Case ID: nc_187/html/0515-01.html
Source: Caselaw Access Project
Author: {"author": "Clark, C. J.", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

PEOPLES UNITED BANK, Receiver of the BANK OF SOUTHPORT, v. PERCY WELLS and JAMES HOWARD.
    (Filed 2 April, 1924.)
    1. Banks and Banking — Officers—Imputed Knowledge — Bills and Notes— Fraud — Principal and Agent.
    Knowledge of fraud in tlie procurement of a note by a president of a bank will not be imputed to a bank when be bas acted therein to bis own personal advantage, and in wbicb tbe bank bas neither participated nor derived any profit or advantage.
    2. Same.
    A president of an insolvent bank induced a purchaser for some of bis own stock by fraudulently representing that it was worth above par, and to get tbe purchase-money, sent tbe purchaser’s note therefor to a subsidiary bank of which be was only a nominal or inactive president, and wbicb was acted upon and accepted and discounted by tbe officers thereof whose business it was to pass upon such matters, without knowledge or participation in tbe fraud, the note being payable to the subsidiary bank for wbicb they were acting: Bold, tbe fraud perpetrated by tbe seller of tbe stock will not be imputed to tbe subsidiary or purchasing bank, and it may recover thereon.
    3. Same — Burden of Proof.
    Where fraud is shown in tbe procurement of a note, in tbe payee’s suit thereon tbe burden of proof is on tbe plaintiff to show tbat be was a purchaser for value, before maturity, and without knowledge of tbe fraud.
    Appeal by-defendants from Calvert, J., at January Term, 1924, of BkuNswick.
    In May, 1922, tbe Bank of Soutbport and tbe Commercial National Bank of 'Wilmington were engaged in tbe banking business in tbeir respective towns. Tbomas E. Cooper was president of botb banks, residing in Wilmington and devoting bis time to bis bank at tbat place. He visited Soutbport once or twice a year in connection witb tbe affairs of tbat bank, wbicb sent bim statements of its affairs about twice a month. Occasionally tbe bank at Soutbport bad more casb than it was possible to use and would so notify Cooper at Wilmington, and occasionally be would send to tbe Soutbport bank paper for discount wbicb it would sometimes discount, but not always.
    In May, 1922, tbe shares of stock in tbe Commercial Bank of Wilmington wbicb bad stood in tbe name of W. B. Cooper were transferred to bis brother, Tbos. E. Cooper. At tbat time such bank was absolutely insolvent, wbicb fact, as stated in tbe facts agreed, was known to W. B. Cooper and Tbos. E. Cooper, chairman of tbe board and president respectively of tbat bank.
    Tbe note sued on was given ás tbe purchase price of 50 shares of tbe capital stock of tbe Commercial Bank, and was sold by Tbos. E. Cooper to tbe defendant Wells, witb tbe representation tbat such stock was worth $116 per share. These representations were relied upon by Wells, and be was thereby induced to purchase tbe stock and make tbe note signed by himself and endorsed by bis codefendant, James Howard. Tbe Soutbport bank loaned on tbe note its-face value of $5,000 less discount of 6 per cent.
    At tbat time tbe affairs of tbe Bank of Soutbport were actively attended to by tbe vice-president and cashier, botb of whom resided at Soutbport and who passed upon tbe acceptance of this note. Tbe note was transmitted to them in a letter from Tbos. E. Cooper, who, after describing tbe note, wbicb be enclosed, stated tbat it was perfectly good and tbat Wells and Howard were worth $100,000 net. It is uncontra-dicted evidence tbat neither Berg nor Buark, officers of tbe South-port Bank, wbo discounted tbe paper, at tbe time bad any knowledge of tbe insolvency of tbe Commercial National Bank, nor of tbe fact tbat tbis note bad been given by Wells in payment for stock of Commercial National Bank purchased by bim from Tbos. E. Cooper. Tbe only information tbey bad was tbat contained in tbe aforesaid letter of Cooper to tbe Bank of Soutbport, wbieb did not inform tbem of tbe true condition and circumstances under wbicli tbe note was taken. Tbe note became due 26 August, 1922, and was renewed for 60 days, and then again renewed on 25 October, 1922, wbieb last renewal is tbe note in suit.
    Tbe jury found upon tbe issues submitted to tbem:
    (1) Was tbe note- in controversy procured by fraud and misrepresentation as alleged in tbe answer ? Answer: Yes.
    (2) If so, bad tbe Bank of Soutbport, at tbe time of tbe purchase of said note, notice of such alleged fraud? Answer: No.
    (3) Did tbe Bank of Soutbport purchase said note for value and before maturity? Answer: Yes.
    (4) Wbat amount, if any, is tbe plaintiff entitled to recover of tbe defendants? Answer: $5,000, with interest from 24 December, 1922.
    Tbe court rendered judgment for tbat amount in favor of tbe plaintiff, and tbe defendants appealed. ' ■
    
      Jos. W. Ruark and Ruark & Campbell for plaintiffs.
    
    
      Bellamy & Bellamy and Rountree & Carr for defendants.
    
   Clark, C. J.

Tbe defendants moved for nonsuit upon tbe ground tbat “Tbos. E. Cooper was president of tbe Bank of Soutbport and participated in tbe discount of tbe note by tbat bank, and any knowledge of any informality in tbe note or any defense thereto known to bim is imputable to tbat bank, or, more properly, is tbe knowledge of tbe bank itself.” There is no evidence tbat Thos. E. Cooper participated in tbe discounting of tbe note by tbe Bank of Soutbport. It is true tbat be transmitted tbe note from Wilmington to tbat bank with a statement of tbe entire solvency of tbe signer and endorser thereof. There is nothing in tbe record to justify tbe claim in the defendant’s brief tbat tbe note was discounted by Tbos. E. Cooper with tbe Commercial National Bank. Tbe note on its face is payable to tbe bank at Soutbport.

Tbe court charged tbe jury tbat tbe burden of proof was upon tbe plaintiff to satisfy tbe jury, by tbe greater weight of tbe evidence, tbat tbe Bank of Soutbport at tbe time of tbe purchase of tbe note bad no notice of tbe fraud, and tbat it was admitted tbat Tbos. E. Cooper was president of both tbe Commercial National Bank and tbe Bank of Southport; that as said Cooper was at that time president of the Bank of Southport, and sent the note to that bank for purchase, any notice or knowledge he had of the fraud is presumed to he imputed to the bank; that is, it is presumed that the bank had such notice or knowledge of the fraud as its president (Cooper) had, and added the following, which is excepted to: “This presumption would be rebutted, however, if Cooper at the time, and with respect to this transaction, was acting for himself and in hostility to the Bank of Southport, or if, as president of both the Bank of Southport and the Commercial National Bank, he felt such a greater interest in the affairs of the Commercial National Bank, that because of such interest he refrained from informing the other officers of the Bank of Southport of the circumstances of the sale of the stock to Wells and the making by Wells of the note in question.”

The defendants also except to the following charge: “The plaintiff further contends that the testimony tends to show that though Cooper was president of the Bank of Southport, yet that it was a personal matter to him, and having committed a fraud in the sale of the stock, that he was then acting, in the matter of the sale of the note to the Bank of Southport, in hostility to the Bank of Southport; or, the plaintiff contends that you should find, if there was a sale of the note by the Commercial National Bank to the Bank of Southport, there is testimony to show that Cooper was favoring the Commercial National Bank, and because of his feeling greater interest in that bank he refrained from giving to Ruark and Berg, the officers of the Bank of Southport, information of the circumstances under which' the stock was sold and the note was given.”

The record does not disclose any request by the Bank of Southport at or about that time to send down any paper for discount. There is no endorsement shown by the Commercial National Bank of the note in suit.

Ordinarily a bank is presumed to have notice of matters which are known to its president, upon 'the theory that he will, in the line of his duty, communicate to the bank such information as he has, but the law recognizes the frailty of human nature, and where the president has a personal interest to serve or is acting in a transaction in his own behalf, the presumption does not obtain that he will communicate to the bank matters which are detrimental to him. Grady v. Bank, 184 N. C., 162; Anthony v. Jeffress, 172 N. C., 381; Corp. Com. v. Bank, 164 N. C., 358; Brite v. Penny, 157 N. C., 114; Bank v. Burgwyn, 110 N. C., 273.

In LeDuc v. Moore, 111 N. C., 516, it appeared that Moore was president 'of the bank and, with the cashier, constituted the discount eomittee, and actually participated as a member of such committee in discounting the note in question.

Bank v. Burns, 49 L. R. A. (N. S.), 764, also differs from tbis case in tbat tbe payee of tbe note in tbat case was president and active manager of tbe bank; tbat be sold and discounted tbe notes to tbe bank, and in so doing acted for bimself personally and as endorsee and also for tbe bank as its president; tbat no other officer or person connected witb tbe bank bad anything to do witb tbe purchase of tbe note, and it bad no notice or knowledge of any facts tbat would invalidate said notes in tbe bands of tbe president. Tbat case cites Innerity v. Bank, 139 Mass., 332, as follows: “While tbe knowledge of an agent is ordinarily to be imputed to tbe principal, it would appear now to be well established tbat there is an exception to tbe construction or imputation of notice from tbe agent to tbe principal in case of such conduct by tbe agent as raises a clear presumption tbat be did not communicate tbe facts in controversy, as where tbe communication of tbe facts would have necessarily prevented tbe consummation of tbe fraud tbe agent was engaged in perpetrating.”

In Curtis v. U. S., 262 U. S., 215, tbe agent whose knowledge was imputed to tbe principal was actively carrying on for tbe principal tbe specific work for which tbe agent bad been appointed.

If tbe Commercial National Bank, of which Cooper was actively tbe president, bad discounted tbis paper witb said bank and transmitted it to tbe Bank of Southport, tbe knowledge which be possessed would have been imputed to tbe bank in Wilmington, but there is no evidence to tbat effect. It does appear tbat be was president only in name of tbe Bank of Southport and' did not actively manage tbe affairs; tbat be lived in Wilmington, where tbe Commercial National Bank did business, and only went to Southport once or twice a year in connection witb tbe affairs of tbe Bank of Southport, to which tbe paper on its face was made payable.

Upon tbe evidence tbe jury might reasonably infer tbat Tbos. E. Cooper “felt such a greater interest in tbe affairs of tbe Commercial National Bank, and tbat because of such interest be refrained from informing tbe officers of tbe Bank of Southport of tbe circumstances of tbe sale to Wells and tbe making by Wells of tbe note in question.”

Tbe Commercial National Bank, of which Tbos. E. Cooper was tbe active president and manager, would be fixed witb tbe notice of fraud practiced by him upon the defendants in tbis connection, but tbis would not be true as to tbe Bank of Southport, of which be was only nominally president, and whose affairs, upon tbe evidence, were managed by its vice-president and cashier.

We think'tbat there is no error in tbe charge in tbe particulars referred to. In Bank v. Burgwyn, 110 N. C., 267, it was held tbat a bank was not affected witb constructive notice by reason of tbe actual knowledge of its president, when tbe latter was dealing witb it in bis individual capacity, and not acting officially for tbe bank in any manner concerning tbe particular transaction.

It bas been frequently beld that notice to an officer of a bank or other corporation of an equity will not be imputed to tbe bank or corporation when sucb officer was clearly not dealing for tbe bank or corporation, but was dealing for bimself witb tbe bank or corporation. Tbis case is stronger because bere Tbomas E. Cooper made an outside transaction, tbe sale of stock in another bank to defendants, and bad no part in discounting tbe note they gave which is in suit.

Tbe evidence justified tbe jury in finding that in tbis case, where tbe note was payable to tbe Bank of Southport and discounted by it, tbe mere fact that Tbos. E. Cooper, who mad© tbe fraudulent representations and profited by it, would not be imputed to tbe Bank of South-port, of which be was only nominally president, when its officers, actually and actively conducting its affairs, bad no knowledge of tbe fraud perpetrated upon tbe defendants which was in nowise a part of tbe transaction by which tbe defendants executed their note to tbe Bank of Southport and received tbe net proceeds of tbe same.

Tbe only other assignment of error in tbe defendant’s brief, to tbe evidence, does not require discussion.

Tbe Bank of Southport loaned tbe defendants tbe $5,000 on their note now in suit, and tbe jury having found that sucb bank bad no notice of tbe fraud, and that it purchased tbe note for value and before maturity, it was not affected by tbe fraud of Tbos.' E. Cooper in procuring tbe defendants to execute said note for bis individual benefit, and is entitled to recover tbe sum loaned.

No error.