#### Stevie et al. v. Stevie et al.

May 19, 1939.

STEPHENS L. BLAKELY for appellants.

CHARLTON B. THOMPSON for appellees.

Opinion op the Court by

Judge Stites

Affirming,

*490This is an appeal from a judgment of the Kenton Circuit Court sitting in equity. Suit was filed by the appellee, Joseph J. Stevie, and his wife, since deceased, against the appellants, Rose Stevie and Elmer Stevie, her husband, to secure the cancellation, so far as appellees are concerned, of a certain note and mortgage hold by Rose Stevie. Appellee is the brother of George Stevie and John Stevie, deceased, and is an uncle of appellant, Elmer Stevie. On June 19, 1930, the Stevie Department Store, by George Stevie, its president _ executed and delivered its promissory note due in ninety days in the smn of $15,000 to the Bank of Commerce and Trust Company of Cincinnati. John Stevie, George Stevie, Elmer Stevie, Joseph J. Stevie and an attorney named Francis Hoover endorsed the note. Joseph J. Stevie, the appellee, was the only one of the endorsers who had no direct connection with the Stevie Department Store. His endorsement was procured purely for the accommodation of his relatives. It appears, almost without dispute, that his signature was obtained as a result of fraudulent misrepresentations concerning the condition of the business and the use to which the proceeds of the note were to be placed.

The note to the Bank of Commerce was not paid when it fell due on September 19, 1930. Thereupon, after maturity, appellee, at the instance of his brother George, executed a mortgage to the bank on certain real estate owned by him worth approximately $5,000. George also delivered certain insurance policies of dubious value to the bank as further security upon the note. The bank, however, continued to demand the satisfaction of its debt and was finally successful in reducing the obligation to $8,760.75 — principally through payments made by Elmer Stevie who seems to have been active in the transaction. In fact, it was found by the chancellor that Elmer conspired with the other endorsers to induce appellee to come into the picture.

Following the incessant demands of the bank for payment, George Stevie went to Elmer’s wife, the appellant, Rose Stevie, who operated a beauty parlor in •Cincinnati, and prevailed on her to put up the $8,760.75 necessary to pay the bank. On October 24, 1930, Rose Stevie paid the bank and it assigned its collateral to her and endorsed the note without recourse. On July 13, 1931, the Stevie Department Store filed a voluntary petition in bankruptcy and was adjudicated a bankrupt.

*491A sixty-day note signed by tbe Stevie Department Store alone, dated October 24, 1930, in tbe amount of $15,000, was given to Rose Stevie and made payable to her. It is admitted that this note represents tbe same transaction as did tbe note to tbe bank. Tbe testimony is directly opposed as to tbe date on wbicb tbis note was delivered. The chancellor found, on conflicting evidence, that tbis note was delivered and accepted on October 24, 1930. Certain it is that Rose Stevie filed tbis second $15,000 note with her proof of claim in bankruptcy as a creditor of tbe Stevie Department Store and received and accepted a dividend of six per cent on tbe face value of the note and not simply on tbe $8,760.75 wbicb she bad paid for tbe first note. She filed no proof of claim on tbe first note nor, apparently, did she exhibit the fact that there was any security for tbe debt on wbicb her claim was based.

Tbe chancellor directed tbe cancellation of tbe endorsement of appellee on tbe note to the bank and also cancelled tbe mortgage. In tbe face of tbe conflicting evidence we are not prepared to say that -bis conclusion was unsound. Certainly we are unable to say that bis findings of fact were against tbe preponderance of tbe evidence.

Rose Stevie was not a bolder in due course of tbe instrument, having taken it after maturity, and she did not trace her title through a bolder in due course. Fidelity & Columbia Trust Company v. Nordeman, 266 Ky. 106, 98 S. W. (2d) 47. When she accepted tbe note of October 24, 1930, it was not simply a renewal of the note to tbe bank but an obligation direct to her as payee. In Fletcher American Company v. Culbertson, 215 Ky. 695, 286 S. W. 984, tbe payee of a note endorsed it to tbe Fletcher American Company. At maturity tbe makers executed a new note to tbe endorsee and tbis note was, in turn, renewed on several occasions. "When suit was filed on tbe last note tbe makers undertook to rely upon a defense to tbe original instrument. The defense was disallowed and tbe Court said (215 Ky. page 698, 286 S. W. page 985):

> ‘ ‘ Tbe original note having been executed to the Midwest Engine Company, and that company having transferred it to tbe Fletcher American Company, the execution of tbe renewal to the Fletcher American Company was a novation extinguishing tbe original debt. ‘A novation is accomplished alsg *492by tbe substitution of a new party to a contract whereby the rights and liabilities' of the old party are extinguished.’ 20 R. C. L. 363.

> “The holder by such a novation releases the indorser from all liability, and the maker of the renewal loses all right to set up against the holder the defense of fraud in the obtention of the original note. In 8 C. J. 445, Section 659, the rule is thus stated:

> “ ‘Where commercial paper is usurious or otherwise illegal, or is subject to the defense of fraud or want or failure of consideration, or other defenses, but has come into the hands of a bona fide purchaser for value, new paper executed to him in renewal of the same is valid.’ ”

While the note to Rose Stevie was not renewed, it was treated by her as an obligation direct to her for $15,000, and not simply as an obligation to pay the balance due on the old note. We are bound to look to her actions in the matter and, when we do, they support the chancellor’s findings rather than her own recollection of the transactions. The most that can be said is that a reading of the testimony leaves the mind in doubt as to whether she accepted the second note in payment of the first or not. In the circumstances we are bound to follow the chancellor. Webster v. Webster, 289 Ky. 712, 108 S. W. (2d) 724; Bowling v. Duvall, 270 Ky. 494, 109 S. W. (2d) 1200; Buchanan v. Sledge, 272 Ky. 15, 113 S. W. (2d) 859.

Judgment affirmed.