Voss v. Chamberlain

• Decision Date: 09 July 1908
• Parties: VOSS v. CHAMBERLAIN ET AL.
• Court: Iowa Supreme Court

139 Iowa 569

117 N.W. 269

VOSS

v.CHAMBERLAIN ET AL.^a1

Supreme Court of Iowa.

July 9, 1908.

Appeal from District Court, Crawford County; Z. A. Church, Judge.

Action for damages for the conversion of certain promissory notes. On a trial to the court without a jury judgment was rendered for plaintiff, and defendants appeal. Affirmed.Mayne & Hazelton, for appellants.

Shaw, Sims & Kuehnle, for appellee.

McCLAIN, J.

In April, 1903, one H. S. Green, a banker at Dow City, Iowa, acting as agent for the defendants, effected a sale for them of a tract of land in Nebraska, receiving in payment a small sum in cash and certain promissory notes which were made payable to “E. N. Chamberlain, Amos Weatherbee, and H. S. Green, or order.” Green appropriated the cash payment and the proceeds of the first of the notes to become due in point of time which he collected to the payment of his commission, and turned over the other notes, of the face value of $4,350, to the defendant Chamberlain as the property of defendants, signing his name on the back of the notes to a stamped guaranty of payment, waiving demand, notice of nonpayment, and protest. In November, 1903, defendant Chamberlain, intending to negotiate the notes, indorsed his own name, and had the name of his co-owner, Weatherbee, indorsed under the name of Green on the back, but, as the sale of the notes was not then effected, they were replaced among the private papers of Chamberlain, which were kept for safety in the Exchange Bank of Dow City, of which Green was owner. At some time between November, 1903, and March 19, 1904, these notes were pledged by H. S. Green to the Bank of Denison, of which C. L. Voss the plaintiff, is cashier and L. M. Shaw and C. L. Kuehnle owners, by way of substitution for other collateral held by the Denison bank as security for antecedent indebtedness of H. S. Green to the extent of $6,175. On March 19, 1904, these notes were delivered by the Bank of Denison to H. S. Green, who in the receipt given therefor describes them as collateral, and promises that, if paid or sold, the proceeds will be applied by him in payment of his notes, and, if not paid or sold, they will be returned to the Bank of Denison by about April 10, 1904. On April 8, 1904, in pursuance of bankruptcy proceedings against H. S. Green, a receiver was appointed for the Exchange Bank of Dow City, and after that time the notes in question were found among the private papers of defendant Chamberlain, where they had been before they were pledged by Green to the Denison bank. It is clear from the evidence that without authority of defendants, who were the owners of these notes, Green, who had no interest therein or right to the custody thereof, abstracted them from the wallet in which Chamberlain kept them with other private papers in the Exchange Bank, and pledged them to the Denison bank as collateral security for his own indebtedness, and that subsequently, having obtained them from the Denison bank for the purpose of selling or collecting them or collecting interest as the agent of the Denison bank, he returned them to the wallet containing Chamberlain's private papers; neither Chamberlain nor Weatherbee having had any knowledge in the meantime that they had been abstracted and pledged to the Denison bank. It also appears that plaintiff Voss, as cashier of the Denison bank, accepted these notes from Green as collateral by way of substitution for other collateral surrendered without knowledge of any right thereto on the part of Chamberlain and Weatherbee, and in the belief that they were the property of Green. If the Bank of Denison became the holder of the notes in question as collateral security in due course, and for valuable consideration, it is entitled to recover the value of the notes as subsequently found in the possession of Chamberlain claiming to hold them as the property of Chamberlain and Weatherbee, and refusing to deliver them up on demand; for the delivery of the notes to Green for a specific purpose as the agent or custodian of the bank did not constitute a surrender of the lawful possession of such notes by the bank as the holder for value. Palmtag v. Doutrick, 59 Cal. 154, 43 Am. Rep. 245;Burley v. Rose, 57 Iowa, 651, 11 N. W. 629;Clark v. Iselin, 21 Wall. (U. S.) 360, 22 L. Ed. 568; Jones, Pledges (2d Ed.) §§ 40-48. If Green, having possession of the notes indorsed in blank, had transferred them to an innocent holder for value, such transferee would no doubt have acquired rights prior to those of the Bank of Denison; but his surreptitious return of the notes to the wallet containing the papers of defendant Chamberlain did not invest the defendants with any other rights than those which they had prior to the abstraction of the notes from the wallet by Green and their delivery to the Bank of Denison. The return of the notes to Chamberlain's possession without his knowledge, and without his having parted with any new consideration or voluntarily incurring any detriment, did not make the defendants new holders for value in due course.

The sole question to be determined, then, is whether by the original pledge of the notes by Green the Bank of Denison became holder thereof in due course for value and without notice of the wrongful act of Green in thus transferring paper to which in fact he had no title. The notes were not yet due at the time of their transfer by Green to the Bank of Denison, and the bank, therefore, took any rights which it acquired before maturity. But it is contended for appellants that it acquired no rights whatever because the notes were payable to the persons named therein or order, and were not so indorsed, as that title would pass by delivery. As appears from the facts stated, the indorsement by Green when the notes were first procured by him and delivered to the defendants was by means of his signature to a guaranty of payment entered on the back of the notes with a waiver of demand, notice, and protest. The names of defendants were at a subsequent time written by them under the name of Green following this guaranty. If it were material to determine whether defendants indorsed the notes in blank, or merely joined with Green by the subsequent act in guaranteeing payment, it might be difficult to say whether they became blank indorsers or only guarantors. But, according to the weight of authority and the recent holding of this court, the signing of a guaranty of payment combined with waiver of demand, notice, and protest constitutes the signers of such an indorsement who are payees of the note indorsers and not guarantors, and, as no indorsee is named, such indorsement is a blank indorsement and the subsequent delivery of the instrument to one who takes in due course and for value passes title. German American Savings Bank v. Hanna, 124 Iowa, 374, 100 N. W. 57.

In determining whether the Bank of Denison became a holder for value, it is not necessary to consider the conflict in authorities as to whether a transfer as security for a pre-existing debt constitutes the transferee a holder for value, for the evidence shows that the notes were delivered to the Bank of Denison by way of substitution for other collateral which was surrendered in the same transaction; and, beyond question, a transferee who thus takes collateral by way of substitution for other collateral surrendered becomes a holder for valuable consideration. Park Bank v. Watson, 42 N. Y. 490, 1 Am. Rep. 573;Greenwell v. Haydon, 78 Ky. 332, 39 Am. Rep. 234; Cherry v. Frost, 7 Lea (Tenn.) 1; Sawyer v. Turpin, 91 U. S. 114, 23 L. Ed. 235; 1 Daniel's Negotiable Instruments, § 827. Since the adoption in this state of the negotiable instruments act (Act 29th Gen. Assem. [Laws 1902, p. 86] c. 130), there is no question, however, as to a holder who takes by way of security for pre-existing indebtedness being a holder for value. By section 52 of that act (Code Supp. 1907, § 3060a52) a holder in due course must be a holder “for value,” and the term “value” means valuable consideration (section 191), and by section 25 it is declared that “an antecedent or pre-existing debt constitutes value.” In no view of the case, therefore, can the Bank of Denison be said not to have been a holder for value.

In this connection it is contended, however, that, as the value of the collateral surrendered when the notes in question were accepted by the Bank of Denison is not shown, the bank is not entitled to recover because, under Code, § 3070, a bona fide holder for value may not recover as against the maker of negotiable paper a greater sum that the holder paid for the instrument if it has been procured by fraud upon such maker. This section evidently has reference, however, to recovery on instruments as to which the maker has a defense. The defendants in this...