First Nat. Bank of Greencastle v. Baer

• Decision Date: 09 April 1923
• Docket Number: 8
• Parties: First National Bank of Greencastle v. Baer et al., Appellants
• Court: Pennsylvania Supreme Court

120 A. 815

First National Bank of Greencastle v. Baer et al., Appellants

277 Pa. 184

No. 8

Supreme Court of Pennsylvania

April 9, 1923

Argued March 5, 1923

Appeal, No. 8, Jan. T., 1923, by defendants, from judgment of C.P. Franklin Co., April T., 1921, No. 312, on verdict for plaintiff, in case of First National Bank of Greencastle v Adam Baer et al. Affirmed.

Assumpsit against endorsers on promissory note. Before GILLAN, P.J.

The opinion of the Supreme Court states the facts.

Verdict and judgment for plaintiff for $6,100. Defendants appealed.

Errors assigned were instructions, quoting record.

The judgment is affirmed.

J. R Ruthrauff and O. C. Bowers, with them W. O. Nicklas, for appellants. -- If the note was procured for the purpose of deceiving the bank examiner, there can be no recovery by plaintiff: Swan v. Scott, 11 S. & R. 155, 164; Evans v. Dravo, 24 Pa. 62; Scott v. Duffy, 14 Pa. 18; Wright v. Pipe Line, 101 Pa. 204; Sauer v. School Dist., 243 Pa. 294, 304; Potamkin v. Wells Fargo & Co., 63 Pa.Super. 222, 225; Deposit National Bank v. Trust Co., 68 Pa.Super. 468; Stern & Co. v. Ins. Co., 269 Pa. 559, 563; Ham v. Smith, 87 Pa. 63; Nat. Bank of Oxford v. Kirk, 90 Pa. 49; Bredin's App., 92 Pa. 241; Irvin v. Irvin, 169 Pa. 529; Kuhn v. Buhl, 251 Pa. 348.

The burden was on plaintiff to show that it was a holder for value in due course without notice: Second Nat. Bank of Pittsburgh v. Hoffman, 229 Pa. 429; Bedford v. Stever, 169 Pa. 574.

Walter K. Sharpe, with him W. R. Davison, for appellee. -- The cashier had no authority to make the agreement alleged by defendants: Hackney v. Ins. Co., 4 Pa. 185; Stewart v. Bank, 11 S. & R. 267; Custar v. Gas & Water Co., 63 Pa. 381; Robinson v. R.R., 32 Pa. 334; Mapes v. Bank, 80 Pa. 163; Allen v. Bank, 127 Pa. 51.

To give effect to the alleged agreement between Young, the cashier, and defendants would convert the note into "a scrap of paper." It would destroy the note and render it entirely uncollectable under all circumstances.

Defendants cannot allege their own turpitude as a defense to the note: Sauer v. School Dist., 243 Pa. 294; Stern & Co. v. Ins. Co., 269 Pa. 559; Monongahela Nat. Bank v. Bank, 226 Pa. 270; Com. ex rel. v. Camp, 258 Pa. 548.

The note was endorsed on sufficient consideration and the bank, having discounted it on the faith of defendant's endorsement, is a holder for value.

Before FRAZER, WALLING, SIMPSON, KEPHART, SADLER and SCHAFFER, JJ.

OPINION

MR. JUSTICE SADLER:

The plaintiff is a national bank, and had amongst its customers the Greencastle Fertilizer & Rendering Company, in which defendants were directors, and also financially interested. Checks of the corporation had been deposited in the former to the amount of $5,700, and credit given, but they were returned protested. With other claims, the total indebtedness had reached $7,000, and this was unsecured. A demand was made for immediate adjustment, and the result was the execution of a note for the sum due, signed by the president and treasurer of the Fertilizer Company, payable to the order of defendants, and endorsed by them, with a waiver of protest and guaranty of payment at maturity. It was discounted, and the entire proceeds, less the amount required to satisfy the claim of the plaintiff, was duly credited to the company. A small part of the principal was subsequently paid.

This suit was brought to recover from the endorsers. They defended on the ground that a promise had been made by the plaintiff's cashier, at the time of signing, that there would be no personal liability, as the paper was taken solely for the purpose of balancing the books, so that complaint from the bank examiner could be avoided. When the trial was had, the note was offered in evidence, and the defendants were then permitted, against objection, to offer proof of their understanding of the transaction. The jury was told, if the agreement testified to had been proven, to find in their favor. A verdict was, however, rendered for plaintiff and judgment entered thereon, and from this action of the learned court below the present appeal arises.

It is first to be noted the defendants were interested in the company for which they endorsed. At the time the note was given it was in financial distress, but had prospects of a sale of its plant, which would furnish relief to those involved. They desired to prevent the institution of any adverse proceedings, and the threatened application for a receiver, -- later appointed, -- endangered the possibility of a return on their investment. The obligation was discounted by the bank, and the unpaid checks, for which credit had been given, were lifted. "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 thereto for value": Act May 16, 1901, P.L. 194, article II, section 24. It is not necessary, however, in this case, to rest on any legal presumption, for the testimony clearly indicated the substantial benefit accruing. "An antecedent or preexisting debt constitutes value" (section 25), and as the defendants gave their note to satisfy the claim of the corporation, to prevent suit, they cannot successfully defend on the ground that the proceeds were not personally received. They were accommodation endorsers, and liable, though this fact may have been known by the subsequent holder for value: Act 1901, supra, article II, section 29. Nor is there force in the assertion, if true, that the name of the maker was added after they had signed: Act 1901, supra, article V, section 63, 66.

The defense interposed at the trial was the alleged declaration of the cashier of the bank that no effort to collect would be made from the endorsers. Without affirmative proof of his authority to so contract, such an agreement was ineffective: Allen v. First Nat. Bank, 127 Pa. 51; State Bank v. Forsyth, 108 P. 914, 28 L.R.A. (N.S.) 501, and note. His wrongful act, -- and the attempt to deceive a federal bank examiner was a crime under the acts of Congress, -- even if proven, would not bind the corporation, unless its board of directors had knowledge of such understanding, and ratified it, and there is no intimation that these conditions existed here.

In permitting evidence of such a promise, we are of opinion a mistake was made, but the one harmed was the appellee, who of course, does not complain, since the jury found in its favor. Proof of a contemporaneous parol agreement is not admissible, where its effect is to destroy the instrument itself, though like testimony may be offered to establish the fact that the...