Tradesmen's Nat. Bank v. Looney

• Decision Date: 22 March 1897
• Citation: 42 S.W. 149,99 Tenn. 278
• Parties: TRADESMEN'S NAT. BANK v. LOONEY et al.
• Court: Tennessee Supreme Court

42 S.W. 149

99 Tenn. 278

TRADESMEN'S NAT. BANK v. LOONEY et al.

Supreme Court of Tennessee.

March 22, 1897

Appeal from chancery court, Shelby county; W. D. Beard, Chancellor.

Bill by the Tradesmen's National Bank against R. F. Looney and others to obtain judgment on a note, and to foreclose a trust deed securing it and another note of like amount The United States National Bank, one of the defendants, was the holder of the other note; and it made its answer a cross bill, in which it asked affirmative relief. Defendants Looney and wife filed, besides answers, a cross bill, in which they sought to have the notes delivered up for cancellation, and the trust deed removed as a cloud on her title. Defendants J. P. Sykes Buchanan, and others also filed cross bills. From a decree dismissing the cross bill of defendant bank and sustaining the respective cross bills of the other defendants, the bank appeals. Reversed.

W. D Ruffin and W. B. Glisson, for appellant.

Thos M. Scruggs, Randolph & Sons, and A. S. Buchanan, for appellees.

BEARD J.

The complainant, being the owner of a $12,500 note, being one of two notes of like amount executed by R. F. Looney to the order of J. P. Sykes, trustee, and by him and the Sheffield City Company indorsed to complainant, filed this bill seeking a decree for the amount of this note and interest, and also for a foreclosure of a trust deed made to secure it. The bill alleges that this trust deed was executed by Looney and wife on certain real property belonging to the wife, in or near Memphis, and that this property was already, in part or in whole, covered by two other trust deeds; that J. P. Sykes, the indorser of this note, was also trustee in the trust deed; and that, though complainant's note was long past due, and full power of sale on such contingency was granted to the trustee, yet he declined to execute this power. Sykes, as indorser and as such trustee, Looney and wife, the trustees and beneficiaries in the other two trust deeds, and the United States National Bank, as the alleged holder of the other of these notes, were made parties to this bill. The claim of complainant not being before us, we need not pursue it further.

The United States National Bank filed an answer to the original bill, and made its answer a cross bill, in which it asked affirmative relief. In this answer and cross bill it was averred that the United States National Bank was the holder of the other of these two notes of $12,500, having acquired title thereto bona fide, for a valuable consideration, before maturity, and in due course of trade; that this note was also made payable to J. P. Sykes, trustee; that it was by him and the Sheffield City Company indorsed; and that at maturity it was duly protested for nonpayment,-of all of which the indorser had legal notice. The cross bill prayed that the trust deed described in the original bill be foreclosed, and the proceeds of the foreclosure sale be applied to the payment of this note. To this cross bill Looney and wife and J. P. Sykes filed answers. In their answer, Looney and wife denied that the United States National Bank acquired this note in due course of trade, for value, and without notice of the makers' equitable defenses against it, and they averred that the note and trust deed to secure it were procured by fraud, and that no valuable consideration passed to them for the same. The fraud complained of, and as set out in the answer, is as follows: In July, 1892, and for some time before, there existed at Sheffield, Ala., a corporation called the Sheffield Land, Iron & Coal Company, which was the owner of various properties, real and personal. The operations of this corporation seem to have become embarrassed by heavy debts, the burden of which was largely carried by some of its stockholders. Certain of these parties about that time conceived the idea of relieving themselves of this burden by organizing a syndicate to purchase the assets of the corporation, and to this end they solicited a subscription from R. F. Looney, and perhaps others; and, in order that the parties so solicited might understand the character of the assets, there was prepared a statement or schedule of the same, together with extensions showing the value. In this paper these assets were set down as worth $1,012,676.81, and it is alleged that representations were made to Looney in this paper and otherwise by these gentlemen, that these values were in no sense speculative, but that they were real. In the answer it is also stated that it was in the same way represented that $300,000 would pay all the debts of the corporation, and that all the assets so scheduled would be turned over to the syndicate unincumbered, save for the burden of a bonded debt of $60,000 resting on the hotel in Sheffield, and scheduled as part of these assets, which was to be taken care of by the syndicate, but that it was at the same time stated to him that the rents derived from the hotel property would be sufficient to pay the interest on these bonds. Relying on their statements, the answer avers that R. F. Looney subscribed for a share of $50,000 of and in the syndicate which was organized to purchase these assets at the sum of $300,000. The answer alleges that he was imposed upon greatly as to the value of these properties; that, instead of being worth over $1,000,000, they were worth greatly less, and, instead of being unincumbered save in the single particular referred to, they were in numerous instances, and to their full value, hypothecated to the creditors of this corporation. The answer also alleges that the debts much exceeded $300,000. It is unnecessary to enter further into the details of the misrepresentations of which he alleges he was made the victim, it being sufficient to say that they were numerous and very great. It is further stated in the answer that, by his subscription of $50,000 to the capital of the syndicate, Looney was to be interested in the assets purchased in the proportion that this sum bore to the full amount of $300,000, and that, to pay this subscription, he executed his notes for $50,000, including the two notes of $12,500 each, secured by the trust deed in question. Looney and wife also file a cross bill, in which they seek to have the notes delivered up for cancellation, and to have the trust deed removed as a cloud on Mrs. Looney's title. Sykes also answers the cross bill, and denies his liability as indorser, and avers that the United States National Bank took the note with full knowledge that his purpose in indorsing the note was simply to pass title, and in no respect to bind himself personally on it. The United States National Bank answered the cross bill of Looney and wife, denying its averments so far as they impeached its title to the note sued on, and it reiterated that it was the bona fide holder of this paper. Subsequently amended answers were filed by Looney and Skyes, in which they alleged that since the filing of their original answer they had ascertained that this note had been paid to the holder, the United States National Bank, and that it had no right to prosecute further its suit upon it; that the debt of the bank was originally a debt due from the Sheffield Land & Iron Company, and that this debt was assumed by the Sheffield City Company when it was organized; that this note, together with the other notes of Looney heretofore described, was obtained by the false representations of the promoters of the Sheffield City Company, and that the note sued on by the United States National Bank was transferred to it in settlement of the debt of the Sheffield Land & Iron Company which it had assumed; and that subsequently the bank had made an arrangement with the Sheffield City Company, as a result of which the note was fully discharged. Upon the hearing, after much proof was taken, the chancellor dismissed the cross bill of the United States National Bank, and, upon the cross bill of Looney, ordered the note to be canceled, as well as the deed of trust securing it. From this portion of the decree the bank has prosecuted its appeal to this court.

The first question that will be considered is do the facts disclosed in the record afford a defense against the note in the hands of the bank, even if it be conceded that it does not occupy the position of a bona fide holder for value? That Col. Looney was induced to go into a speculating scheme which will prove disastrous to him if the note in suit is enforced against him, is true. And it may be conceded that the evidence in the case shows that the inducement which operated upon him and led him into this venture was a great overvaluation of the property and of its income, and a serious undervaluation of the incumbrances on this property, made by parties in whom he reposed confidence. And it may be granted further that the record shows that he was informed that his subscription of $50,000 would complete the sum of $300,000 to be raised by the syndicate, and that this amount would be sufficient to discharge the liabilities of the Sheffield Land, Iron & Coal Company, and that in neither respect was the statement true. But, granting all these as facts clearly made out, yet they are not of themselves sufficient to relieve him from liability on this note. To work this result, these misrepresentations must have been made by the vendor of this property or by some one authorized to act for it. On this point Col.

Looney says that J. C. Neely and Napoleon Hill, of Memphis, and E W. Cole, Lewis Baxter, and others, of Nashville, were stockholders in that company, and creditors of it (the three first named, in very large amounts), and that they induced Charles Sykes, who was then its president, and also a creditor of the company, to form a...