The Merchants' National Bank of Kansas City v. Lovitt

• Decision Date: 13 March 1893
• Citation: 21 S.W. 825,114 Mo. 519
• Parties: The Merchants' National Bank of Kansas City v. Lovitt, Appellant
• Court: Missouri Supreme Court

21 S.W. 825

114 Mo. 519

The Merchants' National Bank of Kansas City v. Lovitt, Appellant

Supreme Court of Missouri, First Division

March 13, 1893

Appeal from Jackson Circuit Court. -- Hon. John W. Henry, Judge.

Affirmed.

Beebe & Watson for appellant.

(1) The sole question in this case is whether Dickinson's knowledge of the contemporaneous contract, showing for what the note was given, can be imputed to the bank. (2) Dickinson acted for the bank when he fixed the rate of discount (a material matter) and attended to the necessary preliminaries. When so acting his knowledge was that of the bank. He had a right to act for the bank by virtue of his office; but it appears that the business of arranging the matter of discount, etc., was left to him by the president. There can be no doubt in view of the undisputed testimony that the bank thus had notice of the contemporaneous contract. Morse on Banking [3 Ed.] sec. 136, and cases cited. If the bank had notice of the terms of the contemporaneous contract it knew that the consideration of the note was executory, and received it charged with that knowledge, and cannot be said to be a "bona fide purchaser." (3) The first point made by respondent, that "Dickinson's knowledge having been acquired in the transaction of his own private business cannot be imputed to the bank," is met by the cases of Chouteau v. Allen, 70 Mo. 341; Blumenthal v. Brainerd, 38 Vt. 402; Hart v Bank, 33 Vt. 252; Hovey v. Blanchard, 13 N.H 145; Patten v. Ins. Co., 40 N.H. 375; Mullen v Ins. Co., 58 Vt. 113; Bank v. Hollenbeck, 29 Minn. 322; Fuller v. Atwood, 14 R. I. 293, and cases cited; 1 American & English Cyclopedia of Law, p. 423. (4) First. In all the cases cited by respondent to show that Dickinson had an interest adverse to the bank and that it is not to be presumed that he communicated his knowledge as to the consideration of the note to the bank, the agents of the banks had been guilty of some fraud or misconduct, the disclosure of which would necessarily have prevented the bank from discounting the paper. It is not so in the present case. Second. But suppose at the time Dickinson spoke to President Clark he had an adverse interest, the case yet falls within the class of cases cited in Morse on Banking [3 Ed.] p. 231, par. 109. (5) There is no escape from the proposition that Dickinson acted for the bank in a matter requiring discretion.

Gage, Ladd & Small for respondent.

(1) Dickinson's knowledge having been acquired in the transaction of his own private business cannot be imputed to the bank. Bank v. Schaumburg, 38 Mo. 228; Johnston v. Shortridge, 93 Mo. 232; Savings Ass'n v. Printing Co., 25 Mo.App. 642; Brass Co. v. Co., 37 Mo.App. 155; 1 Waterman on Corporations, sec. 135, p. 470; Houseman v. Mut. Ben. Ass'n, 81 Pa. St. 256; Reid v. Bank, 70 Ala. 211; Bank v. Savery, 18 Hun, 40; s. c. 82 N.Y. 307; Bank v. Clark, 64 Hun, 175; Bank v. Neass, 5 Denio, 329; Taylor on Private Corporations [2 Ed.] sec. 210; Bank v. Cornen, 37 N.Y. 320; Bank v. Christopher, 40 N. J. Law, 435; Ins. Co. v. Shriver, 3 Md. Ch. Dec. 381; Terrell v. Bank, 12 Ala. 502; Ins. Co. v. Co., 22 Barb. 468. (2) Even if a corporation can be charged with the knowledge of one of its officers, acquired by him in the management of his own private business, the knowledge of Dickinson cannot be imputed to plaintiff in the case at bar, because, in the matter of the discount of the note, Dickinson's interests were adverse to those of the plaintiff. Johnston v. Shortridge, 93 Mo. 227; Innerarity v. Bank, 139 Mass. 332; Wickersham v. Zinc Co., 18 Kan. 481; In re European Bank, L. R. 5 Ch. App. Cas. 358; In re Railway, L. R. 7 Ch. App. Cas. 161; Barnes v. Gas Light Co., 27 N.J.Eq. 33; Bank v. Christopher, 40 N. J. Law, 435; Winchester v. Railroad, 4 Md. 231; Frenkel v. Hudson, 82 Ala. 158; Bank v. Lewis, 22 Pick. 24; Ins. Co. v. Bell, 22 Barb. 54. (3) The doctrine of constructive knowledge is founded solely upon the presumption that the agent will perform his duty and communicate his own knowledge to his principal. But, where such communication would defeat the agent's own purposes, or disclose his own fraud or misconduct, the presumption does not obtain and the principal is not charged with the knowledge of the agent. In re Bank, L. R. 5 Ch. App. Cas. 358; Hummell v. Bank, 75 Iowa 689; Barnes v. Gas Light Co., 27 N.J.Eq. 33; Terrell v. Bank, 12 Ala. 502; Dillaway v. Butler, 135 Mass. 479; Frenkel v. Hudson, 82 Ala. 158; Cave v. Cave, L. R. 15 Ch. Div. 639. (4) As a matter of fact Dickinson did not in the discount of the note act as agent of the bank; as matter of law he could not, in such sense that his knowledge would be imputed to the bank. Johnston v. Shortridge, 93 Mo. 227; In re Bank, L. R. 5 Ch. App. Cas. 358; Bank v. Gifford, 47 Iowa 575; Hummell v. Bank, 75 Iowa 689; Peckham v. Hendren, 76 Ind. 54; Bank v. Neass, 5 Denio, 337; Terrell v. Bank, 12 Ala. 502; Innerarity v. Bank, 139 Mass. 332.

OPINION

Black, P. J.

This is an action on a negotiable promissory note for $ 2,900, executed by the defendant Lovitt and payable to O. P. Dickinson in four months after date, with interest from date at the rate of eight per cent. per annum, and by Dickinson indorsed and delivered to the plaintiff bank. The defense set up by Lovitt, the maker of the note, is a failure of consideration.

The history of the transaction is this: On the twenty-seventh of January, 1888, Dickinson, the payee of the note in suit. by an agreement in writing sold to Lovitt fifty-five shares of stock in a corporation then about to be formed for which Lovitt gave his note of that date for $ 2,900 due in six months. It was understood between Lovitt and Dickinson before this note became due that it was to be renewed. On July 11, 1888, Lovitt executed the note sued upon, dating it the twenty-seventh of that month, and gave it to Dickinson in renewal of the former one, and Dickinson indorsed it to the bank on the same day. Lovitt paid the interest accrued on the original note.

For the purposes of the trial only, it was agreed "that the note sued upon was given for a contract in which the payee of the note agreed to sell certain shares of stock which then had no existence and deliver the same when the corporation was formed and stock certificates issued; that the corporation never was formed and the stock certificates never issued, and that there was a complete failure of consideration of the note; that said Dickinson, the payee of the note, having made the contract set forth in defendant's answer, at all times from and after the making of the same up to the present time knew of its existence and terms."

W. B. Clark was president, Mr. McKnight cashier and Dickinson vice-president of the plaintiff bank when the bank acquired the note sued upon. They were all active officers, and Dickinson was also a director. Dickinson had a conversation with Clark, the president, in which he said he had or expected to get the note of Lovitt. He then asked Clark whether the bank would take it and Clark agreed to discount the note. The evidence leaves it in doubt whether this conversation occurred after, or a day or two before the note in suit was executed; but it clearly appears that Clark as president agreed to take the note. The note was executed on the eleventh of July, and on that day Dickinson indorsed and delivered it to the bank. He at the same time figured up the discount on a deposit slip and handed the slip to the discount clerk or to the cashier who passed it to the clerk. The discount clerk made the proper entries, placing the amount of the note less $ 10.30 to the credit of Dickinson who checked out and used the money. Lovitt was a well known customer of the bank and had a line of credit thereat.

Dickinson in his evidence says he did not accept the note for the bank but that Clark did. Clark testified that he agreed with Dickinson to take the note for the bank, but that he left the details of the arrangement to Dickinson, that is to say, to make the entries, receive the paper and deduct the proper amount of interest for the bank. The $ 10.30 deducted represented the interest from the eleventh of July to the twenty-seventh, the latter being the post-date of the note. The officers of the bank, except Dickinson, knew nothing about the contract between Dickinson and d...