Knobley Mountain Orchard Co. v. People's Bank of Keyser
| Decision Date | 08 September 1925 |
| Citation | 129 S.E. 474,99 W.Va. 438 |
| Parties | KNOBLEY MOUNTAIN ORCHARD CO. v. PEOPLE'S BANK OF KEYSER. |
| Court | West Virginia Supreme Court |
Submitted March 3, 1925.
Petition for Rehearing Dismissed October 6, 1925.
Syllabus by the Court.
The knowledge of a sole official, acting for and in the interest of a corporation, is imputed to it. If it claims the benefit of his act, it becomes subject to the consequences of his knowledge. Bank v. Aler, 92 W.Va. 313, 114 S.E. 745 approved and distinguished.
A corporation cannot ordinarily ratify the act of its officer and disaffirm the fraud by means of which the act was accomplished.
The cashier of the defendant was also the treasurer of the plaintiff, with authority to draw checks in the name of the plaintiff. The accounts of the cashier and his brother had become heavily overdrawn. By means of checks drawn against the plaintiff, the cashier transferred to the bank funds from the plaintiff's account in the bank in settlement of these overdrafts. Held, the bank may not close its eyes to the fact that these payments were made with funds which did not belong to its debtors, and which it had no right to receive in such settlement, and it is liable to the plaintiff in a suit therefor.
Error to Circuit Court, Mineral County.
Action by the Knobley Mountain Orchard Company against the People's Bank of Keyser. Judgment for defendant, and plaintiff brings error. Reversed and remanded.
F. M. Reynolds and Emory Tyler, both of Keyser, for plaintiff in error.
Charles N. Finnell, of Keyser, for defendant in error.
For several years T. D. Leps was treasurer of the plaintiff and at the same time cashier of the defendant. During the year 1919, to offset shortages amounting to $2,300 in his own and his brother's accounts with the bank, he charged the account of the plaintiff on the ledger of the bank with that amount in items of $1,000, $1,000, and $300, respectively. He posted the passbook of the plaintiff both in that year and in 1920, but did not enter thereon these three charges against it. Some time in 1920, Leps, without depositing any money entered credits on the account of the plaintiff on the ledger which offset the charges aforesaid.
In January of 1921, the plaintiff's passbook, as made up by Leps, showed to its credit on deposit in the bank the sum of $2,554.56. About that time the defendant made an investigation of Leps, in which it discovered among his private papers, in a private box under lock and key, three checks in his handwriting drawn in the name of the plaintiff one for $300 payable to cash, one for $1,000, payable to the bank, and one for $1,000, payable to J. E. Leps, who was the brother of T. D. Leps. These checks were stamped "paid," but bore no indorsement, except that on the back of the one to J. E. Leps was "Cr. a/c J. E. Leps" in the handwriting of T. D. Leps. Thereupon, the bank reentered upon its ledger charges against the plaintiff for the several sums expressed by these checks, and refused payment to the plaintiff of the $2,300 which they aggregate.
In 1923 the plaintiff gave notice of motion for judgment against the defendant for $3,133.51. This amount was predicated on the $2,554.56 shown to be due plaintiff by its passbook in 1922, and on the result of some intermediate transactions between then and the date of the suit. The plaintiff admitted that the bank had given it credit for $633.51 in another transaction, so the real amount in controversy in this action is $2,500. The case was tried by the circuit court of Mineral County in lieu of a jury, and a judgment found for the defendant. The case is here on error.
Two items are included in the $2,500 claimed by the plaintiff. One of $2,300 is involved in the Leps defalcation. The other, of $200, is presumably a balance claimed on the deposits of the plaintiff made prior to 1922.
The position of the plaintiff in regard to the $2,300 is that this amount was stolen from the defendant by its cashier; that "under the facts and circumstances of this case, knowledge of the cashier was the knowledge of the bank, and the bank is responsible to this plaintiff for the misappropriation of the funds of the bank, represented by the three checks." The plaintiff admits that there is a conflict in the decisions upon the question of notice where a corporation official occupies a dual capacity such as Leps did. It cites Lowndes v. Bank, 82 Conn. 8, 72 A. 150, 22 L.R.A. (N. S.) 408, as a leading case favoring its contention.
The claim of the defendant is that the $2,300 was stolen from the plaintiff by its treasurer. Its brief states:
The defendant relies on the rule that a corporation is not ordinarily chargeable with the information of an officer, which it was to his interest to conceal from the corporation. and refers among other authorities to Bank v. Aler, 92 W.Va. 313, 114 S.E. 745, School District v. De Weese (C. C.) 100 F. 705, Hilliard v. Lyons, 180 F. 685, 103 C.C.A. 651, and Brookhouse v. Publishing Co., 73 N.H. 368, 62 A. 219, 2 L.R.A. (N. S.) 994, 111 Am.St.Rep. 623, 6 Ann.Cas. 675.
A concise statement of the rule favoring the contention of the bank is expressed in paragraph 675, Pomeroy's Eq. Juris. In a note, however, Mr. Pomeroy questions the application of this rule to the case of a corporation acting through a single official. The doubt he raises is confirmed by the decisions collected in an annotation to Brookhouse v. Publishing Co., supra:
"There is, however, good authority, if not the weight of authority, in favor of a qualification of the foregoing exception so as to exclude therefrom, and therefore to bring within the general rule which charges the principal with knowledge possessed by the agent, cases where the officer, though he acts for himself or for a third person, is the sole representative of the corporation in the transaction in question. None of the cases above cited expressly denies, and few of them are necessarily inconsistent with, the existence of such qualification to the exception; and some of them--e. g., English-American Loan & T. Co. v. Hiers [112 Ga. 823, 38 S.E. 103], National Bank v. Feeney [[9 S.D. 550, 70 N.W. 874, 46 L.R.A. 732], and Commercial Bank v. Burgwyn [110 N.C. 267, 14 S.E. 623, 17 L.R.A. 326]--expressly admit the qualification. By reason of such qualification the application of the exception was denied in Brobston v. Penniman, 97 Ga. 527, 25 S.E. 350, holding that a bank was chargeable with knowledge of its president and cashier, that the proceeds of the note of a firm, of which they were members, were to be used for their private purposes, and not for the purposes of the firm, they having represented the bank in making the loan and taking the note. So, in Morris v. Georgia Loan, Sav. & Bkg. Co., 109 Ga. 12, 34 S.E. 378, 46 L.R.A. 506, where the cashier of a bank, as an individual, had an interest in a promissory note which he knew was given without consideration, and, as cashier, discounted the note without reference to, or consultation with, any other officer of the bank, it was held that the bank was not a bona fide purchaser of the note, without notice. The case of English-American Loan & T. Co. v. Hiers, supra, was distinguished from the last two cases upon the ground that the person whose knowledge was sought to be charged to the bank was merely a director, and had no active participation in the management of the bank's affairs. In Black Hills Nat. Bank v. Kellogg, 4 S. D. 312, 56 N.W. 1071, it was held that the knowledge of the cashier of a bank as to defenses against a promissory note made to him in his individual capacity, and by him transferred to the bank, was chargeable to the bank, it appearing that he transacted the business in behalf of the bank. The case of National Bank v. Feeney, supra, was subsequently distinguished upon the ground that the cashier in that case was not a member of the discount committee by which the loan was made. In Steam Stonecutter Co. v. Myers, 64 Mo.App. 527, the court said, in effect, that the rule that where an officer of a corporation deals with it in his individual capacity, the corporation is not chargeable with his uncommunicated knowledge of facts affecting the validity of the transaction, does not apply where the officer is acting for the corporation as well as himself, and distinguished the case of Merchants' Nat. Bank v. Lovitt, supra [114 Mo. 519, 21 S.W. 825, 35 Am.St.Rep. 770], upon the ground that in that case one officer of the corporation, acting as an individual, dealt with another officer, representing the corporation. The foregoing qualification of the exception is also supported by Witter v. McCarthy 43 P. 969; Barksdale v. Finney, 14 Grat. (Va.) 338; Smith v. Wilson & B. Sav. Bank, 1 Tex.Civ.App. 115, 20 S.W. 1119; and Anderson v. Kinley, 90 Iowa 554, 58 N.W. 909."
The decisions referred to in the annotation seem to us to express the better view. Cases may arise in which the knowledge of its sole executive should not be impressed upon the corporation, but the...
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