National Sec. Bank v. Cushman
| Decision Date | 08 January 1877 |
| Citation | 121 Mass. 490 |
| Parties | National Security Bank v. Edward F. Cushman |
| Court | United States State Supreme Judicial Court of Massachusetts Supreme Court |
Argued November 23, 1876
Suffolk. Contract by an indorsee on a promissory note signed by the defendant, payable to John P. Loring, and indorsed in blank, Answer, that the note was procured to be signed by the fraudulent representations of Loring and of Lewis Coleman, a director in the plaintiff bank, and that the plaintiff had knowledge of the same.
At the trial in the Superior Court, before Gardner, J., the jury returned a verdict for the plaintiff; and the defendant alleged exceptions, the substance of which appears in the opinion.
Exceptions sustained.
S. B Allen for the defendant.
G. M. Hobbs, for the plaintiff.
The defendant, who is the maker of the note in suit, offered to show that it was obtained of him by fraud, and that Coleman, one of the directors of the plaintiff bank, had knowledge of the fraud at the time the note was put in circulation. The court rejected this evidence, upon the ground that there was no evidence that Coleman took part in the action of the bank in discounting the note.
If there is fraud or illegality in the inception of a note, the burden of proof is upon the indorsee to show that he took it for value and in good faith before its maturity. Smith v. Livingston, 111 Mass. 342, and cases cited. If the note is discounted by a bank, the mere fact that one of the directors knew the fraud or illegality will not prevent the bank from recovering. Washington Bank v. Lewis, 22 Pick. 24. Commercial Bank v. Cunningham, 24 Pick. 270. Housatonic Bank v. Martin, 1 Met. 294. But if the director who has such knowledge acts for the bank in discounting the note, his act is the act of the bank, and the bank is affected with his knowledge. A bank or other corporation can act only through its officers or other agents. As in other cases of agency, notice to the agent, in the course of the transaction in which he is acting for his principal, of facts affecting the nature and character of the transaction, is constructive notice to the principal. Suit v. Woodhall, 113 Mass. 391. Bank of U. S. v. Davis, 2 Hill 451. If, therefore Coleman acted for the bank in discounting the note in suit, the bank is affected with his knowledge of fraud in the inception...
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...under a duty to advise the bank of what he knew of Shapiro and of the serious limitations upon that knowledge. See National Security Bank v. Cushman, 121 Mass. 490, 491-492; Restatement 2d: Agency, §§ 9, 272, 275 (but cf. § 14C); Merrill, Notice, § 1221; Fletcher, Cyc. Corpns. § 808. See Ne......
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