Southern Trust Co. v. Vaughn

• Decision Date: 19 December 1921
• Docket Number: 5605.
• Citation: 277 F. 145
• Parties: SOUTHERN TRUST CO. v. VAUGHN et al.
• Court: U.S. Court of Appeals — Eighth Circuit

277 F. 145

SOUTHERN TRUST CO. v. VAUGHN et al.

No. 5605.

United States Court of Appeals, Eighth Circuit.

December 19, 1921

Malcolm E. Rosser, of Muskogee, Okl., and T. M. Seawell, of San Antonio, Tex. (Frank Pace, of Little Rock, Ark., George S Ramsey, of Muskogee, Okl., Edgar A. De Meules, of Tulsa Okl., and Villard Martin, of Muskogee, Okl., on the brief) for plaintiff in error.

L. C Andrews, of Pauls Valley, Okl. (J. R. Cottingham and S.W. Hayes, both of Oklahoma City, Okl., and J. T. Blanton and Monroe Osborn, both of Pauls Valley, Okl., on the brief), for defendants in error.

Before HOOK, Circuit Judge, and COTTERAL and JOHNSON, District Judges.

JOHNSON District Judge.

Plaintiff in error brought suit in the court below against the Yellow Rose Mining Company and the defendants in error, directors of the company, upon a promissory note dated May 1, 1917, executed by said company and defendants in error, for the sum of $15,000, payable on or before six months after date to the order of one J. L. McCarty. The plaintiff claims to be the holder of the note in due course.

The defendants in error and the company as a defense set up in their answer with some particularity that in February, 1917, J. L. McCarty, by fraudulent representations, had induced the company to purchase certain mining property for a consideration of which the principal sum mentioned in the note in suit was a part; that the company as principal and the defendants in error as sureties had signed said note relying upon the representations so made by said McCarty; that the company by reason of said false representations had been damaged in excess of the amount of the note.

As a defense personal to them the defendants in error alleged that on the 1st day of May, 1917, the company, being indebted to J. L. McCarty for the balance unpaid of the purchase price of the mining property above mentioned agreed to make and deliver a note for such balance payable in six months from date; that they the answering defendants signed said note as sureties at the request of McCarty the payee on the condition that he would secure from the company a mortgage upon all of its property, cause said mortgage to be recorded, and, in case the note was not paid by the company, foreclose the mortgage, sell the property described therein, apply the proceeds on the note, and look to and require the answering defendants to pay the deficiency, if any, only. Defendants then allege that the mortgage was executed by the company; that McCarty received it, but failed to have it recorded as he had agreed to do; that as a result of a conspiracy entered into between him and the Miners' & Citizens' Bank the property described in the mortgage was seized and sold for debts due to the bank, and the lien of the mortgage lost.

As a second defense personal to them the defendants in error alleged, in effect, that by reason of the failure of McCarty to preserve the lien of the mortgage they had been deprived of the benefit which would have inured to them by subrogation upon the payment of the note by them. By reason of their several defenses they prayed judgment that plaintiff take nothing by its complaint.

At the trial plaintiff obtained judgment against the company, but was defeated as to the other defendants. Plaintiff brings error, and has assigned numerous rulings of the trial court as error which will be referred to more specifically hereafter.

The plaintiff acquired the note in this way: J. L. McCarty, the payee, after he had received the note indorsed it to McCarty & Angel, a firm in which he was a partner. Thereafter he applied to the Miners' & Citizens' Bank of Yellville in the state of Arkansas, to discount the note for the firm. Under the banking laws of Arkansas a bank is not permitted to loan in excess of 30 per cent. of its capital stock to any single borrower. The capital stock of the Miners' & Citizens' Bank was $20,000; it was therefore unlawful for it to discount the note. J. F. carson, the cashier of the bank, however, agreed, upon his next visit to Little Rock, to attempt to discount the paper for McCarty in some of the larger banks of that city. Early in October, 1917, he went to Little Rock and applied to the plaintiff to discount the note. After some inquiry as to the financial standing of the signers of the note, the plaintiff bank agreed to take the paper at its face value with accrued interest. It was then discovered that the note had not been indorsed by McCarty & Angel, and it was agreed between Carson and the officer of the plaintiff bank with whom the business was being conducted that Carson should take the note back with him, secure the indorsement of McCarty & Angel upon it, have the purchase price of the note placed to the credit of McCarty & Angel on the books of the Miners' & Citizens' Bank, and forward the note to the plaintiff at Little Rock; and it was agreed upon its receipt by the plaintiff the purchase price of the note would be placed to the credit of the Miners' & Citizens' Bank upon the books of the plaintiff bank. This program was carried out. The indorsement of McCarty & Angel was secured by Carson; the purchase price of the note was placed to their credit by the...