Exchange National Bank v. Steele

Smith, J., (after stating the facts). Notwithstanding the reservation of title in the note herein set out, this was a negotiable note. It was an unconditional promise to pay a sum of money named and the recital of the consideration for which it was given, and the security reserved to insure its payment, did not destroy its negotiability. There was no option for the payment of anything but money and the reservation of title to the mules merely furnished a security for its payment which did not affect its negotiability. Third Nat. Bank of Buffalo v. Spring, 63 N. Y. Supp. 410. The rule in such cases and the reasons therefor are stated and discussed in the opinion in the case of Farmer v. Bank of Malvern, 89 Ark. 132. It is well settled in this State that one who takes negotiable paper before maturity as security for a debt, without notice of any defect, receives it in due course of business and is a bona fide holder. Exchange Nat. Bank v. Coe, 94 Ark. 387; Haldiman v. Taft, 102 Ark. 45, 143 S. W. 112; Miles v. Dodson, 102 Ark. 422, 144 S. W. 908. In this case, therefore, the bank’s right of recovery can be defeated only upon the theory that Steele had the right to make the payment to Eagle & Co. In the case of Koen v. Miller, 105 Ark. 152, 150 S. W. 411, it was said: “If the maker of a negotiable note pays the same to the payee, who is not the holder, he is not discharged from his obligation to the holder without showing that the payee was authorized to receive payment or that the holder led him to believe that he was so authorized.” And to the same effect is the case of Block v. Kirtland, 21 Ark. 393. But appellees insist that the facts of this case bring them within the exceptions stated in the Koen case, supra. We have quoted the evidence upon that subject, and when we have given it its highest probative value, in appellee’s favor, we think it insufficient to support the finding that Eagle & Co. was authorized to receive this payment or that the bank bad led appellees to so believe. There, is nothing in this'proof which would charge the bank with any knowledge that Eagle & Co. were making any collections for it or that they were taking any action in regard to the collateral notes not consistent with their use as collateral. The undisputed proof is that Eagle & Co. did a very extensive business and handled large sums of money and did only part of their banking business with appellant. The inference is unsupported by any legal evidence that the bank had any knowledge that Eagle was assuming to collect any of these collateral notes as appellant’s agent. The facts in the case of the State Nat. Bank of St. Louis v. Hyatt, 75 Ark. 170, are almost identical with the facts in the case at bar, and the reasoning of the court there applies with full force here, and the court there, speaking through Justice Reddick, said: “The fact that a note is made payable at a particular bank does not of itself make the bank the agent of the payee or holder to receive payment and payment to a bank of the amount due on the note made payable there, when the bank does not have posses-' sion of the note or authority to collect it, does not discharge the maker, for under such circumstances the bank will be treated as the agent of the maker and not the holder. ’ ’ Appellees insist that this case is similar to and should be governed by the rule announced in Ladenberg v. Beal-Doyle Dry Goods Co., 83 Ark. 440, but a study of the facts of the two cases show their dissimilarity. In the Ladenberg case the court found that the jury was warranted in finding from the evidence that the agency, if unauthorized, had been ratified, while under this evidence there is no question of ratification. There could be no safety, nor security, for a bank in lending money if its permission to its debtors to redeem particular collateral by paying the face value of such collateral should be held to be either a grant of authority to the debtor to collect other collateral, or a ratification of the debtor’s act in doing so. Transactions like those between appellant and Eagle & Co. are common and the conflict between their interests is such that no presumption of agency can be indulged, for if so, the value of the collateral as such would be destroyed and had as well be returned, for the bank then would have no protection except the sense of honor of its debtor. And we think the proof here was insufficient to warrant the submission of the question of agency to the jury. In fact, the issue of agency was not raised in the pleadings until after the conclusion of the evidence, when, over appellant’s objection, appellees were permitted to amend their answer by setting up that Eagle & Co. were appellant’s agents. The judgment of the court is therefore reversed and the cause remanded.