Case Name: INTERSTATE TRUST CO. v. HEADLUND
Court: Utah Supreme Court
Jurisdiction: Utah
Decision Date: 1918-01-30
Citations: 51 Utah 543
Docket Number: No. 3100
Parties: INTERSTATE TRUST CO. v. HEADLUND.
Judges: FEICK, C. J., and COEFMAN, THUEMAN, and GIDEON, JJ., concur.
Reporter: Utah Reports
Volume: 51
Pages: 543–552

Head Matter:
INTERSTATE TRUST CO. v. HEADLUND.
No. 3100.
Decided January 30, 1918.
On Petition for rehearing March 22, 1918.
(171 Pac. 515.)
1. Bills and Notes — “Holder in Due Course” — Pledgee. Under Comp. Laws 1907, Sections 1604, 1611, defining holders in due course, a pledgee accepting an unmatured note as collateral security held a holder in due course. (Page 546.)
2. Bills and notes — Eraud;—Sufficiency of Evidence. Evidence that plaintiff personally investigated a corporation’s affairs before purchasing its stock by giving the note sued upon, his letter stating that his failure to pay the note was due to lack of funds, etc., held not to establish that the note was secured by fraud. (Page 547.)
On Petition for Behearing.
3. Pledges — Collateral Security — Renewing Date. Renewing a negotiable bill or note for the payment of which collateral securities have been pledged does not affect the creditor’s right to retain or enforce such security. (Page 549.)
4. Bills and Notes — Renewal—Effect. Renewing a note by another note does not extinguish the original debt unless such clearly appears to be the intention of the parties. (Page 550.)
5. Pledges — Collateral Security — Renewing Note. Where defendant’s note was pledged as collateral security for the pledgor’s present and future debts, the fact that the pledgor gave a renewal note for his indebtedness did not prevent the plaintiff pledgee from realizing upon the collateral security. (Page 551.)
Appeal from District Court of Salt Lake County, Third District; Hon. T. D. Lewis, Judge.
Action by Interstate Trust Company, a corporation, against J. A. Headlund.
Judgment for plaintiff. Defendant appeals.
Affirmed and petition for rehearing denied.
H. V. Van Pelt for appellant.
Booth, Lee, Badger & Rich for respondent.

Opinion:
McCARTY, J.
Plaintiff brought this action to recover upon a collateral note executed by defendant, payable to himself, and indorsed by him in blank, being negotiable in form. From a judgment rendered in favor of plaintiff, defendant appeals.
The facts of this case are as follows: On or about December 19, 1911, one George P. Mason, who was the general manager and sales agent of the International Engineering Corporation, with its principal place of business in Denver, Colo., sold to J. A. Headlund, defendant, one hundred shares of the preferred and one hundred shares of the common stock of the said corporation for $1,000. Headlund gave his two promissory notes, of $500 each, in payment of the stock. He returned the certificates of the stock, indorsed in blank, to Mason as collateral security for the payment of the two notes given in payment of the stock. Mason represented to Headlund that the corporation, which was engaged in building and installing furnaces, was "on a sound financial basis." He also explained to Headlund somewhat in detail the amount and character of its assets. Mason testified in part as follows:
"I told him that the company had many contracts for the sale and installation of furnaces, which contracts were worth many thousands of dollars in profits to them."
He further testified and his evidence is not disputed:
"I told him the profits that were in it and the prospective business that could be done, in my-opinion, and gave him the privilege of coming on to Denver and mailing a thorough investigation. In response to my suggestion, Mr. Headlund came to Denver in January, about a month after I sold him the stock, to look into .the proposition. I paid his expenses. He called on the president, the secretary, and the treasurer, saw the books and the contracts we had on hand. He made an investigation of the books of our company, and spent a day- going over the matters of the company very carefully, and then investigated the furnaces in operation — two or three of them. He was so well pleased that he subscribed for fifteen hundred dollars more of the stock while he was in Denver."
The record shows that it was agreed that if it should be inconvenient for Headlund to pay for the stock last subscribed by him, his subscription would be canceled. This last subscription was later on canceled. 'This transaction is not in any sense an issue in the case. Our reason for referring to it is that we think it has a bearing on the question of fraud raised by defendant and referred to later on in this opinion.
On December 1, 1912, Headlund made and delivered to Mason a new note covering the indebtedness ($1,000) represented by the two notes mentioned, which note is in words and figures as follows:
$1,000.00. Denver, Colorado, Dec. 1, 1912.
"Ninety days after date I promise to pay to the order of myself at-, one thousand dollars in gold coin of the United States, with interest at the rate of 6 per cent, per annum from date, for value received. J. A. Headlund. ' '
Headlund indorsed the note in blank as follows: "J. A. Headlund." This note and the two certificates of stock issued to Headlund, and delivered by him to Mason, were pledged by Mason, in writing, to plaintiff, the Interstate Trust Company, a Colorado Corporation, as collateral' security for a loan of $500, on December 9, 1912, "and also all other present and future demands of any nature or kind of the holder hereof against the undersigned now owing, or which may hereafter be owing, and whether now or hereafter contracted. ' ' Before the maturity of the Headlund note plaintiff loaned Mason, as new loans, sums aggregating $750, and when the notes given by Mason to plaintiff matured new notes were executed by him and the old notes were marked "Paid by renewal." In September, 1913, Mason's entire indebtedness was merged in and covered by one note of $3,500. When Mason executed the new note for that amount his old notes were, as stated, marked "Paid by renewal." The Headlund note of $1,000 and certificates of stock have been held by plaintiff ever since they were first pledged by Mason, and were attached to the note of $3,500 as collateral security for the payment of the same.
On December 24, 1915, plaintiff commenced this action against Headlund to recover judgment for the balance due and unpaid on his note. The complaint is in the form usually adopted and followed in the bringing of actions of this character. In his prayer plaintiff asks that the stocks pledged by Headlund as collateral security for the payment of the note "be sold according to law, and the proceeds of said sale applied to the account of costs and expenses, and the balance be applied on account of said indebtedness represented by said note, and the balance, if any, go to defendant. ' '
Defendant, in his answer, admits that he "signed and indorsed in blank the note described in the complaint, and that the samo has not been paid except as stated in the complaint, and that no proceedings have been had at law for the recovery of said alleged debt." As an affirmative defense, defendant alleged that the note was obtained from him through false and fraudulent representations made to him by Mason respecting the market value of the capital stock of the International Engineering Corporation at the time the note was executed in payment of the 200 shares of the capital stock of the corporation as hereinbefore set forth. It is also alleged in the answer that "the said note was not indorsed or delivered to the plaintiff before maturity thereof," and that if the note were "indorsed to plaintiff in consideration of a loan, that said loan has been paid."
There is not a scintilla of evidence in the record tending to support the two allegations of the answer last mentioned, but, on the contrary the evidence affirmatively shows that the note was indorsed, and, together with the collateral pledged to secure the payment thereof, was delivered by Mason to plaintiff before the note matured. And the evidence, without conflict, shows that the loan obtained by Mason, on the note and the other collateral mentioned, had not been paid at the time the cause was tried.
Section 1604, Comp. Laws, Utah 1907, so far as material here, provides that—
"A holder in due course is a holder who has taken the instrument under the following conditions: ®
" (2) That he became the holder of it before it was overdue; # # #
" (3) That he took it in good faith and for value;
" (4) 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 party negotiating it."
Section 1611: "Every holder is deemed prima facie to be a holder in due course," etc.
These provisions of the statute and the undisputed evidence in this case entitles plaintiff to recover in this action; but, since fraud is pleaded and relied on by defendant as a defense, we shall briefly consider that issue.
As we have pointed out, the evidence shows that defendant, at Mason's suggestion, went to Denver, immediately after he purchased the stock in question, and made a thorough personal investigation of the business affairs of the International Engineering Corporation. He had access to and examined the books of the corporation and the contracts it had entered into for the building and installation of furnaces. He also examined the furnaces the company was engaged in manufacturing and offering to the public, and was so well pleased with the result of the investigation that he subscribed for an additional block of the stock of the corporation, valued at $1,500. Mason, as proof of his good faith in the enterprise, paid the expenses of the defendant's trip to Denver. It appears that from the time defendant returned home from Denver until the bringing of this action there was considerable correspondence carried on between Mason and the defendant in regard to the indebtedness represented by the note in question.
On September 17, 1913, nearly two years after Headlund purchased the stock, giving the note in question in payment thereof, he wrote Mason in part as follows:
"I have your letter of the 12th inst., for which I thank you. I know I have not treated you fair and square, but my own circumstances have been such that I could not do otherwise. I shall send you on the 25th of this month check for $100. Let me know if that will do, and shall after that pay $100 now and then, ' ' etc.
He wrote other letters of the same import. In none of them did he claim, or even intimate, that he had at any time been dealt unfairly with by Mason. Not until this suit was commenced was the cry of fraud — "Stop thief!" — raised, and there is not a scintilla of evidence in the record that tends, in the remotest degree, to support the plea of fraud. In fact, there is but little, if any, merit in the appeal.
The judgment of the trial court is affirmed, with costs to respondent.
FEICK, C. J., and COEFMAN, THUEMAN, and GIDEON, JJ., concur.