Mann v. The Second National Bank of Springfield

• Decision Date: 01 July 1883
• Citation: 1 P. 579,30 Kan. 412
• Parties: LAWSON MANN, et al., v. THE SECOND NATIONAL BANK OF SPRINGFIELD, OHIO
• Court: Kansas Supreme Court

1 P. 579

30 Kan. 412

LAWSON MANN, et al., v. THE SECOND NATIONAL BANK OF SPRINGFIELD, OHIO

Supreme Court of Kansas

July 1, 1883

Error from Doniphan District Court.

ACTION by the Second National Bank of Springfield, Ohio, against Mann and another, on a negotiable promissory note. Trial at the September Term, 1882, of the district court, and verdict for plaintiff for $ 153. New trial denied, and judgment accordingly. The defendants, alleging error, have brought this judgment here. The opinion states the case.

Judgment reversed and case remanded.

Thos W. Heatley, and W. D. Webb, for plaintiffs in error:

The payee of the note was president of the machine company, a director in the bank, and a member of its "discounting committee." As such payee he was bound to know that the consideration had failed. It was for the jury to say what effect should be given to the evidence. (19 Kan. 60.) As a general rule, what the directors of a corporation know regarding matters affecting its interests, the corporation will be held to know, and knowledge on the part of directors may be inferred from circumstances, and it is not always necessary to show it by direct evidence. (30 Conn. 380.) As Whitely was a member of the "discounting committee," this case comes within the opinion of the court in Farmers' and Citizens' Bank v. Payne, 45 Conn. 451. He was appointed to act especially in the capacity of discounting notes for the bank, and when he procured one to be discounted, the knowledge that he possessed in regard to it was the knowledge of the bank. If it be said that he did not act with the majority, and consequently without authority, we reply that the bank has approved of his act and is now availing itself of it. Besides, the cashier knew this note had not taken the usual course of other discounts it had not passed the committee, but had taken an unusual course. The president had no authority to direct the cashier to discount a given note. There was a committee for that purpose. (3 Hill. 262; 1 id. 578; 1 Pars. on Contr. 66; 26 Conn. 382; 37 id. 257.)

Although there has been a great conflict of opinion in the courts, as to whether a party who receives an indorsed negotiable note before maturity, in payment of an antecedent debt, or as security for an antecedent debt, is a bona fide holder, and takes it discharged of equities in favor of the maker, (29 Conn. 475, and cases cited,) yet we understand that the case of Draper v. Cowles, 27 Kan. 484, has settled the law on that subject in this state.

If the company has not yet received the money, it should not take it. To permit it to do so, after the consideration of the note has failed, would be the greatest injustice. (Dougherty Bros. & Co. v. Cent. National Bank, 93 Pa. St. 227, 233.)

If it be said that the bank gave credit on its books, then we say the credit was given to the indorser by the indorsee. If the bank assumed responsibilities when it received the note, it assumed them to the transferer, and they are not negotiable. The new responsibility must be negotiable, or to some other person than the indorser of the note. The indorsement must be to pay a new debt, or to pay an old debt, or for a new purchase, or to secure a new purchase, or to secure an old debt. In this case it was to increase the indebtedness of the indorsee to the indorser.

The conflict on the question as to whether or not a negotiable promissory note, indorsed before due, without notice, in payment of a preexisting debt, or as security for a preexisting debt, or as security for future advances, passes discharged of equities, has been long and severe. There are a great many cases on both sides of the question. The majority however, are on the side of the affirmative. (40 Md. 540; Rld. Co. v. Bank, 102 U.S. 14; 55 N.Y. 236; 58 id. 77; 65 id. 438; 73 id. 269; 29 Wis. 209.)

When this note was transferred, and also on the day this case was tried, the bank owed the company "several thousand dollars." We agree that if the machine company had owed the bank, and the bank had placed the amount of the note to its credit, or had applied it to the discharge pro tanto of such indebtedness, the consideration would be sufficient.

W. D. Webb, for plaintiff in error, also cited and commented upon the following cases: Omaha Nat. Bank v. Walker, 5 F. 399, and cases cited; 21 Kan. 545; First Nat. Bank of Nashville v. McClurg, (7 Lea, 492,) 40 Am. Rep. 66; Comstock v. Hier, 73 N.Y. 269; Jordan v. Shoe and Leather Bank, 74 N.Y. 467; Dresser v. Mo. & Iowa Rld. Co., 93 U.S. 92; Maitland v. Citizens' Bank of Baltimore, 40 Md. 571; Rld. Co. v. Nat. Bank, 102 U.S. 14; Nat. Bank v. Bank of Albion, 52 Barb. 592; Platt v. Chapin, 49 How. Pr. 318; Fulton Bank v. Phoenix Bank, 1 Hall, 619; Bank v. Duncome, 48 Iowa 488; Bank v. Hughes, 17 Wend. 100; AEtna Nat. Bank v. Fourth Nat. Bank, 46 N.Y. 82; Bank of Mobile v. Hall, 6 Ala. 639, (41 Am. Dec. 72.)

Ryan & Wood, for defendant in error:

There is no claim that Whitely had any notice, or that he ever knew anything of the notice to Quigley. The notice to Quigley, as general agent, was constructive notice to the Champion machine company, which would be charged with such notice; but it was not actual notice to Whitely, its president. To charge the bank with notice, would be to say, that the constructive notice to the company was notice to the bank of which Whitely was a director, although he had no actual notice, or any knowledge whatever of the matter. This would be carrying constructive notice very far indeed. This. is mere suspicion of notice. While it is held that the fact of notice may be inferred from circumstances, as well as proved by direct evidence, the proof must be such as to affect the conscience of the purchaser, and must be so strong and clear as to fix upon him the imputation of mala fides. "Notice is therefore never to be presumed, but must be proved, and proved clearly. A mere suspicion of notice, even though it be a strong suspicion of notice, will not suffice." (Vest v. Michie, 31 Gratt. 149, and cases cited.)

But we contend that even if Whitely had actual notice of the failure of the warranty, while acting as president of the machine company, the bank would not be charged with such notice by reason of his being a director thereof. A notice to a bank director or trustee, or knowledge obtained by him while not engaged, either officially or as an agent or an attorney, in the business of the bank, is inoperative as a notice to the bank. If the notice was actual, the bank would not be charged with his knowledge, unless the fact was in his mind at the time, nor unless he was acting for the bank in that particular transaction. (Fairfield Savings Bank v. Chase, 72 Me. 226, and cases cited; Lake v. Reed, 29 Iowa 258; Louisiana State Bank v. Senecal, 13 La. 525; Story on Agency, p. 175, § 140; Loomis, Campbell & Co. v. Eagle Bank of Rochester, I Disney, 285, and cases cited.)

Was the credit of the proceeds of said note, $ 142.14, on the books of the bank in favor of the Champion machine company, such a payment as to pass the title of the note to the bank? We claim that the moment the credit was made, the amount so credited was subject to the check or order of the company, just as much as if it had been paid across the counter to Christee, the cashier of the company, and by him returned to the bank as a regular deposit, and credited. The purpose of a discount is, that the customer may draw out at his pleasure the avails of his discount. A bank is a debtor for the discount which is placed to its depositor's credit. If it could retain the money against the note, the discount would be useless to the customer. The bank had no lien on the money on deposit for the payment of this note. There was no contract for a lien in this case, nor did the law operate to give one. (Jordan v. National Shoe and Leather Bank, 74 N.Y. 472, 473.) The bank could not legally refuse to pay out the amount of the discount on the presentation of the check of the machine company. (Fourth Nat. Bank v. City Nat. Bank, 68 Ill. 400.)

When the note was discounted, the machine company evidently directed the amount placed to its credit; and under such direction, the entry of the credit was as effectual as if the depositor had brought in on that day the check of another customer, and had it entered to its credit. It was a payment. (First National Bank of Nashville v. McClurg, 40 Am. Rep. 68.) In the case of the First National Bank of Parkersburg v. Crawford, 2 Cincinnati Superior Court Reports, 125, the syllabus is as follows:

"When a draft is discounted by a bank, and passed to the credit of the drawer, and he is allowed to check against it, the bank is a holder for a valuable consideration. In such case, though the drawer's account is overdrawn at the time of the discount, and at the time of the maturity of the draft, the court will not inquire into the amount checked out, but the consideration once existing will be held good as to the whole note?"

That the machine company, as a regular customer of the bank carried an average balance of several thousand dollars on deposit at the commencement of this action, and had at no time since December 14, 1881, been below $ 143, cuts no figure. It is customary for every business house to each day deposit the cash receipts in some bank for safe-keeping and convenience, and to pay all or most bills by drawing checks on the banks where such deposits are made. In this way, the account of the depositor is constantly varying in amount: the money deposited one day may be checked out the same or the next day, and the account again replenished by other deposits. It cannot be claimed that the money on credit of the Champion machine company December 14, 1881, when the discount was...