| Conn. | Dec 17, 1886
Lead Opinion
(After stating the facts.) As this case was commenced before the practice act went into operation the pleadings are under the old practice. The defendant denies the matters alleged in the declaration, and gives notice, in substance, that it will prove that the treasurer of the defendant corporation was not authorized to accept these drafts, that the drafts being solely for the accommodation of the drawer the company itself under its charter and by-laws had no power to accept them, and that the plaintiff is not a bond fide holder for value.
The defendant’s notice alleges that these bills were not accepted by the defendant, or by or with its authority or consent, but were accepted by one of its officers without authority and contrary to the provisions of its by-laws, of which the plaintiff had notice.
It is not contended that the treasurer had no power under any circumstances to accept any draft; for the votes of the directors and the course of dealing by the defendant clearly show that he had such power; but it is claimed that under the circumstances he had no power to accept these particular drafts. Obviously the authority or want of authority in the treasurer to accept these drafts depended not upon the nature of the act but upon the attending facts and circumstances. That he had power to accept drafts under some circumstances is not denied. Hence, if they were drawn on account of the defendant’s business, or to draw out of its treasury money which belonged to A. B. Stock-well, the power of the treasurer to accept them would be conceded. But the strength of the defendant’s position in this part of the case lies in the fact that the defendant was not owing Stockwell, and the money was not wanted for any purpose connected with the defendant’s business. As between the Stockwells, or either of them, and .the defendant, the acceptances were unauthorized and void; but, as between the plaintiff and the defendant, the answer to the question we are considering hinges upon the answer to another question,—is the plaintiff a bond fide holder for value ?
A preliminary question of some importance which bears directly on this question is—on whom was the burden of proof ? In the pleadings the defendant assumes that burden ; and properly so upon principle. The drafts apparently may be for a legitimate purpose. As there is some presumption that all parties act properly and within the scope of their powers, the plaintiff establishes a primd facie case when it presents the drafts duly drawn and accepted, there being no circumstances indicating fraud or illegality. And so are the authorities. Edwards on Bills, 686, 689; Daniel on Negotiable Instruments, 626, 662 ; 1 Parsons on Notes & Bills, 255.
It is insisted that the plaintiff does not sustain to this defendant the relation of a bond fide holder for value, for the reason that the drafts were indorsed and negotiated by the plaintiff before they were accepted; and that therefore the plaintiff parted with nothing of value upon the credit of the acceptances. In support of this position the case of Farmers’ & Mechanics’ Bank v. Empire Stone Dressing Co., 5 Bosworth, 275, is cited. We are unable to accept that decision as a correct exposition of the law. The Court of Appeals says of that case, in the case of Heuertematte v. Morris, 101 N. York, 63:—“ It is true that some expressions of the learned judge writing in that case may justify the citation, yet it should be considered that those remarks were unnecessary to the decision of the case, and the same court
It is not therefore true that the purchaser of a bill before acceptance trusts wholly to the credit of the drawer. He believes and expects that the drawee will accept; and upon such belief and expectation he acts. When Stock-well presented these bills to the plaintiff, he contracted that the drawee would accept and pay them. Upon that, promise the plaintiff relied.
The reply to Heuertematte v. Morris is, that in that case the acceptor was an individual and not a corporation; so that no question arose as to the validity of the acceptance. But the validity of the acceptance is not the question we are now considering. We have already endeavored to show that the acceptance in the case at bar bound the corporation as to a bond fide holder for value. The precise question now is—whether a person who receives an accommodation bill before acceptance, no new consideration moving from him to the drawee, can avail himself of a subsequent acceptance. In Farmers’ & Mechanics' Bank v. Empire Stone Dressing Co., 5 Bosworth, 275, it was held that he could not. In Heuertematte v. Morris, 101 N. York, 63, it was held that he could. The latter case was put upon the broad ground that the former was not law; and not upon any supposed dis
In Arpin v. Owen, 140 Mass., 144" court="Mass." date_filed="1885-10-23" href="https://app.midpage.ai/document/arpin-v-owens-6421775?utm_source=webapp" opinion_id="6421775">140 Mass., 144, the court say:—“ It is immaterial when an acceptance is made; it may be made at any time, and the rights of the payee and of the indorsee are the same after it is made, whether they were acquired in anticipation of it or subsequent to it.”
These drafts were indorsed and sold by the plaintiff, and the avails were paid over to A. B. Stockwell. Stockwell paid the money so received to Hume Webster & Co. So far the transaction on its face is free from suspicion. It is not claimed that any fraud or illegality is found in terms. The most that can be claimed is, that there are certain circumstances in the case from which fraud may be inferred. Those circumstances are that Stockwell had been previously speculating in stocks with the knowledge of Webster; that in doing so he had become largely indebted to Hume Webster & Co., a firm in which J. Hume Webster was a partner; that J. Hume Webster was the agent by whom the plaintiff indorsed and sold these drafts; and that the money received therefor was in a short time paid over to Hume Webster & Co. in part liquidation of Stockwell’s indebtedness to that firm.
But these circumstances are not, in law, equivalent to fraud. At one time in England the question was held to be whether the plaintiff had taken the bill under circumstances which ought to have excited the suspicion of a prudent and careful man. Gill v. Cubitt, 3 Barn. & Cress., 466. After-wards the rule was so far modified as to require gross negligence. Crook v. Jadis, 5 Barn. & Adol., 909. Later still gross negligence was held to be evidence of mala fides merely, and not the thing itself. In Goodman v. Harvey, 4 Adol. &
In Swift v. Tyson, 16 Pet., 1" court="SCOTUS" date_filed="1842-01-25" href="https://app.midpage.ai/document/swift-v-tyson-86188?utm_source=webapp" opinion_id="86188">16 Peters, 1, Story, J., says:—“ There is no doubt that a bond fide holder of a negotiable instrument for a valuable consideration, without any notice of facts which impeach its validity as between the antecedent parties, if he takes it under an indorsement made before the same becomes due, holds the title unaffected by those facts, and may recover thereon, although as between the antecedent parties the transaction maybe without any legal validity.” “ Notice of facts which impeach its validity ” means knowledge of those facts. Goodman v. Simonds, 20 Howard, 343; and by “ facts ” is intended facts which of themselves impeach the transaction,—in this case fraud, and not other facts which tend to prove fraud or which excite suspicion. Goodman v. Simonds, supra. And such is the law of this state. Brush v. Scribner, 11 Conn., 388" court="Conn." date_filed="1836-06-15" href="https://app.midpage.ai/document/brush-v-scribner-6574984?utm_source=webapp" opinion_id="6574984">11 Conn., 388. We think that is the law of this country; at least we are aware of no contrary decision.
“ But it must still be true,” as is said in 1 Parsons on Notes & Bills, 259, “that while gross or even the grossest negligence is a different tiling from fraud, the negligence may be such, and so accompanied, as to afford reasonable and sufficient grounds for believing that it was intentional and fraudulent.” By this we apprehend that no more -is meant than that the evidence may be so strong as to justify the court in finding fraud; and applies only to courts that pass upon both questions of fact and law, and has no application to this court, which must take the facts as they are found by the court below.
It may be further claimed that the fraud here contended for is not the fraud of antecedent parties to the bills, but fraud, if it exists, to which the plaintiff itself is a party; and that if the facts and circumstances establish fraud with
There are certain facts essential to the conclusive character of this evidence, which are wanting; and their absence is significant. It is not found that Webster knew that Stockwell had no funds in the defendant’s treasury against which these drafts were drawn. If Stockwell had in fact had funds there, that would have effectually repelled any imputation of fraud. Webster’s knowledge of the purpose of the drafts, a previous agreement even with Stock-well that the avails should be paid to Hume Webster & Co., would have been of no consequence. So also if he really believed that the bills were drawn against funds. That he did so believe is probable, as certain undisputed facts afford a reasonably good foundation for such a belief. For about three years Webster had known and had business dealings with Stockwell. Within a period of four months immediately preceding this transaction the plaintiff indorsed and negotiated drafts by Stockwell on the defendant for $75,000. Two days after the drafts in suit were negotiated, it indorsed and negotiated drafts by and on the same parties for $30,000 more. All these drafts were in fact accepted by the defendant and paid at maturity.
In December, 1876, when Stockwell presented to the plaintiff drafts to the amount of $45,000, he in legal effect represented that he had funds in the defendant’s hands; he virtually pledged his honor and reputation as a business man that it was true. When the defendant accepted those drafts it admitted that those representations were true. The same representations were repeated by the parties in Febru
It is not found that Webster knew that the drafts were drawn for the purpose of raising money to pay to Hume Webster & Co. If he had not such knowledge how could he be justly chargeable with a fraudulent intent ?
Again. There is no finding that Stockwell was then in poor credit, or that Webster or Hume Webster & Co. supposed that they were in danger of losing by him. Hume Webster & Co. had, in the space of about one month, paid his checks to an amount exceeding $100,000. The plaintiff, during the same month, indorsed his drafts to the amount of $75,000. These facts afford some ground for believing that both parties regarded him as trustworthy. If they did, pray what reason had they for colluding with Stockwell for the purpose of drawing money illegally and unjustly from the defendant ?
Moreover, the circumstances relied on as showing fraud are in themselves weak and will hardly justify, much less require, the inference claimed for them.
We may add that if bills of exchange, which are supposed to be the highest type of negotiable instruments, can be successfully impeached by such circumstances as exist in this case, the integrity of all such instruments must be seriously impaired, and their usefulness as a circulating medium well nigh destroyed.
In the next place, it is claimed that the plaintiff is not a bond fide holder because the defendant’s treasurer had no power to accept accommodation drafts, that the corporation itself had no such power, and that the plaintiff was bound to take notice of the powers of a corporation and its officers, and of the extent of their authority.
On account of the complex character of this proposition it can only be properly considered by treating each branch of it separately. We may admit generally that the treas
We pass now to the second branch of the proposition— that persons dealing in commercial paper of a corporation are bound to take notice of the extent of its power. Here too we may properly admit that the proposition is a correct one ; but care should be exercised in its application not to extend it beyond its appropriate limits. To clearly understand those limits a distinction is to be ohserved between the terms of a power and the circumstances under which it is exercised. Parties may well be required to take notice of the former; but to require them to have knowledge of the latter would in many cases result in gross injustice. Especially is this so where the agent or officer of the corporation which exercises the power, at the same time represents the corporation, and speaks for it in giving information as to the circumstances under which it is exercised. No better illustration is needed than the case at bar. The treasurer of the defendant was the officer specially authorized by vote of the directors to accept bills of exchange; at the same time by virtue of his office, he was the person held out by the corporation as the proper one to inform holders whether the drawer draws against funds. The corporation virtually says—“you may safely trust the word of our
An instructive and very interesting case on this subject is The Farmers’ & Mechanics’ Bank v. The Butchers’ & Drovers’ Bank, 16 N. York, 125. The defendant’s counsel cite that case and quote from it this sentence—“ One who deals with an agent has no right to confide in the representation of the agent as to the extent of his powers.” The court however clearly recognise the distinction to which we have adverted,—namely, between the terms of a power, and extrinsic facts, which may or may not, according to the circumstances, affect the rights of third persons when the power is exercised. That was an action on a certified check. The defense was that the bank had no funds of the drawer. Immediately following the sentence quoted the court uses this language:—“If therefore a person, knowing that the bank has no funds of the drawer, should take a certified check, upon the representation of the cashier or other officer by whom the certificate was made that he was authorized to certify without funds, the bank would not be liable. But in regard to the extrinsic fact, whether the bank has funds or not, the case is different. That is a fact of which a stranger, who takes a cheek certified by the teller, cannot be supposed to have any means of knowledge. Were he held bound to ascertain it, the teller would be the most direct and reliable source of knowledge, and he already has his written representation upon the face of the check. If, therefore, one who deals with an agent can be permitted to rely upon the representation of the agent as to the existence of a fact, and to hold the principal respon
This case also holds that a certified check is substantially an accepted bill of exchange. The principle involved therefore applies to this case and is an authority against the defendant. It is true that, in the case at bar the bills of exchange were not accepted when the plaintiff indorsed them; but we apprehend that that will not prevent the application of the principle. It is no uncommon thing for the payee to indorse a bill and put it in circulation before acceptance. The fact that he does so is in itself no evidence of bad faith.
The principle seems to be, that a person dealing with a corporation is bound to know whether or not the officer or agent who represents it and acts in its name is authorized so to do. If he is, and the act is within the apparent scope of his authority, he is not bound to have knowledge of extrinsic facts making it improper for him to act in that case.
We must conclude therefore that the fact that the drawer had no funds in the hands of the drawee at the time these bills were drawn and negotiated, that fact being unknown to the plaintiff, is not a sufficient reason for holding that the plaintiff is not a bond fide holder.
It is further claimed that the plaintiff is not a bond fide holder for value on account of the use which was, made of the proceeds of these bills, they having been paid to Hume Webster & Co. to apply on a debt due that firm from Stock-well. This argument assumes, what we cannot admit, that the payment was equivalent to a payment to the plaintiff on a debt due it. The firm of Hume Webster & Co. and the
For these reasons a majority of the court are of the opinion that the plaintiff is entitled to recover, and the Superior Court is so advised.
In this opinion Pardee, Loomis and Granger, Js., concurred.
Dissenting Opinion
(dissenting.) I think the plaintiff corporation is not a bond fide holder of the drafts in question, for the following reasons :—
The defendant corporation was limited by its charter to such use of mercantile paper as might be necessary in the prosecution of its business. The plaintiff was bound to take notice of this limitation and to conduct itself accordingly. The plaintiff knew, through Hume Webster, its managing director, that the proceeds of these drafts were not to be used by the defendant in the prosecution of its business, but were to be used by the drawer, A. B. Stock-well, for his own individual purposes in London, while engaged in speculating in stocks.
But it is said that corporations as well as individuals are bound to pay their debts ; that if the defendant was owing A. B. Stockwell to an amount equal to the face of these
It is further said that the plaintiff, when it discounted these drafts for A. B. Stockwell at his request, did not know that Stockwell had no funds in the hands of the defendant, and had therefore the right to assume from the act of Stock-well in presenting the drafts for discount, that he had funds in the hands of the defendant sufficient for the payment of the drafts, which presumption was enough to constitute the plaintiff a bond fide holder of the drafts for value, although Stockwell at the time was owing the defendant a large amount.
I concede that the claims of the plaintiff would be sound if the facts of the 'case 'admitted of them.
It will be observed that A. B. Stockwell, when he presented the drafts to the plaintiff for discount, made no declaration, in fact, that he had funds in the hands of the defendant on which they were drawn. I fully concede that if the drawer of a draft presents it to a party for discount, an implication arises that the draft is drawn on funds of the drawer in the hands of the drawee, if nothing whatever is said by the drawer on the subject, and the party to whom the draft is so presented knows nothing to the contrary. And I further concede that such presumption, in such circumstances, would be sufficient to make such party a bond fide holder of the draft for value, should he discount the paper. But this is only a presumption of law, which must give way to express declarations to the contrary, made by the drawer at the time he presents the draft for discount. The majority of the court treat this presumption of law, in the present case, as equivalent to a positive declaration of Stockwell that he had funds in the hands of the defendant sufficient to pay the drafts, to the truth of which he pledged his honor and credit as a business man. I cannot so regard the matter in the case we have here on paper to determine. Let the finding of the committee decide the matter.
The committee finds on this point as follows:—’ In the
Then follows a description of the drafts that were after-wards drawn by A. B. Stockwell on the defendant and discounted by the plaintiff, and among them are the drafts under consideration.
Here it appears that Stockwell, on his arrival in London in 1874, applied to the plaintiff’s managing director for a line of discounts by the plaintiff, of drafts to be drawn bj* him on the defendant, from time to time. In order to induce Mr. Webster, acting for the plaintiff, to make the discounts, he represents that he himself is a person of large property, being the principal stockholder of the defendant company; that the defendant was a rich corporation, doing a very prosperous business; that he had the authority to pledge its credit, and was its representative in Europe. And it is to be presumed that he stated all that could be said to induce Mr. Webster, acting for the plaintiff, to make the discounts, and Mr. Webster must so have understood it. If the drafts were to be drawn on funds of Stockwell, would he not have so stated, when he was making a statement of his case ?
It seems that the representations which were made had the desired effect, for the committee finds that the drafts under consideration, as well as all the others, were discounted by the plaintiff relying upon these representations; that is, were made upon the faith of them and in .consequence of them. The plaintiff relied upon the ability of Stockwell to render the defendant liable to pay these drafts,
If such dialogue had occurred, and the case finds that it
I tbink judgment should be rendered for tbe defendant.