Farmers’ State Bank of Solomon City v. Blevins
| Decision Date | 06 June 1891 |
| Citation | 26 P. 1044,46 Kan. 536 |
| Parties | FARMERS’ STATE BANK OF SOLOMON CITY v. BLEVINS. |
| Court | Kansas Supreme Court |
PLEDGE OF NOTE-RIGHTS OF PLEDGEE.
Where negotiable promissory notes, pledged to an innocent holder to secure a pre-existing debt due from the payee to the pledgee are subject to equitable defenses as between the maker and payee, and are of a greater amount than the pre-existing debt, the recovery of the pledgee against the maker is limited to the amount of the pre-existing debt.
Commissioners’ decision. Error from district court Dickinson county; M. B. NICHOLSON, Judge.
Garver and Bond, for plaintiff in error.
Stambaugh, Hurd & Dewey, for defendant in error.
The Farmers’ State Bank, as plaintiff in the court below, brought this action against defendant in error on three notes, made June 13, 1887, by defendant, to one J. H. Brady, and by Brady indorsed and transferred to plaintiff before maturity, as collateral security for certain indebtedness then owing from Brady to said bank. The notes sued on were for the aggregate sum of $5,000, with interest at the rate of 8 per cent. from their date. No part of said notes had been paid. They secured a debt of $4,367.63. On the trial the defendant pleaded, and attempted to prove, a failure of consideration for said notes; but the court, having found that plaintiff was a bona fide holder for value before maturity, and without notice of any defenses thereto, refused to hear the evidence offered by defendant as to the claimed invalidity of said notes, and rendered judgment thereon in favor of plaintiff for $4,367.63, the amount of the indebtedness from Brady to plaintiff which said notes were security for. The plaintiff claimed judgment for the full amount of the collateral notes, which claim was denied by the court, and exceptions to the ruling taken by plaintiff. The only question for determination by this court is whether, in an action against the maker of notes which have been transferred before maturity to an innocent and bona fide holder as collateral security for an indebtedness existing between the payee of such notes and the indorsee, the endorsee and holder is entitled to recover against the maker the full amount of such collateral notes, where such amount exceeds the indebtedness which they were transferred to secure, without regard to any defenses that may exist between the original parties to such notes, or whether, in such case, the right of the plaintiff to recover is limited to the amount of the principal debt. The plaintiff in error in this case has no interest in the question, except as the decision of the court below might involve it in a controversy with Brady, should he call upon it to account for the difference between the amount of the collateral notes and the debt he was owing to the bank. No trial or determination was had as to the merits of the defense made against the notes, and it does not appear at this time whether, as between Brady and Blevins, the full amount thereof could be collected. It is said that Brady may demand of the bank to account to him for the full amount of these notes, and that it cannot defend against such claim by saying that the surplus over its debt was not collected because Blevins had a defense to them as against Brady. If the bank is limited in its right to recover to the amount of its claim against Brady, the right to the balance of the notes being undetermined, can Blevins be subjected to another action by Brady to recover such balance? Brady, or his assignee, must have his day in court before he can be deprived of any portion of these notes; but, if the bank can only recover to the extent of its interest, and Brady is given the right to sue for the balance of the notes, do we not subject Blevins to two actions for the same cause? On the other hand, it does not seem just that Blevins shall be deprived of his defenses, except to the extent of the actual interest of the bank, simply because the bank took the notes before maturity in good faith, and without notice of such defenses.
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