Opinion ID: 1607852
Heading Depth: 1
Heading Rank: 1

Heading: Bank of the Southeast

Text: Dr. Sherrill contends that Bank of the Southeast is not a holder in due course of the two notes and that the cars are consumer goods subject to the Mini-Code, § 5-19-1 et seq. (Code 1975). If these contentions are correct, Bank of the Southeast would be simply a holder, subject to defenses which Dr. Sherrill would have against UMA. Holder in due course is defined in § 7-3-302 (Code 1975) as follows: (1) A holder in due course is a holder who takes the instrument: (a) For value; and (b) In good faith; and (c) Without notice that it is overdue or has been dishonored or of any defense against or claim to it on the part of any person. Dr. Sherrill challenges each one of these elements. First, he contends that Bank of the Southeast did not give value for the notes because it did not see that the entire consideration was paid to the sellers, the automobile dealers. Dr. Sherrill apparently equates value and consideration with the purchase price of the automobile. However, UMA's discounting of the notes to Bank of the Southeast was not done in exchange for payment to the car dealers. Bank of the Southeast gave value for the notes by crediting UMA's account. UMA was responsible for paying the car dealers, and Bank of the Southeast was under no duty to police UMA in the payment of its obligations. Further, the value given in exchange for the notes is not the money paid in installments by Dr. Sherrill to Bank of the Southeast after the notes were assigned. Dr. Sherrill's payments do not determine whether Bank of the Southeast took the notes for value. Next, Dr. Sherrill contends that Bank of the Southeast did not act in good faith and violated the terms of a special deposit. He alleges that Bank of the Southeast paid Dr. Sherrill's funds to UMA when it was supposed to hold the funds for payment to the car dealer. This contention lacks merit. Dr. Sherrill had no funds in Bank of the Southeast; he merely made installment payments on the assigned notes. There was no special deposit, and if there had been one, it would not have been Dr. Sherrill's, but UMA's. The only funds given UMA were given in the form of a credit to UMA's account in exchange for the notes. Bank of the Southeast was not to hold funds to pay the car dealers, since that was UMA's responsibility. Third, Dr. Sherrill insists that Bank of the Southeast had notice of a scheme to sell and finance vehicles . . . on a pseudo lease proposition and had notice that UMA breached a fiduciary obligation by negotiating the notes for its own benefit and commingling the proceeds with its other funds. These contentions also lack merit, if for no other reason, for the reason that, assuming their truth, Dr. Sherrill himself was a participant therein. Moreover, UMA breached no fiduciary duty by negotiating the notes, and the proceeds from negotiation belonged to UMA, not Dr. Sherrill. As another factor bearing on good faith and notice, Dr. Sherrill contends that UMA was an agent of Bank of the Southeast, citing United States Finance Co. v. Jones, 285 Ala. 105, 229 So.2d 495 (1969). That case is not an authority in point, since there was no finding in Jones that the mortgagee-assignor was an agent of the assignee, the finance company. As we held in Wood Chevrolet Co. v. Bank of Southeast, 352 So.2d 1350 (Ala. 1977), agency is a question of fact subject to the ore tenus rule. Here, although there is some evidence in Dr. Sherrill's favor, we do not think the great weight of the evidence supports a finding of agency. In support of his assertion that any defenses to the notes which he might have against UMA may be asserted against Bank of the Southeast, Dr. Sherrill offers the Mini-Code, § 5-19-1, et seq. (Code 1975), which states as follows in § 5-19-5: In a consumer credit sale or consumer lease, the seller or lessor may not take a negotiable instrument other than a check as evidence of the obligation of the buyer or lessee. A holder is not a holder in due course if he takes a negotiable instrument with notice that it is issued in violation of this section. A holder in due course is not subject to the liabilities prescribed in this chapter. Assuming arguendo that these transactions were consumer credit sales or consumer leases, Bank of the Southeast is still not subject to Dr. Sherrill's defenses since it was not shown that the bank took the notes with notice of a violation of the Mini-Code. See Jefferson v. Mitchell Select Furniture Co., 56 Ala.App. 259, 321 So.2d 216 (1975). The security agreements executed in conjunction with the notes indicate that the vehicles were to be used for business purposes, not for pleasure, as Dr. Sherrill contends was their use. While it is true that actual use determines the character of the transaction, there is no evidence that Bank of the Southeast knew, or should have known, the actual use to which these cars were put. Evidence on this point was heard ore tenus, or partly so, and we do not find that the great weight of the evidence supports the conclusion that Bank of the Southeast had notice of any violation of the Mini-Code or of the actual use to which the vehicles were to be put so that the transactions fell within the Mini-Code. Dr. Sherrill cites another section of the Mini-Code, § 5-19-11, to support his contention that the bank's counterclaim on the notes should have been abated. This section requires a creditor bringing an action for collection to file an affidavit stating (1) There has not been a violation of [the Mini-Code], and (2) The debtor, if a resident of this state, on information and belief of creditor is a resident of the county in which the action is filed. This section is inapplicable. The bank's suit for collection is in the form of a counterclaim, so that subsection (2) is not applicable. Moreover, as we have already stated, the evidence shows Bank of the Southeast is a holder in due course without notice of any violations of the Mini-Code. A violation of the Mini-Code by the original creditor is no defense against such a holder in due course, so that subsection (1) is inapplicable. Dr. Sherrill finally contends that the bank has violated the provisions of the federal Truth in Lending Act. We do not reach this issue. The applicability of this Act was not raised during the trial, nor was it presented on motion for new trial. Dr. Sherrill made no claim for damages under this Act other than a general claim for further relief in addition to a declaration of rights. An issue not raised in the trial court cannot be raised for the first time on appeal. Brown v. Robinson, 354 So.2d 272 (Ala.1977). Nor will this Court review a case on a theory different from that on which it was tried in the trial court. Bailey v. City of Mobile, 292 Ala. 436, 296 So.2d 149 (1974).