Pond v. Waterloo Agricultural Works

Seevers, J. I. On or about the 28th of July, 1873, the board of directors of the corporation defendant passed the following resolution: * * * “that it is expedient and it is hereby authorized by this board to create a loan on the real estate of the company, secured by mortgage, for a sum sufficient to pay the present indebtedness of the company as taken from their books, and that the president and secretary be authorized to negotiate said loan on the best terms to the company, and at a rate of interest and commission not exceeding twenty per cent. In case of said loan being taken to execute a mortgage for the same, and in case of a failure to negotiate such mortgage, to notify this board accordingly.” One Crittenden was the treasurer of said corporation, and on the 7th day of August, 1873, he informed the president thereof that he had negotiated the loan contemplated by the resolution with Edmund Miller. Thereupon the president and secretary of defendant executed eight promissory notes, of three thousand dollars each, payable to Edmund Miller or order, at certain specified dates thereafter, with ten per cent interest from date. Said notes provided in case suit was brought thereon that a reasonable attorney’s fee should be allowed and taxed as a part of the costs. To secure such notes a mortgage was properly and legally executed to Miller on the real estate of the corporation. The president, after signing the notes and executing the mortgage, left them with Crittenden, with directions to be sure and get the money before he permitted them to go out of his possession. As a matter of fact, Crittenden had not negotiated any loan of or with Miller; he, however, took the — 598 — notes and mortgage, and left them with Miller, taking his receipt therefor, which stated they were to be “negotiated according to the instructions of Crittenden.” But on the same day, and a few hours afterward, Crittenden returned and got the notes and mortgage of Miller, and the latter took up his receipt. At Crittenden’s solicitation, Miller indorsed the note's in blank, except that he wrote above his name “Without recourse to me.” There is some evidence tending to show there was some disagreement on this last occasion between Miller and Crittenden, the latter at least making some display of ill feeling toward the former in relation to the loan; but the evidence on this subject is very indefinite. While the evidence is not as clear and certain as it should be, we, however, strongly incline to believe that in the whole transaction with Miller, and the one subsequently with plaintiff, Crittenden was acting fraudulently, and in disregard of the rights of the corporation ; but we are unable to find any evidence tending to show that Miller had any knowledge thereof. Under these circumstances we regard it as entirely clear, if Miller had advanced money on the notes and mortgages, that his title to them would have been clear and perfect. The plaintiff claims, however, to be the owner of one of said notes, and it becomes necessary to determine his rights, which we proceed to do. 1. promissohy ütes?fflof offieer. II. On the day of its execution Crittenden delivered the note to the plaintiff with the indorsement of Miller thereon, as before stated, it being payable on the 1st day of March, 1875. The plaintiff gave Critten¿en therefor his note, payable one day after date, for one thousand five hundred dollars; but this was intended as a memorandum of the transaction, more than anything else, until the plaintiff could go to his home and get some money. The actuai transaction was that plaintiff should pay Crittenden one thousand and fifty dollars in cash, and receipt an account for three hundred-dollars he had against the cor — 599 — poration, which he did within a day or two after receiving the note, and give his two notes for seven hundred and fifty dollars each, payable in six and nine months. These last notes were never paid, but were afterward surrendered to the plaintiff, and the same credited on the note sued on. The manner or reason of such return of the notes in no way affects the plaintiff’s right to recover for the money actually paid. The plaintiff, at the time he got the note, was a stockholder, director, and member of the executive committee of the corporation. He had knowledge of the resolution, and that the secretary had reported to the directors that the indebtedness of the company was fifteen thousand dollars, and claims he purchased the note instead of making a loan to the corporation. He so testifies; but this is a legal conclusion, or at least of that nature. The true question is whether, under all the circumstances, it can be so regarded. The plaintiff further testifies Crittenden informed him “that under the instructions given by that resolution the committee had made a mortgage” and notes, * * * * * “and had succeeded in placing them all but one, and that he wanted me to take. ” Thereupon he paid the money as above stated, receipted the account and received the note. Crittenden being the treasurer of the company it could not be regarded as strange he had possession of the notes. And while it is true (indorsed, as they were, by Miller) he might be regarded as holding them in the capacity of an individual banker, still we think the plaintiff had sufficient knowledge they were held by Crittenden in his official capacity, and that he was then acting in such capacity for the corporation. The plaintiff must necessarily have so understood from the language used by Crittenden as to the placing of the loan. Besides this, the fact of the acceptance of the account against the company as money has a significant bearing on the point mow under consideration. The transaction must be regarded — 600 — as a loan to the defendant, and we think the plaintiff, at the time, must have so understood. But the defendant insists the plaintiff cannot be regarded as a good-faitli holder, and, therefore, is not entitled to recover on the note and mortgage. To charge the holder of a negotiable promissory note with notice of infirmities, he must have been guilty of something more than mere negligence in taking the note. Indeed gross negligence, it is said, is not sufficient, and that nothing but fraud is sufficient to destroy the character of the holder as one who acted in good faith. Gage v. Sharp, 24 Iowa, 15; Lake v. Reed, 29 Iowa, 258; Collins v. Gilbert, 94 U. S., 753, where the authorities bearing on this question are largely collected and referred to by Clifford, J. Tested by this rule, what are the facts which it is claimed are sufficient to charge the plaintiff with notice of the fraud of Crittenden, and which infirmities make him a holder in bad faith ? As the plaintiff is in possession the burden is on the defendant. The resolution, it is urged, provides the loan was to be negotiated by the president and secretary. True, but it does not necessarily follow they could not employ another to make the actual negotiation. All that was intended was that it should be made under their supervision. What mattered it to the defendant who made the negotiation, if the money were obtained according to the terms of the resolution. Certainly a matter of mere form like this should not have the effect to vitiate a transaction otherwise executed in strict accord with the power. The president testifies Crittenden informed him he had negotiated the loan of Miller. Whereupon the president and secretary, without inquiry as to the truth of what Crittenden had said, executed the notes and mortgage and left them with Crittenden, “to be kept in his safe until he got the money on them.” Crittenden, therefore, was rightfully in possession, with — 601 — power to negotiate with Miller; at least, there is no evidence •tending to show that the plaintiff had any knowledge whatever of the Miller transaction, or of the instructions of the president other than what Crittenden informed him. The plaintiff knew Crittenden was treasurer of the defendant; he knew of the resolution, and found the notes and mortgage purporting •to be executed in pursuance of the resolution in Crittenden’s hands as such treasurer, and he gave Crittenden the amount •of money before mentioned and received the note. Suppose that the plaintiff had given Crittenden three thousand dollars in cash and received the note; could it be suceesfully claimed he should not recover? Now the actual transaction is in no wise different from this, unless fraud or bad faith can be inferred therefrom. It is urged the mortgage was to be negotiated before the loan was effected. This is mere form, and must be so regarded. The thing to be accomplished was to obtain a loan of money, and it could make no possible difference whether it was obtained before or after the mortgage was executed. It is insisted the plaintiff knew the secretary reported the indebtedness to be fifteen thousand dollars. This is true, but does the fact that notes were executed for twenty-four thousand dollars have any tendency to show he is not a holder in good faith. We think not. He had no personal knowledge of the indebtedness, and the resolution does not state the amount io be borrowed. The plaintiff might, therefore, well suppose the necessities of the defendant had been found to be greater than was anticipated. There is no pretense that the president acted fraudulently in executing notes for the amount he did,, or that he intended any wrong in leaving them with Crittenden. On the contrary it seems to be conceded on all hands he acted in the utmost good faith. We are unable to find that.any one acted in bad faith except ■Crittenden. The testimony fails to show otherwise. If the real fact is otherwise it is the defendant’s misfortune. — 602 — The amount of the plaintiff’s recovery remains to be determined. III. That the plaintiff is entitled to recover one thousand three hundred and fifty dollars must be conceded. Whether he can recover anything more depends on the-question whether the loan is tainted with usury. The note bore ten per cent interest from date, and is for three thousand dollars. It is not claimed that plaintiff gave Crittenden more than two thousand eight hundred and fifty dollars, including his own notes. The transaction is, therefore, usurious unless it is brought within the rule established, in Gokey v. Knapp, 44 Iowa, 32. In that case it was held when an agent loaned money at usurious rates it would not be presumed he had authority to. make the loan on such conditions, and as the principal did not authorize such a rate of interest to be taken the loan as to him was not tainted with usury. There is no such question here. The plaintiff made the loan in person, and under the guise or name of commission exacted more than ten per cent interest per annum. This cannot legally b& done. The plaintiff is entitled to a judgment for one thousand three hundred and fifty dollars, without interest or costs, and a foreclosure of the mortgage and a judgment must be-entered against the defendant in favor of the school fund, as. provided by law. IV. The District Court found the plaintiff was the owner of two thousand dollars of the stock of the defendant, on which only four hundred dollars had been paid. It is insisted the court below should have made some provision in the decree by which the plaintiff could be compelled to pay for said stock, out of the money found due him, and as said court failed to' do so we are asked to render such a decree. The defendants took no appeal,, from that part of the decree. On the contrary, expressly excepted so much of the decree as related to the stock from the appeal; nor did the plaintiff appeal from that or any other portion of the decree. That — 603 — part of the decree is not, therefore, before us. We are able to give the defendants all the relief they are entitled to on the appeal taken and pending before us, without in any manner interfering with that portion of the decree below relating to the stock. The cause will be remanded to the District Court with directions to enter a decree in accordance with this opinion. Modified and affirmed.