Commercial State Bank v. Iverson

• Decision Date: 24 February 1926
• Docket Number: 5505
• Citation: 207 N.W. 471,49 S.D. 466
• Parties: COMMERCIAL STATE BANK, Plaintiff and appellant, v. IBERT IVERSON, Respondent.
• Court: South Dakota Supreme Court

49 S.D. 466

207 N.W. 471

COMMERCIAL STATE BANK, Plaintiff and appellant,

v.

IBERT IVERSON, Respondent. South Dakota Supreme Court Appeal from Circuit Court, McCook County, SD Hon. John T. Medin, Judge #5505--Reversed P. W. Scanlan, Salem, SD Martens & Goldsmith, Pierre, SD Attorneys for Appellant. C. H. McCay, H. Van Ruschen, Salem, SD Attorneys for Respondent. Opinion filed February 24, 1926

CAMPBELL, J.

Plaintiff brought action in the usual form as indorsee and holder in due course of a promissory note in the principal sum of $100 executed by defendant to Young & Engelhard Creamery Company, a corporation. Defendant answered that plaintiff was not a due course holder of the note; that the note was given for corporate stock of the Young & Engelhard Creamery Company, and was secured by false representations; that said corporate stock was never delivered; that the corporation is now insolvent and bankrupt and that the consideration for the note had wholly failed.

The case was tried on the issues so joined, and the facts were developed substantially as follows:

For some time prior to the year 1920 C. W. Young and A. H. Engelhard, as copartners under the firm name of Young & Engelhard, had conducted a creamery business at Salem, S. D., and about April 15, 1920, said partnership borrowed $2,000 from plaintiff bank, which indebtedness was evidenced 13y a promissory note then executed and delivered by said partnership to the bank, which promissory note was subsequently, and on August 8, 1920, renewed by a second note in like amount executed by the partnership to plaintiff bank. In September, 1920, the creamery business which had formerly been conducted by Young and Engelhard as copartners was incorporated under the name of Young & Engelhard Creamery Company, which corporation was duly organized and directors and officers elected, and A. J. Engelhard, one of the former copartners, became and continued the secretary treasurer of the corporation, and acted as such: at all times, and was the person who did the business of the corporation" and "transacted practically all of the business of the corporation," and said corporation, after its organization, appears to have taken over and conducted in every respect the creamery business previously carried on by Young and. Engelhard as copartners. After the taking over of the business by the corporation, and about January 5, 1921, the $2,000 renewal note executed by the partnership representing the $2,000 originally borrowed by the partnership in April, 1920, came due, whereupon the corporation paid the interest on the same and took it up by executing and delivering to plaintiff bank the promissory note of the corporation executed by the said A. J. Engelhard as secretary treasurer thereof for the principal sum of $2,000. On March 29, 1921, the corporation, by its secretary treasurer, Engelhard, paid the interest on the note of January 5, 1921, and renewed the same by executing and delivering to plaintiff bank another $2,000 note. On May 19, 1921, the+ defendant Iverson executed and delivered to the corporation, Young & Engelhard Creamery Company, the note in suit. Thereafter, and on June 3, 1921, Engelhard, as secretary treasurer of the corporation, took the note so given by defendant to plaintiff bank and indorsed and sold the same to the bank, and the bank, in payment therefor, credited the open checking account of Young & Engelhard Creamery Company in said bank in the sum of $100. At the same time Engelhard, as secretary treasurer of the corporation, indorsed and sold to plaintiff bank certain other notes owned by the corporation executed by other persons, and the checking account of the corporation was likewise credited with the proceeds thereof. Thereafter, and on the same day, Engelhard, as secretary treasurer of the corporation, gave to plaintiff bank the corporation's check drawn on its account in said bank for the sum of $1,218 to take up the balance due on the corporation note dated March 29, 1921, which check was so applied, and which check, when paid and charged against the account of the corporation, more than exhausted the credits previously and on the same day placed to the account as proceeds of the notes sold, including the proceeds of defendant's note. The form of indorsement made on defendant's note when the same was negotiated to plaintiff bank was as follows: "Y. and E. Creamery Co., by A. J. Engelhard, Secretary and Treasurer."

Plaintiff having rested, defendant moved for a directed verdict, and plaintiff likewise moved, whereupon the court made findings and conclusions, and entered judgment in favor of defendant for dismissal of the complaint upon the merits, with costs, from which judgment and from an order denying its motion for a new trial plaintiff appeals.

We do not understand upon what theory the judgment appealed from could have been entered. The respondent had been called as an adverse witness by appellant, and his testimony consisted only of admitting his signature to the note sued upon. The only other witness who testified was one a Goldsmith, president of appellant bank, who testified as follows regarding the purchase of the note in question by the bank:

"I reside in Salem, and am the president of the Commercial State Bank. The Commercial State Bank is the owner and holder of the promissory note Exhibit A, and has been since about June 3, 1921, when it purchased the same from the Young & Engelhard Creamery Company. They were given credit on the books of the bank on their open account on June 3, 1921, for $100. That $100 was afterwards checked out of their open account in the bank in full on June 4th. leaving a balance to their credit at the close of business on June 4, 1921, of 10 cents. At the time the bank purchased the note it had no notice or knowledge that the note had been previously dishonored by the maker, and had no knowledge or notice of any infirmity or defect of the title of Young & Engelhard Creamery Company, and purchased the note in good faith. The note was purchased from A. J. Engelhard, the secretary and treasurer of the Young & Engelhard Creamery Company. It is past due, and payment has been demanded from the maker, Mr. Iverson, but he has refused to pay it. I know the signature of A. J. Engelhard, and that is his signature on the back of the note, which purports to indorse it by him as secretary and treasurer, and that is the way they customarily indorse notes."

And on cross-examination, redirect, recross, etc., testified at considerable length with reference to the payment made on June 3, 1921, by Young & Engelhard Creamery Company upon its note held by appellant bank dated March 29, 1921, and the origin and history of said corporation note as above outlined. There was not a syllable of competent testimony in the record showing, or tending to show, that respondent had any defense whatever to this note in the hands of the payee or any other person. The note was his absolute, negotiable, past due, promise to pay money, and, so far as appeared from the record, there was no reason whatever why he should not pay it to any person payment to whom would discharge the obligation. Plaintiff appeared in court with the note in question indorsed by the payee in blank. The indorsement was not made by an agent but by the executive officer of the corporation and neither section 1723, Code 1919, nor the decision of this court in State Bank of Alcester v. Weeks, 189 N.W. 941, have any application whatsoever to the facts of the case at bar, since said section has no application to the executive officers of a corporation. Uline Loan Co. v. Standard Oil Co., 27 ALR 585. Engelhard was the general executive officer of the creamery corporation and the general manager of its business, and the presumption is that he had authority to indorse and discount negotiable paper of the corporation. Merril v. Hurley, 62 N.W. 958, 55 AmStRep 859; Iowa, etc., Bank v. Sherman, 97 N.W. 12, 106 AmStRep 778; Weaver v. Henderson, 91 So. 313, 206 Ala. 529; Swedish, etc., Bank v. Koebernick, 136 Wis. 473, 128 AmStRep 1090; Merchants', etc., Bank v. Citizen, etc., Co., 159 Mass. 505, 38 AmStRep 453; Winer v. Bank, 89 Ark. 435, 131 Am. St. Rep. 102; Union, etc., Bank v. Moomak, 106 Neb. 388; Citizens', etc., Bank v. Skeffiington (N. D. 1924) 196 N.W. 953.

The note, being indorsed in blank, became bearer paper (sections 1713 and 1738, Code 1919), and appellant was certainly both the bearer and holder of the note as defined in section 1892, Code 1919. Under the express provisions of section 1755, ...