172 A. 402 | Pa. | 1934
Argued January 22, 1934.
The knowledge of a cashier concerning a transaction in which he is personally interested and acted for himself, in detriment to and not for the bank is not imputed to the bank: Gunster v. Scranton,
Accommodation paper of a corporation, regular on its face, and executed by the proper officers, is valid in the hands of a holder in due course.
If one becomes a holder for value of a corporation note, regularly executed, without knowledge that it is accommodation paper, he can recover against the corporation: Cox Sons v. Brwg. Co.,
Where one of two innocent persons is to suffer from the act of others, the one who gave the others the means of doing wrong must alone bear the consequences of the act: Garrard v. Haddan,
Sometime before July, 1929, the bank had discounted two notes for $10,000 and $7,500 respectively for the radiator company's benefit, made by Landis and Eader, payable to and endorsed by Penney. Graeber stated to the parties interested that his bank could not rediscount these notes at the Federal Reserve, but they would be able to rediscount corporate obligations. He requested such notes. Thereafter, Eader sent Graeber a note dated July 9, 1929, for $17,500, made by the knitting company payable to "Ourselves" and endorsed by it. The execution and endorsement of the note was as follows: "Waynesboro Knitting Company by J. B. Eader, President and Treasurer." This note was substituted for the $10,000 and $7,500 notes, renewed from time to time, and reduced to $13,500.
In the same month, the same parties agreed to raise $200,000 necessary for the radiator company; of this, Eader, Landis and Penney were to secure $150,000, on which a bonus was to be paid. Graeber refused to endorse any notes but stated that if he had the corporate paper of appellee, he could raise his share ($50,000) by discounting it at appellant bank. A note was executed in the knitting company's name by its president and treasurer for $55,000, and endorsed by Eader, Penney and Landis personally. The $55,000 note represented the $50,000 credit plus a bonus of $5,000 for the bank itself. Furthermore, Graeber secured $60,000 worth of bonds of the Republic Radiator Company to protect the bank's loan. The note was discounted by appellant bank and the proceeds credited to the radiator company, which then sent Graeber a check payable to him individually for $5,000 as a bonus. This check was endorsed and credited to appellant bank. The note was reduced to $54,000 prior to the commencement of this action.
A third note for $6,250 of the radiator company was refused by appellant and returned to the company. *370 There was substituted for it the knitting company's note which was discounted by the bank. The note was renewed and reduced to $2,500. The note and all renewals were executed and endorsed by appellee "By J. B. Eader, President and Treasurer."
Action was brought on all notes against the knitting company. The court in its charge instructed the jury that the knowledge of Graeber was imputed to appellant bank and, if he knew the notes were accommodation notes of appellee, executed by Eader without authority, and the knitting company received no benefit from them, their verdict should be for the knitting company. The jury so found.
The Act of May 12, 1925, P. L. 615,* relied on by appellant to relieve it of the defense of notice of illegality, was not intended to limit defenses to negotiable instruments issued by a corporation, to forgery, payment or set-off, but provided that the by-laws, as regulations among the stockholders, should have no effect on the execution of contracts with persons having no knowledge of such by-laws. Notes issued by a corporation when signed by the president or vice-president, and secretary or treasurer, shall be considered as being properly executed for and in behalf of the corporation. It *371 does not follow that though notes are properly executed by and on behalf of the corporation such notes are valid obligations of the company through negotiation and delivery. The act did not validate acts performed beyond the power of the corporation of which the holder had or was affected with knowledge, or acts grounded in fraud; nor under similar circumstance does the act justify an abuse of powers by officers in issuing corporate instruments, as for instance, when they are to be used in payment of a personal debt of the officer or for the benefit of the officer or of a third party without consideration going to the corporation issuing them.
The notes in question were the accommodation notes of a manufacturing company. It is ultra vires for a manufacturing corporation to lend its credit to another by issuing or endorsing bills or notes as an accommodation (Federal Nat. Bank v. Coal Co.,
When the notes were brought to the bank by the president of (the maker) the knitting company, with the endorsements thereon, and the proceeds of the notes were deposited to the credit of the Republic Radiator Company, the party accommodated, the possession by the maker and its negotiation to the bank indicated prima facie that the note negotiated was accommodation paper: Oppenheim v. Simon Reigel Cigar Co., 90 N.Y.S. 355; Rudolph Sav. Bank Co. v. Anchor Oil Gas Co., 101 Ohio State 217, 128 N.E. 266. It may be this circumstance might be conclusive, but we need not depend on this type of notice since here we have actual notice.
It is admitted that the cashier of a bank who was interested as a stockholder in the accommodated corporation, knew that the knitting company was lending its credit as maker of the accommodation paper to the radiator company. It is also testified that the cashier knew the knitting company could not lend its credit, but his bank was willing to accept it. It is claimed by appellant that as he was engaged in his own business in securing the discount of the $50,000 note, the bank should not be held to have had knowledge of wrongdoing in passing through the institution the accommodation paper of the knitting company, under the authority of Gunster v. Scranton, etc., Co.,
The conclusion is therefore compelled that the bank is not a holder in due course and is subject to the defense of the corporation that the issuance of these notes was ultra vires.
We need not discuss the fact that the bank retained the benefits of the transaction carried on in its name by its cashier, yet here denied his agency. See Cit. Nat. Bk. of Greencastle v. Speck,
Judgment affirmed.
"Section 2. Any note, mortgage, evidence of indebtedness, contract, or other instrument of writing, or any assignment or endorsement thereof, executed or entered into between any corporation organized or doing business within the Commonwealth and any other person, copartnership, association, or corporation, when signed by the president or vice-president and secretary or treasurer of such corporation, shall be held to have been properly executed for and in behalf of such corporation."