Martin v. Citizens' Bank & Trust Co.

• Decision Date: 23 November 1894
• Citation: 28 S.W. 1097,94 Tenn. 176
• Parties: MARTIN et al. v. CITIZENS' BANK & TRUST CO.
• Court: Tennessee Supreme Court

28 S.W. 1097

94 Tenn. 176

MARTIN et al. v. CITIZENS' BANK & TRUST CO.

Supreme Court of Tennessee.

November 23, 1894

Appeal from chancery court, Hamilton county; T. M. McConnell Chancellor.

Bill by C. B. Martin and others against the Citizens' Bank & Trust Company. There was a decree for complainants, and defendant appeals. Reversed in part.

Pritchard & Sizer, for appellant.

Thomas & Elder, for appellees.

McALISTER J.

The object of this bill is to subject the proceeds of certain trust property to the ratable payment of two first mortgage coupons held by complainants. It appears that on the 28th August, 1890, the Arlington Land & Improvement Company executed a deed of trust to the Citizens' Bank & Trust Company of Chattanooga, as trustee, to secure a series of bonds issued by the former, and amounting to $50,000. Two of these bonds, amounting to $10,000, with their semiannual coupons (to which class the coupons in suit belonged), were given priority in the trust deed. Default having been made in the payment of some of the interest coupons, the principal and interest of all the bonds became due and payable as provided in the trust deed. Thereupon the trustee advertised the property, and sold it for $11,200. Defendant trustee exhibits a statement showing the disposition made by it of the proceeds of the sale of the trust property, from which it appears that only $44.65 remained in its hands after paying off the first mortgage bonds, with interest from the maturity of the coupons, the expenses of sale, and compensation to itself as trustee and to its attorneys. The coupons in suit were not paid by the trustee. It appears from the record that one G. Lord, of New York, was the owner of the entire series of first mortgage bonds and coupons, amounting to $10,000. Complainants held two of the first mortgage coupons amounting to $324.30, and claimed to be entitled to payment pro rata with G. Lord in the proceeds of the trust sale. The trustee bank refused to recognize the demand, and paid over the entire proceeds of sale, less expenses, to Lord. As already stated, the object of this bill is to recover the pro rata alleged to be due complainants out of the proceeds of the trust sale. The chancellor pronounced a decree in favor of complainants. The Citizens' Bank & Trust Company appealed, and has assigned errors.

The coupons in question became due on the 28th August, 1892, and were sent by G. Lord's estate to the trustee bank for collection. The land and improvement company had provided no money for their payment, and J. M. Goad, the secretary treasurer, and general manager of the company, requested Henson, president of the trustee bank, to hold up the coupons until he could get some money from the stockholders with which to pay. Henson replied: "Well, you have spoken of getting some extension on the bonds; and, if you are going to get any extension on the bonds, you had better raise the money to pay the interest without delay. Thereupon Goad informed Henson that he would pay the coupons out of his individual means, and hold them against the company, as security for advances made by him. Henson accepted the money for the trustee bank, and, upon Goad's request, turned over to him the coupons uncanceled. Complainants Martin and Smith charged that two of these coupons were turned over to them by said Goad on February 20, 1893, nearly six months after they married, in consideration of complainants' surrendering a solvent collateral note on Goad and White, and postponing suit on two other notes they held against Goad. The proof shows that, before agreeing to accept the coupons complainants, by their counsel, inquired of the cashier of the trustee bank whether the coupons had been paid, and were informed that the books of defendant bank would not show, but that the books of the Arlington Land & Improvement Company ought to show. The books of the latter corporation were examined, and did not show payment of the coupons; whereupon complainants accepted from said Goad. It appears that after complainants became the owners of the coupons, and prior to the foreclosure sale, the trustee bank was notified, in writing, that complainants held him in order, says the notice, "that the same may be provided for and taken care of in case of your foreclosure of the property." The trustee bank assumed the position that when Goad advanced his money, and took up the coupons, that was a payment so far as the bondholders were concerned. The insistence of the trustee bank is that, while the coupons may have been surrendered to Goad without cancellation, it was not with any intention of keeping them alive as against the bondholders. Defendant further insists that as complainants did not advance any money on the coupons, but took them simply as collateral security on a pre-existing debt, complainants could not have sustained any loss through any statements defendant's cashier may have made. The argument that complainants gave up a valid security at the time they accepted the coupons in controversy finds no anchorage in the record. It affirmatively appears from the testimony of complainants that they surrendered the Goad and White note before Goad ever tendered them the coupons. Moreover, the bill itself shows that complainants were not in legal sense bona fide purchasers of these coupons. It avers that Goad was indebted to complainants by certain notes, one maturing February 16, 1893, and the other February 23, 1893; and that on February 20, 1893, in consideration of foregoing for the time suit on these notes, and of an extension thereof, complainants acquired these coupons. The authorities are that one who takes a note either in payment of or as a security for a pre-existing debt is not a bona fide holder. King v. Doolittle, 1 Head, 77; Rhea v. Allison, 3 Head, 176; Ferriss v. Lavel, 87...