Commercial Bank v. Burgwyn

14 S.E. 623, 110 N.C. 267

• Court: Supreme Court of North Carolina
• Decided: February 5, 1892
• Status: Published

Opinion

Shepherd, J.:

The defendants having pleaded that the notes sued on were obtained by the fraudulent representations of the payees, and testimony having been introduced in support of such plea, his Honor was correct in holding that the prima facie case of the plaintiff endorsee was so far rebutted as to shift the burden of proof and to make it necessary for it to show that it was a bona fide purchaser for value and without notice. Bank v. Burgwyn, 108 N. C., 62; Pugh v. Grant, 86 N. C., 39. When, however, the plaintiff responded by showing that it acquired the notes bona fide for value, in the usual course of business and while they were still current, the prima facie case of the plaintiff was restored, and unless the circumstances under which the purchase was made were of such a character as to amount to constructive notice, the jury should have been instructed that the burden of proof was upon the defendants to establish knowledge on the part of the plaintiff, at the time of its purchase, of the impeaching facts alleged in the answer. Daniel Neg. Instruments, §819.

We are of the opinion that there is nothing in the testimony that amounted to such constructive notice. According to the testimony of J. F. Rison all of the notes were endorsed in July, 1888, to the Southern Electric Light, Power and Construction Company, and that the said company, through its president, the said J. F. Rison, endorsed them for value to the plaintiff some months before they were due. It is contended that the plaintiff was affected with any notice that could be imputed to the said Rison, because the latter was, at the time of the transaction, the vice-president and a director of the plaintiff and a member of its discount committee. It does not appear that Rison had any notice of the claim of the defendants until after the Burgwyn note had been discounted by the plaintiff; but conceding, for the purpose of the argument, that he had such notice at the time of the discounting of all of the notes, it is well established that the plaintiff cannot be affected therewith, unless Rison was acting in his official capacity for the plaintiff in the said discounting transactions.

“ The foundation principle upon which rests the doctrine that a party, whether an individual or a corporation's chargeable with notice imparted to his agents in the line of their duty, is that agents are presumed to communicate all such information to their principals because it is their duty so to do. The principal is conclusively presumed to know whatever his agent knows, if the latter knows it as agent. Of course no such presumption can exist where the agent is dealing with the corporation in the particular transaction in his own behalf.” So. Law Review, 816. In such transactions the attitude of the agent is one of hostility to the principal. He is dealing at arm’s length, and it would be absurd to suppose that he would communicate to the principal any facts within his private knowledge affecting the subject of his dealing, unless it would be his duty to do so, if he were wholly unconnected with the principal. As was said by the Court in Wickersham v. Chicago Zinc Co., 18 Kan., 481, “Neither the acts nor knowledge of an officer of a corporation will bind it in a matter in which the officer acts for himself and deals with the corporation as if he had no official relations with it;” or, as was said in Barnes v. Trenton Gas Light Co., 27 N. J. Eq., 33, “ His interest is opposed to that of the corporation, and the presumption is, not that he will communicate his knowledge of any secret infirmity of the title to the corporation, but that he will conceal it.”

This doctrine has been applied to the case of a director procuring the discount of a note for his own benefit, having knowledge that it is founded upon an illegal consideration (Bank v. Christopher, 40 N. J. L., 435); or that it was made for his accommodation (Bank v. Cunningham, 24 Pick., 270); or that it was obtained upon a false pretence of having it discounted for the maker (Washington v. Lewis, 22 Pick., 24); or that it was affected in his hands with certain conditions (Bank v. Leuceal, 13 La., 525); or with a claim of recoupment of which the bank had no notice (Loomis v. Bank, 1 Dismey, 285); or with other equities (Savings Bank v. Boston, 124 Mass., 506). To the same effect are Cocoran v. Snow Cattle Co., 151 Mass., 74; Innerarity v. Bank, 139 Mass., 332; Stevenson v. Ray, 26 Mich., 44; Frosty. Belmont, 6 Allen, 163, and other cases. In the foregoing decisions the director was not acting in his official character in the particular transaction; but had he been so acting, the bank, by a great preponderance of authority, would have been affected with his knowledge. 1 Morse on Banks and Banking, 137, and authorities cited. The question, therefore, is, did Rison act as a member of the discount committee of the plaintiff, or in any other official capacity in respect to the discounting of these notes ? He testifies that he told the president and cashier of the plaintiff that the Southern Electric Light, Power and Construction Company, of which he was the president, desired to have certain notes discounted; that he was informed that the plaintiff would let him know at one o’clock of that day; that he called at that hour and was told that the plaintiff would discount the paper. He also testified as follows: “The transaction, as before stated, between the bank on one side and myself as president and representing the Southern Electric Light, Power and Construction Company on the other, was transacted as any other business matter of like nature is done with the bank. I did not sit in the board during the consideration of the paper discounted. The bank paid value for said note without any notice to it of any set-off or counter-claim by said Burgwyn, and is to-day the absolute owner and controller of said note. I have not at any time represented the bank in the foregoing transaction, at the time named or since.” He further testified that no director, interested in any way in any paper offered for discount, could, under the by-laws of the bank, or the laws of Virginia, participate in the deliberations of the discount committee in passing upon such paper.

The cashier of the plaintiff testified that'“the transaction was ip nowise different from any others-carried on between the bank and its customers”; that it was in good faith, and that Rison was not- present when the note was discounted.

The president testified that Rison “conferred ” with him about thé discount of the note, and submitted it to him for discount; that witness said that he would inform him during the day, and that he told the cashier to discount it after he bad made up his mind to do so. He also stated that Rison was not present when the note was discounted, and that witness had no notice of the matters now pleaded by the defendants. This, the only testimony upon the subject, very clearly shows that Rison was not acting for the plaintiff as its director or agent in any capacity in the discounting of the said paper, and this being so, it must follow that there was no constructive notice arising from the circumstances attending the transaction. His Honor, therefore, should have instructed the jury, after the plaintiff had by its testimony restored its prima facie case, that the burden was on the defendants to show actual notice. The failure to do this wss an error of which the plaintiff may justly complain. .

We are also of the opinion that there was no sufficient evidence of actual notice. If there had been, the astute counsel for the defendants would undoubtedly have called it to our attention. He could only refer us to the expression of the president to the effect that Rison “ conferred with him ” about the discount of the note. Surely this was not sufficient to warrant the jury in finding actual notice of the matters of defence set up by the defendants. Both the president and Rison explain what took place on the occasion. The note was submitted for discount, and Rison was to be informed later in the day of the action which the plaintiff had taken. Both of them deny that the president had any notice; and it is very plain to us that testimony like this, which but barely raises even a conjecture in support of the view sought to be established, should not be submitted to the jury. March v. Verble, 79 N. C., 19; Wittkowsky v. Wasson, 71 N. C., 451; Brown v. Kinsey, 81 N. C., 244; State v. Waller, 80 N. C., 401. If such testimony is permitted to have the effect of rebutting the prima facie case of the holder of negotiable paper, the peculiar immunities incident to such obligations will be practically destroyed, and an incalculable damage inflicted upon the commercial world.

If, as we have seen, the prima facie case of the plaintiff was restored, the burden was on the .defendant to prove notice in the plaintiff, yet the whole case was tried upon the theory that the burden was on the plaintiff to negative the existence of such notice. It must be apparent, therefore, that there was error in refusing at least some of the instructions prayed for. This is entirely manifest from 'the view we have taken that there was no sufficient testimony of actual notice.

Error.