#### The State Bank of Tabor, Appellant, v. Isaac Kelly, *et al.*

'Collecting Agents: AUTHORITY. *Ratification.*Where a bank’s debtor transferred a third party’s note to a bank’s agent in part payment of his indebtedness to the bank, when such agent was authorized, only to receive cash, it will be presumed, in the absence of proof 1 to the contrary, that the agent reported the transaction to the bank; and hence where it retained such note for eighteen months thereafter, it will be held to have ratified the transaction, and cannot then claim that the note was taken as collateral security merely.

OPIea and Proof: ratification: *Payment.*Where an agent, authorized only to receive cash in payment of his principal’s claim accepted a note held by the debtor against a third party in payment, the debtor is entitled to show ratification by the principal when sued 2 on the debt, under a plea of payment.

*Appeal from Mills District Court.*— Hon. N. W. Macy, Judge.

Wednesday, October 25, 1899.

ActioN in equity upon a promissory note and to fore-'dose a mortgage securing tbe same. From a judgment in favor of defendants, plaintiff *appeals.*

Affirmed.

*545
      *E. B. Woodruff*for appellant.

*John Y. Stone*for appellees.

Waterman, J.

One W. *It.*Coats, a director of plaintiff bank, negotiated tbe loan represented by tbe note sned upon, taking tbe note, together with tbe mortgage securing it, in bis -own name. He afterwards transferred them to tbe bank. Subsequently to tbe transfer, Coats looked after tbe matter for tbe bank, and received tbe various payments made by defendant. Tbe petition is in tbe usual form. Tbe answer avers payment, and sets out tbe various amounts, and dates thereof, for tbe payment was in installments. Among tbe other allegations of tbe answer is this: “On October 25, 1893, tbe defendant, Isaac Kelly, paid $200 on said note to said W. AL Coats, who was agent of tbe plaintiff, and authorized to receive such payment. This $200 was paid in tbe form of a. note made by Thomas Partridge and John Baldwin to' tbe defendant Isaac Kelly, which will be more fully explained hereafter.” The contro-versy 1 here is as to this payment. Plaintiff admits having received tbe note, but claims that it was taken as collateral security only, and that it has never been paid. Defendant, on tbe other band, insists that it was taken as payment to tbe full extent of its face value. As we have said, tbe payments on tbe note in suit were made to- Coats as representing tbe bank. When tbe Baldwin note was given to Coats, be receipted therefor in this form: “Beceived of Isaac Kelly, note for $200, signed by Thomas Partridge and John Baldwin. Note dated December 23, 1892, interest at I per cent. To apply on note in bank. W. AL Coats.” Defendant testifies that be intended and understood this to be accepted as a payment *pro• tanta*on bis obligation. Prior to this time tbe cashier of tbe bank bad told defendant that whatever Coats did in tbe matter would be satisfactory to plaintiff. It does not appear what statement, if any, *546Coats made to tbe bank when he sent to it the Baldwin note, which he did promptly after receiving the same. It is undisputed, though, that the bank retained this note for some eighteen months after its receipt before notifying defendant that it was not acceptable as a payment. It is. true, the cashier testifies that he notified defendant, before the transaction as to the Baldwin note, that it would be taken by the bank only as collateral. But we think, when all the facts and circumstances are considered, we are not justified in finding in accordance with this statement. As we see the ease, the facts established are these: “Nelly transferred this note to. Coats as a. payment on his obligation. Coats accepted it as such, and tranferred it to the bank. We are authorized to. assume, in'the absence of evidence to the contrary, that he reported to his principal the facts of the transaction. If so, the retention of the note by the bank would be .a ratification of Coats’ act. We may say here that it is conceded by defendant that Coats’ authority did not warrant him in accepting anything but cash in payment of the Kelly note. The position of 'counsel is that his act in taking the Baldwin note was ratified by the bank, and 2 we accept this theory as to Coats’ authority in our discussion of the case. Under the plea of payment, ratification can be shown. *Long v. Osborn,*91 Iowa, 160. It is elementary that if the bank, with knowledge of the,terms on which Coats received the Baldwin note, took and retained the same without objection, it will be held to have ratified what Coats did. Indeed, there is authority for saying that the bank, when it received this paper, was under obligation to inquire and ascertain the facts of the transaction with Coats, and is bound by the knowledge which such an inquiry would have given. *Busch v. Wilcox,*82 Michigan, 336 (41 N. W. Rep. 328).

We need not follow counsel in the other matters discussed, in view of our finding that the Baldwin note was given by defendant and received by Coats in payment to *547tbe extent of its face value, and that plaintiff ratified the transaction.

It is thought by counsel for plaintiff that the fact of the Baldwin note drawing seven per cent interest only, while defendants’ obligation drew eight per cent., is a circumstance strong enough to rebut the idea of the acceptance of the former as payment. But there was accrued interest on the Baldwin note when it was transferred, and this may have been an, inducement to take it. The conclusion of the district court is fully warranted. — Affirmed.