Williams v. Stansbury

• Decision Date: 06 April 1983
• Docket Number: No. C-1502,C-1502
• Citation: 36 U.C.C.Rep. 879,649 S.W.2d 293
• Parties: 36 UCC Rep.Serv. 879 John WILLIAMS, Petitioner, v. Robert H. STANSBURY et al., Respondents.
• Court: Texas Supreme Court

Page 293

649 S.W.2d 293

36 UCC Rep.Serv. 879

John WILLIAMS, Petitioner, v. Robert H. STANSBURY et al., Respondents.

No. C-1502.

Supreme Court of Texas.

April 6, 1983.

H. Averil Sweitzer, Dallas, for petitioner.

James A. Baker and Steven B. Strange, Ungerman, Hill, Ungerman, Angrist, Dolginoff, Teofan & Vickers, Richard G. Dafoe, Francis Thayer, Dallas, for respondents.

CAMPBELL, Justice.

This is an action on a promissory note. ¹ Williams purchased a promissory note without knowledge that it had been subjected to a suit for garnishment. The question is whether Williams must intervene in the garnishment proceeding in order to protect his rights in the note. The trial court held Williams was estopped to recover the proceeds of the note which had been paid to the garnishor. The court of appeals affirmed. 634 S.W.2d 924 (Tex.App.1982). Our per curiam opinion dated November 10, 1982, is withdrawn. We reform the judgment of the court of appeals and, as reformed, affirm.

On January 15, 1970, Stansbury bought a laundromat from Harriet Clements and gave Clements his promissory note as payment. Shortly after the sale, a judgment-creditor of Clements served a writ of garnishment on Stansbury to reach the debt Stansbury owed Clements. The court in the garnishment case directed Stansbury to pay each monthly payment into the registry of the court.

Over a year later, on May 8, 1971, Clements sold Stansbury's note to Williams. On May 10, Williams notified Stansbury that he held the note and that future installments should be paid to him. Stansbury's attorney wrote Williams requesting proof that he owned the note and informing him that payments were being made into the court in the garnishment case. On May 25, Williams sent Stansbury a copy of the note and threatened legal action if payments were not made to him. Finally, on August 30, Williams advised Stansbury that the note had been turned over to an attorney for collection and demanded immediate payment of the balance of the note.

Two years passed and Stansbury heard nothing further from Williams. On August 9, 1973, Stansbury and the garnishor reached a settlement and the garnishment case was dismissed. The order dismissing the garnishment case directed the district clerk to return to Stansbury the $8252.85 he had paid into the court. Stansbury then disbursed this money under his agreement with the garnishor. Williams was not a party to the garnishment case and did not receive any money under the settlement agreement.

On April 28, 1975, about two years after the order dismissing the garnishment case and about forty-four months after his last contact with Stansbury, Williams sued Stansbury on the note. Stansbury contended Williams was not a holder in due course because he knew the note was in default when he purchased it because of the garnishment case. Stansbury also contended Williams was estopped to recover on the note because he did not act to protect his interest until almost four years after learning of the garnishment case.

The jury found Williams did not know the note was in default when he purchased it. The jury, however, found that: Williams knew of the garnishment suit on May 25, 1971; Williams by his conduct or silence led Stansbury to believe he would not pursue his rights with respect to the note; Stansbury relied on the conduct or silence of Williams when he settled the garnishment case; and enforcement of the note would result in a financial loss to Stansbury. On the basis of these findings, the lower courts held that Williams is estopped to collect, and Stansbury is entitled to deduct, the amount paid into the registry of the court during the garnishment proceeding. We disagree.

The promissory note signed by Stansbury is in negotiable form. See Tex.Bus. & Com.Code Ann. § 3.104. The note was endorsed by Clements and delivered to Williams, making Williams a holder of the note. Tex.Bus. & Com.Code Ann. § 1.201(20). A holder of a negotiable instrument is subject to all valid claims to the instrument on the part of any person. Tex.Bus. & Com.Code Ann. § 3.306. If, however, Williams has established himself as a holder in due course, he will defeat the garnishor's prior claims.

A holder in due course is a holder who takes a negotiable instrument for value in good faith and without notice that it is overdue or that it has been dishonored or paid or that a defense or claim against the instrument exists on the part of any person. Tex.Bus. & Com.Code Ann. § 3.302(a). The holder of a promissory note is presumed to be a holder in due course absent evidence to the contrary. Favors v. Yaffe, 605 S.W.2d 342 (Tex.Civ.App.--Houston [14th Dist.] 1980, writ ref'd n.r.e.); Couch v. Babb, 423 S.W.2d 464 (Tex.Civ.App.--Beaumont 1968, writ ref'd n.r.e.). Williams made a prima facie showing that he was a holder in due course when he...