Pensacola State Bank v. Thornberry

• Decision Date: 05 October 1915
• Docket Number: 2628.
• Citation: 226 F. 611
• Parties: PENSACOLA STATE BANK v. THORNBERRY et al.
• Court: U.S. Court of Appeals — Sixth Circuit

226 F. 611

PENSACOLA STATE BANK v. THORNBERRY et al.

No. 2628.

United States Court of Appeals, Sixth Circuit.

October 5, 1915

[Copyrighted Material Omitted]

J. B Baskin, of Louisville, Ky., for plaintiff in error.

W. T Ellis, of Owensboro, Ky., for defendants in error.

Before WARRINGTON and KNAPPEN, Circuit Judges, and SANFORD, District judge.

SANFORD District Judge.

This is an action at law brought by the Pensacola State Bank, formerly styled the Pensacola Bank & Trust Company, a Florida corporation, the plaintiff in error, against J. E. Thornberry and others, the defendants in error, citizens and residents of Kentucky, upon a promissory note for $5,000. The trial resulted in a verdict and judgment in favor of the defendants; and the plaintiff has brought this writ of error.

The essential facts, shown by the undisputed evidence, are these:

On April 23, 1906, the defendants, at Sebree, Kentucky, executed and delivered to one C. J. Scudamore, who was then cashier of the Pensacola Bank, a promissory note for $5,000, negotiable and payable at the First National Bank of Sebree, on or before May 15, 1907. This note, together with a similar note for $5,467.50, was executed and delivered by the defendants to Scudamore for the sole purpose of being discounted at a bank in Nashville, Tennessee, and realizing for the defendants money with which to buy a tract of land in Florida, which he had called to their attention, and was not to be used by him for any other purpose. It was executed and delivered to him with the name of the payee left blank, with the understanding that this blank was to be filled in by the bank discounting the note.

On April 26, 1906, Scudamore borrowed $10,000 for his own individual use from the American National Bank of Nashville, and, having filled in his own name as payee of this note, endorsed and delivered it to the American Bank as collateral security for his individual loan, without the knowledge or consent of the defendants. A few days later he notified the defendants that he had been unable to discount the note and had destroyed it; and they had no notice that he had pledged it to the American Bank until in 1908, long after its maturity, and never ratified or approved the pledge in any manner. He did not use any part of the money borrowed from the American Bank for the purchase of the Florida land; and the defendants received no consideration whatever for the note. At some time, not shown by the proof, but claimed by the plaintiff to have been before the pledge to the American Bank, he also affixed the name of one C. H. Ramsey as a maker of the note, without the knowledge or consent of said Ramsey or of the defendants.

On May 6, 1907, shortly before the maturity of the note, Scudamore paid the American Bank $5,000 on his loan and renewed the remainder; this payment being made by drawing his own check for $5,000 on the Pensacola Bank, in which he then had only a small deposit insufficient to meet the check. The American Bank accepted this check in part payment of his loan, and in consideration thereof released and delivered to him the note of the defendants which it held as collateral. It entered this check on its books as a charge against the Pensacola Bank, which then had a balance with it of less than $5,000, and on the same day wrote the Pensacola Bank, notifying it of this charge and inclosing Scudamore's check. This letter was, however, received by Scudamore, as cashier of the Pensacola Bank, and concealed by him, although he acknowledged its receipt to the American Bank. He destroyed his own check and did not charge it against himself on the books of the Pensacola Bank, and subsequently, on receiving a reconcilement from the American Bank showing an overdraft against the Pensacola Bank, concealed the real situation by false entries on the books of the Pensacola Bank; the other officers of the Pensacola Bank knowing nothing of these transactions until some time in 1908, when Scudamore's fraudulent conduct was discovered. It is not shown, however, that the Pensacola Bank at any time thereafter questioned the correctness of the charge made against it by the American Bank by reason of Scudamore's check, or ever denied its liability therefor as between it and the American Bank.

After re-obtaining possession of the note from the American Bank, Scudamore, at a time not precisely shown, changed its due date from May 15, 1907, to May 15, 1908, without the knowledge or consent of the defendants, who believed that it had been destroyed; and thereafter, on November 2, 1907, after its maturity and after the change in the due date and the addition of the name of E. H. Ramsey, pledged it to the Pensacola Bank as security for a loan of $6,000 made to him at the time.

In 1908, Scudamore's derelictions having been in the meantime discovered, the Pensacola Bank brought an action at law against the defendants, in the court below, upon this note and the other note for $5,467.50. Upon the trial of that suit the plaintiff having, at the conclusion of the evidence, avowed, in answer to an inquiry from the trial judge, that it relied upon the title to the $5,000 note acquired by reason of its payment of Scudamore's check to the American Bank in May, 1907, the trial judge suggested that in his opinion the plaintiff had not thereby shown a legal title to this note, but that any right it might have acquired by reason of this transaction was a merely equitable title, which probably could only be enforced by a suit in equity to which Scudamore might be a party, but that if the plaintiff desired it might dismiss the suit as to this note without prejudice; which action was accordingly taken by the plaintiff; the suit thereupon proceeding as to the $5,467.50 note and resulting in a verdict and judgment in favor of the plaintiff, which was subsequently affirmed by this court. Melton v. Pensacola Bank (6th Circ.) 190 F. 126, 111 C.C.A. 166.

In January, 1911, the Pensacola Bank filed a bill in the United States Circuit Court for the Eastern District of Illinois, against Scudamore, who was then confined in the Hospital for the Insane within said district, and the defendants herein, setting forth the use of its funds by Scudamore on May 6, 1907, in the payment to the American Bank, and the consequent surrender of the $5,000 note to him, and praying that it be substituted and subrogated, as of that date, to the title and ownership of the note under the pledge to the American Bank, and decreed to have an equitable lien thereto as security for the amount paid the American Bank with its funds. The note, however, was not exhibited with the bill, and was not then in the Illinois district, having previously been delivered by Scudamore to the Pensacola Bank and filed by it in the suit in Kentucky in the court below, where it then was. Service of process under this bill was made upon Scudamore, who appeared and answered by guardian ad litem; and an order was entered requiring the absent defendants to appear and make defense by a day stated, which was served on them in Kentucky. The defendant Pike thereupon entered a special appearance and moved the court to set aside this order for substituted service and to quash its service; which motion was, on motion of the complainant, stricken from the files. Thereupon he filed a demurrer to the bill, which was overruled; after which he filed an answer. The other defendants not having appeared and made defense, a decree pro confesso was entered against them. And at a subsequent hearing on the pleadings and proof, the court entered a final decree adjudging the Pensacola Bank to be the owner and holder of the note, in due course, as of May 6, 1907, as security for the payment of $5,000, with interest from said date; quieting its title and ownership thereto as against the defendants; and enjoining them from asserting any right, title or interest therein, but not otherwise precluding them from making any legal defense against their liability as makers thereof in the event they should thereafter be sued thereon. No appeal was taken from this decree.

Subsequently, on May 24, 1912, more than five years after the maturity of the note, the plaintiff instituted the present suit in the court below. The petition described the note as of its original due date, and alleged that on May 6, 1907, the plaintiff became, and still was, the owner and holder thereof, in due course, as security for the payment of $5,000, with interest, such title and ownership having been acquired as shown by the final decree in the Illinois suit, which was set forth in extenso; and by an amended petition a transcript of the entire record in the Illinois suit was filed as an exhibit. The answers denied that the plaintiff had become the owner and holder in due course, or at all, of the note, as security; denied that such title and ownership was acquired by the Illinois decree; averred that the Illinois court was without jurisdiction of the defendants and that its decree was void; relied as defenses upon want of consideration and the alterations in the note as to the due date and signature of C. H. Ramsey; plead the Kentucky statute of limitations of five years; and also relied on other defenses.

It inferentially appears from the record that the plaintiff rested its case in the court below, primarily, at least, if not entirely, upon the supposed conclusive effect of the Illinois decree as an adjudication that the plaintiff was a holder of the note in due course as of May 6, 1907. The learned trial Judge, however, charged the jury that the title to the note passed to the plaintiff for the purposes of the suit by the transfer and delivery to it by Scudamore on November 2, 1907; that the Illinois decree at most confirmed the...