Middle Tennessee Bank v. McKennon

• Decision Date: 27 June 1936
• Parties: MIDDLE TENNESSEE BANK v. McKENNON et al.
• Court: Tennessee Supreme Court

99 S.W.2d 564

MIDDLE TENNESSEE BANK v. McKENNON et al.

Court of Appeals of Tennessee, Middle Section.

June 27, 1936.

Certiorari Denied by Supreme Court December 12, 1936.

Appeal from Chancery Court, Maury County; Thos. B. Lytle, Chancellor.

Action by the Middle Tennessee Bank against George E. McKennon and Mrs. C. J. Davis. From a decree dismissing the bill as to Mrs. C. J. Davis, the plaintiff appeals.

Affirmed.

T. B. Forgey, of Columbia, for complainant.

Sam Holding, L. Z. Turpin, and W. C. Whitthorne, all of Columbia, for Mrs. C. J. Davis.

DeWITT, Judge.

The chancellor dismissed the bill as to Mrs. C. J. Davis, who was sued as indorser on certain promissory notes executed by her brother, George E. McKennon as maker, and from this part of his decree the complainant bank has appealed. The chancellor awarded a recovery against McKennon for $4,172.07, the amount of the notes and an attorney's fee. He did not appeal.

The notes are for $750, $1,000, and $1,000, dated March 30, 1929, and payable respectively one, two, and three years after date to the order of the Columbia Bank & Trust Company, with interest from date and with provisions of waiver by maker and indorsers of demand notice and protest and agreement by them, in case of default of payment, to pay expenses incurred in collection, including attorney's fee.

The Columbia Bank & Trust Company closed its doors on July 24, 1929. It was turned over to the State Banking Department to be wound up as an insolvent bank. H. L. Grigsby, Superintendent of Banks, was appointed receiver of the bank. Under a decree of the chancery court in the receivership cause, these notes, together with the other assets of the Columbia Bank & Trust Company, were purchased by the Middle Tennessee Bank, on or about May 10, 1930, for valuable consideration.

Mrs. Davis denied liability on the following grounds: That she indorsed the notes for accommodation, without consideration, and upon the distinct condition that, if a contemplated merger with the Phœnix National Bank were not consummated, these notes would not be used, but would be returned to her; that the merger was not consummated; and that the complainant, Middle Tennessee Bank, was not a holder in due course and was therefore subject to any defenses against the original payee.

The chancellor sustained these defenses. The insistence that the Middle Tennessee Bank is a holder without notice of the defenses of Mrs. Davis as against the Columbia Bank & Trust Company or its receiver, and not subject thereto, is not sustainable. The evidence does not preponderate against the chancellor's finding that Hutton, the president of the Middle Tennessee Bank, and its active agent and organizer, knew of these defenses before the purchase of the notes was consummated; but, whether he did or not, the purchase of the notes at judicial sale or from the receiver gave to the Middle Tennessee Bank no greater title and ownership than that of the insolvent payee. We do not find this question adjudicated in any published decision in this state; but upon principle, and according to very respectable authorities elsewhere, the rule of caveat emptor applies to such a purchaser. The heart of this rule is that such purchaser did not acquire the paper by negotiation or assignment. The sale was by a receiver, the officer of the court, and in sanctioning the sale of the notes the court and its officer were not engaged in giving the notes an immunity bath to free them from any defenses to which they may have been subject. The court and its receiver were selling in invitum what the insolvent bank actually owned — nothing more — and that is all that the complainant purchased. In Collis v. Kraft, 118 Kan. 531, 235 P. 862, closely analogous t...