Case ID: ohio-st_78/html/0001-01.html
Source: Caselaw Access Project
Author: {"author": "Davis, J.", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

Hoffmaster v. Black et al.
    
      Payment on note — To one not possessing debt securities — Raises no presumption of agency, when — Effect of designation of place of payment — ■Burden of proof of agency.
    
    1. Payment to a person who has not possession of the securities which evidence the debt, properly indorsed, does not raise a presumption of agency in such person to receive payment of the debt or any part of it; and this is so even if the place of payment is designated in the contract, if the person to whom payment shall be made is not designated.
    a. When payment is made to a person not having possession of the securities properly indorsed, the burden of showing that such person was authorized to receive payment for the creditor rests upon the party.who makes the claim of payment.
    
      3. Where in such case the creditor accepts payments of interest through the medium of an unauthorized person, such conduct does not imply an agency in such unauthorized person to receive payment of the principal or any part thereof.
    (No. 10138
    Decided March 3, 1908.)
    Error to the Circuit Court of Mahoning county.
    On February 19, 1897, the defendants in error made and delivered to one Frank P. Hood, or order, their promissory note for $850, payable in two years after date, with eight per cent, interest. Included in the note was the following: "Principal and interest payable at the office of F. P. Flood, No. 5 East Federal street.” Within two weeks after the execution and delivery of the note to Hood, he transferred the note and a mortgage which had been given to secure the same, to the plaintiff in error for value and in due course of búsiness. The note was duly indorsed and the mortgage duly assigned to the plaintiff in error by Plood. The note and mortgage thus indorsed and assigned, were then and there delivered to the plaintiff in error and remained in his . possession from the time of his purchase until the commencement of this case. The assignment upon the mortgage was never recorded upon the record of the mortgage in Mahoning county, nor were the makers of the note and mortgage notified by the plaintiff in error that he owned and held the same. The interest upon the note was paid at Hood’s office and by him paid over to the plaintiff in error, who credited the same upon the note up to August 19, 1903. Hood, having died insolvent, it was discovered by the plaintiff in error that the defendants claimed to have paid $350 to apply on the principal of said note on the 14th day of February, 1900, at Hood’s office, to a Miss Jurey, who was acting for Mr. Hood, and a receipt of Hood in the handwriting of Miss Jurey is a part of the record. It is not claimed that the plaintiff in error ever received any part of this $350, and he testifies that he never authorized or directed Hood or Miss Jurey to collect the principal, or any part of the same, on this note and mortgage, and that he did not know of the payment of this $350, and this testimony is not expressly contradicted; but the defendants claim that the agency of Hood is established by conduct. The suit having been brought to recover the amount due on said note and to foreclose the mortgage securing the same, the facts already stated appeared upon the trial. The court of common pleas found in favor of the plaintiff. The circuit court reversed the judgment of the court of common pleas for the reason, “that the use of said words in said promissory note made said F. P. Hood agent of the plaintiff below to collect the money named and made payable upon said note, notwithstanding said Frank P. Hood did not have possession of said note and mortgage.” This proceeding is to reverse the judgment 'of the circuit court and to affirm the judgment of the court of common pleas.
    
      Mr. R. B. Murray and Mr. S. M. Thompson, for plaintiff in error.
    When a negotiable promissory note is made payable at a particular office, such fact does not constitute the party in charge of such .office the agent of the holder of such note to receive the money thereon, unless such note is in the possession of such party. Hollinshead v. Investment Co. et al., 42 L. R. A., 658; Williams v. Walker, 2 Sanford’s Ch. (N. Y.), 325; Ward v. Smith, 7 Wall., 450; Klindt v. Higgins et al., 95 Ia., 529; 7 Cyc., 1028; Adams v. Improvement Commission, 44 N. J. L., 638; Dwight v. Lens, 77 N. W. Rep., 546; Fortune v. Stockton et al., 182 Ill., 454; McNamara v. Clark, 85 Ill. App., 439; Corey v. Hunter, 10 N. Dak., 5; Thompson v. Buehler, 95 N. W. Rep., 854; Hills v. Place, 48 N. Y., 520.
    The collection of interest on a promissory note does not authorize the collection of the principal of the note unless possession of the note is held by the agent or express authority so to do is proven. Antioch College v. Carroll, 11 O. D. Re., 220; Hitchcock v. Kelley et al., 18 O. C. C., 808; Smith, Exrx., v. Kidd, 68 N. Y., 130.
    
      Mr. Emil I.- Anderson and Mr. A. M. Henderson, for defendants in error.
    If the transferee of a note, by his conduct, permits the maker to' believe that the ownership has not been changed, and the maker has in fact no notice of the transfer, payment to the payee will discharge the instrument. 7 Cyc., 1038; Morgan v. Neal,. 65 Pac., 66; Fowle v. Outcalt, 64 Kans., 352; 67 Pac., 889; Graza v. Manchke, 23 S. W. Rep. 836.
    Express authority is not necessary to render payment to a person as agent effectual, but authority to receive payment may be implied from the facts and circumstances existing prior to or in connection with the payment, and the holder of paper may be estopped to deny the authority of one whom he has clothed,'intentionally or through negligence, with ostensible authority. 7 Cyc., 1031; Quinn v. Dresbach et al., 16 Pac., 765; Reid et al. v. Kellogg, 8 S. Dak., 596; Thomson v. Shelton et al., 68 N. W. Rep., 1055; Enright v. Beaumond, 68 Vt., 249; Bank v. Johnson et al., 30 Fed. Rep., 588.
    The maker’s contract is to pay at the place where the note is made if no other place is named; and where he provides funds at such place which are lost by th,e negligence of the holder in presenting the note, the maker may be discharged. Banking Assn. v. Zorn, 14 S. C., 444; Smith v. Mead, 3 Conn., 253.
   Davis, J.

The circuit court reversed the judgment of the court of common pleas upon the ground, as stated in the journal entry, that the words, “Principal and interest payable at the office of F. P. Hood, No. 5 East Federal street,” contained in the note, “made said F. P. Flood agent of the plaintiff below to collect the money named and made payable upon said note, notwithstanding said Frank P. Hood did not have possession of said note and mortgage.” This has very much the appearance of an invitation to reverse, inasmuch as the controlling questions now presented have been decided and reported .at least twice, in the lower courts of this state (Hitchcock v. Kelley, 18 O. C. C., 808; Antioch College v. Carroll, 25 W. L. B., 289), and this judgment of the circuit court is distinctly contrary to an array of authorities so uniform, direct and abundant, that we shall not even attempt to enumerate all of them. Reference to many of the cases will be found in the places cited below. Daniel on Negotiable Instruments, Sec. 326; 7 Cyc., 1035, art. Commercial Paper, by Randolph, and notes 80 and 81; 1 Am. & Eng. Ency. Law (2d ed.), 1026; 22 Ibid, 520, 521, n. 7; Kohl v. Beach, 107 Wis., 409, 414-415. The principle on which these cases have been decided was stated in Lord Holt’s time in Whitlock v. Waltham, 1 Salk., 157, as follows: “If the scrivener be entrusted with the custody of the bond, he may receive the interest; and though he fails, yet the mortgagee shall bear the loss. * * * So it is also in such case if he receive the principal and deliver up the bond; for, being entrusted with the security itself, it shall be presumed that he is entrusted with a power over it, and with a power to receive the principal and interest; and the rather because the giving up of the bond upon payment of the money is a discharge thereof; otherwise if the obligee take away the bond, for then he hath no power to receive the money.” Modern cases have gone farther than this and have held that even the possession of negotiable securities, unindorsed, is not conclusive evidence of authority to receive payment. Mechem on Agency, Sec. 373; Doubleday v. Kress, 50 N. Y., 410. The burden, therefore, rests on the party making payment to show that the one receiving payment was authorized. This is particularly so if, in the meantime, as in this case, the note has passed into the hands of a bona fide indorsee before maturity. The contract of the maker is to pay to the payee or his order. By the terms of his contract he is bound to take notice of the fact that his obligation is liable to turn up in the hands of another party at maturity. The mere designation of the place at which payment shall be made does not of itself alter the obligation of the maker as to the person to whom, or through whom, payment shall be made. He is still bound to see for himself that payment is made to the legal holder, whether he be the original payee or an indorsee, or to his authorized agent. He can not safely pay to any person at the designated place who, in the absence of the securities properly indorsed, can not show authority to receive payment for the party entitled to the money. Doubleday v. Kress, 50 N. Y., 410; Williams v. Walker, 2 Sandf. Ch. R., 325; Cowing v. Cloud, 16 Colo. App., 326; Richards v. Waller, 49 Neb., 639; Gilbert v. Garber, 62 Neb., 464; Hollinshead v. Stuart & Co., 8 N. Dak., 35; Stolzman v. Wyman, Ibid, 108; Corey v. Hunter, 10 N. Dak., 5; Adams v. Hackensack Improvement Commission, 44 N. J. L., 638.

The law of the case being so well defined, and the plaintiff having denied that he ever authorized or directed Hood, the.original payee, or his clerk, Miss Jurey, to receive payment of the principal, or any part of the same, and he having also denied that he knew of the payment of $350 on the principal, it was plainly incumbent on the defendants to show that the plaintiff had either expressly or impliedly made Hood and Miss Jurey his agents. On the contrary, no claim of express authority is made, and it is conceded that Hood never had possession of the note or the mortgage after they >were transferred to the plaintiff, and the defendants say that they had asked for them “dozens of times” at Hood’s office and they were never produced.

But it is shown that interest was paid semiannually and was receipted for by “F. P. Hood, Ag’t,” that it was regularly paid over to plaintiff by Hood, and was credited by plaintiff on the note on the several dates up to August 31, 1903; but it is not shown that plaintiff ever saw any of Hood’s receipts for interest of that he ever knew that Hood had signed receipts therefor as “Ag’t.” The significant fact does appear, however, that from the time of the payment of the $350 to Hood, the receipts given by Hood to the defendants are for the exact amount of interest on the principal remaining unpaid, while the credits indorsed on the note by plaintiff are for the full amount of interest on the principal of the note without deduction, indicating that Hood was concealing from the plaintiff the payment of the $350, and that he made up the interest to the full amount out of his own pocket. Now it is claimed that these circumstances constituted Hood the agent of the plaintiff for the purpose of receiving payment of both principal and interest.

It is hardly necessary to discuss the proposition that the ratification of one unauthorized act is not a ratification of another and entirely distinct act; or that the acceptance of the results of a series of unauthorized acts of the same kind is the creation of an implied agency to do an entirely different thing. To state the proposition in a concrete form, the plaintiff having recognized the course of dealing as to payment of interest through Hood may be presumed to have authorized him to collect interest; but no implied agency to collect the principal, or any part of it, could arise therefrom. These are accepted principles in the law of agency. Baldwin v. Burrows, 47 N. Y., 199, 211; 1 Am. & Eng. Eney. Law (2d ed.), 1002. There was no recognition of the act of Hood in collecting a part of the principal, because the plaintiff did not know that the money had been paid to Hood, nor that the latter was deceiving the defendants by assuming to act for him. The cases are numerous and directly to the point that an authority to receive interest does not imply an authority to receive payments on the principal. Whitlock v. Waltham, I Salk., 157; Williams v. Walker, 2 Sandf. Ch. R., 325; Smith, Exrx., v. Kidd, 68 N. Y., 130; Cox v. Cutter, 28 N. J. Eq., 13; Ilgenfritz v. Mut. Benefit Life Ins. Co., 81 Fed. Rep., 27; Palmer v. Wistanley, 23 Up. Can. C. P., 586; Walsh v. Peterson, 59 Neb., 645; Guilbert v. Garber, 62 Neb., 464; Stolzman v. Wyman, 8 N. Dak., 108; Corey v. Htmter, 10 N. Dak., 5. In a case in which it appeared that the scrivener, not having possession of the security, had' received not only the interest but part of the principal also and paid it to the obligee, it was held that such circumstances did not imply that the scrivener had any authority to receive a part of the principal which he received and did not account for. Wostenholm v. Davies, Freeman Ch. R., 289.

When the defendants made payments to Hood without requiring the production of the securities, it was no more than if they had entrusted such payment to a messenger boy. That which reached the plaintiff was good payment. That which did not reach the plaintiff was at their own risk.

The judgment of the circuit court is reversed, and that of the court of common pleas is affirmed.

Shauck, C. J., Price, Crew and Summers, JJ., concur.