Bank of Italy v. Welbilt Auto Body Co.

HOUSER, J.

The facts upon which this appeal is predicated are that the defendant bought some lumber from a man

[527]

by the name of Bergman, in payment of which the defendant gave its trade acceptance to Bergman, payable about sixty-seven days from the date thereof. Some years preceding such transaction Bergman, who theretofore had become indebted to the plaintiff bank, was adjudicated a bankrupt. The debt owing by Bergman to the bank, although listed by Bergman in his schedule of liabilities in the bankruptcy proceeding, was not paid either in whole or in part, but on his. discharge in bankruptcy Bergman was legally relieved from the necessity of paying such debt. In addition thereto, at the time the transaction here involved occurred the statute of limitations had run against the debt. After Bergman had received the trade acceptance, but before its maturity, he indorsed it to the bank in attempted part payment of the said debt theretofore contracted by him in favor of the bank, and the trade acceptance was received by the bank without notice of any defense by the drawer (defendant) thereto. As testified by an officer of the bank, no immediate credit was given Bergman’s former account by reason of the receipt by the bank of the trade acceptance—its intention being to collect on the trade acceptance if possible and then to apply the proceeds thus collected to a credit on Bergman’s debt, which, however, theretofore had been “charged off” its books as a loss. As between the original parties to the trade acceptance, it appears that the drawer (defendant herein) had a good defense. On the trial of the action judgment was rendered in favor of the plaintiff, and the defendant has appealed therefrom.

Appellant’s statement of the question involved is, first, whether an indorsee of a trade acceptance who has no actual notice of the drawee’s defenses thereto is a holder in due course and for value, where he takes that instrument with the intention of collecting the same, and if successful, to apply the proceeds in satisfaction, or partial satisfaction, of a prior debt, in the meantime giving the indorser no credit at all; and, second, even if specifically applied in partial satisfaction of a prior debt which had been discharged in bankruptcy and against which the statute of limitations had run, where there was no promise to pay or acknowledgment of the debt ever made in writing, is such an indorsee a holder in due course and for value?