Citizens' State Bank of Lankin v. Garceau

• Decision Date: 01 February 1912
• Citation: 22 N.D. 576,134 N.W. 882
• Parties: CITIZENS' STATE BANK OF LANKIN v. GARCEAU.
• Court: North Dakota Supreme Court

22 N.D. 576

134 N.W. 882

CITIZENS' STATE BANK OF LANKIN

v.GARCEAU.

Supreme Court of North Dakota.

Feb. 1, 1912.

Syllabus by the Court.

That the delivery of a note was conditional, or that the title of the payee was defective, may be shown by circumstances, without any express words to that effect.

Defendant gave one S., a life insurance agent, his application for a policy on his life, subject to defendant's passing a physical examination and the insurance company accepting the application; such physical examination to be thereafter made. At the same time, and as a matter of convenience to S., defendant executed to S., as payee, his negotiable promissory note, payable at a future date, for the first year's premium, for which S. gave defendant a binding receipt showing, among other things, that in case of rejection of the application the note was to be returned to the maker. V., cashier of plaintiff bank, was present, heard all the conversation between the parties, was perfectly familiar with the method of S. and of the insurance company in such transactions, and knew the note was to be returned if the policy should not be issued. He shortly, as the executive officer of the plaintiff, discounted defendant's note for S. Held, that the note was not to take effect, unless defendant passed the physical examination required, and the application was accepted by the insurance company.

Held, also, that by reason of these facts the title of S. to the note was defective, and that his negotiation thereof before the examination of defendant was in breach of faith, and, in law, a fraud on the maker.

Held, further, that if the bank was charged with the knowledge of its cashier it was also charged with knowledge of the defective title and the breach of faith of S., and was not a holder in due course; and its action in taking the instrument amounted to bad faith.

Held, under the circumstances of this case, that the bank was charged with knowledge of the facts of which its cashier had knowledge or notice.

Appeal from District Court, Grand Forks County; Templeton, Judge.

Action by the Citizens' State Bank of Lankin against Thomas Louis Garceau. From a judgment for plaintiff, defendant appeals. Reversed.W. J. Mayer, for appellant. George R. Robbins, for respondent.

SPALDING, C. J.

The complaint in this case asks for the recovery of $73.40, with interest, on a negotiable promissory note executed by the defendant, payable and delivered to one F. C. Stevens and by him indorsed to plaintiff.

To the complaint, the defendant answered, alleging the following facts: That on July 22, 1908, at the solicitation of said Stevens, he made application to the Minnesota Mutual Life Insurance Company for a policy of life insurance upon his life, upon payment of the agreed premium of $73.40; that, at the time of such application, and in the belief that it would ultimately be accepted by said company and a policy issued, defendant signed a promissory note similar in form to the one described in the complaint, and gave it into the possession of said Stevens, to hold the same for defendant pending his examination as a candidate for such policy, the acceptance of such risk by the company, and the issuance to him of the policy applied for, and that such note was to be delivered by said Stevens in payment of the premium of said policy when issued, and to be of validity, force, and effect only in the event of the issuance of such policy, and that such note was given into the possession of said Stevens for no other purpose; that the defendant failed to pass successfully the examination before the company's physician; that his application was rejected and no policy ever issued thereon; that such note was at all times without consideration, and void; that immediately after securing possession of the note said Stevens, without the knowledge or consent of the defendant, fraudulently negotiated the same to the plaintiff, who purchased and received the same with full knowledge and notice of all the foregoing matters, and was not a bona fide holder thereof.

The trial was to the court without a jury; the findings and judgment for the plaintiff. By the appeal, we are called upon to determine whether such findings and judgment were justified by the evidence and the law. The note was payable one year after its date.

Stevens, the original payee, testified for the defendant that on July 22, 1908, he was employed soliciting life insurance for the company named; that the defendant submitted an application for a policy, and that the note in suit was taken in settlement of the premium; that at the time the application was submitted defendant had not been physically examined; that applications require acceptance by the company itself and a medical examination before a policy is issued; that in case of rejection the note was to be returned to defendant; that they did not speak about rejection, but that it was understood in all cases that “if a man is rejected for life insurance his note is always returned;” that if he did not give him a receipt he should have given him one, and that he always did so; that the application of defendant was rejected about a year thereafter; that Mr. Verry, cashier of the plaintiff, was with him at the time this application was obtained, and that he took the note and gave him credit on account in the plaintiff bank within a short time, and he thought within a couple of hours, after the application was written; that he had an account at the bank at that time, and was given credit thereon for 75 per cent. of the note.

On cross-examination, he testified that such credit was given on that day; that returning the note did not enter his mind, for the reason that the defendant looked like a good risk, and he did not think there was any possibility of his being rejected; that the cashier knew that defendant had not been examined, and the application had not been accepted; that such cashier had a contract with the same company to solicit life insurance, and had been around with the witness more or less in the insurance business for a couple of years or more, and had taken parties to the doctor for him, and knew the character of applications, and was familiar with the fact that they were to be sent in and had to be passed on by the company before a policy would issue, and that the note in question would necessarily be returned to the defendant in case of rejection; that it was understood between him and the cashier that that would be the disposition of the note in such case.

The company never received any part of the proceeds of the note, or knew of there being a note. The cashier testified that he was present when the application and note...