Affirming.
J.C. Bedinger, J.C. Gordon, A.R. Johnson and A.L. Reeves, each executed his several promissory note to Frismuth Brothers, a corporation, for the purchase of stock. These notes were assigned and endorsed by Frismuth Brothers before maturity to the Citizens' National Bank as collateral security on a loan. Not being paid the bank filed separate actions against the makers in the Boone circuit court. The defendants answered, pleading fraud in the execution of the notes, also no consideration. This was not denied by the reply, which alleged that plaintiff had no knowledge of the infirmity of the notes and took them in good faith and for value, and this constitutes the issue in the case. The several cases were combined and heard together. From a judgment for plaintiff in each, the several defendants appeal.
It appears in the evidence that the Lovell-Buffington Company, a corporation, was engaged for many years in the manufacture of tobacco in Covington, but had been *Page 488 placed in the hands of a receiver in the early part of the year 1922.
Frismuth Brothers Company, to be known hereafter as the "company," was a corporation engaged in the same business in the state of Pennsylvania. In the summer of 1922 it negotiated the purchase of the Lovell-Buffington effects and assumed its indebtedness, moving to Covington for that purpose. The banks of that city solicited its account and plaintiff wrote the Central National Bank of Philadelphia and the National Bank of Germantown, Philadelphia, in reference to its business standing and rating. Both of these banks answered favorably, it appearing that the firm had had an account with the latter. The company also furnished plaintiff a financial statement of its affairs as of May 1, 1922. It was quite flattering and upon the strength of this information the bank solicited its account. Accordingly on August 14, 1922, it loaned to the company the sum of $10,000.00 on its individual note, with two of its officers as surety. A similar note for the same amount was executed in the same way on September 21, 1922, and after deducting the discount the proceeds of these notes were placed to the credit of the company on a checking account.
On the 12th of December the company produced and offered to discount to the bank forty-two notes executed to it in the purchase of its stock. These notes were not due for more than four months, the time limit placed on loans executed to the bank, and it declined to discount them, but suggested that it would loan to the company the amount represented by them, $9,115.00, on its note and take the purchase notes as collateral security, which was done, the five notes in this suit being embraced in the number. The first note for $10,000.00, executed August 14th, matured two days later. On that day the company executed a fourth note to the bank for $7,500.00, and gave to it a check for $10,000.00 in payment of its first note, which was then cancelled. Thereafter the company continued to deposit and draw on its checking account until some time in January, 1923. By the first of that month it was ascertained that the company was in distress, and on the first of February following it was placed in the hands of a receiver, and since then has been adjudged a bankrupt. *Page 489
The bank filed its claim with the trustee in bankruptcy and collected 35% thereon. It has also collected about $1,500.00 from the other collateral notes, leaving a balance due on the $9,115.00 note of $4,228.68. The above facts are proven by the president and cashier of the bank, each of whom further states that he had no knowledge or intimation of any infirmity in the paper and did not hear of any delinquency upon the part of the company until the last of December, some weeks later.
The defendants introduced a tobacconist of Boone county, who transacts more or less business in Covington, and who states that he was solicited to purchase some of the stock of the company, and upon investigation learned that its financial reputation was bad and that this was prior to December 12th. They also introduced the general manager of the company, who states that some time in December the president of the bank called him over the telephone and asked him in reference to the company's business. That he responded that he had signed a statement made by the vice president showing assets six times as large as liabilities, and that he told the vice president that it was a reckless statement and would probably get him in trouble, that an audit was being made of the books of the company and if it showed up bad he would at once notify the bank; that he did so notify the president of the bank about the last of December, some time after these notes were negotiated. It is also shown that the finance committee of the bank consisted of the president and three other members, one of whom, Mr. Heiser, was in the tobacco business, but not connected with the company. Neither of the last three has testified.
The bank as pledgee of the notes is a holder for value to the extent of the debt for which they were pledged, and as this is shown to be more than the aggregate amount of the notes, it may collect the value of the notes if it is a holder in due course. Elk Valley Coal Co. v. Third National Bank,
Under section 3720b-52, Ky. Statutes, to be holder in course it must appear that the holder "took it in good *Page 490
faith and for value." "That at the time it was negotiated to him he had no notice of any infirmity in the instrument or defect in the title of the person negotiating it." In this case the agents who negotiated the paper testify positively as to these facts; but it is earnestly insisted by the defendants that the bank should have introduced all the members of its finance committee, which consisted of three members besides the president, or at least Mr. Heiser, who is a tobacconist and who would likely have known the financial condition of the company, and that its failure to do so is a circumstance that militates against it and from which an inference may be drawn that it did have notice; but Mr. Heiser was not a member of the company. Further, as a member of the finance committee he approved the individual loans made by the bank to the company, and in view of the fact that defendants introduced no residents of Covington to show any delinquency upon the party of the company during December, no importance is to be attached to this circumstance. Perhaps it may raise a suspicion that he had heard of the company's troubles, but this is not sufficient to show bad faith upon the part of the bank. Citizens' Bank v. Johnson,
The cases of Owsley County Deposit Bank v. Burns,
Wherefore, perceiving no error, the judgment is affirmed.