Still v. City Bank & Trust Co. (In re Mayfield)
Docket: Bankruptcy No. 1-81-01341; Adv. No. 1-82-0863
Court: United States Bankruptcy Court, E.D. Tennessee; May 25, 1984; Us Bankruptcy; United States Bankruptcy Court
The trustee in bankruptcy for Billy Gene Mayfield filed a suit against City Bank and Trust to recover a promissory note and a real estate mortgage that secures the note, which is payable to Mayfield. Prior to his bankruptcy, Mayfield had a checking account with the bank and received checks totaling approximately $45,000 from White Brothers Poultry and Egg Company. The bank credited Mayfield’s account upon deposit but later discovered the checks were dishonored, resulting in Mayfield being unable to reimburse the bank. To protect itself, the bank created a promissory note payable to Mayfield from White Brothers, along with a mortgage on real property, both executed by White Brothers but never possessed by Mayfield. The bank retained the dishonored checks as well. The trustee argues that the note and mortgage belong to Mayfield or are recoverable as a judgment creditor, or that the transaction constituted a preferential transfer to the bank. The court found that Mayfield understood the note and mortgage were executed solely for the bank’s benefit, confirming he had already received payment and had no interest in the instruments. The bank's attorney indicated that Mayfield was meant to endorse the note but did not. Under Tennessee law, a transferee acquires all rights from a transferor when the transfer is for value, and since the bank gave value by honoring Mayfield's checks, it was determined that the bank is the rightful owner of the note. Additionally, the court concluded that the bank has a perfected security interest in the note, as possession suffices to perfect such an interest without a written agreement, provided there is intent to grant the security interest. The trustee cannot recover as a successor or judgment lien creditor. The court ruled that the transfer of the note did not constitute a preference since it did not adversely affect Mayfield's other creditors. The remedy ordered includes Mayfield endorsing the note and assigning the mortgage to the bank, with the trustee instructed to abandon any interest in the note and mortgage. The bank was given five days to submit a suggested order, and this memorandum serves as findings of fact and conclusions of law under Bankruptcy Rule 752.