Case ID: neb_106/html/0388-01.html
Source: Caselaw Access Project
Author: {"author": "Morrissey, C.J.", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

Union National Bank, appellee, v. A. Moomaw, appellant.
    Filed July 7, 1921.
    No. 21412.
    1. Bills and Notes: Action by Indorsee: Estoppel. In a suit by tlie indorsee of promissory notes given to a corporation in payment for shares of its capital stock for which the maker of the notes subscribed in writing, when the stock has been issued and delivered by the corporation in accordance with the subscription contract, the maker of the notes is estopped to deny their ownership by the corporation.
    ' 2. Corporations: Notes-: Admissibility in Evidence. Where prom- • issory notes payable to the order of an insurance company are indorsed in the name of the corporation by its treasurer and by him and its president and its secretary sold to a bank, which credits the proceeds thereof to the insurance company, it is not error for the court in a suit by the bank against the maker to admit the notes in evidence without proof that the by-laws of the insurance company authorized the treasurer to execute the indorsement.
    3. Bills and Notes: Bona Fide Holder: Burden op Proop: Question por Jury. In an action by a bank, an indorsee of promissory notes, against the maker, where defendant pleads and the evidence tends to show fraud in the inception of the notes, the burden is on plaintiff to show that it is a bona fide holder, and, where from the evidence reasonable minds may reach different conclusions, the question is for the jury.
    4. Witnesses: Cross-examination. Where in a suit by a bank, the indorsee of promissory notes, the burden is on plaintiff to show that it is a bona fide holder, much latitude is allowed in the cross-examination of its cashier, he being the officer who acted for plaintiff in the purchase of the notes and the witness by whom plaintiff seeks to prove the bona fides of the transaction, and it-is-error for the trial court so to restrict the examination as to prevent a full disclosure of the knowledge of the witness as to matters material to the inquiry.
    Appeal from tbe district court for Scotts Bluff county: Ralph W. Hobart, Judge.
    
      Reversed.
    
    
      Morrow & Morroto, for appellant.
    Wright, Mothersead & York and G. L. Kagey, contra.
    
    Heard, before Morrissey, C.J., Day, Dean and Let-ton JJ.
   Morrissey, C.J.

Defendant appeals from a judgment entered in the district- court for Scotts Bluff county.

Action was brought by- plaintiff as the holder of two promissory notes in the sum of $1,000 each, given by defendant to the Globe Life Insurance Company of Salina, Kansas. One note bears date of November 9, 1917, and the other November 17, 1917. ■ The issues as to each note are the same. After setting out a copy of each note the petition alleges: “That before maturity of the said note and in due course of business plaintiff purchased said note from the said Globe Life Insurance Company for a valuable consideration, and said Globe Life Insurance Company duly indorsed and assigned said note, and this plaintiff became, and ever since has been and is now, the owner of said note and is entitled to the paymeht thereof.”

The answer admitted the execution and delivery of the notes to the insurance company, but denied all other allegations in the petition. It specifically denied that the insurance company indorsed or assigned the notes to the plaintiff, but averred that one W. g. Hayslip, who was treasurer of the company, and Avho had made the indorsement, had no authority to indorse the name of the company on the note, and alleged that the indorsement was not the indorsement of the insurance company. It also alleged that the company received no consideration for the note. It alleges that by false and fraudulent representations defendant Avas induced to execute the notes for shares of capital stock in the insurance company, pleading at length a state of facts which Avould constitute a defense to the notes if they were in the hands of the original payee, and constituting a defense provided plaintiff did not become the OAvner and holder in due course. At the close of the evidence the court directed a verdict for plaintiff.

As grounds of error defendant alleges that the court erred in permitting the introduction of the notes in eAÚdence. The basis of the assignment is found in the contention that, although the notes were made payable to the Globe Life Insurance Company, they were in fact the property of one Felix Broeker, president of the company, and that the company was not authorized by its charter to indorse commercial paper for the benefit of other parties; that the treasurer of the corporation had no au- . thority to make the indorsement, and therefore the notes were inadmissible in evidence until plaintiff first proved that the treasurer was expressly authorized by the bylaws or by resolution of tbe board of directors to make tbe indorsements. In support, of the first contention, it is claimed that the capital stock of the insurance company, for which these notes were given, had first been sold by the company to Broeker, and he had employed a selling agency to make the sale to plaintiff and others, and that the stock actually issued was not the treasury stock of .the corporation, but the stock of the. individual, Broeker. The proof appears to show that Broeker had taken over a large block of stock under a contract with his own company and given his notes therefor, but the certificates of stock were still held by the company and on receipt of defendant’s notes certificates of the proper denomination were issued to defendant. Defendant had signed a written subscription for stock of the insurance company; he had executed his notes payable to the order of that company ; his subscription and his notes reached the company, and the company issued the stock. It is hard to perceive on what theory he may now be heard to say that these notes were not the property of the company. True, it is said in defendant’s brief that there is no record in the office of the insurance company that it ever issued any stock to defendant or that it ever received the notes. On the other hand, the record before the court as a whole seems to confess the issuance of the stock, and the proof shows that the notes were in the hands of the company officers and by them delivered to plaintiff. The officers of the insurance company may have misappropriated the funds, but that would not necessarily affect the ownership of the notes. As to the sufficiency of the indorsement, even if conceded that the treasurer of the corporation was merely the servant of the board of directors, and that ordinarily he is the mere custodian of the property and funds and without power to execute commercial paper or bind the corporation by his indorsement, it will be noted that in the instant case, while the indorsement was signed by the treasurer, the transfer of the notes was made by him in conjunction with the president and secretary of the corporation, and the proceeds of the notes were deposited do the credit of the corporation. To require one purchasing commercial paper from a corporation to investigate, in every instance, its charter, to ascertain the power conferred upon the officers Avith whom the business is transacted, might seriously disturb commercial business. It will not be disputed that if the - corporation was the owner of thé notes it might be proper for its officers to indorse and sell them in the ordinary course of its business, and, Avhere the proof shoAvs that the officers of the corporation who usually and ordinarily handle and negotiate its commercial paper write the name of the corporation on the back of the note, and, for a valid consideration moving from the purchaser to the corporation, deliver the note to the purchaser, the indorsement will be held sufficient. We therefore conclude that the court did not err in permitting the introduction of the notes in evidence.

We must now consider the question: Did plaintiff become a holder in good faith in the usual course of business, for value, and without notice of fraud in the inception of the notes? Under the pleadings and the proof made by defendant, the burden was upon plaintiff to prove the affirmative of this question. The alleged purchase of the notes was made through its cashier, Mr. Mergen, Avho testified to a state of facts which might be sufficient to support the instruction of the court to the jury to return a verdict for plaintiff. But, where doubt is cast upon the truth of the story and there is a dispute on any of the material issues, the trial court is not free to direct a verdict, but must submit the disputed questions of fact to the consideration of the jury.

Prior to the bringing of this suit the insurance company had become a bankrupt, and a great mass of documents, purporting to include the minutes of stockholders’ and board of directors’ meetings, as well as reports made by official examiners, is included in the record. Prom these reports and documents it appears that only a short time before tbe notes in suit were executed Mr. Mergen Wg§. treasurer and director of tbe insurance company and associated with Mr. Broeker in the management of the company. By questions propounded to Mr.. Mergen on cross-examination, when he had testified in rebuttal, defendant sought to show that at the time the insurance company was incorporated and for some time thereafter Mr. Broeker, its president, had no money, property or business of consequence; that shortly after the sale of stock in the insurance company in considerable amount Broeker acquired a chain of drug stores involving the expenditure of a large amount of capital; that he also acquired the controlling interest in the Felix Broeker Investment Company requiring capital of over $100,000'; that he further acquired large interests in a real estate company and a bank; that' during this time and until these notes were .taken by plaintiff Broeker was using in his own business the funds of the life insurance company; and that the witness Mergen and the plaintiff bank knew of these speculations by Broeker prior to the purchase of the notes in suit. Objections were made to the questions propounded, as incompetent, irrelevant and immaterial, and the objections were sustained by the . court. Defendant’s offer to make the proof by the cross-examination of the witness was also excluded on like objection of plaintiff’s counsel.

It is argued that, the witness being a representative of the plaintiff and an interested party, it was error to restrict his cross-examination or to deny defendant the benefit of the offered testimony, as it would tend to show the good faith of plaintiff in taking the notes and affect his credibility. Did the court err in so restricting the cross-examination? The burden wás on plaintiff, after facts tending to show fraud were developed, to show that these notes were taken in good faith, and, if by the cross-examination of the witness it could be developed that he knew that the president of the company was violating his duties as an officer of the company and Using its funds for his private speculations, it might be material as: bearing upon his own good faith and honest intentions at the time he claims to have purchased the notes as cashier of plaintiff bank. We cannot overlook the fact that he had just recently retired from the board of directors and resigned as treasurer of the insurance company. The record shows that the insurance company had not been' honestly managed. It is difficult to believe that this witness was without knowledge of that fact, and if by reason of his former official connection with the company, his business dealings with its officers, and his knowledge of their dishonest practices, he had reason to believe that-the notes had been fraudulently procured, and that the officers of the company were dishonest men and were selling the notes not for the benefit of the company, but to cany out their own private speculations', this would be a circumstance tending to show a lack of good faith in the purchase of the notes. In this connection it may be well to also point out that, although the witness Mergen testified that the bank paid a valuable consideration for the notes in suit, crediting the insurance company with the proceeds, and that later the money was withdrawn from plaintiff bank by the insurance company, an examiner for the insurance department of the state of Kansas testified at length as to his examination of the insurance company’s books and said that they failed to show that the credit given to the insurance company as testified to by the witness Avas ever credited to the notes in suit on the books of the insurance company. The mere failure of the officers of the insurance company to make the entry on their books does not directly contradict the claim of plaintiff that the transaction was in good faith, but it is a circumstance which, in view of the relations shown to exist between plaintiff’s cashier and the men who were manipulating the affairs of the insurance company, the jury might consider in weighing the testimony of the witness and in a determination of the bona fides of the transaction.

.That the representations made by the sales agents who procured the notes were false, fraudulent and calculated to deceive defendant needs no elucidation. Defendant positively testifies that he relied on their representations and that they were the moving cause for the execution of the notes. If this is denied, the question is for the jury.

. The judgment is reversed and the cause remanded.

Reversed.