Citizens' National Bank v. Hooper

Alvey, J., delivered the opinion of the Court. This is an action of trover brought by the appellant against the appellees to recover the value of a promissory — 97 — note for $5000, which had been pledged to the appellant by a certain James A. Hooper, as collateral security for a loan of money obtained by him. The note was made by the appellees, payable to their own order at four months, and by them indorsed in blank, and in that condition they delivered it to James A. Hooper, a note and bill broker, to be sold for their account, with instructions not to sell it at a greater rate of discount than five and a half per cent, per annum. James A. Hooper attempted to sell the note to the appellant at the rate of discount fixed by the makers, but as the appellant was not willing to buy it at a rate of discount less than six per cent, per annum, the attempt failed. Afterwards James A. Hooper obtained a loan from the appellant of $5000, on his own account, and deposited the note in question as collateral security therefor; and the day after this loan the note was allowed to be withdrawn from the bank by James A. Hooper, to be disposed of by him, but with the understanding and agreement, as alleged by the appellant, that he should hold the note as the property of the appellant if not sold on the day he obtained it, and in case he did sell it, he would return the proceeds of sale to the appellant on the same day. The note was not sold by James A. Hooper, nor was it returned to the bank; but he returned it to the appellees, by whom it was destroyed. On the day the note was withdrawn from the bank James A. Hooper failed, and he afterwards went into bankruptcy. And upon all the facts of the case the questions are, 1st, whether the appellant, in accepting the note as collateral security for the loan to James A. Hooper, acquired a good title thereto as against the appellees? and 2ndly, if a good title was acquired, whether it was not lost by the surrender of the note to James A. Hooper, under the circumstances in proof? — 98 — At the trial below, upon all the proof produced, the appellant offered three prayers for instruction to the jury, and the appellees' offered ten. Of those offered by the appellant the Court granted the first and rejected' the other two; and of those offered by the appellees the second and tenth were granted and all the others rejected. The appellant excepted to'the rejection of its two prayers, and the granting of the two on the part of the appellees; and whether the Court was' right in its rulings on these four prayers we are now required to determine. The second and third prayers of the appellant presented substantially the same-question, only varied in the form of stating it. By the first =of these the Court was asked to say to the jury, that in order to affect the title of the bank to the note in controversy, it was necessary to show that it acted in bad faith in taking the note from James A. Hooper, and that there was no evidence in the case legally sufficient to show such bad faith; and in the next, the Court was prayed to instruct that there was no evidence in the case legally sufficient to show that the bank, at the time of making the loan mentioned in the evidence, had knowledge or notice of any limitation of the authority of James A.' Hooper to deal with the note in question. It is certainly true, if a bank or other party take a negotiable hill or note before maturity, for consideration and without mala ftdes, such party acquires a good title, notwithstanding there may have been negligence; and gross negligence even, while it may be evidence of mala fides, will not alone be sufficient to defeat the plaintiff's title. This is now the settled principle in England, and, generally, in this country, and it has been fully adopted in this State. In the recent case of Maitland vs. Citizens’ National Bank, 40 Md., 540, 568, where this question was last under consideration, this Court declared that nothing less than proof of knowledge of facts that showed the want of authority of the party transferring the note would be — 99 — sufficient; that the plaintiff was not bound to make inquiry, and mere negligence, however gross, not amounting to wilful and fraudulent blindness, while it would be evidence of mala fides, was not the same thing. And it. can make no difference, in the application of the principle, that the bill or note is only pledged as collateral security, and not absolutely and unconditionally transferred ; for, in such case, the pledgee acquires a property in the bill or note, and is not liable in trover, to the real owner, as in the case of goods improperly pledged. Collins vs. Martin, 1 Bos. & Pul., 648; Treuttel & Wurtz vs. Barandon, 8 Taunt., 100; Byles on Bills, 126.* Therefore, if the note in question was deposited with the appellant as collateral security by James A. Hooper, without knowledge or mala fides on the part of the appellant, as to the want of authority in James A. Hooper so to deal with the note, it is clear, the appellant acquired good title to the note as against the appellees; and the present action would be maintainable, provided the appellant did not, by any subsequent dealing, relinquish the title thus acquired. But the question is, on the prayers of the appellant, whether there was evidence legally sufficient to be submitted to the jury from which they could find that the appellant had knowledge, at the time of the transaction, that the note did not belong to James A. Hooper ; for if the appellant had such knowledge the note was not taken bona fide and no title, as against the appellees, was acquired by the pledge. And, upon careful examination of the evidence as set out in the record, we think it was legally sufficient to be submitted to the jury upon the question of notice. Mr. Guest, the appellant’s cashier, proved, that on the 16th of March, 1875, James A. Hooper, who was well known to the appellant to be a stock and bill broker, whose business it was to sell paper for other people to — 100 — those who would buy, and who was well known at the time to be insolvent, and against whom the bank had a large, debt which had been charged off to profit and loss, “offered us,” to use the language of the witness, “a note for $5000, for sale, at the rate of five and a half per cent, per annum. I declined to buy it at that rate, but offered to buy it at the rate of six per cent, per annum. Afterwards, and on the same day, he applied for a loan of $5000 on that note, and a $100 bond, as security. We agreed to let him have the loan, and the sum of $5000 was passed to his credit. The note was a note for $5000, signed by Wm. E. Hooper & Sons, drawn in blank or payable to their own order, and by them indorsed in blank. The next day, the 17th of March, the note and bond were returned to James A. Hooper, on an understanding had before with him, that whenever collaterals were so deposited, they might be withdrawn by him next morning, he agreeing if his account was short at 3 o’clock, to replace the collaterals or their proceeds.” Mr. Guest further testified, that, on the day of James A. Hooper’s failure, being the 17th of March, he inquired for the note, and he says : “ I told him I supposed the note belonged to Wm. E. Hooper and Sons, or £ you got it from them,’ or to that effect, but he made no answer.” And again, the same witness states, that his impression was that Wm. E. Hooper & Sons had limited James A. Hooper in the sale to six per cent., and that he wanted to sell at five and a half to make the one-half per cent, commission. And in addition to this, the.same witness states, that the entire bank account against James A. Hooper, including the loan on the 16th of March, 1875, was proved in the proceedings in bankruptcy as an unsecured debt. These facts and circumstances, bearing upon the question, were elicited from the witness of the appellant, and that witness himself the officer of the bank with whom the transactions were had. But James A. Hooper was produced and examined as a witness for both sides ; and in his — 101 — examination by the appellees, he testified that he offered to sell the note to the appellant a day or two before his suspension, and that Mr. Guest, the appellant’s cashier, offered to buy it at the rate of six per cent, per annum. He says, “ I told Mr. Guest I was limited to five and a half and I could not sell it at six; and that, of course, Mr. Guest knew that if I held the note myself I could not be limited in price. Mr. Guest knew the character of my business.” This witness disproves entirely the existence of any contract or arrangement for the return of the collaterals or their proceeds. With this evidence in the case, we think the Court below committed no error in rejecting the two prayers of the appellant. While the evidence did not go to the direct proof of knowledge as to the real ownership of the note at the time of its deposit with the bank, yet the circumstances are strong from which a jury might find the fact of such knowledge ; or, at any rate, they could well conclude that the appellant had knowledge at the time of the deposit of the note that it was not the property of James A. Hooper, to whom the loan was made. The note was placed in the hands of James A. Hooper to be sold for account of the makers and indorsers ; and, as we have already stated, if the appellant knew that the note was not the property of James A. Hooper, the taking of the note by way of collateral security for a loan to the agent imparted no title as against the principal. Treuttel & Wurtz vs. Barandon, 8 Taunt., 100. And now, turning to the prayers of the appellees which were granted, we find no error in them. The second prayer put the plain proposition, and that only, which we have just stated, in reference to the effect of notice upon the title acquired by the pledgee. In regard to this we think there ought to be no question. Nor is the proposition involved in the appellees’ tenth prayer, also granted, less free from doubt. Indeed, we do not understand it to — 102 — be seriously questioned by tbe appellant’s counsel. It is a well established principle that possession is necessary to perfect a title by pledge, and it is equally well settled that the delivery back of the possession of the thing pledged, by the act or with the consent of the pledgee, terminates his title, unless it be delivered back for a temporary purpose only, or to the pledgor to be held in a new character, such as special bailee, or agent. Sto. on Bailm., sec. 299. “ If the pledgee,” says the author just referred to, “ yields up the possession of the pledge to the pledgor, or consents that the latter shall alienate it, or pledge it to another person, either of these acts will amount to a waiver of his right to the pledge.” Sto. on Bailm., sec. 864. This is the single principle embodied in the appellees’ tenth prayer, and it is abundantly supported by authority. (Decided 13th June, 1877.) In conclusion we may say, that by the several prayers which were granted, it would appear that the jury were fully and fairly instructed as to the law of the case, and upon review we discover nothing for which the judgment should be reversed. Judgment affirmed.