CASES

ARGUED AND DETERMINED

IN THE

United States Circuit and District Courts.

THE WAYNESVILLE NAT. BANK v. IRONS.

(Circuit Court, S. D. Ohio. June, 1881.)

1. NEGOTIABLE PAPER-PRIMA FACIE EVIDENCE.

In actions upon negotiable paper, the production of it by the plaintiff, with proof of the genuineness of the signatures and of the indorsements, entitles the plaintiff, without any additional evidence, to recover the full amount thereof, with interest, unless the defendants make out some satisfactory defence.

2. SAME-WANT OF AUTHORITY TO NEGOTIATE-RATIFICATION-CORPORATION— SECRETARY-TREASURER-ESTOPPEL-ACCOMMODATION MAKERS.

Action upon negotiable paper, made by I. and others for the accommodation of, and payable to, the M. V. Ry. Co., and indorsed in blank by the railway company. Defence: that it was negotiated without the authority or consent of the railway company. Held, (1) if the note, having previously been indorsed in blank by the railway company, was delivered to the plaintiff by W., assuming to represent the railway company in the transaction, and in consid-. eration thereof the plaintiff paid to W. the amount thereof, less the discount, or, at W.'s request, paid an equivalent amount of the railway company's obligations, so that the railway company in fact received the value thereof, and the transaction was reported by W. to the secretary of the company, and by him to its treasurer, and the company has continued ever since to enjoy the benefit of the proceeds of said discount, without any offer to return the consideration, then the railway company is not entitled to set up the defence upon which it relies; (2) if the title of the plaintiff, in this respect, is sufficient as against the railway company, it is equally valid as against the accommodation makers.

v.8,no.1-1

3. NOTES MADE IN PURSUANCE OF RESOLUTION-RECITALS OF PREAMBLE DO NOT CONSTITUTE PART OF AGREEMENT.

The note in suit was made for the accommodation of the M. V. Ry. Co., in pursuance of a resolution of the board of directors of the company, in the preamble of which it was recited that, "Whereas, in the judgment of the board of directors, the interests of the M. V. Ry. Co. demand that certain rights of way should be speedily procured, and that the work of construction should be speedily prosecuted, these two objects requiring much more money than is at present under the control of the company," etc.; but neither in the resolution nor the agreement, which it provided should be delivered to the note-makers by the company, was there any mention of the purposes for which said notes were to be used. Held, that these papers do not constitute any pledge or agreement on the part of the railway company to use these notes for the purposes specified in the preamble, and for no other purposes.

4. PROVINCE OF JURY-AGREEMENT, AS DISTINGUISHED FROM MERE STATEMENTS AS TO PURPOSES, HOPES, ETC.

There also being oral testimony tending to prove the existence of an agreement to use said notes for the purposes specified in the foregoing preamble, held, that that testimony, in connection with the preamble and resolution, is for the consideration of the jury; but in determining whether there was such an agreement, the jury should discriminate so as to be satisfied clearly of the existence of a definite agreement to that effect, as distinguished from mere declarations and statements on the part of the officers of the railway company as to the purposes, hopes, and expectations that they entertained concerning

the matter.

5. NEGOTIABLE PAPER-NOTICE OF EQUITIES-PRESIDENT OF BOTH CORPORATIONS-WHEN PURCHASER RESPONSIBLE FOR MISAPPLICATION OF PROCEEDS. The note in suit (accommodation note of I. and others to the M. V. Ry. Co., above described) was, before it became due, negotiated to the W. bank, through its cashier. It was claimed that this was done in violation of the agreement upon which the note was given. H. was at that time president of both the railway company and the bank, was member of the executive committee of the railway company and of the discount committee of the bank, and was claimed to have had knowledge of such agreement. Held, (1) that if H. had actual knowledge of the facts alleged by the makers of the note, and he was aware of and acted in the negotiation on the part of the bank for its discount, while such negotiation was in progress, the bank is chargeable with notice of these facts; (2) but if H., on being inquired of by the cashier in respect to the propriety of discounting the note, had replied to him, "These names are undoubtedly good for $10,000, but my relation to the two companies is such that I decline any part in the decision of the question of discount of the note," and thereupon withdrew and took no further part in it, the mere answering of that question is not such a participation in the transaction as to charge the bank with notice of facts of which H. had knowledge. Held, further, as to the violation of the alleged agreement, that the misapplication of the proceeds of the note, made by the officers of the railway company without the knowledge and participation of the bank, would not defeat a recovery by the bank on the note. 6. NOTICE-CORPORATIONS-PRESIDENT, DIRECTORS, AND OTHER OFFICERS. Discussion of the subject and full citation of authorities in note.

Bateman & Harper, for plaintiff.

Geo. R. Sage, A. G. McBurney, and Thos. F. Thompson, for defendants.

MATTHEWS, Justice, (charging jury.) This action is brought by the Waynesville National Bank, as the owner and holder of a promissory note which reads as follows:

"$10,000.

LEBANON, OHIO, April 15, 1878.

"One year after date, we, or either of us, promise to pay to the order of the treasurer of the Miami Valley Railway Company ten thousand dollars, for value received."

It is signed by Samuel Irons, William F. Dill, Daniel Perrine, F. Hutchinson, William Morlatt, and William V. Bone. On the back of it is the following indorsement: "Demand and notice of protest waived. W. B. SELLERS, Treas. M. V. Ry. Co."

The note is what is known as negotiable paper, and the production of it by the plaintiff, with proof or admission of the genuineness of the signatures and of the indorsement, without any additional evidence, entitles it to recover from the parties the full amount thereof, with interest, unless the defendants make out some satisfactory defence. The railroad company is sued together with the makers, and they defend separately. The answer of the railroad company sets up that the note was not indorsed or delivered by the treasurer to the bank, neither for a valuable consideration nor otherwise; denies that there is anything due thereon, and denies that the plaintiff is the legal or equitable owner of it, and alleges that the plaintiff came into possession of it wrongfully and illegally, and without authority from, or consent of, the defendant. It sets up the circumstances in detail of the original negotiation of the note, as collateral security, by Mr. Irons and the treasurer of the company, at the Lebanon National Bank, to secure a demand note of the company for $3,000, and that it was obtained from the possession of that bank, and discounted by the plaintiff, without any authority.

The relation that the railway company occupies to the paper is different from that occupied by the other defendants, and it is proper to dispose of the questions arising on the defences of the railway company independently, in the first instance, and with a view to that I give you this charge: If the jury are satisfied from the testimony that the note in suit, having previously been indorsed in blank by the treasurer of the railway company, was delivered to the plaintiff by Israel Wright, assuming to represent the railway company in the transaction, and in consideration thereof the plaintiff paid to Israel Wright the amount thereof, less the discount, or paid, at Wright's request, an equivalent amount in obligations of the railway company,

so that the railway company in fact received the value thereof, and the transaction was reported by Wright to the secretary of the company, and by him to its treasurer, and the company has continued ever since to enjoy the benefit of the proceeds of said discount without any offer to return the consideration, then the railway company is not entitled to set up the defence upon which it relies.*

The answer of Mr. Irons is filed separately. He denies that the plaintiff is the owner or holder of the note. It avers that the note was made by the defendant herein and his co-defendants, except the railway company, jointly and severally, and all as principals, for the accommodation of said railway company, and loaned to it upon the agreement and understanding that said company should, upon the maturity of said note, pay the same, and that the proceeds of said note should be applied exclusively by said company to the purchase of right of way for said company's road, and the further construction and completion of the same; of all which the plaintiff had due notice before said note came into plaintiff's possession. He alleges that the note came into the possession of the plaintiff without the knowledge or consent of himself or of any of his co-defendants, and with notice that the proceeds would be applied to the payment of debts of said company incurred prior to the making of said note, and to purposes other than those aforesaid for which said note was made. He further alleges that no part of said proceeds was applied by said plaintiff to the purposes aforesaid for which said note was made, nor by any other person to whom they may have paid the same. The third defence alleges the insolvency of the railway company prior to the time when the note came into the possession of the plaintiff, and its final and complete suspension of work upon its road, and all attempts to complete the same, whereby, and in consequence of other facts in the prior defence which I have just read, of which it is alleged the plaintiff also had notice, it is claimed that the negotiation of the note was illegal. The fourth defence alleges the circumstances in reference to the original deposit of the note with the Lebanon National Bank, and claims that possession of the note was obtained from the Lebanon National Bank without the authority, knowledge, or consent of the defendants. The fifth defence denies that Sellers, as treasurer, assigned or transferred the note to the plaintiff, or that the railway company authorized him to do so. Then comes the

*Similar case: New Hope, etc., Bridge Co. v. Phonix Bank, 3 Comst. (N. Y.) 156.—[REP.

sixth defence, in reference to which a ruling has already been made excluding testimony offered in its support, and which is not, therefore, open to any further consideration.

The answers of the other defendants, except in one particular, in respect to which it is not necessary to refer you, contain substantially, if not literally, the same defences which I have just enumerated as contained in Mr. Irons answer. And without referring to them by number, inasmuch as the same defences seem to be reiterated several times in different forms, I will state in the first place that the defence of these gentlemen rests upon a denial of the title of the plaintiff to this note, based upon the want of authority alleged to exist on the part of Mr. Sellers to make the transfer, and of Mr. Wright to make the negotiation, and a denial of the fact that the company, through any of its officers, assented to the arrangement whereby the plaintiff became the owner of the note. In respect to that I give you this charge: That if the title of the plaintiff, so far as it depends upon the question of indorsement and delivery, and the authority of Wright to bind the railway company in its negotiations, is sufficient as against the railway company, it is equally valid as against the other defendants.

And the further question is whether the legal title to the note, which was in the railway company, passed by the acts done in its name to the plaintiff. The note having been indorsed in blank by the treasurer of the railway company, the title would thereafter pass by mere delivery, and would be sufficient in the hands of a bona fide holder, for value paid, receiving the same before due in the ordinary course of business, without any notice of want of authority or other defect of title in the party transferring its possession. In other words, if this note, being indorsed in blank by the treasurer, was found in the possession of Israel Wright on a certain day before its maturity, and was by him presented for discount to the bank, and the bank discounted it and paid to him the proceeds of it, without any notice that Wright had no authority, and without notice that the railway company was not assenting to the transaction, and without notice of any other facts which would constitute a defect in the authority of either the treasurer or the agent representing himself to be such, then the plaintiff is what in law is termed a bona fide holder, for value, prior to maturity, without notice of defect. And it would make no difference whether Wright had found the paper somewhere or had stolen it, or had possession of it in any other way; his delivery of it under these circumstances would have vested the plaintiff