Case ID: ohio-st_54/html/0425-01.html
Source: Caselaw Access Project
Author: {"author": "Minshall, J.", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

Harper et al. v. National Bank.
    
      Agency — Promissory note given by agent — Consideration for use of undisclosed principal — Payee may hold undisclosed principal for money had and received — Such count is valid claim against assignee of principal.
    
    H, for Ms own use procured M. to make and indorse a note for $6,000 in Ms own name, and attach thereto certain shares of stock transferred to Mm by H. for that purpose; on this note with the collateral attached, the agent, through a broker, and without disclosing his principal, obtained from a bank, which had no knowledge of the facts, a loan for the amount of the note; the agent had no interest in the transaction other than the accommodation of his principal, and is irresponsible and the stock of no value ; and H. having made an assignment for the benefit of creditors, the bank presented its claim for allowance, which was rejected.
    
      Held: that the bank has the right to have the amount, so obtained from it, allowed as a valid claim against the estate of H. in insolvency.
    (Decided April 28, 1896.)
    Error to the Superior Court of Cincinnati.
    The Tiffin National Bank, plaintiff below, brought suit in the superior court of Cincinnati ag’ainst E. L. Harper and Hiram P. Lloyd, his trustee in insolvency, for the allowance of a claim against the estate in the settlement of his trust. The court, in special term, sustained a demurrer to the petition, based on the ground that it did not state facts sufficient to entitle the plaintiff to relief. -On error, this judgment was reversed by the general term, and the cause remanded to the special term for further proceedings. The only question presented here arises upon the sufficiency of the petition. It contains two causes of action; but as the second, except as to the maker of the paper, is substantially the same as the first, for the purpose of understanding the objection made on demurrer, it is sufficient to set forth the first. It is as follows: “On May 3, 1887, defendant, E. L. Harper, procured J. H. Matthews to execute and indorse in blank a note, a copy of which is as follows :
    “$6,000.00. Cincinnati, May 31, 1887.
    “On demand, after date, I promise to pay myself, or order, six thousand dollars, for value received, payable at H. B. Morehead & Co’s office, with interest at five per cent., having deposited or pledged as collateral security for the payment of this note, certificate No.-, for fifty (50) shares of the capital stock of the Fidelity National Bank of Cincinnati.
    “And I hereby give to the holder hereof full power and authority to sell or .collect, at my expense, all or any part or portion thereof, at any place, either in Cincinnati or elsewhere, at public or private sale, at holder’s option, on the non-performance of the above promise, and at any time thereafter, and without advertising the same, or otherwise giving to me any notice.
    “In case of public sale, the holder may purchase, without being liable to account for more than the net proceeds of such sale.
    (Signed and indorsed) “J. H. Matthews.”
    
      “The stock evidenced by said certificate was the property of said Harper, who caused the certificate to be issued in the name of said Matthews to enable the latter more easily to negotiate said note for his benefit.
    “Said note, with the certificate of stock: therein mentioned, was thereupon delivered to H. B. More-head & Co., to be by them sold as brokers and agents for said Harper, and was bought by plaintiff from said Morehead & Co:, agents for defendant, plaintiff paying therefor the sum of six thousand dollars, which said sum was by said Morehead & Co. turned over to said E. L. Harper. Said Matthews acted in the premises, not on his own behalf, but simply as agent for said Harper, and made and indorsed said note without consideration and for accommodation of said Harper. Said note is wholly unpaid. Plaintiff was unaware at the time of the transaction aforesaid, and, until a short time ago, that said Matthews was acting as agent for any one or otherwise than on his own behalf. Plaintiff made due demand for the payment of said note on June 23, 1887, but payment was then refused and plaintiff still holds said note and owns the same. On said date said stock was worthless and said Matthews irresponsible financially. Harlan P. Lloyd is the trustee in insolvency of the estate of E. L. Harper by the appointment of the probate court of Hamilton county, Ohio, in a proceeding wherein said E. L. Harper had made an assignment for the benefit of his creditors under the insolvent laws of Ohio, and the claim herein set forth, duly verified, was presented to said trustee for allowance less than thirty days prior to the filing of this petition, who declined to allow the same'.
    
      “And the .plaintiff further says that it is, and was at the times hereinbefore named, a corporation by the laws of the United States.”
    The prayer is, that the trustee be ordered to allow the claim as a valid one against the estate of Harper.
    
      II. P. Loyd, for plaintiffs in error.
    This court in the cases of Anderton v. Shoup, 17 O. S., 125, and Bank v. Cook, 38 O.’ S., 442,established the rule that “parol evidence is not admissible to add a party to the instrument who does not appear upon its face.”
    The plaintiff below, aware of this' rule, has framed its amended petition in the form of an action in assumpsit for money had and received, whereby it seeks to recover from Harper, the alleged principal, theconsideration paid to the broker for the purchase by the plaintiff of the said notes and collaterals.
    Can the plaintiff below maintain an action in that form, when the special contract is a negotiable instrument ? In other words: Does a special action on the case lie, where the special contract relied upon to sustain it is a negotiable instrument? Bliss on Code Pleading, 2d ed. p. 19; Bliss on Code Pleading, 2d ed. 14, citing 1 Sanders, 5 ed. p. 291 (Note); Masters v. Stratton, 7 Hill, 101.
    In any contract like the one under consideration there must be between the parties to the suit a mutuality of rights and obligations. The decisions are uniform and clear upon this point. Note to Thomson v. Davenport, Smith’s Lead. Cas., vol. 2, p.377, citing Ford v. William, 21 How., 287; Elkins v. Boston & Maine R. R. Co., 19 N. H., 337; 
      Cushing v. Rice, 46 Me., 305; Chandler v. Coe, 54 N. H., 561; Burton v. Simonton, 3 Col., 346.
    Privity is even more essential than mutuality. In actions in tort no privity is necessary, but in actions on contract privity is indispensable. In the case stated in the petition, no privity is shown between the Tiffin Bank and Harper, and from the very nature of the transaction none could be shown in evidence.
    This rule of law has been rigorously applied by the courts to a large class of eases. Even in a case where money was borrowed by one member of a copartnership, and his notes were given, although the money received went into the business of the firm for the common benefit, on the subsequent insolvency of the individual member an action could not be maintained against the remaining members of the firm to recover on the common counts as for money had and received for the use and benefit of the firm. Rogers v. Coit, 6 Hill, 322; Peterson v. Roach, 32 Ohio St., 374; Allen v. Coit, 6 Hill, 318; Bank of N. America v. Hooper, 5 Gray, 567; Cragin v. Lovell, 109 U. S., 194.
    Any agent entrusted with securities for the purpose of dealing with third parties is deemed the owner of such securities. Cleveland Brown & Co. v. Shoeman, 40, Ohio St., 176.
    A certificate of stock represents property in the same manner as a warehouse receipt. Mathews and Gahr were at least so far as dealings with third persons were concerned, the owners of the stock pledged, and any one else would have been estopped to question their title as against the Tiffin Bank. Story on Agency, Sec. 423; Thompson v. Davenport, Smith’s Lead. Cas., Vol. 2, p. 435; Lincoln v. Crandell, 22 Wend., 102 ; Newcomb v. Clark, 1 Cen., 226; 
      Briggs v. Partridge, 39 N. Y., Sup. Ct., 339; Cummings v. Kent, 44 Ohio St., 92.
    
      Wilby <& Wald, for defendant in error.
    As a matter of ethics, it would be difficult to affirm that Harper, who procured the money in this way and used it for his own benefit, is not bound to repay it.
    It is claimed, however, that as a matter of law, he is not so bound, by reason of a hard and fast rule of law that no person can be sued on a negotiable instrument unless his name appears upon it. We have no disposition to question either the existence of the rule or its rigidity. The petition was carefully framed so as to state a cause of action not upon the note, but for money of plaintiff had and received by Harper. We maintain that Harper, though not liable upon the note, is liable for thecoresideration Pope v. Meadow Springs Distilling Co., 20 Fed. Reporter, 35; Pentx v. Stanton, 10 Wend., 271; Allen v. Coit, 6 Hill, 318; Kayton v. Barnet, 116 N. Y., 625.
    Two of the cases principally relied upon by plaintiff in error, perhaps, deserve comment. Cragin v. Lovell, 109 U. S., 194; Lowell v. Williams, 125 Mass., 439.
    A case much in point is .Merchants National Bank v. Little, 4 C. C. R., 195, opinion by Judge Shauck. And a case precisely like the one at bar upon all the facts is Bank of Chicago v. City Bank of Portage, S. C. Ills. 40, N. E. Rep., 329.
   Minshall, J.

The objection to a recovery on the petition is, that Harper’s name nowhere appears on the note, and that no recovery can be had against him, nór his assignee, for this reason, although, the money was thus raised for his use, and he in fact received it; and authorities are cited to show that parties, cannot be added to and made liable on instruments of this kind by parol. This is conceded to be the rule, particularly where there is a disclosed principal. In such cases the presumption is that the paper was taken on the credit of the parties to it. But such is not this case, and the objection to the petition on this ground misapprehends its character. The action is not on the note signed and indorsed by Matthews, but on the special facts of the case, of which the making of the note is but a part. It is a settled principle of the law founded on the plain principle of justice, that where one receives money that in equity and good conscience belongs to another, the latter may recover it as money had and received to his use. This was the phraseology of the common law, used for the sake of the remedy, assumpsit. ■ Under the code the fiction of a promise is not required — is, in fact, contrary to its rules. By it, where the statement of the facts show a duty neglected on the part of the defendant, and of which the plaintiff has the right to require performance, the petition states a cause of action.

The facts disclosed by the petition are, in substance, that Harper procured Matthews to make and indorse a promissory note for six thousand dollars, payable at the office of a broker, and also transferred to Matthews 'fifty shares of the stock of the Fidelity National Bank to be, and which were attached to the note as collateral security. On this note the broker obtained the money from the plaintiff and turned it over to Harper. Matthews is irresponsible, and neither the note nor the stock is worth anything. Harper’s connection with the matter was nowhere disclosed, although the entire transaction was directed by himself and was for his sole benefit. Good conscience certainly required Harper to pay back this money as a loan to himself; and, being insolvent, it should be accepted as a valid claim against his estate.

The cases and the books fully support a recovery in such case. As observed before, it is not a case where it may be presumed that the plaintiff elected to rely on the credit of the names of the parties to the paper and the collateral security; for the name of the real party in interest was not disclosed, so that there could have been no election, and the action is not on the note, but against an undisclosed principal upon the special facts of the case, making it inequitable and unjust for him to retain the money, or, in other words, not to pay the note he procured to be made and on which he got the money. Pentz v. Stanton, 10 Wend., 271; Allen v. Coit, 6 Hill, 318; Kayton v. Barnett, 116 N. Y., 625; Lovell v. Williams, 125 Mass., 439; Chemical National Bank v. City Bank, (Ill.) 40 N. E. Rep., 328; 1 Randolph Com. Paper, 180; 1 Parson’s N. & B., 93, note 1.

The case of The Chemical National Bank v. The City Bank is quite similar in its facts to the case before us, but not more so, on principle, than the other cases cited. There, Braden who was the cashier of the Chemical National Bank, under an agreement with its president, drew his individual note for $5,000, payable four months after date to Wetmore or order, and attached to it fifty shares of the stock of the bank as collateral, that had been transferred to him by the bank for that purpose, and the money was obtained on the paper from the plaintiff through Wetmore, a broker, and paid over to the defendant. Not being paid, suit was brought on it against the defendant. The declaration contained the common counts and a special one, in which it was charged that the defendant made the note by “the name, style and description of C. E. Braden.” On error, the judgment below for the plaintiff was affirmed. In disposing of the case the court said: “As before observed, the declaration contained the common counts, and, if it was conceded — which it is not — that the defendant was not liable on the note, no reason is perceived why an action for money had and received could not be maintained. ” And after citing other cases, the court continued: ‘Here the Chemical National Bank received from the plaintiff $5,000, which it agreed to pay. Braden, who signed the note, had no interest in the transaction. Wetmore had no interest. He acted merely as an agent in procuring the loan for the defendant, and transferred the note over to the plaintiff without recourse, and passed the money which the note represented from the plaintiff to the defendant. The money is still in the hands of the defendant. It is the person liable to pay the money, and the City Bank of Portage is the person entitled to receive the money; and, in an action for money had and received, we see no reason why the plaintiff may not surrender the note in court, and recover a judgment for the amount of the money. ’ ’ The accuracy of the courts conclusions in this case is sustained by reason and authority, as will appear from the citations before made.

The case of Peterson v. Roach, 32 Ohio St., 374, is relied on by the plaintiff in error, as applicable. We do not thmK so. It was simply a case where one member of a firm borrowed money oh his individual credit and that of a surety, and after-wards applied it to the use of the firm; and such was his purpose at the time he borrowed the money. But there was nothing to show that the loan was made on the procurement of the firm, or that the other member was undisclosed. The member borrowing the money acted for himself, and not for the firm, nor at its instance.

In the case of Bank v. Hooper, 5 Gray, 567, also relied on, it was held that a bank which had discounted bills drawn in his own name by the agent of a disclosed principal, could not sue the latter, nor prove against his estate in insolvency, although the proceeds were applied by the agent to the use of the principal. This is on the principle before stated, that when' the principal is known to the creditor, credit is presumed to have been given to the agent by accepting his paper instead of that of the principal; and, in such case, when the suit is on the paper, new parties cannot be added to it by parol. As pointed out by counsel, the rule in Massachusetts applicable to the case before us, is stated in the later case, Lovell v. Williams, 125 Mass., 430, where it is held: “If a person sells goods to another, who is an agent of an undisclosed principal, and takes the note of the purchaser in ignorance of such fact, the presumption that the note was taken in payment is rebutted, and the seller may resort to the undisclosed principal.” This rule seems so agreeable to the ordinary notions of justice, that it is difficult to perceive why it should ever have been questioned.

Judgment affirmed.