Case Name: WILSON SUPPLY COMPANY, Appellant, v. WEST ARTESIA TRANSMISSION COMPANY, Appellee
Court: Texas Courts of Civil Appeals
Jurisdiction: Texas
Decision Date: 1974-01-23
Citations: 505 S.W.2d 312
Docket Number: No. 15229
Parties: WILSON SUPPLY COMPANY, Appellant, v. WEST ARTESIA TRANSMISSION COMPANY, Appellee.
Judges: 
Reporter: South Western Reporter Second Series
Volume: 505
Pages: 312–316

Head Matter:
WILSON SUPPLY COMPANY, Appellant, v. WEST ARTESIA TRANSMISSION COMPANY, Appellee.
No. 15229.
Court of Civil Appeals of Texas, San Antonio.
Jan. 23, 1974.
Rehearing Denied Feb. 13, 1974.
Parker Ellzey, Alice, for appellant.
Fred Shannon, Martin & Shannon, San Antonio, for appellee.

Opinion:
BARROW, Chief Justice.
This suit was brought by appellant against Gernandt Drilling Company, Kal-vin B. Gernandt and appellee, West Arte-sia Transmission Company. Judgment was entered after a non jury trial, whereby appellant recovered a joint and several judgment in the amount of $10,193.80 against Gernandt Drilling Company and Kalvin B. Gernandt for materials and supplies furnished Gernandt Drilling Company. Appellant was denied any recovery on its claim against appellee on a check executed by appellee, which was made payable to Gernandt Drilling and endorsed by it over to Wilson Supply. Payment was stopped by appellee after the consideration for same failed. An appeal has been perfected only as to the denial of the claim against appellee.
Findings of fact and conclusions of law were filed by the trial court wherein it was found that Wilson Supply did not give anything of value under the Uniform Commercial Code, Section 3.303, for said check; and, therefore, West Artesia's defense of failure of consideration is good as against Wilson Supply.
Appellant complains by a single point on this appeal that the trial court erred in concluding that appellant was not a holder for value. It thereby urges that, as a matter of law, it is a holder for value.
Section 3.303 defines a holder for value as follows:
"A holder takes the instrument for value
(1) to the extent that the agreed consideration has been performed or that he acquires a security interest in or a lien on the instrument otherwise than by legal process; or
(2) when he takes the instrument in payment of or as security for an antecedent claim against any person whether or not the claim is due; or
(3) when he gives a negotiable instrument for it or makes an irrevocable commitment to a third person."
The check in question was dated April 10, 1972, but was delivered to Gernandt Drilling sometime in March of 1972 as final payment on a drilling contract between Gernandt Drilling and West Artesia. When the contract was breached by reason of Gernandt Drilling's failure to commence drilling a proposed second well prior to April 1, West Artesia wrote Gernandt Drilling and the bank to stop payment on the check. Shortly thereafter, the check was endorsed over to Wilson Supply and presented by the latter to the bank for payment. At this time, Gernandt Drilling was indebted to Wilson Supply for a sum in excess of $6,000 for supplies and materials theretofore furnished Gernandt Drilling.
The narrow issue before us is whether there is evidence to support the trial court's implied finding that the check was not accepted by Wilson Supply in payment of said antecedent claim. Mr. John R. Adams, credit manager of Wilson Supply, testified that the check was received with the understanding " . that they would be collected and the proceeds applied to pay on this account." Appellant pleaded that the check was delivered to it for appellant " . . . to obtain the funds represented thereby, and apply the same toward payment of the indebtedness of Gernandt Drilling Company to the plaintiff." It is seen that this understanding and intent was actually carried out by appellant in that this suit was brought against Gernandt Drilling on the full account. Furthermore, a final judgment has now been entered against Ger-nandt Drilling and Mr. Gernandt individually on this account; therefore, a judgment against appellee would result in a double recovery to appellant for the amount of this check.
Such record supports the implied finding that at the time the check was received by appellant, it did not accept same with the intent to extinguish Gernandt Drilling's account, or a portion thereof, at such time. Cf. Bank of Services & Trust v. Whitnack, 468 S.W.2d 179, 181 (Tex. Civ.App.— Dallas 1971, writ ref'd n.r.e.). Rather, appellant merely agreed to attempt to collect such check and to apply the collected funds, if any, upon the account. Since none were paid, appellant sued Ger-nandt Drilling on the full amount owed on the account.
Appellant urges us to adopt the rule previously recognized by some authorities that an instrument is received "for value" when the instrument is taken only as conditional satisfaction of all or part of the debt. See Ahern v. Towle, 310 Mass. 695, 39 N.E.2d 561 (1942) ; Fair Loans, Inc. v. Wilkinson, 211 Md. 216, 126 A.2d 851 (Maryland Ct. of App. 1956); Farr-Barnes Lumber Co. v. Town of St. George, 128 S.C. 67, 122 S.E. 24 (1924); 11 Amer.Jur.2d, Bills and Notes, Section 336.
It is seen that the cases following such rule are based upon the Negotiable Instruments Law, and therefore, must be considered in the light of the statutory changes made by the Uniform Commercial Code. Section 3.303 combined and reworded Sections 25, 27 and 54, and completely omitted Section 26 of the Negotiable Instruments Law. The comment under Section 3.303 points out that Subdivision 1 resolves an apparent conflict between the original Section 54 and the first sentence of the original Section 25 by requiring that the agreed consideration shall actually have been given. Furthermore, it is seen that the original Section 25 has been reworded to require that the instrument must be accepted "in payment" of the antecedent claim or pre-existing debt. The obvious intent to limit the holder only to the extent that the agreed consideration is actually given would be substantially nulliifed if only conditional satisfaction of the antecedent debt is required to make one a holder for value. Actual payment was required in the only case we have found wherein the statutory change made by the Uniform Commercial Code was considered. See Halbert v. Horton, 29 Mich.App. 208, 185 N.W.2d 76 (1970).
Since appellant did not accept the check in payment of the antecedent debt, it was not a holder for value under Section 3.303. Therefore, appellee's defense of failure of consideration is good against appellant.
The judgment of the trial court is affirmed.
. All references are to the Texas Uniform Commercial Code. Vernon's Tex.Rev.Civ.Stat.Ann.
. Another cheek dated March 16, 1962, was paid and is not in controversy.
. Section 337 applies the rule under the Uniform Commercial Code.
. "Sec. 25. Value is any consideration sufficient to support a simple contract. An antecedent or pre-existing debt constitutes value; and is deemed such whether the instrument is payable on demand or at a future time."
"Sec. 26. Where value has at any time been given for the instrument, the holder is deemed a holder for value in respect to all parties who became such prior to that time."
"Sec. 27. Where the holder has a lien on the instrument, arising either from contract or by implication of law, he is deemed a holder for value to the extent of his lien."
"Sec. 54. Where the transferee receives notice of any infirmity in the instrument or defect in the title of the person negotiating the same before he was paid the full amount agreed to be paid therefor, he will be deemed a holder in due course only to the extent of the amount theretofore paid by him."
. Vol. 2, Business and Commerce, Tex.Kev.Civ. Stat.Ann., pages 144-145.