Evans v. Robert Marsh Co., Inc.

WARD, J.,

pro tem.

Robert Marsh and Company, a corporation, gave its note, the subject of this action, to United Finance Company for $6,496.86 indorsed by Robert Marsh. This note was transferred before maturity to J. H. Scales, the president of the United Finance Company. Scales, individually, borrowed the sum of $3,500 from the Pacific National Bank giving his promissory note therefor and the $6,496.86' Marsh Company note as collateral security. The Scales’ note was renewed. A payment of $750 was made thereon, leaving a balance of $2,750 due from Scales to the Pacific National Bank. No further payment being made by Scales, the bank, after maturity of the Marsh Company note, caused the $6,496.86 note held as collateral to be sold at public auction for the sum of $525 to an employee, E. Evans, the plaintiff in this action. As against Scales and the Pacific Finance Company there were equitable. defenses in' favor of the defendants. The bank and the plaintiff were innocent holders, not having knowledge of the facts constituting the defenses. Judgment was rendered in favor of plaintiff against Robert Marsh and Company, Incorporated, and Robert Marsh in the sum of $2,750, interest, etc. The court held that the plaintiff Evans, as well as his predecessor, the bank, would be deemed a holder for value only to the extent of the lien, i. e., the indebtedness owing to the pledgee. Defendant appealed from that portion of the judgment whereby the amount was fixed at $2,750. Plaintiff appealed from the whole of said judgment.

[443]

Plaintiff contends that the judgment should have been entered for the full amount of the note, to wit: $6,496.86 and not for the smaller sum which was equivalent to the unpaid balance of the loan from Scales to the bank. If the bank had instituted this action, judgment could only run for the amount pledged. (See sec. 3108, Civ. Code.) When part payment was made by Scales to the bank, the pledged note was security only for the unpaid balance. Where the maker of a negotiable promissory note has a defense not available as a bar to a recovery by the pledgee, but good as against the pledgor, the pledgee will be allowed to recover only to the extent of the debt for which the collateral, is held as security. If the bank assigned this note to a stranger, the stranger could take only the rights held by the assignor. The plaintiff in this action was not a stranger but a note teller in the Pacific National Bank, the pledgee. The note was sold to the plaintiff but he did not pay and the bank did not receive anything for the collateral note. Plaintiff is the nominal but the real holder of the note is the bank. Plaintiff did not buy this note in good faith for the full amount or face of the note. He is not therefore a holder in due course for the full value of the note. (See sec. 3133, Civ. Code.) Plaintiff simply stands in the position as the nominal holder of collateral security, the property of the bank. He may be considered a