On Motion for Rehearing.
It is insisted that there was no competent evidence to show that the City National Bank gave the Devol bank credit for the draft in controversy before notice to it of the insolvency of the Devol bank, which notice they received on January 18, 1927. The point made is that Basham, vice president of the City National Bank, testified to that fact from hearsay; his testimony as to that point, referring to the failure of the Devol bank, being as follows; “I heard on the 18th of January that they had failed. That must have been the same day I gave them credit for this item. I presume I heard after I gave them credit for this item, but I do not remember anything about that as Mr. Langford made that charge against them that day.”
Bashám’s testimony t£at credit was given the Devol bank on January 18th for the amount of the draft was uncontroverted, and whether that credit was given before or after notice of the insolvency of the Devol bank was immaterial, since the right of the City National Bank to thus charge the Devol bank’s account with the draft had attached as soon as the draft was received. Furthermore, according to appellant Suter’s own testimony, he did not notify the City National Bank of his repudiation of the draft until January 19, 1927, the day after the draft had been credited to the Devol bank’s account.
As pointed out in opinion on original hearing, the rule is that, when a depositor becomes insolvent, the bank with whom he has made deposits has a right to apply any deposits in that bank to his credit to the liquidation of any debt he may then owe the bank.
Appellant cites the following from 7 Corpus Juris, p. 604, par. 254: “Where the bank is insolvent at the time the paper is deposited therein, it acquires no title to such paper no matter how it may be indorsed, as accepting the paper under such circumstances amounts to a fraud.”
Appellant then urges that the Devol bank acquired no title to the draft when deposited! with it by Suter, since it was then insolvent, and, since the Devol bank acquired no title, necessarily it held the draft as a trustee for Suter and could not convey title to the City National Bank. The opinion of this court in the ease of Interstate National Bank v. Claxton, reported in 77 S. W. 44, and that of the Supreme Court, reported in 97 Tex. 569, 80 S. W. 604, 65 L. R. A. 820, 104 Am. St. Rep. 885, are cited by appellant to support his contention that the City National Bank had no right to apply the proceeds of the draft to satisfy any part of the debt owing to it by the Devol bank. In‘that case Tamblin & Tara-bita, who were engaged in the live stock commission business in Kansas City, were employed by Claxton, residing in Texas, as factors to sell his cattle shipped to them. The factors sold the cattle and deposited the proceeds to their own credit.' The bank with whom the deposit was made applied a part of the proceeds of the sale to the liquidation of the amount owing to the bank by the factors after the latter became insolvent. The right so to do was denied, although it was further held that the bank was not liable for amounts paid out by it to other persons upon checks drawn by the factors before Claxton revoked the agency of the factors to handle the money for him. It thus appears that the relation of principal and agent" existed between the factors and Claxton, and the lat*1041ter’s right hinged upon that relation and not upon thb law of negotiable instruments, as is true in the present suit. The ruling in that case was that credit given by the bank to the factors for their past-due indebtedness to the bank was not a valuable consideration. That ruling was based upon equitable principles and not upon the law' of negotiable instruments, which was later adopted by statutes in this state. The same observations are ap-' plicable to other decisions, such as Davis v. Panhandle National Bank (Tex. Civ. App.) 29 S. W. 926.
As pointed out in opinion on original hearing, the draft drawn by Suter was made payable to the order of the Devol bank. The contents of the deposit slip given to .Suter by the Devol bank at the time of his deposit; as copied in opinion on original hearing, was not . brought to the notice of the City National Bank prior to its acceptance of the draft, and therefore could not affect, the latter’s rights in any respect. On its face the draft was made payable to the order of the Devol bank with no conditions or qualifications. It cannot be doubted that the draft was a negotiable instrument. Sections 24 and 25 of the Negotiable Instrument Act, as shown in article 5933, Rev. Civ. Statutes of 1925, read as follows:
Section 24. “Every negotiable instrument is deemed prima facie to have been issued for a valuable consideration; and every person whose signature appears thereon to have become a party thereto for value.”
Section 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.”
And section 30 of the same act, appearing in article 5934, reads as follows:
Section 30. “An instrument is negotiated when it is transferred from one person to another in such manner as to constitute the transferee the holder thereof. If payable to bearer it is negotiated by delivery; if payable to order it is negotiated by the indorsement of the holder completed by delivery.”
Those statutes necessarily are of controlling effect as between the City National Bank and appellant, Suter, to the exclusion of any rules of equity that might lead to a different result, and applicable to the relation between principal and agent, and where no negotiable instrument is involved. While as between Suter and the Devol bank it may be said that the equitable title to the draft remained in Suter, nevertheless he conveyed to that Bank the legal title, and the same legal title was acquired by the City National Bank without notice of such equity in Suter. By reason of that fact, the many authorities cited by appellant .to show that the Devol bank held title to the draft as a trustee only, without power to convey any title to the City National Bank, have no proper application here.
Appellant insists that the undisputed evidence shows that, at the time the City National Bank received the draft in question it had collateral on hand sufficient to discharge the debt then owing to it by the Devol bank without resort to the draft in question. Basham testified that, after the Devol bank was given credit for the $343, the amount of the draft, it still owed the City National Bank $11,737.25, secured by a note, or notes, as collateral, and that later that balance was paid. Appellant, Suter, testified that the collateral held by the City National Bank amounted to about $15,000.
In his pleadings, Suter did not invoke the rule applicable to the defense of marshaling of securities;. in other words, there was no plea that the plaintiff bank had on hand collateral sufficient to satisfy the indebtedness to it by the Devol bank, and pray that the same be exhausted before resort to the draft; nor was there any plea that the plaintiff bank had already been paid in full the debt owing to it by the Devol bank at the time the draft was negotiated. Nor was there any issue tendered or offered to show that the collateral securities held by the bank had been dissipated or lost through the negligence of the holder. Since the proof offered by the plaintiff prima facie showed that it was a holder of the draft in due course, the testimony referred to above cannot be urged here in the absence of any pleading under which it could in any event be made available as a defense to plaintiff’s suit.
Accordingly, the motion for rehearing is overruled.