Md. Finance Corp. v. Keyser

• Decision Date: 26 May 1925
• Docket Number: (No. 5296)
• Citation: 99 W.Va. 230
• Parties: Maryland Finance Corporation v. Peoples Bankop Keyser
• Court: West Virginia Supreme Court

99 W.Va. 230

Maryland Finance Corporation

v.Peoples Bank op Keyser

(No. 5296)

Supreme Court of Appeals of West Virginia.

Submitted May 20, 1925.

Decided May 26, 1925.

1. Bills and Notes On Showing of Fraud, Holder has Burden of Proving Purchase in Good Faith.

Under our negotiable instrument law, where it is shown that the paper sued on was originally procured by fraud, the burden is on the holder suing thereon to show that he purchased it in good faith, for value before maturity, without notice of any infirmity, (p. 235.)

(Bills and Notes, 8 C. J. § 1292).

2. Same Evidence of Plaintiff's Good Faith in Obtaining Certificate of Deposit, Held Insufficient to Support Verdict for it.

A case where the vice of such instrument is clearly shown, and the holder's evidence is insufficient to sustain the burden cast upon it to prove that it was a purchaser in good faith, (p. 236.)

(Bills and Notes, 8 C. J. § 1358).

(Note: Parenthetical references by Editors, C. J. Cyc. Not part of syllabi).

Error to Circuit Court, Mineral County.

Action by the Maryland Finance Corporation against the People's Bank of Keyser. Judgment for plaintiff, and defendant brings error.

Reversed and rendered. Chas. N. Finnell for plaintiff in error.

F. M. Reynolds and Emory Tyler for defendant in error.

Woods, Judge:

This is an action of motion for judgment, based on a certificate of deposit. Defendant pleaded non-assumpsit. By agreement of the parties, the case was heard by the court in lieu of a jury. Judgment was rendered for the plaintiff for $1,494.90.

On August 13, 1921, B. H. Dundon, the vice-president and general manager of the Maryland Finance Corporation, a Maryland corporation, wrote Mr. T. D. Leps, cashier of the Peoples Bank of Keyser, a West Virginia corporation, the following letter:

"Dear Mr. Leps:

Mr. Wiley has taken up with me several times regarding Taylor matter.

While no doubt this matter is causing you some anxiety, Mr. Taylor is still trying to get this matter adjusted. I have seen a letter from him dated August 9th, stating that he will be in Middlesburg on August 15th to take up the matter with Moss and Gordon. As soon as I hear anything definite will immediately communicate with you. As most of Mr. Taylor's property is in West Virginia, as under the laws of this state the courts do not open up to October and should you secure judgment, same cannot be executed until the end of the term, which is between the middle of November and the first of December.

You still have plenty of time to take whatever action you contemplate taking. I am extremely sorry this matter has been drifting along in this manner and hope that same will be closed out to your satisfaction before long.

The writer could pay $100.00 for a $1,000.00 C-D due in four months, if you can handle same. Will not need the paper until around the 5th of September.

Hoping to see you in the near future, I am, Very truly yours, B. H. Dundon, V. P. & G. M."

The foregoing letter was written on the official stationery of the corporation, and under the title "officers" appear the following: "William Stanley, President; W. Mitchell Digges, Chairman of the Board; John L. Swope, VicePresident; Bernhard II. Dundon, Vice-President and General Manager; John L. Tregellas, Treasurer; Don C. Fithian, Secretary and Assistant Treasurer; Robert G. Merrick, Assistant Treasurer."

On December 21, 1921, the following letter was written on the Maryland Finance Corporation's stationery:

"Dear Mr. Leps:

My note for $1,500.00 will be due December 24th. In view of the unusual circumstances which have developed here within the last month, I am unable to take care of this obligation in full as expected.

I am enclosing herewith check for $130.00 and renewal note for $1,400.00 due in four months. I feel by the time that this matures I will be able to take care of same in full.

Trusting that this renewal will be acceptable and regretting the necessity of asking for the extension, with best wishes for a happy Christmas and prosperous New Year, I am,

Very truly yours 1709 W. Lombard St.,

Baltimore, Md. B. H. Dundon."

On December 28th, Leps, without authority or knowledge of the President of the Bank, its Board of Directors, or any member thereof, issued the certificate of deposit in question, which is as follows:

"PEOPLES BANK OF KEYSER

No. 308 Keyser, W. Va., Dec. 28, 1921.

B. H. Dundon has deposited in this bank Fourteen Hundred & No-100 Dollars payable to the order of Himself with interest at 3 per cent, per annum if left for four months on return of this certificate properly endorsed. Not subject to

$1400.00 T. D. Leps, Cashier."

The records of the bank do not show this transaction. A note of Dundon without indorsement for $1400.00 was taken by said cashier and placed in a private box of said cashier, and not discovered until some time after the bank was closed.

One of the witnesses, J. Frank Duke, who had been with the Maryland Finance Corporation since May 22, 1921, as bookkeeper and general office man, stated that Dundon presented his resignation as vice-president and general manager of the corporation on December 5, 1921, and that the Board of Directors accepted it as of the 5th on the 7th day of December, 1921; that Dundon was paid his regular salary by said corporation up until the 31st day of December, 1921, and that since that time has had no connection with said corporation.

On January 6, 1922, Dundon sold said certificate of deposit, which showed on its face that $1400.00 was held by the Peoples Bank of Keyser subject to withdrawal, on proper endorsement (at any time at sacrifice of interest), with interest at the rate of 3 per cent, per annum if left for four months, to the Maryland Finance Corporation (from which he, Dundon, had just withdrawn as an executive officer), for the sum of $1315.00, or at a discount of $85.00. The Commissioner of Banking of this State, on April 27, 1922, closed the doors of the Peoples Bank of Keyser, because of the fraudulent and unauthorized issuance by the said T. D. Leps, its cashier, of this and other certificates of deposit. On the following day the said certificate of deposit was protested at the First National Bank, in Keyser, W. Va. A certificate of deposit, similar to the one in question, also issued by Leps, without authority, to E. J. Wiley, and sold to the plaintiff corporation, for $2300.00, dated December 2, 1920, at the same rate of interest if left for three months, was introduced in evidence. This $2300.00 certificate bore the following notation on its face: '' Protested for non-payment at The First National Bank, Keyser, W. Va., Mar. 2. 1921." This was relied on to impute knowledge to the plaintiff of prior defective paper of the defendant bank. The Maryland Finance Corporation claims, however, that it did not know of this protest, and Duke states that the books of that corporation show that the same was paid on March 3, 1921, but that such record fails to state by whom paid, or how paid. Duke further testifies that the Maryland Finance Corporation had purchased approximately $20,000.00 worth of certificates of deposit issued by the said Peoples Bank of Keyser. The bank's records show none of these transactions.

The defendant bank relies on the following as error: (1) That the court erred in holding the plaintiff to be a holder in due course, without notice, of a valid negotiable instrument, and as such entitled to recover on it, notwithstanding the equities of antecedent parties, when the evidence shows that plaintiff had knowledge prior to purchasing the certificate sued on, through B. H. Dundon, its then vice president and general manager, of the fact that T. D. Leps, defendant's then cashier, was fraudulently issuing certificates of deposit in the name of the defendant Bank; and (2) that the court erred in entering the judgment complained of, when the evidence showed that the certificate of deposit sued on was a forgery and issued by Cashier Leps without authority.

A certificate of deposit ordinarily is defined as a written acknowledgment by a bank or a banker of receipt of a sum of money on deposit, which the bank or banker promises to pay to the depositor, to the order of the depositor, or to some other person or to his order, whereby the relation of debtor and creditor between the bank and the depositor is created. 3 R. C. L., sec. 198. A certificate of deposit being in legal effect a promissory note is transferable by indorsement, when negotiable in form, in the same manner and with the same results as other negotiable paper. Hatch v. Bank, 94 Me. 348; Read v. Bank of Buffalo, 136 N. Y. 454; Lindsey v. McClellan, 18 Wis. 481. The bona fide purchaser of a certificate of deposit for value, before maturity without notice of equities, is therefore protected to the same extent as an innocent holder of other negotiable paper. 3 R. C. L., sec. 203, and cases there cited.

It is not disputed that the certificate of deposit involved in this suit was obtained by fraud, and that the title of the payee was defective within the meaning of the Negotiable Instrument Act (Code, chap. 98A). Under such conditions the following provisions of the act are applicable:

Sec. 59. Every holder is deemed prima facie to be a holder in due course; but when it is shown that the title of any person who has negotiated the instrument was defective, the burden is on the holder to prove that he or some person under whom he claims acquired the title as a holder in due course; but the last-mentioned rule does not apply in favor of the party who became bound on the instrument prior to the acquisition of such defective title.

Sec. 52. A holder in due course is a holder who has taken the instrument under the following conditions: (1) That the instrument is complete and regular upon its face; (2) that he became the holder of it before it was overdue and without notice that it had been previously dishonored, if such was the fact; (3) that he took it in good faith...