First National Bank v. Dean ( 1915 )

Stevens, J.,

delivered the opinion of the court.

This is a suit in equity by appellant as complainant in the court below, pledgee of a certain promissory note executed by appellee, L. Gr. Dean, in favor of the1 First State Bank of Shaw, of which "W. Gr. Hardee, appellee, was appointed receiver. In May, 1911, Mr. Dean executed and delivered to the First State Bank of Shaw his two promissory notes, one for five thousand dollars and the other for four thousand dollars, both payable on demand to the order of the First State Bank of Shaw, both bearing interest fromi date and providing for attorney’s fees. In August, 1911, .the First State Bank of Shaw negotiated a loan from the First National Bank of Nashville, Tenn., appellant herein, for ten thousand dollars, and to secure the payment thereof,, hypothecated with appellant certain notes as collateral, security, among them the five thousand dollar demand note executed by Mr. Dean as aforesaid. This ten thousand dollar note held by appellant was afterwards reduced to seven thousand,, five hundred dollars and renewed December 1, 1911, in the sum of seven thousand,, five hundred dollars, payable on demand and secured by-proper assignment, by the five thousand dollar demand note of Mr. Dean, along with other collateral. The four-thousand dollar demand note of Mr. Dean’s was hypothecated by the First State Bank of Shaw to secure a loan obtained from the Bank of Leland; and, after the appointment of Mr. Hardee as receiver, this four thousand dollar note was redeemed and held by the receiver as. an asset of the Bank of Shaw at the time this suit was. instituted in the court below. In October, 1911, and after both notes of Mr. Dean had been assigned by the-First State Bank of Shaw as stated, Dean, as maker of the notes, went-to the banking establishment of the First. State Bank of Shaw and paid the cashier four thousand,, four hundred and and eighty-six dollars and fifty-seven (cents, with the request that the payment be applied to his notes, and not to an overdraft the bank then held against him. On cross-examination, Mr. Dean himself says:

‘ ‘ I had an open overdraft, and I did not want this to-go on the cotton overdraft, and I asked him to apply it on the notes — one or the other of the notes. I did not say which one of the notes, because it was natural to. suppose that the four thousand, four hundred would apply oh the larger note; and I noticed on the margin of the notebook that he applied it on the larger note.”

When Mr. Dean tendered his payment, the cashier informed him that his notes were not in the bank; and. waiving certain conflicts between the testimony of the cashier and Mr. Dean, it appears undisputed that Mr. Dean thereupon insisted upon the payment being applied to his notes, and that in his presence the cashier took the bills receivable or npte register and noted this payment in writing opposite the place where the five thousand dollar note appeared of record. Mr. Dean was, .at that time, a director of the First State Bank of Shaw, hut denied actual knowledge or notice of the assignment of his five thousand dollar note to appellant. His testimony in reference to notice of the assignment is, to some extent, indefinite and unsatisfactory. When asked if the cashier told him his note had been hypothecated, he says:

“No sir; never at any time did he tell me. I did not ask him. ’ ’

And being asked if that was not his understanding, he says:

“I can’t say that it was. He said the note was not in the bank. ... I could not say just what view I did take of it, as I said awhile ago that if the note was out of the bank, it was in somebody else’s hands.”

'Subsequent to this transaction, the receiver was appointed for the First State Bank of Shaw, then insolvent; and the receiver qualified and was administering, under the supervision of the chancery court, the estate of- said bank. It appears that appellant did not propound its claim as a secured creditor in the insolvency proceedings, but proceeded to the collection of its collaterals, and to that end exhibited its bill in chancery to recover upon the five thousand dollar note in question.

The receiver and Mr. Dean both contend that the money paid by Mr. Dean to the cashier constituted a valid payment on the note here sued on. Appellant contends that the First State Bank of Shaw had no authority to receive and apply this payment, and that Mr. Dean had both actual and constructive notice of this. Mr. Dean in his answer, as well as briefs of his solicitors, offers to pay the balance due on the five thousand dollar note in question as well as the four thousand dollar note. It is the further contention of appellant that the further payments due by Mr. Dean should be applied first to the liquidation of the entire principal, interest, and attorney’s. fees claimed by appellant on the five thousand dollar note, with the right on the part of Mr. Dean to insist upon the money paid to the cashier of the First State Bank of Shaw being applied to the four thousand dollar note. It is conceded by all parties that it is immaterial to the rights of Mr. Dean whether the payment in question is applied to the note of appellant or to the note now held by the receiver. The chancellor treated the payment as applying on the note here sued on, and limited appellant to recovery of the balance of the principal and interest and the attorney’s fees due only upon this balance. We think the evidence sufficiently shows that Mr. Dean had notice of the assignment of the note here sued on. He asked that his payment be applied to his notes, one or the other. He was told by the cashier that neither of his notes was in the bank at the time he made, the payment; and by this information he admits that he knew the note here sued on was in some one else’s hands. If the note was in the hands of parties other than the bank, he knew it had been either pledged or sold outright. One question propounded by him to the cashier would have disclosed appellant as pledgee. But, waiving any duty to inquire from the cashier, Mr. Dean was at that very moment standing in the midst of the bank’s records — in arm’s reach of the very records that are bound to have reflected the loan from and pledge to appellant. As a director of the institution, he had access to all of the records of the First State Bank of Shaw, and as one of its 'agents had the absolute right to demand from tbe cashier or other employees of his own bank just what disposition had been made of his notes. Instead of one word of inquiry, he deliberately closed his eyes to information at his immediate command, and should not, and cannot, now he heard to say that he has made the payment in question, .innocently and without notice of the assignment to appellant. Notice of assignment, to he availing and effectual, need not come direct from the assignee or holder of the paper. It is. sufficient that the maker has notice from any source.

“Such notice usually comes from such source, but the law does not require it. If the maker has notice, in other words, if he knows that the note has been transferred, it is immaterial how, or from whom, he acquired such information, as thereafter he is precluded from acquiring as against the assignee, any set-off. This is expressly ruled, in Jones v. Witter, 13 Mass. 301, and ini Small v. Browder, 11 B. Mon. (Ky.) 212. In this last case, information that the note had been assigned was held sufficient, though the defendant was not informed that the note had been assigned to the plaintiff. In neither of these cases had notice been given by the assignees, and in both of them set-offs were excluded, because information that the notes sued upon had been assigned was imparted by others.” Johnson v. Amana Lodge, No. 82, Independent Order of Odd Fellows, 92, Ind. 150.

The information imparted to Mr. Dean by the cashier, his position of cashier, the circumstances surrounding him, the fact that he was dealing, not with a private individual, but with a banking institution, and stood in the midst of the very information at his command, all conspire to charge him with notice of appellant’s rights in the premises, and place him in an attitude of declining to know the very thing about which he says he was ignorant.

“Where, however, the circumstances show that the purchaser of paper refrained from making inquiry lest he should thereby become acquainted with the transaction out of which the note originated, he cannot occupy the attitude, of a holder in good faith without notice.” Schmueckle v. Waters, 125 Ind. 265, 25 N. E. 281.

“No man should be permitted to willfully close his eyes and then excuse himself upon the ground that he did not see.” State Nat. Bank of Springfield v. Bennett, 8 Ind. App. 679, 36 N. E. 551.

This case is differentiated from that of Allein v. Agricultural Bank, 3 Smedes & M. 48, relied on by counsel for appellee. In the latter case an accommodation note, in form negotiable, was executed by Thos. Allein, in favor of Jas. Wood, and by Wood indorsed to James Payne and by Payne to Fauver & Farnsworth. It was dated April 9, 1836, due four years after its date. In January, 1838, long before its maturity and before assignment, complete satisfaction was made; and Fauver & Farnsworth, not having the note in their possession at the time, executed an indemnity bond conditioned to deliver up the note. The opinion states:

“It does not appear that the note had been .assigned at the time of the arrangement with Fauver & Farnsworth. ’ ’

The facts of that case further show that not one word was uttered by the holders of the note indicating claim of ownership by other parties; and there were no such circumstances as surround Mr. Dean in the instant case.

Appellant, in our judgment, is entitled to recover the full amount of principal, interest, and attorney’s fees, on the five thousand dollar note sued on. The decree of the court below must therefore be reversed and set aside, and the cause remanded, for further proceedings in accordance with the views herein expressed, and without prejudice to the right o"f Mr. Dean to offset the payment of four thousand, four hundred and eighty-six dollars and fifty-seven cents, against the four thousand dollar note now held by the receiver.

Reversed and remanded.