Maxwell v. Foster

• Decision Date: 19 November 1903
• Citation: 45 S.E. 927,67 S.C. 377
• Parties: MAXWELL v. FOSTER et al.
• Court: South Carolina Supreme Court

45 S.E. 927

67 S.C. 377

MAXWELL v. FOSTER et al.

Supreme Court of South Carolina

November 19, 1903

Appeal from Common Pleas Circuit Court of Greenville County; Watts Judge.

Action by John H. Maxwell against Robert C. Foster and others. From an order confirming the report of referee, plaintiff appeals. Reversed.

Jones J., dissenting.

The special referee, after stating the issues in his report says:

"The plaintiff, being the owner of this stock and in possession of said certificate, in August, 1893, indorsed the said certificate in blank, and caused it to be delivered by said R. C. Foster to one Lafayette Hogg to secure the note of the plaintiff to said Hogg for one thousand dollars, given for money borrowed by the plaintiff from him. Thereafter the plaintiff, through said R. C. Foster, acting as agent for his wife, Mrs. Mary B. Foster, borrowed from said Mrs. Mary B. Foster one thousand dollars, and executed and delivered to her his note therefor. He did not receive the money in his hands from Mrs. Mary B. Foster, but instructed said R. C. Foster to take said money to said Hogg and pay off said note. Said R. C. Foster, about June, 1894 did this, and received the said note and said certificate of stock from said Hogg, and delivered the said note to the plaintiff, but did not deliver to him the said certificate of stock, and has never delivered it to him. Thereafter, in December of the year 1894, the said R. C. Foster applied to the defendant National Bank of Greenville for a loan of eight hundred dollars, and offered to pledge the stock represented by said certificate to secure the payment of said loan. He exhibited to the said bank said certificate of stock, having the same in his possession, and also the signature of the plaintiff on the back thereof, under the blank power of attorney printed on the back of said certificate. The plaintiff had written his name under said power of attorney when he transferred the stock to said Lafayette Hogg, as hereinbefore stated, and no change whatever had been made in regard to said indorsement since said time. R. C. Foster told the bank he was the owner thereof, and it made to him the loan so applied for by him, lending him eight hundred dollars, taking his note therefor, and taking said stock in pledge to secure the payment thereof. This was done without the knowledge or consent of the plaintiff. W. E Beattie, who was at the time of the said transaction the cashier of the said bank, was the officer with whom said R. C. Foster had said transaction, and to whom the above statement was made.

Said R. C. Foster has never paid the said note, except the interest; and there was due thereon on the 18th day of June, 1902, eight hundred and seven and 82/100 dollars, and said bank is still the owner and holder thereof. If nothing else appeared, there would be no doubt that the defendant bank is entitled to hold said stock for the payment of the amount due it on said note by said R. C. Foster. But while said W. E. Beattie was on the stand as a witness counsel for defendants asked him the question: 'Q. Did you know of anything, Mr. Beattie, that would impeach the title of Mr. Foster to that property, or his right to transfer that stock?' To this question Mr. W. E. Beattie answered: 'No, none at all. I think I recollect at the time--I am not absolutely positive as to this, but that is my recollection--I think I advised him as to the advisability of having that stock transferred into his own name on the books of the American Bank at the time, and he told me (but as to this I am not positive) that Dr. Maxwell asked him to hold it in that shape, and give him a reasonable time in which to redeem it.' On cross-examination counsel for plaintiff asked said W. E. Beattie this question: 'You say, Mr. Beattie, according to your recollection at the time Mr. Foster offered you this certificate of bank stock, indorsed by Dr. Maxwell, that you discussed with him the advisability of having the stock transferred upon the books of the American Bank?' To this question Mr. Beattie answered, 'That is my recollection.' Counsel for plaintiff next asked him: 'And that Mr. Foster told you that Dr. Maxwell had requested it to stand that way, so as to give him an opportunity of redeeming it?' to which he answered, 'That is my recollection.' Said W. E. Beattie, after the argument closed, was recalled by counsel for defendant bank, and testified as follows in regard to what Foster said about Maxwell redeeming the stock: 'As I said in my testimony before, I am not absolutely clear in regard to my request at that time to have him get the American Bank to take up this certificate and issue a new one in his name, but my recollection is that I did make this request of him, and that his reply was that Dr. Maxwell had requested him to keep the certificate in that shape, and give him an opportunity to redeem it. I am not attempting to state Foster's words, but the impression what he said left on my mind.'

From this testimony it is argued by counsel for plaintiff that the defendant had notice of the rights of the plaintiff in the said stock. The argument is not that the bank had knowledge or express notice of the rights of the plaintiff, but that it had implied notice; that is, notice of such facts as would have led it by the exercise of due diligence to knowledge of the rights of the plaintiff. It is argued that from said testimony it appears that the bank had notice sufficient to put it on inquiry, and that it is affected with notice of all that such inquiry would have led to. It is argued that the use of the word 'redeem' by Foster, or such word as made the impression on said W. E. Beattie that the plaintiff had requested the right to redeem the stock in its original shape, indicated that the plaintiff had some right therein, and of this the bank was bound to make inquiry.

I have not found the law on the subject of implied notice more satisfactorily and clearly stated anywhere than in our own case of Black v. Childs, 14 S.C. 321, 322. The law on

this subject is there stated as follows: 'If there are circumstances sufficient to put a party upon the inquiry, he is held to have notice of everything which that inquiry, properly conducted, would certainly disclose; but constructive notice goes no further. It stands upon the principle that the party is bound to the exercise of due diligence, and is assumed to have the knowledge to which that diligence would lead.' So the crucial question here is whether the bank had notice sufficient to put a person of ordinary prudence and caution on the inquiry. Whether or not it is sufficient, is a question of fact. 16 Am. & Eng. Enc. of Law (1st Ed.) p. 796.

I was first inclined to decide that said statements of Foster were sufficient to put the bank on inquiry, but upon further reflection I have arrived at the conclusion that they were not sufficient to put the bank on inquiry. The testimony is not that Foster said the plaintiff had the right to redeem the stock, or that he had promised him to allow him to redeem, but that Foster said the plaintiff had requested him to hold it in that shape, and allow him a reasonable time in which to redeem it. Mr. Beattie further testifies that he did not have any notice whatever of any rights that the plaintiff had in the stock. He testifies that Foster gave him to understand that he was the owner, and the title was in him. Mr. Beattie further testifies as follows: 'My understanding was that Mr. Foster was the absolute owner of the stock at that time; the transfer of Dr. Maxwell on the stock in blank confirmed me in that belief.' Mr. Beattie further testifies that his recollection is that Foster told him Maxwell had transferred it to him for a certain amount he owed him. Since it has developed that Foster was not the owner of the stock, the reasons which he gave for not transferring it into his own name on the books of the American Bank may seem significant of bad faith on the part of Foster, and it may seem that the bank should have so construed them. After the event we can see many things which it seems plain indicated its approach, but which no prudence or diligence would have suspected before the event was leading to it or indicated its approach. The defendant bank had had many transactions with Foster, and had no reason to suspect his honesty. Regarding him as an honest man, what he said about Maxwell's request to be allowed to redeem was not sufficient to put the bank on inquiry, when what he thus said was coupled with the statement that he was the absolute owner; especially when these statements were accompanied by the production of the certificate of stock with Dr. Maxwell's unqualified indorsement thereon, which is the usual evidence of absolute ownership.

It was further insisted by counsel for the plaintiff that the statute under which the American Bank was created charged the defendant bank with notice. And the case of Railroad & Lumber Company v. The Bank of Charleston, 48 S.C. 120, 26 S.E. 238, is cited to sustain this position. I do not think this case sustains the contention of counsel. I freely admit the proposition that the bank is chargeable with notice of everything contained in the act of the Legislature under which said American Bank was created, but I do not think there is anything in that statute which charges the defendant bank with notice of the rights of the plaintiff in said stock.

I therefore find that the defendant bank is the purchaser of said stock in good faith, and without notice of any rights of the plaintiff to the same. The defendant bank, on the 4th day of June, 1900, caused said blank power of attorney to be filed with the names of said R. C. Foster and said W. E. Beattie, and surrendered said original certificate, and

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