167 Ky. 560 | Ky. Ct. App. | 1915
Affirming.
The question, submitted for determination upon this appeal is one as’to who is entitled to the right of possession and the owner' of certain street' improvement bonds issued, as provided by sections 3101 and 3102, by the city of Lexington,, Kentucky, and delivered by it to the Central Construction. Company in payment of certain improvements,, which it had made under.,contract with the city, to certain streets therein.' To.properly understand the issues presented it is necessary to make a brief statement of the facts.
The Central Construction Company some time previous to June 6, 1913, had been employed by the L. & N. Eailroad Company to construct a concrete viaduct under the tracks of the railroad company on Jefferson Street in the city of Lexington, and to insure the proper performance of that contract, in accordance with its terms, it executed a bond to the railroad company with the' appellant, Citizens Trust & Guaranty Company, as its surety, the latter company being an indemnity corporation incorporated under the laws of the State of West Virginia, and duly authorized to enter into surety contracts and to conduct its business as such indemnity company in this Commonwealth. Its general agent, and the one through whom this surety contract for the Central Construction Company was procured and executed, was one J. F. Gauvreau, whose office was in the city of Louisville, Kentucky. In addition to the premium of $346.00, which was paid to the agent of appellant, there was delivered to him as such agent by the Central Construction Company, certain street improvement bonds of the city of Lexington, which had been given to it for street improvement work,.amounting in the aggregate to $2,507.00. Shortly thereafter Gauvreau borrowed from the Crawford County State Bank of English, Ind., the sum of $2,200.00, and pledged to it as collateral security therefor the bonds which he had procured from the Central Construction Company in the manner stated. In procuring this loan from the Indiana bank, he employed the services of the appellee, Edwin W. Hays, who was then, and had been for many years,'a stock broker, and as a part of his business would assist persons, who might apply to him, in securing loans and advancements on securities. The note by which Gauvreau procured this money was made payable to himself and was indorsed
.In appellants’ brief, counsel urged what they insist upon as “three legal reasons” why the judgment should be reversed, which are in substance:
■ First. That neither the Indiana bank or E. W. Hays is a bona fide purchaser of the improvement bonds.
Second. ' That the improvement bonds are not negotiable instruments.
Third. That the Indiana bank was at the time of making this loan engaged in business within this Commonwealth without complying with the requirements of the statute, supra, and that it thereby acquired no title unto itself to any of the improvement bonds, and it subsequently could not confer any title upon Hays.
Before considering either of these propositions we will dispose of the contention that appellee had actual knowledge at the time of these transactions of the infirmity of the title of Gauvreau to these bonds, or that he did not hold them as his individual property, but only in trust for the appellant, Citizens Trust & Guaranty Company. Sub-section 56 of section 3720b of the Kentucky Statutes defines what is necessary to constitute such knowledge, as is claimed by appellant, in these words:
“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.”
It is claimed by appellants that the facts as manifested by the proof are sufficient to charge appellees with actual notice under such sub-section. We do not so understand or construe the testimony. Up to the time of the mysterious departure of the general agent of appellant, so far as this record shows, he had borne a good' reputation in the city of Louisville, although he had upon occasions
“Suspicion of defect of title or the knowledge of circumstances which would excite suspicion in the mind of a prudent man, or gross negligence on the part of the taker, at the time of the transfer, will not defeat his title. That result can be produced'only by bad faith on his: part. ’ ’ This rule has often been recognized by this court,it going'so far in the case of Woólfork v. Bank of America, 10 Bush, 504, as to say:
“Neither want of ordinary care nor gross negligence will divest the holder of his title.*’ '
And further, on in the same opinion, quoting from 2nd Parsons on Notes and Bills, it says:
‘ ‘ The title of such a holder (bona fide before maturity) , is not defeated by proof that he was negligent or even grossly negligent in taking the note or' bill, and that he omitted to make inquiries that common prudence dictated. ’ ’ »
To the same effect is the case of McCarty v. Louisville Banking Company, 100 Ky., 4, and the doctrine has lately been reiterated by this court in the very recent case of Farmers Bank of Lynnville v. Boyd, 164 Ky., 548. The contrary doctrine holding that if the purchaser at the time was in possession of facts affecting the title to the paper, which if investigated, would divulge the defects in it, he would be charged with notice of such defects, as first announced in the old English case of Grill v. Cubitt, has long since been discarded, and now has no .place in the law of a commercial paper. As we have previously seen, neither of the appellees had any knowledge of any fraudulent purpose, or attempted fraudulent purposes, of the general agént of appellee, and neither of them was negligent in failing to make necessary inquiries concerning the title which he had to the bonds. We conclude then that they each, are bona fide purchasers of the bonds within the meaning of the law, and are entitled to. protection as such. However, so far as the'appellee, Hays, is concerned, he would be a bona fide purchaser for still another réason. The appellee, Indiana- Bank, was a bona fide purchaser (unless deprived of that position by reason of contentions hereinafter considered), and the law is-well settled that a purchaser before maturity, even with notice, from a bona fide purchaser for value without notice, will be protected against prior equities. Varney
This brings iis to a consideration of the' second reason urged against thé judgment, which is, that the bonds in question are hot negotiable instruments, and that bona fide purchasers of them before maturity take thém subject to all defects and prior equities; in other words, that they are not such instruments as are protected in the hands of an innocent holder by what is known as the Law Merchant at common law, and by our statute- on negotiable instruments. The statute under which these bonds were issued, with reference to them says:
‘ ‘ Such bonds shall be negotiable as inland bills of exchange, and shall be free from, all defences by any property owner.”
As such property owner was not an actual obligor appearing upon the face of 'the bonds, the Legislature intended to not only make them possess all of the characteristics of negotiable’ paper, which, strictly speaking, applies only to the holder of such paper and makers and indorsers thereof, but the statute, went further, and stamped the bonds with the characteristics of negotiable paper, as to the owners of the property, abutting which the improvement was made, and if our negotiable instruments statute should contain anything in it, militating against the negotiability of such bonds (but which is not herein indicated), section 3102 of the statute, excepts such bonds from its operation, because the section referred to, and under which these bonds were issued was enacted in 1910, six years after the enactment of the negotiable instruments act. Moreover, these bonds possess all of the characteristics of a negotiable instrument. They are made payable to bearer, and title thereto passes by delivery, and whatever may be the adjudications of other courts under totally different statutes, we unhesitatingly conclude that these bonds are negotiable instruments, and that -a bona fide holder Of them before maturity for value, and without notice, is entitled to all of the protection which the law throws around the holder of such instruments-.
It is contended, however, in the third reason assigned, that the Indiana bank was, at the time it made the loan to Gauvreau, and at the time these bonds were pledged to it, “doing business” in Kentucky, and that it
Perceiving no error in the judgment appealed from, it is affirmed.