Black v. First Nat. Bank

• Decision Date: 22 January 1903
• Citation: 54 A. 88,96 Md. 399
• Parties: BLACK v. FIRST NAT. BANK OF WESTMINSTER.
• Court: Maryland Court of Appeals

54 A. 88

96 Md. 399

BLACK v. FIRST NAT. BANK OF WESTMINSTER.

Court of Appeals of Maryland

January 22, 1903

Appeal from circuit court, Carroll county; I. Thomas Jones, Judge.

Action by the First National Bank of Westminster against Levi Black. From a judgment for plaintiff, defendant appeals. Affirmed.

Argued before McSHERRY, C.J., and FOWLER, BRISCOE, BOYD, PAGE PEARCE, and SCHMUCKER, JJ.

Charles E. Fink, Roberts & Crouse, and Guy W. Steele, for appellant.

John Milton Reifsnider and W. Burns Trundle, for appellee.

PEARCE J.

This suit was brought by the First National Bank of Westminster to recover from Levi Black the amount due upon two negotiable promissory notes, for $100 each, made by him, and payable to the order of the United Milk Producers' Association (now an insolvent corporation) in 6 and 12 months, respectively from date. The declaration, which contains the common counts, and a special count upon each of said notes, alleges that they were indorsed to the plaintiff by the payee before its insolvency. The defendant pleaded "Never indebted as alleged," and "Never promised as alleged," and subsequently filed 10 additional pleas. The third denied that the plaintiff was a corporation as alleged, and this, on motion, was stricken out by the court, because the defendant, having failed in his previous pleading to deny plaintiff's incorporation, had thereby admitted it. There was no exception to this ruling, and none could have been sustained. The fourth and fifth pleas denied that the notes were indorsed as alleged. The sixth and seventh pleas denied that J.B. Councilman, the secretary and treasurer of the United Milk Producers' Association (which will hereafter, for brevity, be called the "Association"), and by whom the alleged indorsement was made, was the agent of the association to indorse said notes to the plaintiff, or that he had power and authority so to do. The eighth plea alleged that the notes were procured and negotiated by the fraud of said association. The ninth plea alleged that the notes were given to the association, and were deposited by it with the Old Town Bank of Baltimore, and by that bank were delivered to the plaintiff in breach of faith. The tenth plea alleged an agreement between the defendant and said association that these notes were to be deposited by it with the Old Town Bank of Baltimore as collateral security for advances to be made by it to said association, and that the Old Town Bank was to hold, and not to negotiate, the same, and that the plaintiff, well knowing these facts, received said notes from said bank. The eleventh plea alleged that said notes were executed and delivered for the accommodation of said association, under the agreement set forth in the tenth plea, and that the plaintiff took said notes, well knowing all these facts. The twelfth plea alleged that the defendant had subscribed to 400 shares of the capital stock of said association, upon condition that said association would take his milk and pay him for it, and, out of the amount thus due him at the end of each month, would deduct 5 per cent. of his said subscription, to be credited thereon, and that subsequently said association requested him to give to it three notes, covering the amount then unpaid on said subscription, to be deposited with the Old Town Bank under the agreement stated in the tenth plea, and that he gave said notes, two of which are the same here sued on; that for four months this agreement was carried out, and then said association, without any fault on defendant's part, refused to receive his milk and pay him for it, or to credit anything upon his said subscription; and that the plaintiff took said notes well knowing all the terms and conditions of said agreement. The plaintiff joined issue on the 1st and 2d pleas, traversed the 4th, 5th, 6th, and 7th, and demurred to the 8th, 9th, 10th, 11th, and 12th pleas. This demurrer was sustained, whereupon issue was joined on all the pleas, and the case went to the jury, resulting in a verdict for the plaintiff for the amount due on the two notes. During the trial nine exceptions were taken to rulings on the evidence, and one to the ruling on the prayers.

The first question is presented by the ruling on the demurrer. As to the eighth and ninth pleas, there is no averment in either that the plaintiff took the notes with knowledge of the fraud charged in one, or of the breach of faith charged in the other, and there was therefore no error in the ruling as to these pleas. Banks v. McCosker, 82 Md. 518, 34 A 539, 51 Am.St.Rep. 478, Code, art. 13, § 75. The tenth plea does not aver that the agreement set out therein was in writing. In McSherry v. Brooks, 46 Md. 118, prayers were rejected which sought to defeat recovery by an indorsee upon promissory notes because of an alleged parol promise by the payee to keep the notes in his possession and not pass them away; the court saying, "This would seem to be contrary to all principle and authority," and that it was not competent "to destroy their legal import and operation by the introduction of parol evidence that the notes were not to be negotiated, notwithstanding the negotiable terms employed on their face." But if is not necessary, as was contended by the appellee, to allege in the declaration that the promise is in writing. If it appear in proof at the trial to be in writing, it is sufficient for its admission. Ecker v. Bohn, 45 Md. 285; Horner v. Frazier, 65 Md. 1, 4 A. 133. But it in writing, that could not avail in this case, since this plea expressly alleges the execution and delivery of the notes by the defendant to the association, and section 43 of article 13 of the Code provides that 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 for value; and section 45 provides that, where value has at any time been given for the instrument, the holder is deemed a holder for value in respect to all parties who become such prior to that time. But apart from these considerations, the plea states a case which does not disentitle the plaintiff to recover, since it alleges that the notes were delivered by the association to the Old Town Bank "as collateral security for advances to be made by it to the association"; and in Maitland v. The Citizens' Bank, 40 Md. 562, 17 Am.Rep. 620, it is said that "every person is within the rule, and entitled to the protection of a bona fide holder for value, who has received the note in payment of a precedent debt, or has taken it as collateral security for a precedent debt, or for future as well as past advances." The Old Town Bank, therefore, as well as the plaintiff, is presumed to be a holder for value; and in Cover v. Myers, 75 Md. 419, 23 A. 850, 32 Am.St.Rep. 394, the court said: "Where a negotiable instrument is originally infected with fraud, invalidity, or illegality, the title of the original holder being destroyed, the title of every subsequent holder which reposes on that foundation, and no other, falls with it. But if any subsequent holder takes the instrument, in good faith and for value, before maturity, he is entitled to recover on it, and so any person taking title under him may recover, notwithstanding such latter holder may have knowledge of the infirmities of the instrument; and all that is required of the holder in such case is that it be proved that he, or some preceding holder or indorsee, under whom he claims, acquired title to the paper before maturity, bona fide, and for value." And this view of the law has since been formulated in section 77 of article 13. We find no error, therefore, in the ruling as to this plea. The only difference between the tenth and eleventh pleas is that the latter alleges these notes were given to the association for its accommodation, and that this fact was known to the plaintiff. But this does not alter the case, nor destroy the negotiability, in fact, of paper which was made negotiable in form for the accommodation of the party receiving it, for, as was said in Maitland v. Citizens' Bank, supra: "The result of all the well-considered cases upon the subject is that it is no defense that the note sued on was known to be an accommodation note between the maker and the payee, provided the plaintiff took the note for value, bona fide, before it was due. The reason is, as stated by Mr. Justice Story, that the very object of any accommodation note is to enable the party accommodated, by sale or negotiation, to obtain a free credit and circulation of the note; and this object would be wholly frustrated unless the purchaser, or other holder for value, could hold such a note by as firm and valid a title as if it were founded in a real business transaction." And section 48 of article 13 of the Code declares that: "An accommodation party is one who has signed the instrument as maker, drawer, acceptor or indorser, without receiving value therefor, and for the purpose of lending his name to some other person. Such a party is liable on the instrument to a holder for value, notwithstanding such holder, at the time of taking the instrument, knew him to be only an accommodation party." It is obvious from the above language of the Code, and from that of Maitland's Case, that an accommodation note, taken for value and before maturity, is taken bona fide; and what we have said respecting the tenth plea is equally applicable to the eleventh plea. The twelfth plea is based upon the alleged executory agreement between the defendant and the association, which is sufficiently stated in the earlier part of this opinion. The plea avers knowledge by the plaintiff of the terms of this agreement when the notes were taken, but...