Merchants National Bank v. Marden, Orth & Hastings Co.

Braley, J. The promissory notes in suit, which were made by the Carolina Coast Products Company and indorsed by the defendant, although differing in amount are payable either on demand or one year after date and their execution by the maker and the indorser, and due presentment and subsequent protest, are conceded. But the answers severally aver that the defendant’s indorsement was obtained “ in reliance upon and in consequence of certain representations made . . . with respect to the earnings and liabilities of the Carolina Coast Products Company, and that, after the note had been indorsed, the same was placed in the hands of one Cooper upon the condition that the indorsement should not take effect and that he should retain possession of the said note until the defendant should have verified said representations and should — 168 — have ascertained that . . . the company had a good title to certain property which it was alleged to own and until such title should be perfected, and the plaintiff if it received and holds the note declared on had notice at the time of receiving it that . . . Cooper held it upon the aforesaid conditions; thereafter the defendant learned that said representations were false and before said title was perfected demanded that said Cooper return said note, and, if said note was transmitted to the plaintiff by . . . Cooper, it was, as the plaintiff knew, so transmitted wrongfully and in violation of the conditions upon which the same was held by him, and no consideration for the transmission of said note passed between the plaintiff and . . . Cooper, and the plaintiff, at the time it received said note, knew that the defendant had indorsed said note in reliance upon the representations above mentioned and that said representations were false.” The transactions having taken place in the State of North Carolina, the law of which as shown by the statute introduced in evidence appears to be the same in substance and effect as the law of this Commonwealth relating to commercial paper found in It. L. c. 73, the plaintiffs rest their right of recovery on the familiar ground, that, having in good faith before maturity acquired the legal title for a valuable consideration in the usual course of business from one capable of transferring it or in possession of the notes with an apparent right of transference and without notice of any infirmity in the instrument, they are holders in due course. Smith v. Livingston, 111 Mass. 342. Massachusetts National Bank v. Snow, 187 Mass. 159. Fillebrown v. Hayward, 190 Mass. 472, 479,480. See R. L. c. 73, § 68. We do not deem it material to refer at length to the dealings between the defendant and the holders of a majority of the capital stock of the company which the defendant, in order to secure control, sought to acquire in connection with and as part of the project to purchase the plant, and to continue the business as a going enterprise. The jury upon conflicting evidence, including the evidence of the company’s secretary and treasurer and the statements of liabilities and of notes and bills payable, which were properly admitted, would have been warranted in finding that Cooper knew of the company’s financial condition and impending insolvency when he exhibited to one Orth, the defendant’s presi — 169 — dent, a paper referred to in the record as the “orange statement” showing the liabilities to be approximately “eleven thousand dollars less.” While the “orange statement” used by Cooper is some thirty days subsequent to the tabulations of the treasurer, no evidence was offered by the plaintiff showing any change in conditions, and any question that the evidence was secondary was expressly waived. The receipt or letter also was to be considered by the jury with all the evidence relating to the placing of the notes with Cooper, and the plaintiff’s third request, that “The letter of November 14, 1914, from Thomas E. Cooper to the defendant, acknowledging receipt of the notes sued upon, is not to be construed as meaning that Thomas E. Cooper would hold the notes in his possession without negotiating them” could not have been given. It further could be found on the testimony of Orth that, relying on the accuracy of the “orange statement,” he had been induced by Cooper to go on with the proposed trade and to indorse the notes in question, which were to be used to retire outstanding overdue notes of the company indorsed by the sellers of the stock. And, notwithstanding the agreement of indemnity and the receipt or letter given by Cooper to Orth, the jury also were to determine whether, as Cooper testified, there had been an unconditional delivery or whether Orth’s evidence was to be followed, that after some imperfections in the title had been discovered by defendant’s counsel, he placed the notes in Cooper’s hands with the express understanding that he was to retain them until the title had been perfected, which never has been done. It follows thatj if the delivery was conditional Cooper himself could not have enforced payment of the notes. Watkins v. Bowers, 119 Mass. 383. Wilson v. Bowers, 131 Mass. 539. Young v. Hayes, 212 Mass. 525, 531. And the plaintiffs’ seventh and eighth requests could not have been given in terms but were properly modified by the instructions, while the ninth request, and requests 9-a and 9-b being founded on assumptions of a partial view of the evidence were denied rightly. The defendant in each case having obtained a verdict under instructions to which no exceptions were saved (Morrison v. Holder, 214 Mass. 366), the final inquiry is whether requests 9-e and 9-d and 10 and 11 were rightly denied. The requests were — 170 — “In no event can the defendant avoid liability on its indorsements on the note or notes sued upon without tendering back to each one of said parties the consideration moving from him, and without putting each one of said parties back in statu quo.” “ There is no evidence in the case that will warrant you in finding that the defendant ever offered to put all of the parties to the agreement consummated on November 17, 1914, back in statu quo.” “The defendant would in no event be entitled to rescind and thus avoid liability on its indorsements, unless it offered to put Thomas E. Cooper back in the same position he was in before the new notes were given to him.” “If you find that Thomas E. Cooper, in reliance on the new notes given him by the defendant, returned to Chadwick and Greenamyer collateral of theirs, which he held to secure their indorsements on the old notes, the tender made by the defendant was not sufficient to entitle it to rescind and avoid liability on its indorsement on the notes sued upon.” The jury could find that within ten days after Cooper received the notes, Orth upon examination of the company’s books was convinced that he had been materially deceived and defrauded as to the financial condition of the company, and thereupon notified the owners of the stock and Cooper that he would not consummate the trade and tendered the certificates of stock to the sellers and made demand on Cooper for a return of the notes. To this demand Cooper replied that he had parted with the notes, but declined to furnish any information whereby the holders could be ascertained. The jury accordingly could say that the notes had been fraudulently put in circulation. The Merchants National Bank in the meantime had received the note sued on from Cooper and had given him credit for the amount. But as Cooper had not drawn against the account before the bank, as the jury could find, had received notice from the defendant of the infirmity of the note, it is not a holder for value and cannot recover. Emerson v. Burns, 114 Mass. 348. Thompson v. Sioux Falls National Bank, 150 U. S. 231. The Continental Trust Company also, as the jury could find, before it received notice from the defendant of the invalidity of the notes declared on, had not given any value therefor, and for reasons just stated it cannot recover. The Bank of Southport of which Cooper was president held — 171 — overdue paper of the Carolina Coast Products Company for which the note in question was exchanged. The history of the financing of the company by the bank when viewed in connection with the evidence of Cooper’s knowledge of the company’s financial resources, and of his desire and purpose to protect the bank’s interest and save it from loss, coupled with the cashier’s evidence, “that he supposed Cooper as president of the bank had authority to exchange the notes,” warranted a further finding that Cooper acted for the bank. If he did, it is chargeable with his knowledge and is not a holder in due course. National Security Bank v. Cushman, 121 Mass. 490. Loring v. Brodie, 134 Mass. 453. Merchants’ National Bank of Gardiner v. Citizens’ Gas Light Co. 159 Mass. 505, 508. Noble v. Joseph Burnett Co. 208 Mass. 75, 83. The case of Corcoran v. Snow Cattle Co. 151 Mass. 74, where the president acted in his own interest and not in that of the bank, is clearly distinguishable. The Palmetto Grocery Company, Incorporated, of which a brother of Cooper was treasurer, and who is described in the evidence as “practically” owning the company and running it holds the remaining note in dispute. The evidence shows that some time in December Cooper sent the note to his brother with a request that he give a check for it. But, upon being informed that this could not be done, Cooper asked for the plaintiff’s note for a like amount payable at the same time, which was given about the middle of January, 1915, in which month Cooper’s personal account in the American National Bank was credited with the proceeds of the note. And when the plaintiff’s own note became due its account at this bank was charged with the amount. It seems plain that the plaintiff gave value for the note, and the judge so instructed the jury, to which instruction the defendant took no exception. Goodwin v. Masseschusetts Loan & Trust Co. 152 Mass. 189, 199. National Revere Bank v. Morse, 163 Mass. 383. But, even if the note was taken for value and before maturity, the jury, as we have said, could find that it had been fraudulently put in circulation. The burden therefore was on the plaintiff to show that on all the evidence it had no actual notice or knowledge of the fraud. Fillebrown v. Hayward, 190 Mass. 472,480. Merchants’ National Bank of Lowell V. Haverhill Iron Works, 159 Mass. 158, 160. If, for the reasons — 172 — stated, the plaintiffs could be found not to have been holders in due course, the defendant was not required to tender to either whatever of value it may have parted with in its dealings with Cooper or to relieve Cooper from any obligations he may have incurred to third parties through his own wrongful acts. O’Shea v. Vaughn, 201 Mass. 412, 423, 424. The judge properly refused to give the rulings requested, and, finding no error of law, the exceptions in each case must be overruled. So ordered.