Standard Cement Co. v. Windham National Bank

42 A. 1006, 71 Conn. 668, 1899 Conn. LEXIS 41

• Court: Supreme Court of Connecticut
• Decided: March 30, 1899
• Status: Published

Opinion

Hamersley, J.

The first three assignments of error relate to the admission of testimony.

The admission of the testimony of Burton S. Hills is error. The recital by the judge in the finding of the existing conditions which determined its admissibility, is incomplete, but the record contains a full statement of those conditions, certified by the judge, and the recital in the finding may be read in the light of this statement. Thresher v. Dyer, 69 Conn. ; Hoadley v. Savings Bank of Danbury, 71 Conn. 599, 612. So read, it appears that the testimony of Hills was admitted upon the statement of the Utica Company’s counsel, that he expected to prove by other evidence the bank’s knowledge of the facts testified to. Without such knowledge the evidence was inadmissible. He failed to bring the knowledge to the bank, and the hank for this reason moved to strike out the testimony, but the court did not grant the motion and the testimony was retained. Apparently the facts shown were immaterial, even if brought to the knowledge of the bank.

The testimony of Samuel E. Elmore is immaterial. It was offered and received for the purpose of showing that Parsons, after having sold the note to the plaintiff, embezzled the proceeds. The fact that Parsons appropriated the proceeds to his own use and fled from justice, and has never paid to the Utica Company any part of the same, is admitted by the pleadings. This is all that could be claimed from Elmore’s testimony.

In respect to the testimony of C. W. Skinner, the Utica Company claimed that fraudulent transactions of Parsons, in connection with the insurance company of which he was president, were known to the bank at the time it-discounted the note, and for this purpose offered Skinner to show that such fraudulent transactions were, just before the discount, a matter of public notoriety. We incline to think that such evidence might have been admissible; but the question is unimportant, because Skinner did not give such evidence, and liis evidence as actually given could not properly have injured the bank.

The 9 th, 10th and 11th assignments of error relate to the same questions of evidence, and require no separate consideration.

The 4th and 5th assignments allege error in finding facts from the evidence. Such matters are not reviewable by this court. Printing certified evidence for such purpose is a useless expense. Thresher v. Dyer, supra.

The 6th, 7th and 8th assignments allege error in finding material facts in the absence of any supporting evidence. Finding a material fact without evidence, that is, a fact unsupported either by some direct testimony or by some inference which a court may properly draw from the testimony given, conduct of parties or witnesses, or other circumstances appearing in the trial,—is an error in law. Such error cannot be presented in this court unless the whole evidence is certified, or the portion of evidence certified is accompanied by a finding of the court, or a stipulation of the parties, that it contains all the,evidence bearing upon the question. In this case the whole evidence was properly certified in connection with these assignments.

The error alleged as to paragraph 12 of the finding is, that the court here finds that the bank, through Lathrop, knew at the time of discount that Parsons was charged with unlaw■ful transactions connected with the management of the life insurance company of which he was president. If the word “ unlawful ” is here used in the sense of dishonest or criminal, the fact found is unsupported by the evidence, and, if material, we should be obliged for this reason to grant a new trial, or to treat the finding as not containing this fact; but the inspection of the testimony which convinces us that a finding of knowledge of dishonest or criminal transactions is unsupported by evidence, also leads us to think the judge used the words “ unlawful transactions ” as indicating only irregularities of management in connection with financial troubles of the company. With this meaning, the fact found is not wholly unsupported by the evidence.

The same view applies to similar language used in paragraph 16 of the finding.

The fact objected to in paragraph 15 is not sufficiently material to justify any consideration of the error claimed.

The 12th assignment is substantially disposed of in dealing with the other errors.

The 18th assignment is defective in form. On its face it predicates error in deciding a question of law upon all the evidence. This cannot be done. But viewing this assignment in connection with the request for a finding, especially with the claims of law stated in paragraphs 8 and 9 of the request, we think the assignment sufficiently claims error in the conclusions drawn by the court from the facts found. This was the gist of the case as tried; there was substantially no conflicting evidence. The main question argued before us was, do the facts lawfully found by the trial court support the conclusion that the bank had notice of fraud on the part of Parsons in indorsing and discounting the note ? And in passing on this question we may review the lawfulness of conclusions drawn from subordinate facts found, although the trial court may call such conclusions facts found from the evidence. Nolan v. New York, N. H. & H. R. Co., 70 Conn. 159, 179.

The trial court finds, in paragraph 4, that the action of Parsons in indorsing and negotiating said note was without, the knowledge and authority of the Utica Company. This is not a finding of fact from the evidence. There is no testimony upon this subject. It is an inference drawn from the facts admitted by the pleadings, and as such is erroneous. The Utica Company, by virtue of the powers given to all private corporations (General Statutes, § 1906), had authority to acquire this note; indeed its lawful ownership of the note is admitted and made the basis of its claim. It had authority to appoint a treasurer. The treasurer of a manufacturing company is frequently, if not ordinarily, the custodian of notes so acquired, and the officer authorized to make the indorsement necessary for their sale or transfer. When such treasurer, having in his possession a note so indorsed, presents it for discount, he represents that he has authority as treasurer to indorse and negotiate the note; and if he is personally known to the person discounting such note to be such treasurer, that person is ordinarily justified in accepting such representation as proof of authority. Such purchaser, in a suit upon the note, having proved the indorsement and representation of authority by the treasurer, is bound to go no further, and the authority to make the indorsement follows as a legal conclusion, unless other evidence shows an actual want of authority. In this case there is no other evidence: indeed the brief of the Utica Company does not claim that Parsons as treasurer had no authority to indorse.

The trial court further finds, in paragraph 16, that the facts within the knowledge of the cashier of the bank at the time of discount were sufficient to put him upon inquiry as to the propriety of discounting said note, and that the bank and its caslder are chargeable with laches in not making such inquiry. This also was a conclusion from the facts found, and is open to review.

The facts and circumstances attending the discount, as found by the court, are these: The Standard Cement Company, maker of the note, was a New Jersey corporation, having an office at Hartford. The Utica Cement Manufacturing Company, payee of the note, was a Connecticut corporation located at Hartford. There is no claim that either of these corporations was not then solvent. The Windham National Bank, purchaser of the note, was a national banking association located at Willimantic. The Continental Life Insurance Company was a Connecticut corporation located at Hartford, carrying on its business of life insurance, though in financial difficulty. Parsons was treasurer of the Utica Company, a director of the Standard Company, and president of the insurance company. Lathrop, cashier of the bank, and one Ramsdell, a director of the bank, were stockholders of the Utica Company. The insurance company had transacted business with the bank and then had a deposit and account there. Lathrop and Parsons lived near each other on friendly relations. The usual rate of discount for regular customers of the bank was 6 per cent. It does not appear that Parsons, personally, or the Utica Company, kept an account with the bank. The discount charged was 7 per cent. Usually the proceeds of a discount are paid by a draft. Parsons received the proceeds in currency. Lathrop did not ask Parsons his reasons for discounting the note, nor why he wanted currency.

The purchase by the bank under such circumstances was valid. No equities in favor of the Utica Company, no fraud as between that company and its treasurer, can affect the legal title so acquired, unless the bank had notice; and notice in this connection means knowledge. Where negotiable paper is bought before maturity, for value, in the ordinary course of business, the title of the purchaser may be impeached by proof of fraud known to him at the time. But the law does not presume knowledge from the fact of fraud. Proof that he bought for value, according to the custom and usage of commercial transactions, is evidence that he bought without notice, and sufficient, unless outweighed by other evidence establishing his knowledge. Arnold v. Lane, 71 Conn. 61, 63.

The facts found by the court bearing upon notice or knowl edge of the fraud, are these: Lathrop, cashier of the bank, knew that the Utica Company had never before had notes discounted in this State; that the life insurance company had formerly held a mortgage on property of the Utica Company, and by reason of the ownership of the mortgage had organized the company and become an owner of its stock in place of the mortgage; that the insurance company was financially embarrassed, and that Parsons was charged with irregularities in connection with the financial management of the company; said cashier also knew Parsons’ personal financial condition, but it is not found that he knew it to be an embarrassed one.

There is little logical connection between these facts and the fact that Lathrop knew that his friend and neighbor Parsons, when presenting the note of the Utica Company for discount, was contemplating the embezzlement of the funds of that company committed to his charge as treasurer. Such a conclusion cannot be drawn from these facts, considered by themselves or in connection with the circumstances attending the discount, by any process of reasoning legally permissible.

It is evident that the trial court did not draw its conclusion merely from these facts, but that its conclusion was induced through an erroneous view of the law in connection with the facts brought to light and to the knowledge of Lathrop subsequent to the discount. These facts are: After the discount Parsons appropriated the proceeds to his own use, and in consequence of criminal transactions in connection with the insurance company, fled the State. ■ The insurance company became insolvent and passed into the hands of receivers.

We do not question the power of the trial court to find from these facts, in connection with the other facts, fraud on the part of Parsons. The circumstances attending the discount, viewed in the light of subsequent events, fairly support the claim that Parsons discounted the note with intent to embezzle the proceeds, and took his pay in currency to provide himself with funds for a contemplated flight from the consequences of his criminal conduct in connection with the insurance company. But at the time of discount Lathrop could have no knowledge of facts that had not then happened, and such facts cannot be used to give color to a knowledge anterior to their existence.

The bank, therefore, having no knowledge of the fraud of Parsons, acquired a title to the note purchased which cannot be impeached by that fraud. Had Parsons stolen a bank note and transferred it to the bank for a valuable consideration paid in good faith, the title of the bank to that note would have been perfect. The note in suit comes under a similar rule, and with stronger reason; for the Utica Company, rather than an innocent purchaser, ought to bear the loss occasioned by its treasurer’s official dishonesty. Brush v. Scribner, 11 Conn. 387, 391, 399.

The title of the bank must prevail, unless it had knowledge of facts which of themselves impeach the transaction—in this case fraud—and not facts which only tend to prove fraud or to excite suspicion. Credit Co. v. Howe Machine Co., 54 Conn. 357, 384. Apparently the trial court was influenced to some extent by the doctrine in Gill v. Cubitt, 3 Barn. & Cr. 466. That doctrine was approved in Hall v. Hale, 8 Conn. 336, 340, but the case has been overruled in Brush v. Scribner and Credit Co. v. Howe Machine Co., supra. No vestige of the doctrine remains. ■ The trial court therefore erred in holding that the facts known to Lathrop at the time of discount were sufficient to put him on inquiry as to the propriety of discounting the note, and that he is chargeable with laches in not making such inquiry. The only legal judgment, lipón' the fabts 'lawfully found by the trial court, is one ordering tbe Standard Cement Company to pay tbe amount due on tbe note to the Windham National Bank, and the court below erred in not rendering such a judgment.

Títere is error, the judgment of the Superior Court is set aside and the cause remanded that judgment may be entered up according to law.

In this opinion the other judges concurred.