First Nat'l. Bank Of New Bremen v. Burns
| Decision Date | 07 October 1913 |
| Docket Number | 13464 |
| Citation | 88 Ohio St. 434,103 N.E. 133 |
| Parties | The First Nat'l. Bank Of New Bremen v. Burns. |
| Court | Ohio Supreme Court |
Negotiation of commercial paper - Policy of law to protect innocent holder - Corporation can act only through agent - Knowledge of agent is knowledge of corporation, when - Bank officer acting as individual and as manager of bank - In purchase of note from himself by the bank - Manager's knowledge as man also knowledge of bank - Law of agency.
1. It is the policy of the law in all negotiations of commercial paper, both in the interest of honest business and good morals, to protect the rights of all innocent holders for value and before maturity, and this equally whether such innocent holder be an. individual or a corporation.
2. A corporation can act only through its officers and agents, and the knowledge of such officers and agents in the transaction of the corporation's business within the scope of their authority become at once the knowledge of the corporation without any actual or presumptive communication from agent to principal.
3. Where the officer is acting both for himself as an individual and as manager of a banking corporation in the purchase of a note from himself by the bank and his action in that behalf is adopted and ratified by the bank, the manager's knowledge as a man is equally his knowledge as manager of the bank. He cannot unknown as manager what he knows as man. To hold otherwise would be to promote fraud rather than prevent it.
On or about the 15th day of September, 1910, The First National Bank of New Bremen, Ohio, brought suit against the Burnses on three several promissory notes which said Burnses had executed and delivered to one Julius Boesel, on July 10 1908.
Said banking corporation alleged that it had purchased from said Julius Boesel, the payee, certain notes for value and before maturity.
The answers of said defendants alleged want of consideration that they were induced and procured to sign said promissory notes by the fraud of said Boesel, the payee; that said Boesel was at the times in question the president and one of the active managers of said bank, and that the bank had full notice and knowledge of such fraud and want of consideration at the time said notes were transferred and endorsed by said Boesel to said bank.
The bank by reply denied all the averments of said answers charging fraud and want of consideration, and claimed the rights of an innocent purchaser for value in due course and before maturity.
Upon these issues the case was brought to trial in the common pleas court before a jury, and the plaintiff, at the close of the evidence, moved the court to arrest the case from the jury and for judgment on the ground that there was no evidence tending to show that plaintiff was not an innocent holder of said promissory notes in due course, for value and before maturity.
It was however, admitted at the time, and the bill of exceptions taken so certifies, that there was some evidence offered by the defendants tending to support all the averments of their answers as to fraud and want of consideration, and the only question raised by the motion was whether or not there was any evidence tending to show notice and knowledge of the bank as to fraud and want of consideration in procuring the Burnses to execute and deliver said notes to said Boesel. It was admitted at the time that the only knowledge that the bank had in this behalf was the knowledge of Boesel, so that the question then before the court upon that motion was in short this: Was the knowledge of Boesel acquired in connection with the making of the notes in question such knowledge as should be in law charged upon The First National Bank of New Bremen?
If this question is answered in the affirmative, the motion should have been overruled and the case submitted to the jury. If upon the other hand. it is answered in the negative, the court as a matter of law should have sustained the motion and rendered judgment in favor of the bank.
The court of common pleas did sustain said motion and rendered judgment accordingly.
The circuit court reversed said judgment and remanded the case to the court of common pleas for further proceedings according to law.
These proceedings in error are now before this court to reverse the judgment of the circuit court and affirm the judgment of the court of common pleas.
Mr Thomas J. Hughes and Mr. D. W. Bowman, for plaintiff in error.
Mr. John C. Clark; Mr. Geo. W. Mannix, Jr., and Mr. T. C. Miller, for defendants in error.
It is agreed by the parties that the sole question in this case is: Was the knowledge of Boesel as an individual the knowl- edge of Boesel as president and manager of the bank?
Counsel for. the bank put the question very clearly in their brief, to-wit: "The record discloses that it is conceded that the plaintiff was a national bank; that Julius Boesel, the payee of the notes, was its president and executive manager; that he sold and discounted the notes to the bank, and that in so doing he acted for himself personally as indorsee and also for the bank as its president and manager; that no other officer or person connected with the bank had anything to do with the purchase of said notes and did not know thereof and had no notice or knowledge of any facts that would invalidate said notes in the hands of said Boesel; and further, that the bank purchased said notes for value and before maturity, and was an innocent holder in due course, unless the knowledge of Boesel was in law to be imputed to the bank.
"The record discloses that the bank did not concede the fraud or want of consideration alleged; only that the evidence offered by defendants tended to support the allegation of the answer on these issues," and therefore made such issues a matter for determination by the jury, unless the knowledge of Boesel could not be imputed to the bank when the bank purchased the notes of said Boesel.
Counsel on both sides have been more than usually diligent in searching the cases more or less analogous to the case at bar. The results of their inquiry together with the research of the court disclose a rather wide diversity of opinion. As to cases of this character it is unnecessary as it probably is impossible to attempt to reconcile all the numerous decisions. The question is largely a new one in Ohio.
A corporation can act only through its officers and agents, and the cases all agree on the elementary proposition that the acts of the agent within the. scope of his agency are at once the acts of his principal, and obviously the knowledge of such agent in the doing of such act becomes the knowledge of his principal.
This general rule is admitted and adopted by practically all the courts, and if it shall apply in this case the acts and knowledge of Boesel, as president and active manager of the bank and hence its agent in purchasing said notes from Boesel the individual, become and are the acts and knowledge of the bank.
It is claimed, however, by plaintiff in error that this rule is no more generally recognized than certain well-known exceptions to the rule coming under a peculiar state of facts which plaintiff in error contends are identical with the state of facts in this case, to-wit, that notice or knowledge on the part of the agent will not be imputed to the principal where the agent's relations to the subject-matter, his previous conduct, or his adverse interests render it certain that he will not disclose such knowledge. In such cases the presumption is that the agent will conceal any fact which might be detrimental to his own interest. This doctrine is sustained in Mechem on Agency, Section 721 et seq.; Koehler v. Dodge, 31 Neb. 328; Buffalo County Natl. Bank v. Sharpe, 40 Neb. 123; Benton v; German-American Natl. Bank, 122 Mo. 332; Merchants' Natl. Bank v. Lovitt, 114 Mo. 519, 21 S.W. 825; Bank of Overton v. Thompson, 118 F. 800, 56 C.C.A. 554; and numerous other cases cited in the notes.
The doctrine of this exception was very aptly and fully stated in one of the leading cases, Innerarity v. Merchants' Natl Bank, 139 Mass. 332, as follows: "While the knowledge of an agent is ordinarily to be imputed to the principal, it would appear now to be well established that there is an exception to the construction or imputation of notice from the agent to the principal in case of such conduct by the agent as raises a clear presumption that he would not communicate the facts in controversy, as where the communication of such a fact would necessarily prevent the consummation of a fraudulent...
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