purchased same. We cannot find any authority for this view in the former decisions of this Honorable Court.

Section 2681, Code of 1930.

An antecedent or pre-existing debt constitutes value.

Sanders v. McAlister Bros., 101. Miss. 227.

The doctrine of marshaling assets applies only to the case of a junior lien holder, who seeks to compel a senior lien holder to exhaust security, which the senior has, and which the junior has not access to; and only in case of a common debtor to two creditors for the protection of the junior creditor. It does not require a bona fide holder of negotiable paper, pledged as collateral to an indebtedness, to proceed first against other collateral because of equities alleged to exist between the original parties to the pledged paper.

D. S. Sowell v. Federal Reserve Bank of Dallas, 294 F. 798, 69 L.Ed. 1041, 268 U.S. 449; Hanesley v. National Park Bank, 147 Ga. 96, 92 S.E. 879; Chandler v. Merchants & M. Nat. Bank, 30 Ga.App. 694, 118 S.E. 785; Prout v. Lomar, 79 Ill. 331; Dallemand v. Bank of Nova Scotia, 54 Ill.App. 600; Elk Valley Coal Co. v. Third Nat. Bank, 157 Ky. 617, 163 S.W. 766; Haas v. Bank of Commerce, 41 Neb. 754, 60 N.W. 85; Lord v. Ocean Bank, 20 Pa. 384, 59 Am. Dec. 728; Moyses v. Bell, 62 Wash. 534, 114 P. 193; German American Bank v. Wright, 85 Wash. 460, 148 P. 769, Ann. Cas. 1917D 381; Strong v. Bowes, 102 Wis. 542, 78 N.W. 921.

The Federal Reserve Bank had a right to take the notes as collateral.

Lucas et al. v. Federal Reserve Bank of Richmond, 59 F.2d 617.

Argued orally by B. F. Worsham, for appellant, and by L. G. Fant, Jr., for appellee.

Ethridge, P. J., Ethridge, J., delivered the opinion of the court on suggestion of error. Griffith, J., dissenting. Smith, C. J., dissent.

OPINION

Ethridge, P. J.

The Federal Reserve Bank of St. Louis, Mo., filed a suit against the appellant here, B. C. Dilworth, in the circuit court of Alcorn county, on a note dated October 30, 1931, due ninety days after date, payable to the First National Bank of Corinth, Miss., and bearing eight per cent. interest from date until paid, and agreement that, if not paid, any money on deposit to the credit of B. C. Dilworth on the books of the First National Bank of Corinth, Miss., should be applied, at once, on the payment of this note, with the usual stipulations as to attorney's fees, etc. After alleging the execution of the note, the appellee alleged that, before its maturity, the First National Bank of Corinth indorsed said note to the order of the Federal Reserve Bank of St. Louis for valuable consideration, in the ordinary course of business, which latter bank then became, and still is, the holder of said note.

The suit was filed on March 10, 1932, and on July 12 the appellant filed a motion to transfer the cause to the chancery court of the county of Alcorn, Miss., alleging among other things, that, by the terms of the note itself, it was agreed that, if not paid at maturity, any and all money on deposit to his credit might be applied as a credit on or to the payment of said note; and that, when said note was transferred by the First National Bank of Corinth to the Federal Reserve Bank of St. Louis, he (Dilworth) had substantial credit in the First National Bank of Corinth, which was 'known to the appellee; that the note sued on in this cause does not belong to the appellee, but is held by it as collateral to an indebtedness of the First National Bank of Corinth to the appellee, and that, at best, appellee is only the pledgee of said note. It was further alleged that, when appellee took the note as security for said indebtedness, it made a thorough and detailed investigation, and knew that appellant had a substantial amount on deposit which could be, if the First National Bank of Corinth should fail, offset against the said note; and, with this information and knowledge, the appellee took the note as collateral security and was not without notice of such a defense. It was alleged that the collateral held by the...