St. Charles Savings Bank v. Edwards

FERRISS, J. This controversy arises upon the following facts, which are not substantially controverted : The plaintiff is a banking institution, located at St. Charles, Missouri. Prom 1890 to 1904 its cashier was one A. P. Mispagel. The appellants, during the year 1903, were engaged in St. Louis in- the grain and stock brokerage business as partners under the firm name of A. G. Edwards & Sons. Prom February 12-, 1903, to November 25, 1903, Mispagel was dealing in stocks and grain on open account with appellants’ firm. Prom time to time, upon request from appellants, Mispagel sent them remittances to apply to his credit on this account. Such remittances, during the pferiocl mentioned, amounted in the aggregate to about $9,500. They were made in the form of checks drawn by the St. Charles Savings Bank, by Mispagel, cashier, on its depository bank in St. Louis, payable to the order of A. G. Edwards & Sons. There were thus remitted sixteen checks at different dates and for different amounts. Of these the following, which differs from the others only as to date and amount, may be taken as an example: ST. CHARLES SAVINGS BANK: No. 7555 St. Charles, Mo. Sept. 30, 1903. Pay to the order of A. G. Edwards & Sons $650.00 (six hundred and fifty dollars.) - To THE MECHANICS’ NATIONAL BANK, St. Louis, Mo. A. P. Mispagel, Cashier. Each and all of said checks were indorsed by A. G. Edwards & Sons, collected by'them, and the pro — 560 — ceeds credited to the individual account of Mispagel current in said stock and grain operations. Each remittance was made in response to a written request addressed to Mispagel personally, and referring to his individual account. The following may serve as an example of the form and general tenor of such letters: St. Louis, Aug. 19, 1903. Mr. A. F. Mispagel, St. Charles, Mo. Dear Sir: Your grain account with us needs $600 at close tonight. Kindly send us your check for this amount, and oblige Yours truly, A. 0. Edwards & Sons. In their written acknowledgments, Edwards & Sons sometimes say “your check” or “check,” received. In several instances the language of the receipt refers to the remittance as the check of plaintiff bank. Thus, on October 14th: “We are in receipt of check No. 7556 of the St. Charles Savings Bank for $700, drawn on the Mechanics’ National Bank here, and have given credit to your stock account for that amount. ’ ’ Mispagel, in various ways, concealed from the bank officials the fact that these cheeks were issued. He was bookkeeper as well as cashier. The bank received no equivalent for them. They were in fact misappropriations by Mispagel of the funds of the bank. No authority, either general or special, is shown in him to draw cheeks in the name of the bank for his individual benefit. Edwards & Sons had no actual knowledge of the fact that Mispagel was misappropriating the bank’s funds. The record further concedes that appellants gave value to Mispagel for the amount of these checks by credit on his account. The — 561 — plaintiff had no interest in this grain and stock account, and was ignorant regarding the entire transaction. Plaintiff sues to recover the amount received by defendants on each draft, the petition containing sixteen counts. The answer denies generally, pleads good faith, and further, that the checks were received in ordinary course. As no question arises on the pleadings, so far as the merits are concerned, they need not be further considered. The ease was tried by the court. Plaintiff asked no instructions. Defendants asked instructions in the nature of a demurrer to each count, which were refused, also instruction number 3, in the following form: ' “The court finds from the evidence that the defendants received the drafts in question from A. F. Mispagel in regular course of business, for full value in good faith, and without any actual knowledge of any fraud or irregularity on the part of A. P. Mispagel in issuing the same.” This was given in the following modified form: “3. The court finds from the evidence that the defendants received the drafts in question from A. P. Mispagel in regular course of its business with him, for full value in good faith, and without any actual knowledge of any fraud or irregularity on the part of A. P. Mispagel in issuing the same.” The following offered by defendants was refused: “4. The court declares the law to be that unless the defendants had actual notice of the fraudulent acts or irregularities of A. P. Mispagel in issuing the drafts in question, then the plaintiff is not entitled to recover upon any draft the basis of any count in its petition, unless the defendants had actual notice of the fraudulent acts or irregularities of A. P. Mispagel in issuing the same.” — 562 — Judgment was rendered in favor of plaintiff for the amount claimed in each count. I. On the threshold of the case respondent objects that there is no proper record before us. We are not disposed to turn an appellant out of court for the sole reason that he has not presented his abstract in proper form, unless the form used is clearly violative of the statute or rules of court. .Here the point made is at least doubtful, and will be ruled against respondent. II. Appellants also,'before reaching the merits, object to the order below allowing respondent to dismiss as to one of the defendants named in the petition, and to amend the petition to adjust it to such dismissal, and this on the ground that such dismissal and amendment changed the cause of action. Appellants also, rather inconsistently, claim that the change to this new cause of action let in the Statute of Limitations, which ran before the amendment was made. We can find no substance in the point. The suit was filed against the appellants and one Peck as partners. Respondent failing to prove that Peck was a member of the firm at the time of the transaction involved, dropped him from the case, leaving the allegation as to partnership in full force as to the remaining three defendants. The cases cited, involving joint contracts, do not apply.. There was no change in the cause of action. III. Appellants contend that they are not liable, because of the fact that they had no actual knowledge of wrongdoing on the part of Mispagel. It is not claimed by respondent that appellants had any notice of infirmity in the title of Mispagel to the cheeks, other than the constructive notice imparted by the checks themselves and the correspondence connected therewith, together with the fact that Mispagel was using — 563 — the cheeks to pay his individual debts.' Appellants earnestly contend that even if, under the earlier decisions, the face of the checks and attendant circumstances were sufficient to give such constructive notice as would invalidate their title, still, since the decision of this court in Hamilton v. Marks, 63 Mo. 167, constructive notice is not enough to impair the title of a bona fide holder for value. They also rely on section 10026 (R. S. 1909) of the Negotiable Instrument law, which reads as follows: “To constitute notice of an infirmity in the instrument or defect in the title of the person negotiating the same, the person to whom it is negotiated must have had actual knowledge of the infirmity or defect, or knowledge of such facts that his action in taking the instrument amounted to bad faith.” We think appellants misconceive the situation in this regard. The “holder” referred to in Hamilton v. Marks and in section 10026 is an indorsee — one to whom the paper has been negotiated by indorsement .by the payee or a prior indorser. True, the checks were negotiable, but when they were delivered to Edwards & Sons they had not been negotiated. Edwards & Sons were original parties to the paper. They were payees therein. All of the cases cited on this point by appellants in the two briefs filed, involve the rights of an indorsee — a holder for value after the paper leaves the hands of the payee. While the paper is still in the hands of the original payee, the “courier” has not started on its career without luggage. In Lamson v. Beard, 94 Fed. l. c. 43, the court, speaking of a similar situation, says: “The drafts were drawn in favor of plaintiffs in error, and until accepted by them they were not contracts, and by accepting them they did not become assignees or purchasers of existing obligations, but simply parties to the original execution thereof, into whose rights the way to full inquiry is open, unless closed by some — 564 — estoppel outside of the paper itself, whatever its form. A primary party to the execution of instruments originated as these were cannot be a ‘bona fide purchaser’ in the sense of the law merchant.” Denying then, as we must, any immunity to appellants based on the negotiable character of the paper, we will examine their position in the light of general principles and authority. It is hardly necessary to say that an agent cannot act both for his principal and himself in a transaction wherein their interest are antagonistic. Such action by the agent is not within the scope of his general authority, and this is known to those who deal with him. Such action by the agent could be validated only by an express authority from his principal, and the burden is upon the agent and upon those who profit by his act, with knowledge of the antagonistic relation, to show such express authority. Mispagel, the cashier, had authority to draw checks in the name of the bank in the course of the bank’s business, but no authority is shown, nor is any to be implied, to draw checks in the name of the bank for his private use and benefit. True, in this case the checks were not payable to him, and did not show on their face that they were drawn for his use, and doubtless an innocent indorsee for value could collect from the bank, but the checks were drawn for his use, and of this fact the appellants had actual knowledge. “With this knowledge, they accepted the checks in payment of his individual debt. They did this at their peril, taking the risk of his authority to so draw and use the checks of his principal. This case is fairly within the doctrine of Lee v. Smith, 84 Mo. 304, where a bank cashier issued certificates of deposit to himself, and delivered them to his individual creditor in payment of his debt, having no funds on deposit against them. This creditor sought to hold the bank, claiming that as he was innocent of — 565 — knowledge of actual fraud, and believed that tbe cashier had funds on deposit, and inasmuch as the certificates were issued by the proper officer, the bank was liable. In denying his right of recovery, this court, said : “It is unnecessary to consider whether the cashier of a bank has authority, as such, to certify the existence of funds in the absence of actual deposits, for no such general authority, if possessed by him, would justify him in certifying his own check, or in issuing, as he did in this case, a certificate of deposit to himself. He could not do this without representing both sides to the transaction, thus perfecting a contract through only one consenting mind, a thing positively forbidden to agents and trustees in every department of agency and trust. The law will not permit an agent’s private interest to come between himself and his principal. Its-actual presence always disables the agent from binding his principal in the transaction. [Claflin v. Farmers’ & Citizens’ Bank, 25 N. Y. 293; Mercantile Mutual Ins. Co. v. Hope Ins. Co., 8 Mo. App. 408; West St. Louis Sav. Bank v. Shawnee Co. Bank, 95 U. S. 557.] Accordingly, when Mr. Alther, as cashier of the bank, certified that Mr. Alther had deposited the money called for in these certificates, and that the bank would pay to his order the amounts so deposited, upon return of the certificates, he undertook to bind his principal in a method forbidden by law. Therefore, these certificates 'were presumptively void upon their face, a fact which must have been apparent to Mr. Lee, or any one else, inspecting them. The plaintiff, on accepting them, could not maintain that he was a bona fide holder without notice of the cashier’s want of authority to bind the bank in issuing them. No implied authority in the cashier could arise from the general course of business in the bank. Nothing short of a subsequent confirmation of them by officers properly — 566 — representing the bank could give to them any force or validity whatever.” The controlling fact in each case is the acceptance of the paper by the creditor in payment of the individual debt of the cashier. The fact that the checks were payable directly to the creditor does not distinguish the eases; nor does the difference in the form of the contract — one a certificate of deposit, the other a check, — have that effect. The cases cited in the foregoing opinion fully sustain the text, and are in point here. To the same effect is the case of Kitchens v. Teasdale Com. Co., 105 Mo. App. 463, where, under facts entirely similar to those in the case at bar, the bank recovered from the individual creditor of the cashier. Appellants ’ counsel contend that the fact appeared in the Kitchens case that the creditor accepted the checks with actual knowledge of the fraud. We think counsel misapprehend the case on this point. Nothing appears in the statement of facts in the Kitchens case to show any knowledge on the part of the creditor, other than that derived from the checks and the transaction itself. The court in its opinion says: “By the medium adopted for the transfer of the money, defendant was apprised that Ritter, by the abuse of his power as cashier, was employing the funds of his principal in speculation on his individual account, and in affairs which from their-nature excluded the possibility of being concerns of the bank. That he was transcending the well known extent of his agency and using the money of his principal in his private transactions was manifest. ’ ’ So what the court says of the knowledge of the creditor means knowledge derived from the checks and the fact that, they were used to pay private debts. Checks cf the same character issued by Mispagel under the same circumstances are involved in the case — 567 — of this same plaintiff against Orthwein Inv. Co., 160 Mo. App. 369. In that case Mispagel was speculating through the Orthwein Company. The Court of Appeals sustained a judgment for plaintiff, and says: “As the drafts were drawn by Mispagel as cashier in favor of the defendant against the account of the plaintiff bank, they disclosed on their face, to one having the knowledge defendant possessed, that Mispagel was exercising his authority as cashier or agent in favor of himself as principal. They were then presumptively void, and the obtention by the defendant of the money on them presumptively illegal, and the burden was on the defendant to overthrow such presumption.” To the same effect in principle is the decision of the Kansas City Court of Appeals in St. Louis Charcoal Co. v. Lewis, 154 Mo. App. 548. In Campbell v. Manufacturers’ National Bank, 67 N. J. L. 301, the receiver of a bank recovered from a creditor of its cashier the proceeds of a draft drawn in the name of the bank by the cashier to the order of the attorney of the creditor, to pay the debt of the cashier in which the bank had no interest. It does not appear that the creditor had any knowledge beyond the facts stated. The court says: “A person cannot deal with the cashier of a bank as an individual in securing’ a draft, and claim, after the draft is delivered, it has become the transaction of the bank. To make the acts of the cashier valid, the 'transaction in which the draft is delivered must be a bank transaction, made by the cashier, within his express or implied authority, in the conduct of the business of the bank. So long as -a person deals with the cashier in a matter wherein, as between himself and the cashier, he is dealing with, or has a right to believe he is dealing with, the bank, the transaction is obligatory upon the bank.” — 568 — Appellants contend that they could presume that Mispagel had paid for the checks, and that he acted rightly. They did know that the agent was acting beyond the limit of his general authority, and that, without special authorization, the checks were invalid. This threw the burden of proof on them. In Claflin v. Bank, 25 N. Y. 293, the president of the bank certified his own check drawn on the bank, and afterwards negotiated it to the plaintiffs in the case. Selden, C. J., says: “The Supreme Court seems to have supposed that to prevent the plaintiffs from being considered bona fide holders they must have known that the drawer had no funds in the bank to meet the check. This was clearly an error. The acceptance was void in the hands of the drawer, irrespective of the question whether he had or had not such funds. The double relation in which Mr. Houghton stood alone rendered it void, and of this the plaintiffs were apprised by the check.” And Smith, J., said: “Houghton had no power to accept his own drafts or checks in behalf of the bank. The act was a palpable excess of authority, and any person taking the paper was bound to inquire as to the power of the agent so to contract.” The case of Lamson v. Beard, 94 Fed. 31 (U. S. Cir. Ct. App.), presents facts identical with those under consideration. There the president of the bank, privately speculating, paid his debts to the commission company with checks of his bank drawn by him to order of his creditor. The bank recovered from the commission company, which had received the checks in payment of the aforesaid private debt of the president. Speaking of the claim made there, as it is here, that such checks or drafts are in constant use without inquiry, and are often' made payable directly to the creditor of the purchaser thereof, the court says: “But in such cases the creditor may accept the draft vwithout inquiry, not, as counsel have said, because of a presumption that the debtor had paid for the draft, — 569 — but because tlie draft had been drawn by the authorized 'officer of the bank in the usual course of business, acting without apparent or known personal interest in the transaction.” And further: “The one thing necessary to be known was whether Cassatt [the president] had authority to make the proposed use of the bank’s paper.” And again; “The drafts bore proof on their face that they were drawn upon the funds of the bank, that they were not drawn in the course of the bank’s business, but in discharge of individual liabilities of the president of the bank to themselves, they, of course, understood. They therefore knew that unless there had been conferred upon Cassatt an unusual and special' authority, like that given the cashier in Goshen Nat. Bank v. State, supra, to sign and issue drafts of the bank in his private transactions, the paper sent them was unauthorized, and that for the proceeds thereof they would be liable to the bank or its representatives.” The court held that it was the duty of the individual creditors of the president, under such circumstances, to make inquiry as to his authority to issue the checks of the bank in payment of his individual debt. To the same effect is Anderson v. Kissam, 35 Fed. 699. The appellants urge that they had a right to presume that Mispagel paid the bank for the checks, and that he acted honestly. The case is not to be settled by presumptions. The primary question which arose upon the face of the transaction was, did the cashier have authority to execute in the name of the bank drafts or checks in payment of his individual debts'? True, if he had paid value to the bank for the checks, plaintiff would not have been injured, and hence could not have recovered; but this contract 'made L" the trustee in the name, and on behalf, of his principal, for his own benefit, was, in the hands of the appellants who accepted it with knowledge of such fact, prima facie invalid as against the principal. The burden was — 570 — therefore upon them to show that these special contracts were authorized, or that the bank had received full value. Appellants also urge the rule that where one of two innocent parties must suffer by the acts of a third, he who enabled such third party to occasion the loss must sustain it. That rule has no application here. It will hardly be urged that every employer is within this rule, merely because of the fact of employment. It is not shown that the bank did anything which would relieve appellants from the obligations which we have ruled were imposed upon them by this transaction. Again, under the views herein expressed, the appellants, although innocent of knowledge of actual fraud, cannot be said to be innocent parties in a legal sense and within the meaning of the rule herein invoked. The able counsel for appellants will not claim that one is an innocent party in the sense under discussion, merely because he innocently acted in ignorance of his legal duty. One thing the appellants knew which we think they might safely have assumed the bank did not know, namely, that the cashier was speculating in grain and stocks. This case is a hardship on appellants, who, aside from their commissions, doubtless profited nothing in the transaction, but we cannot for this reason relax the rigorous and wholesome rule of law which renders suspicious, and worthy of inquiry, every contract which an agent assumes to make for his own exclusive benefit in the name of his principal. The record is in some respects somewhat meager, but it justifies the judgment below, which is affirmed. Brown, P. J., and Kennish, J., concur.