BPI v. Alfred Berwin & Co.

Instrument: 2 Promissory Notes

Maker: Anselmo Diaz
Payee: Alfred Berwin & Co.
Facts: Alfred Berwin & Co. is ordering payment
of the promissory notes given to him by
Anselmo Diaz. Although Anselmo Diaz has
acknowledged this indebtedness, it is unclear
whether the payee, Alfred Berwin & Co.
indorsed the notes or if he is still in possession
of the notes.
Issue: W/N Anselmo Diaz can be compelled to
pay the note to Alfred Berwin & Co.
Held: No. Since it is not known whether the
defendant is still the holder in due course of
the negotiable instrument, Diaz cannot be
compelled to pay the amount of the
promissory notes because this payment is
only due to the holder in due course. If he
pays Alfred Berwin & Co., and a holder in due
course appears, this hdc may demand full
payment for the instrument.
(Alfred Berwin & Co., has to prove they are still
HDC to claim payment by showing that they
have not indorsed the note.
Elgin National Bank v. Goecke, et. al.
Instrument #1: Promissory Note
Maker: Frank A. Goecke, manager of Elgin
National Brewing Company
Payee: Elgin National Bank
Instrument #2: 2 Demand Notes
Maker: Elgin National Brewing Company
Payee: Makers order
Indorsed (with accommodation indorsers)
Facts:
Goecke created a note for Elgin Natl. Bank
to pay for the operating expenses of Elgin
National Brewing Company. It was
guaranteed by the president of the
company.
15 days later, 2 demand notes (a $3000
and and $2500) were created by Elgin
Brewin (indorsed by accommodation
indorsers) for payment of sight drafts with
bills of lading for 2 carload of supplies for
the brewery.
Gocke, instead, diverted these 2 demand
notes, one as collateral security for the
earlier note and the other was indorsed to

Elgin bank as payment for its past

indebtedness, whose instruments were
bought by Elgin Bank (indorsee). Elgin
Bank did not know about the true purpose
of the two demand notes given by Goecke.
Elgin Brewing defaulted on both notes.

Issue: W/N the plaintiffs (Goecke and

accomodation parties) are liable to pay.
Held: Yes, since it is a negotiable instrument
and Elgin is a holder for value on both notes.
On the $2,500 note:
Elgin Bank is a holder for value because
it paid a consideration for the notes by
cancelling the notes signifying
indebtedness of Elgin Brewery and
payment of the difference.
On the $3,000 note:
The plaintiffs are claiming that the $3000
note diverted cannot be proven as
having a consideration since the
extension already happened before the
collateral security was accepted. The
plaintiff is arguing that Elgin is not a
holder for value because of this.
The 1st note (created by Goecke for Elgin
Natl Bank) has been extended for six
months by giving of a new note on Nov
22, 1912 while the collateral security was
delivered and accepted 18 days after the
extension.
Merchants National Bank of St. Paul v.
Sta. Maria Sugar Co.
Instrument: Note
Maker: Sta. Maria Sugar Company
Payee: American Hoist & Derrick Company
Facts: American Hoist & Derrick Company
deposited a note from Sta. Maria Sugar
Company to Merchants National Bank. The
bank credited the account for $2,427.36 for
the principal and accrued interest on the note.
The discounting bank had no knowledge of the
any claimed defense of the maker until it
received a letter on April 26, 1911.
Issue: W/N Merchants National Bank is a
holder for value
Held: Yes.
The mere discounting of the note and placing
it on the depositors account does not make
Merchants National Bank a holder for value.
However, if there is subsequent withdrawal of

the amount, then value would have passed.

Even though the account never reached lower
than $6000, it can be said that the amount
was credit because the account paid out
continually. Since the first debits are to be
charged agains the first credits (FIFO), the
credited amount has long been exhausted.
National Bank of Commerce v. Morgan
Instrument: Draft
Drawer: W.M. Cosby Flour & Grain Company
Drawee:
Payee: National Hay Company (drawer daw)
Facts:
National Hay Company deposited the draft to
the National Bank of Commerce (NBC). NBC
credited the full amount to National Hay
Company and later forwarded the draft to First
National Bank for collection and remittance to
NBC.The drawee paid on the instrument to
First National Bank of Birmingham but before
it is able to remit to NBC, it received an order
for garnishment due to attachment
proceedings against the payee/depositor
National Hay Company.
Issue: W/N NBC is a holder for value.
Held: No
NBC is not a holder for value because it was
not shown that National Hay Companys
account was overdrawn above the amount of
the draft at anytime fromt the crediting of the
amount of the draft until the action for
garnishment. Since the credit by NBC was not
subsequently withdrawn by National Hay, it
did not pay consideration for the instrument
and is therefore not a holder in due course.
Notes: If NBC was a holder for value, then the
appelle cannot compell First National Bank to
stop remittance to NBC because it would be
entitled to the defenses of a holder in due
course. Since it was not proven that he is not
a holder for value, then he is not a holder in
due course and the appellee has the right to
order the garnishee to pay the proceeds to
him and not to NBC.
Unaka National Bank v. Butler
Instrument: Check
Drawer: W.B. Harris
Drawee: Unaka National Bank
Payee: Henry Butler

Facts:
Henry Butler negotiated the check through an
indorsement in blank to Thomas Davis who
lost the instrument. Because of the loss, the
drawer advised drawee to stop payment on
the check. This advise was overlooked and
Unaka National Bank paid on the instrument
to Ward &Fryberg (who claimed to have
received the note from a customer). Butler is
now suing the bank for paying on the
instrument.
Issue: W/N Ward & Fryberg are holders in due
course.
Held: Yes.
Unaka Bank is claiming that Ward & Fryberg
are not bonafide purchasers because although
they did not have actual knowledge that the
check had been lost, the circumstances
regarding their purchase were supposed to
excite suspision and put an ordinary prudent
man upon inquiry which would have led to the
knowledge on the defect of the title. Since
they did not inqure regarding the identification
of their customer, they should be charged with
negligence and constructive notice.
However, a purchaser of a negotiable
instrument owes no duty to the former holders
to actively inquire upon the history or the title
of the party in possession. Since Ward &
Fryberg is a without actual knowledge of the
infirmity of the holder of the title, there was no
bad faith in the transaction. Therefore, they
are holders in due course.
Commercial Credit Corp. v. Orange
County Machine Works
Instrument: Promissory Note
Maker: Orange County Machine Works
Payee: Ermac
Indorsee: Commercial Credit Corporation.
Facts:
Orange County Machine Works wanted to buy
a Ferracute press. Ermac (middle man) offered
the one being sold by American Precooling
Corporation for $5000. Commercial Credit
Corp was asked (by Ermac) to finance the
sale. It did so by taking an assignment of the
contract of sale between Ermac and the
Machine Works.

Machine Works paid the downpayment

of $1,512.50 and note payable to
Ermac.
Ermac indorsed the note to Commercial
Credit Corp.
Commercial Credit Corp. paid Ermac
$4261 for the discounted note.
Ermac paid $5000 to American
Precooling Corporation.
Check received by American Precooling
Corporation was dishonored and thus, it
did not deliver the Ferracute press to
Machine Works.

Commercial Credit is suing Machine Works and

Ermac for the amount it paid to Ermac plus
incidental fees and interest. Ermac defaulted.
Machine Works demands $1512 from Ermac
and relief against the suit from Commercial
Credit.
Issue: W/N Machine works should be relieved
from the suit from Commercial Credit.
Held: Yes
Commercail Credit is saying that since the
note is negotiable, it is only proper that the
maker be liable for default. According to
Machine Works, Commercial Credit cannot be
considered a holder in due course because it
acquired the instrument in bad faith by
accepting it while having notice of infirmities
in the instrument that Ermac was not the
owner of the machinery and that the same
was not yet delivered to Machine Works.
It was also held that the finance company was
a moving force to the transaction from its
inception which makes him party to the
original transaction and not a subsequent
purchaser. His title should be subject to
defenses existing against Ermac. Therefore,
he cannot be considered a holder in due
course.
Note: Another issue was on the negotiability
note since it was attached and transferred
with a conditional sales contract. It was held
that the concurrent execution and transfer of
a negotiable note and a conditional sales
contract should not defeat the negotiabilit of
the note.
Ham v. Merrit
Instrument: Note

Maker: Eva Merrit

Payee: Southern Hospital Association.
Indorsee E.C. Ham
Facts:
Payee assigned the $300 note to Asa Brunson,
who sold it to E.C. Ham. E.C. Ham is suing Eva
Merrit for to recover upon the instrument and
Merrit is saying that the note was obtained
from her through fraud by N.H. Vaughn, a
representative of the association, who was
selling stocks of the association. Ham is
pleading that he is a holder in due course and
without notice to the defect in the title of the
past parties.
Issue: W/N E.C. Ham is a holder in due course
Held: Although the note was transferred from
Brunson to Ham for only $100, this does not
constitute bad faith. It just so happened that
Brunson needed $100 which made him
indorse the note to Ham to get the money.
There is no other evidence as to whether there
was notice and bad faith in the transfer. In
addition to this, both Brunson and Ham lived
in Tennessee and did not know Ms. Merrit.
Pennoyer v. Dubois State Bank
Instrument: Note Payable
Maker: George A. Pennoyer
Payee: Wyoming Live Stock Loan Company
Indorsee: Dubois State Bank
Facts:
Wyoming Live Stock Loan Company sold its
shares to George Pennoyer through fraud.
Pennoyer paid for these stocks using two
notes payable to the order of Wyoming. The
notes where then indorsed by the payee to
Dubois State Bank and in turn got a certificate
of deposit for the full amount.
Having learned of the fraud, Pennoyer refused
to pay to Dubois when the notes matured,
claiming that he is not a holder in due course.
Dubois had no notice of the defect when it
issued the certificate of deposit to Wyoming.
However, even after it learned of the defect, it
still payed the certificate of deposit to
Wyoming. Dubois is now suing Pennoyer to
recover on the notes.
Issue: W/N Dubois is a holder in due course.

Held: Dubois is required to prove that the

certificate of deposit he gave had been
negotiated and that he became liable to pay
someone other than the payee. Since it can be
established that the notes were indorsed by
Wyoming to the First National Bank of Cody
and the procurement of the notes through

fraud will not subject him to defenses

available to the prior parties as he is a holder
in due course, Dubois has become liable to
pay First National Bank of Cody. Judgement
therefore was rendered in favor of the Dubois
(Plaintiff)