Baird v. Lorenz

• Decision Date: 05 April 1929
• Docket Number: No. 5613.,5613.
• Citation: 224 N.W. 206,57 N.D. 804
• Parties: BAIRD v. LORENZ et al.
• Court: North Dakota Supreme Court

57 N.D. 804

224 N.W. 206

BAIRD

v.LORENZ et al.

No. 5613.

Supreme Court of North Dakota.

Jan. 23, 1929.

Rehearing Denied April 5, 1929.

Syllabus by the Court.

In a negotiable instrument designating the payee as “A. B. Dill, agent,” where the note is so indorsed by the payee, while the term “agent” may put the purchaser of such note upon inquiry as to the interest of such agent's principal in the note, it is not sufficient notice to put the purchaser on inquiry as to any rights of the maker against the principal or the agent.

A purchaser of such note, who takes it before maturity and for value, is a holder in due course, when the only defense interposed is that the term “agent” appended to the name of the payee is sufficient to put the purchaser on inquiry as to the rights of the makers.

Where the holder in due course of such note brings action on the note, the maker cannot raise the question of the authority of such agent to indorse the note, as any alleged fraud perpetrated by the agent on the principal cannot be urged by the maker as a defense in the suit brought by a holder in due course.

Appeal from District Court, Ramsey County; G. Grimson, Judge.

Action by L. R. Baird, as receiver of the Scandinavian American Bank, against Carl M. Lorenz and another. Judgment for defendants, and plaintiff appeals. Reversed and rendered.T. W. Morrissey, of Edmore, and McGee & Goss, of Minot, for appellant.

Sinness & Duffy, of Devils Lake, for respondents.

BURR, J.

This is an action on a promissory note. The case was tried to a jury, and at the close of the case both sides moved for a directed verdict. The court dismissed the jury, took the case under advisement, and then ordered judgment for the defendants for the dismissal of the action. Judgment was accordingly entered, and the plaintiff appeals.

The defendants made, executed, and delivered their certain promissory note in the sum of $150 to “A. B. Dill, agent,” as payee. Before maturity the payee gave the note to the Scandinavian-American Bank of Minot as collateral to his own personal indebtedness. As stated by the learned trial court in his memorandum opinion:

“The note is made payable to A. B. Dill, agent, and is indorsed ‘A. B. Dill, agent.’ The testimony shows that proceeds of the note were used by A. B. Dill personally and were so known to the bank. Mr. Porter (the cashier) testifies as to the circumstances of taking the note as follows: ‘It was taken as collateral to indebtedness of A. B. Dill to the Scandinavian American Bank at which time in addition to other indebtedness of A. B. Dill we loaned him $150.00 cash.”’

This gives us the crux of the case. There is no claim of any fraud on the part of the bank. It is conceded that this transaction between the bank and Dill was a bona fide transaction. He put the note up as collateral; he secured money thereon; and the debt was not paid. The bank became insolvent, and the plaintiff, Baird, was appointed receiver.

The defendants allege that the note was given as evidence of the agreement on their part to purchase stock in the Home Lumber Company; that the stock “was being sold for the said company by the said A. B. Dill as agent,” and that the said Dill induced them to purchase the stock and give the note under certain representations with reference to the establishment of this Home Lumber Company in their home town, which representations were wholly untrue; that they received no consideration whatever for the note. All of these facts are conceded by the plaintiff, and the defendants do not dispute the testimony with reference to the transactions between the bank and Dill.

[1] It is said that the fact the note was made payable to A. B. Dill, agent, and was indorsed, “A. B. Dill, agent,” was sufficient to “put the bank on notice and inquiry as to who else was interested in the note, what it was meant for, and what authority Dill had to indorse it and apply the proceeds to his own personal use.” In support of this contention respondents cite the rule as laid down in 8 C. J. 515, to the effect that paper made payable to one as agent and indorsed by him as agent is notice of the rights of other parties. Doubtless this is the correct rule. If there were no other parties the term “agent” could be treated as surplusage. In the case at bar there were other parties-that is, parties suggested by the word agent-the Home Lumber Company. As said in Hazeltine v. Keenan et al., 54 W. Va. 600, 46 S. E. 609, 102 Am. St. Rep. 953, a note made payable to one as agent and indorsed by him as agent when “owned by the payee and other parties” indicates an “interest in such other parties and puts the purchaser upon inquiry as to their rights and the rights of the payee to sell the note.” The respondents rely upon this case as authority for their position. The court bases his memorandum opinion upon the rule laid down in Corpus Juris, and as supported by this and similar cases. A subsequent case from West Virginia, Dollar Savings & Trust Co. v. Crawford et al., 69 W. Va. 109, 70 S. E. 1089, 33 L. R. A. (N. S.) 587, says that the term attached to the payee's name does not destroy the negotiability of the note, but puts the purchaser on inquiry as to his right to sell the note. See, also, Long v. City Nat. Bank of Commerce (Tex. Civ. App.) 256 S. W. 1006. All these cases show that a term attached to the payee's name, whether agent, attorney, trustee, or receiver, especially when the payee so indorses the note in such capacity, is notice to the bank of the rights of some one else in that note, giving notice to the purchaser of the rights of the persons interested in the negotiation of the note or for whom the payee was acting. In Zielian v. Baltimore Plate Ice Co., 115 Md. 658, 81 A. 22, it was held that the word “receiver” was notice of limitation of authority as against the rights of the corporation for which the indorser was receiver. And to the same effect is Ford et al. v. H. C. Brown & Co., 114 Tenn. 467, 88 S. W. 1036, 1 L. R. A. (N. S.) 188. In Wis. Yr. Meet. v. Babler, 115 Wis. 289, 91 N. W. 678, where a note was made payable to “S. Treas. or his successor,” and by S. negotiated, it was held that the descriptive term put the purchaser on his inquiry as to the rights of those for whom S. was treasurer. It is not notice regarding any claim which the maker may have against the payee or his principal. It must be conceded that if the note had been made directly to the Home Lumber Company and by the Home Lumber Company negotiated to the bank under the condition under which this note was negotiated, then the bank would have a valid claim against the...