National Bank of Commerce In St. Louis v. Morris
| Decision Date | 21 March 1911 |
| Citation | 135 S.W. 1008,156 Mo.App. 43 |
| Parties | NATIONAL BANK OF COMMERCE IN ST. LOUIS, Appellant, v. F. E. MORRIS, Respondent |
| Court | Missouri Court of Appeals |
Appeal from Audrain Circuit Court.--Hon. James D. Barnett, Judge.
REVERSED AND JUDGMENT ENTERED FOR APPELLANT.
Edward D'Arcy and Barclay, Fauntleroy & Cullen for appellant.
(1) The evidence shows that the note was delivered to the appellant either on account of a new loan or by way of substitution for other collateral which was surrendered in the same transaction; and it is well settled that a transferee who takes collateral by way of substitution for other collateral surrendered becomes a holder for valuable consideration. Voss v. Chamberlain, 117 N.W. 871; Jones on Pledges and Collateral Security, sec. 470; Bank v. Watson, 42 N.Y. 490; Greenwell v. Haydon, 78 Ky. 332; Cherry v. Frost, 7 Lea 1; Sawyer v. Turpin, 91 U.S. 113, 23 L.Ed. 235; Daniels, Negotiable Instruments, sec. 827. (2) One who takes a negotiable note as collateral security for a debt created at the time and without notice of any infirmities is a holder for value. This doctrine was firmly established before the passage of the Negotiable Instrument Law, and will, of course, obtain under that law. Stewart v Givens, 128 Mo.App. 389; Bank v. Eubanks, 124 Mo.App. 499. (3) Under the Negotiable Instrument Act of 1905 one who takes a negotiable note as collateral security to secure a pre-existing debt is a holder for value. Brewster v. Shrader, 26 Misc. 480; Brooks v Sullivan, 129 N.C. 190; Graham v. Smith (Mich.), 118 N.W. 727; Payne v. Zel, 98 Va 294; In re Hopper-Morgan Co., 154 F. 262; Voss v. Chamberlain, 117 N.W. 871; Mersick v. Alderman, 77 Conn. 634; Petrie v. Miller, 57 A.D. 17; Mindlin v. Appelbaum, 114 N.Y.S. 908. (4) When the evidence is all one way as in this case it is the duty of the court to direct a verdict, and under the undisputed evidence in this case a verdict should have been directed for plaintiff, and the court erred in overruling plaintiff's motion for a peremptory instruction. Milligan v. Fritts, 125 S.W. 1101; Knorff v. Wagner, 195 Mo. 662.
Robertson & Robertson for respondent.
A negotiable note transferred before maturity merely as collateral security for a pre-existing debt is subject to all the equities existing between the original parties. Loewen v. Forsee, 137 Mo. 29; Wright v. Trust Company, 129 S.W. 407; Johnson v. Grayson, 130 S.W. 673.
This is a suit on a promissory note. The finding and judgment were for defendant and plaintiff prosecutes the appeal.
The question for decision arises under our Negotiable Instrument Law, adopted in 1905, and relates alone to the sufficiency of an existing antecedent indebtedness as consideration for the transfer of a negotiable promissory note before maturity, merely as collateral security, to render such note, in the hands of the holder thereof, immune against equities which subsist between the original parties thereto.
Defendant Morris, on May 3, 1906, executed and delivered to one E. A. P. Haynes, a life insurance agent, his negotiable promissory note for $ 212, due six months after date, with interest from maturity at the rate of six per cent per annum. On its face, the note recites it was given for value received and is negotiable and payable without defalcation or discount. A few days after the execution of the note and long before its maturity, Haynes, the payee thereof, assigned the same to plaintiff bank as collateral security for a pre-existing indebtedness which he had owed to the bank for about six months. The indebtedness for which the transfer as collateral was made exceeds by far the amount of the note in suit and is both due and unpaid. Plaintiff instituted this suit on the note, which had been so assigned to it as collateral by Haynes to his pre-existing debt, and defendant, notwithstanding its assignment to plaintiff before maturity, was permitted to show a total want of consideration for the note in the first instance. Whatever the equities may be between the original parties to this note, the case concedes that plaintiff bank was wholly without knowledge thereof at the time the note was assigned to it and plaintiff is a holder in good faith for value, unless the law alone affixes a status to the contrary. The proof on the part of defendant is, that the note was given to Haynes for a life insurance policy which was never issued, as defendant's application was rejected for the reason, it is said, he was an unsound risk. The court declared the law and found the issue for defendant as though plaintiff was not a holder of the note for value in due course in the circumstances stated, and disposed of the case on the theory that the equities and defenses available to defendant as against Haynes were equally so as to this plaintiff, for the reason the antecedent indebtedness for which the note was accepted by it as collateral afforded no sufficient consideration to render the transaction one in due course. Though the rule of decision has always prevailed in this state to the effect that one who accepts a negotiable promissory note in good faith before maturity, in consideration of the satisfaction of an antecedent debt, is regarded a purchaser for value and in due course, as was decided in Fitzgerald v. Barker, 96 Mo. 661, 10 S.W. 45, the converse of that doctrine has obtained from an early date with respect to such notes accepted merely as collateral security for a pre-existing indebtedness. In the early case of Goodman v. Simonds, 19 Mo. 106, the court declared that a party to whom negotiable paper is transferred merely as collateral for a pre-existing debt will hold it subject to all the equities existing between the original parties and, notwithstanding the weight of authority to the contrary, the rule has been reasserted in proper circumstances almost, if not quite, to the date of the adoption of our Negotiable Instrument Law in 1905, as will appear by reference to the following recent cases in point: Loewen v. Forsee, 137 Mo. 29, 38 S.W. 712; Johnson v. Grayson, 230 Mo. 380, 130 S.W. 673. But it is entirely clear the Legislature intended to change this rule when it enacted the Negotiable Instrument Law, to be found in the Laws of Missouri 1905, p. 243 []; and the note in suit was made since that enactment. The Negotiable Instrument Law has been carried forward into the revision of 1909 and is chapter 86 thereof. [Sections 24, 25, 26, 27 and 28 of the Acts of 1905 are now secs. 9995, 9996, 9997, 9998, 9999, R. S. 1909.] Some of the provisions of those sections are more or less relevant here and we therefore incorporate them in the opinion. The statutes referred to are as follows:
"Every negotiable instrument is deemed prima facie to have been issued for a valuable consideration, and every person whose signature appears thereon to have become a party thereto for value." Sec. 9995, R. S. 1909.
"Where value has at any time been given for the instrument, the holder is deemed a holder for value in respect to all parties who became such prior to that time." Sec. 9997, R. S. 1909.
"Where the holder has a lien on an instrument, arising either from contract or by implication of law, he is deemed a holder for value to the extent of his lien." Sec. 9998, R. S. 1909.
"Absence or failure of consideration is a matter of defense as against any person not a holder in due course; and partial failure of consideration is a defense pro tanto, whether the failure is an ascertained and liquidated amount or otherwise." Sec. 9999, R. S. 1909.
Though prior decisions denied that one who, in good faith before maturity, accepted a negotiable note as collateral security for a pre-existing debt did so in due course, so as to preclude the pressing of equities against him which obtained between the original parties, the doctrine predicated upon the essential proposition that such pre-existing debt constituted no consideration for the transaction as nothing was given in return for the pledge at the time. In Goodman v. Simonds, 19 Mo. 106, 117, the court particularly animadverts upon the fact that the creditor in such circumstances gives nothing for the note and risks nothing for it at the time. It represents him as an anxious person, reaching out to obtain any security which he may for his prior existing debt; and because there is no present consideration, the court says: "Common sense and common honesty unite in saying he shall take it, with the defenses the other parties have against it in the hands of the original holder and party." That the Negotiable Instrument Law overturns and sweeps away the entire predicate of the prior doctrine is obvious, for besides recognizing value as consideration, it in express terms declares that an antecedent or pre-existing debt constitutes value. Section 25 of that enactment touching on this question is as follows:
Sec. 25 of Laws of Missouri, 1905, p. 247; same as Sec. 9996, R. S. 1909.
Under this section, it is suggested for defendant that as a pre-existing debt was always sufficient in this state as a valuable consideration for the transfer of a negotiable promissory note before maturity to render the transaction...
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