Farmington Savings Bank v. Fall

Barrows, J. The defendant made the note upon which he is. here sued, at Berwick, in this State, setting forth therein that it was for value received, and payable in seven months after date; [52] to the order of C. B. Mahan, agent, at the Great Falls National Bank, Somersworth, New Hampshire. The note is so described in the plaintiff’s declaration, in which it is further averred that the said C. B. Mahan, agent, on the day of the date, duly indorsed it, and thereby for value received, ordered the contents thereof, to be paid to the plaintiff, &c. The indorsement runs thus: "Waiving demand and notice. Granite Agricultural Works. C. B. Mahan, Agent.” I. Defendant objected to the reception of the note in evidence, claiming that the note and indorsement varied from the allegations in the writ, and that the note offered was not indorsed by the payee. His objection was overruled — rightly, we think; for whether the peculiar form of the indorsement was adopted in order to transfer some supposed interest, equitable or otherwise, which the Granite Agricultural Works might have in the note, or only to indicate that C. B. Mahan, was the agent of that company, it is none the less the indorsement of "C. B. Mahan, Agent,” who was the payee of the note; and that indorsement was placed there with a design to transfer the property in the note to the indorsees. The party supposed to be beneficially interested, was .named when the note was indorsed, but omitting as surplusage mil such reference to the party perhaps interested, but not named iin the note as payee, the payee’s indorsement still remains, and, :being so designed, is sufficient to transfer the property in the -note, whether he was acting as the agent of the Granite Agricultural Works or any other party beneficially interested in the transaction. The act is to be deemed the act of him who might lawfully do it, and is not vitiated by the needless reference to the party for whose benefit it was done. II. Defendant claimed that a nonsuit should be ordered on the ground that savings banks are prohibited by law from the purchase of such notes. He relied on It. S., c. 47, § 91, which, after directing that "the trustees shall see to the proper and safe investment of the deposits and funds of the institution, in the manner they regard perfectly safe,” adds, "but no loan shall be made on security of names alone.” [53] And, inasmuch as there was no evidence as to what the law of New Hampshire, where this contract was to be performed, is in this respect, he insists that the presumption is that it is the same as that of this State. But assuming that the law of Arew Hampshire is like ours, which is but a direction to the trustees, designed for the benefit and security of depositors, it is not to be so construed as to defeat its own purpose, and enable the makers of negotiable paper to set up defences, to which they would not bo otherwise entitled. The reasons for thus holding, are adverted to in Roberts v. Lane, 64 Maine, 108; which is not distinguishable in principle from the present case, although it was not the same statutory prohibition which was there invoked to invalidate the transfer of the note. But it was necessary in that case, for Eoberts, who took the note from the bank long after it was due, and with notice that it would be contested on the ground of fraud in its inception, to establish the proposition that he was entitled to the rights of a bona fide indorsee for value without notice; and it was held, that the bank had such rights, and could transfer them to Eoberts, notwithstanding the fact that the bank took the note in face of the statute prohibition against discounting paper without at least two responsible names thereon. Unless the bank could have maintained an action on the note without being subject to a defence which might have been set up as between the original parties, it could transfer no such right to Eoberts. That "a national bank which purchases a promissory note from an indorsee, may maintain an action thereon in its own name against a prior party thereto, without regard to th.e question whether the purchase was one which it was authorized by law to make” was determined in National Pemberton Bank v. Porter, 125 Mass. 333, and the doctrine maintained by an abundance of forcible reasoning and authority. It is true that the Massachusetts court, in that case, had no occasion to consider whether such prior party was thereby let in as against the bank, to any equitable defence which he might assert, had the suit been in the name of the original payee, and in this respect the case last referred to does not go so far as Roberts v. Lane; but it is, nevertheless, directly in point to justify the refusal of the [54] presiding judge to order a nonsuit in the case at bar; the defendant’s motion for the nonsuit being based upon the position that the plaintiff sayings bank was prohibited by law from the purchase of such notes. ■ III. Upon the testimony of the president and treasurer of the savings bank, defendant contended that the savings bank was not such a holder for value, as would preclude the defendant from setting up any defence which might be available as between the original parties. This proposition his counsel seeks to maintain here on two grounds — first, because he says the plaintiff, having become possessed of the note in violation of the before mentioned statutory prohibition, cannot be regarded as an innocent indorsee; second, because he says the testimony shows that the bank holds the notes as collateral security, and by the law of New Hampshire where the contract was to be performed, such holders are not relieved from the equities between the original parties. The first branch of this argument, is, in effect, as we have already seen, substantially disposed of by the case of Roberts v. Lane, ubi supra. The defence of fraud in the inception of the note, ought to have availed the defendant there, if it can here. Leaving out of sight all considerations of the ill effect, in a mercantile point of view, of placing undue restrictions upon the transfer of negotiable paper beyond what good faith and fair dealing require, we think that the well settled doctrine of the law, that where one of two innocent parties must suffer for the misdoings of a fraudulent third, the loss must fall upon him whose act originally enabled the wrong doer to occasion it, ought to be decisive in favor of the plaintiffs. The defendant issued his negotiable promissory note, payable on time, and thereby enabled the party, with whom he dealt to get the money of the depositors in this savings bank, or its officers. Its officers had no notice of any equities between the party with whom they dealt and the maker of the note. They discounted the note in good faith, before it fell due, using the money of their depositors. Shall the ■ depositors lose it? The numerous cases establishing the doctrine just adverted to, would seem to forbid it. If it be said that the [55] officers wbo took the note, must make the loss good to the savings bank, the condition of the defendant is no better. It was his giving his negotiable promissory note to the party with ■whom he dealt, that enabled that party to possess himself ot money, which became, to all intents and purposes, the money of the officers, if they are liable to refund to the bank. There is no statutory inhibition of the purchase of negotiable notes by the officers as individuals, and it could not be said that the purchase would not enure to the benefit of the officers personally, if they are personally held liable to account to their bank for the money. The source of the trouble, is the defendant’s act in putting his promise to pay, in the form of a negotiable note, into the hands of one who was invested by him with the apparent legal right to dispose of it to any bona fide purchaser. As between the maker of the note and such purchaser, if loss must accrue to either, it should fall on the maker. Touching the second ground upon wffiich the defendant claims to be let in to his defence, we think a careful examination of the testimony reported, shows that the transfer of this note, and others of its class, was absolute, and not as collateral, to the notes of the Granite Agricultural Works, and that the case falls under the rule laid down in Bank of Woodstock v. Kent, 15 N. H. 579, where Parker, C. J., remarks: "It was not necessary that they should have parted with their money on the credit of this alone to entitle them to the ordinary rights of indorsees, who have purchased before the note became due. It is sufficient that they became the owners of it.” Exceptions overruled. Appleton, C. J., Walton,.Virgin, Peters and Libbey, JX, concurred.