OHIO MILLERS'MUT. INS. CO. v. Artesia State Bank, 5808.

• Citation: 39 F.2d 400
• Decision Date: 25 April 1930
• Docket Number: No. 5808.,5808.
• Parties: OHIO MILLERS' MUT. INS. CO. v. ARTESIA STATE BANK.
• Court: U.S. Court of Appeals — Fifth Circuit

39 F.2d 400 (1930)

OHIO MILLERS' MUT. INS. CO. v. ARTESIA STATE BANK.

No. 5808.

Circuit Court of Appeals, Fifth Circuit.

April 7, 1930.

Rehearing Denied April 25, 1930.

Ben H. McFarland, of Aberdeen, Miss., Dan E. McGugin and Giles L. Evans, both of Nashville, Tenn. (McFarland & Holmes, of Aberdeen, Miss., on the brief), for appellant.

Kit Williams, of Memphis, Tenn., and Geo. J. Leftwich and C. L. Tubb, both of Aberdeen, Miss., for appellee.

Before BRYAN and FOSTER, Circuit Judges, and GRUBB, District Judge.

GRUBB, District Judge.

This is an appeal from a judgment of the District Court of the United States for the Northern district of Mississippi. Appellant (plaintiff) sued the appellee (defendant) upon a certificate of deposit issued by defendant, and which the plaintiff purchased for its face value and accrued interest. The jury returned a verdict for the defendant, and the judgment appealed from was entered upon it. The defendant asserted that it had been induced by fraudulent representations to purchase certain bonds in return for which it issued the certificate of deposit sued upon. Three issues were presented by the defense of fraud; whether fraudulent representations were made by the seller of the bonds, whether the plaintiff, the purchaser of the certificate of deposit, had notice of the alleged fraud, and whether the defendant suffered a loss because of the alleged fraud. The first and third issues were submitted to the jury by the District Judge, and the defendant prevailed with the jury. The District Judge in effect instructed the jury that plaintiff had notice, through the knowledge of its president, of any fraud that was perpetrated upon the defendant. The correctness of this instruction is the most important question to be reviewed.

The defendant purchased $5,000 of the bonds of the Integrity Mutual Casualty Company from J. C. Adderly, Inc., an insurance management corporation, of which one J. C. Adderly was president, through A. K. Tigrett, an investment broker of Memphis, Tenn. The J. C. Adderly, Inc., sold the certificate of deposit shortly after it acquired it from the defendant in payment of the bonds to the plaintiff for its face value and accrued interest, and before its maturity. Adderly was president of all three corporations at and before the time of the transaction. They also had the same vice president, secretary-treasurer, and general counsel. The two insurance companies were mutual companies; they had different directors, and different policy holders. One wrote workmen's compensation, and the other casualty insurance. Both had offices together, and their respective insurance businesses were managed by J. C. Adderly, Inc., the management corporation. If a fraud was committed on the defendant in the sale to it of the Integrity Mutual Insurance Company's bonds, Adderly had knowledge of it, as he furnished Tigrett with the literature which contained the representations for the purpose of enabling Tigrett to use it with prospective purchasers of the bonds, and Tigrett did, in fact, submit it to defendant's vice president, who for it purchased the bonds. There was evidence tending to show that false representations as to the status of a fund to secure the bonds were contained in the literature, and that the defendant might suffer a loss thereby. The Integrity bonds sold defendant by J. C. Adderly, Inc., had, with others, been bought by it from the Integrity Company, and Williamson, the vice president of both the Integrity Company and the J. C. Adderly, Inc., solicited Tigrett to take over for re-sale $50,000 of the bonds, which Tigrett did, disposing of $5,000 of them to the defendant. The plaintiff had nothing to do with the sale of the Integrity bonds to Tigrett or to the defendant, or with any representations made to either by Adderly or his company. The plaintiff first entered the picture on March 20, 1926, the date of its purchase of the certificate of deposit, the bonds having been sold to defendant by Adderly February 22, 1926, which was the date of issue of the certificate of deposit. On October 21, 1925, the board of directors of plaintiff adopted a resolution authorizing its treasurer, J. W. Ott, with the approval of its president, J. C. Adderly, to invest the cash funds of the plaintiff in bonds or other securities or to sell such bonds or securities as the situation might require, such authority to continue until the next annual meeting. Pursuant to this authority, the certificate of deposit was purchased by plaintiff. Ott signed the check of plaintiff which paid Adderly, Inc., for it. Presumably Adderly, as president of plaintiff, approved the purchase. At a meeting of the directors of the plaintiff held on April 14, 1926, at the office of plaintiff in Columbus, Ohio, the treasurer reported certain investments to have been made by him with the approval of the president, and among them the purchase of the defendant's certificate of deposit sued upon. The directors approved the purchase by acquiescence and failure to make objection. Ott denied having any knowledge of any fraud upon defendant in the sale of the bonds to it, and the record does not show any either on his part or upon the part of any other officer or agent of plaintiff, except Adderly. The plaintiff had no connection with the sale of the Integrity bonds either to Tigrett or to the defendant, but only with the subsequent purchase of the certificate of deposit.

If notice is charged to plaintiff, it must be through the undoubted knowledge that its president Adderly had of any such fraud at the time he participated in the...