Case Name: Edge v. Stuckey
Court: Ohio Court of Appeals
Jurisdiction: Ohio
Decision Date: 1932-07-27
Citations: 42 Ohio App. 462
Docket Number: 
Parties: Edge v. Stuckey.
Judges: Matice, P. J., and Middleton, J., concur.
Reporter: Ohio Appellate Reports
Volume: 42
Pages: 462–468

Head Matter:
Edge v. Stuckey.
(Decided July 27, 1932.)
Messrs. Maddox & Maddox, for plaintiff in error.
Mr. J ohn P. Phillips and Mr. J. D. Withgott, for defendant in error.

Opinion:
Blosser, J.
This case originated in the court of common pleas and we will refer to the parties as they stood in that court; that is, Viola F. Stuckey will be called the plaintiff and Robert A. Edge the defendant.
On August 27,1930, the common pleas court granted a judgment in favor of the plaintiff against the defendant on a cognovit note for $10,260. She averred in her petition that she was an indorsee, having purchased the note from the payee named therein, the Ohio State Bank of Washington Court House, Ohio, for a valuable consideration before maturity, and claimed therefore to be a holder in due course. The judgment was opened up and the defendant permitted to file an answer. Edge v. Stuckey, 40 Ohio App., 122, 178 N. E., 210. He alleged fraud and bad faith on the part of the plaintiff in the purchase of the note, and claimed that at the time she purchased it she was a stockholder, member of the board of directors, and a vice president of the bank from which she purchased the note; that at that time she well knew that the bank was in a precarious financial condition and that the defendant had on deposit a large sum of money; that the note was renewed every ninety days from March 26,1929, up to and including March 21, 1930; that each renewal note was made payable to the order of the Ohio State Bank, that all interest payments were made to that bank, and that he was led to believe by the conduct of the plaintiff and the bank that the bank was the owner and holder of the note, although the plaintiff claimed to have purchased it on April 15, 1929. On May 12, 1930, when the bank was closed as insolvent, the defendant had on deposit a large sum of money. The defendant further claimed that he would not have kept the same on deposit except that he believed that in the event of a failure of the bank he would be able to set off his deposit against his indebtedness. The plaintiff based her right of recovery on the ground that she was a bona fide holder in due course. The defendant claims that the plaintiff, by virtue of her intimate and confidential knowledge of the bank, acquired through her official position as vice president and director, together with the bank's acts and conduct in the renewals of the note and the receiving of interest, leading him to believe that the bank was the owner of the note, amounted to fraud and bad faith on the part of Miss Stuckey in the purchase of the note. A jury was waived by the parties and the case submitted to the court, which found in favor of the plaintiff.
It is urged that the judgment is contrary to law and against the manifest weight of the evidence.
The evidence discloses that Miss Stuckey had been since the bank's organization a director, vice president, and a valuable customer; that Miss Vera V. Veail, the cashier, as a matter of accommodation looked after some of the financial affairs of Miss Stuckey in connection with the bank, as she also did for some other of the bank's patrons. After the failure of the bank, Miss Veail, acting as the agent of the plaintiff, notified Mr. Edge that Miss Stuckey had owned his note since April, 1929. The defendant claims that this was the first notice he had that the bank was no longer the owner of the note. He stated that he was a lawyer and knew his rights and that he kept on deposit a large sum of money which he would not have kept except that he believed that in the event of the bank's failure he would be able to set off his deposit against his indebtedness. All of the defendant's dealings with the bank, including the renewals of the note and the payments of interest, were conducted through Miss Veail, the cashier. The evidence discloses that when the bank was in need of funds Miss Stuckey disposed of some of her securities, including government bonds, and that she purchased a number of notes from the bank, including the defendant's note for which she paid in casji the face value with accrued interest. While she was a vice president of the bank and attended the monthly meetings of the directors, she was not an active officer. It is the claim of the defendant that Miss Stuckey through her official position knew of his deposit, and that through the knowledge and acts of her and other officers of the bank he was misled into keeping Ms money on deposit, and thus prevented from having a set-off of his deposit against his indebtedness to the bank. There is no direct evidence that Miss Stuckey had actual knowl edge that he was a depositor. While it is to he presumed that from her official position she had a general knowledge of the bank's affairs, it is not to be inferred, and it is not likely, that she had actual knowledge of all of the bank's four thousand depositors.
To constitute a holder in due course of a negotiable instrument, Section 8157, General Code, provides, among other things:
"3. That he took it in good faith and for value.
"4. That at the time it was negotiated to him he had no notice of any infirmity in the instrument or defect in the title of the person negotiating it."
It is not claimed that there is any defect in the title.
Section 8161, General Code, provides: "To constitute notice of an infirmity in the instrument or defect in the title of the person negotiating it, the person to whom it is negotiated must have had actual knowledge of the infirmity or defect, or knowledge of such facts that his action in taking the instrument amounted to bad faith."
It is clear that the defendant would have had the right to a set-off in the amount of his deposit in a suit on the note by the bank, the original payee.
A set-off against a payee of an instrument by the maker is not an infirmity in the instrument. Orr v. Barnett et al., 51 S. D., 607, 216 N. W., 347; Brannan's Negotiable Instruments Law (5th Ed.), 520.
In 24 Ruling Case Law, 820, it is said: "The general rule is that commercial paper negotiated for value before maturity is not subject to set-off or recoupment; a different doctrine would essentially check its circulation and embarrass mercantile operations." 23 L. R. A., 325, note. To the same effect is Pettee v. Prout, 69 Mass. (3 Gray), 502, 63 Am. Dec., 778, the opinion being by Chief Justice Shaw.
But conceding that Miss Stuckey had knowledge that the defendant carried a deposit with the bank, such knowledge would not prevent her from being a holder in due course. Stanbery v. Smythe, 13 Ohio St., 495; 2 Daniel on Negotiable Instruments (6th Ed.), Sections 1435 to 1437; 8 Corpus Juris, 804.
The note in this case was purchased a year prior to the closing of the bank, and the evidence does not show that Miss Stuckey at that' time thought the bank was insolvent. The evidence does disclose, however, that the bank was in need of funds and proceeded to sell some of its. negotiable paper. Under these circumstances Miss Stuckey is not to be criticized for the purchase of the note. Both the plaintiff and defendant were stockholders, and in aiding the bank the plaintiff was assisting all of the stockholders, including the defendant. Miss Stuckey having purchased the note for full value before maturity, and there being no defect in the title, and no infirmity in the instrument, the only remaining question is as to her good faith in the transaction.
The defendant urges that, as Miss Yeail was acting as the agent of the plaintiff in her dealings with him, Miss Stuckey is to be charged with the acts of her agent; that Miss Yeail, having received the interest from the defendant and having arranged for the renewals of the note, was called upon by the rules of ethics and good faith to have told him that the note no longer belonged to the bank, but to Miss Stuckey. This question is not free from difficulty. We know of no legal obligation on the part of the purchaser to notify the maker of the transfer of the note.
In the case of Orr v. Barnett, supra, it was held that knowledge of the bank's insolvency did not entitle the maker of a note to a set-off against its claim for deposits which he could have asserted against the bank except for the transfer.
The evidence, in this case as to the defendant's knowledge of the transfer of the note is in conflict. On the occasion of the renewal of the note he saw the indorsement stamped on the back of the note, which was indorsed without recourse. Miss Veail stated that she erased the indorsement in his presence. He stated in substance that he knew that the note had been transferred, but thought it had been put up as collateral. This would seem to indicate that he had knowledge that the note had been transferred from the bank into the hands of another party. The defendant in testifying in his own behalf stated that he had known for a long time that the bank was in bad condition, and that even with this knowledge he purchased ten shares of its capital stock. With this knowledge the defendant continued to permit his deposit to remain in the bank. If Miss Stuckey knew that the bank was in a precarious condition, then both the plaintiff and defendant were similarly situated as to their knowledge of its condition. As a reviewing court must indulge every presumption in favor of the judgment of the trial court, we are not disposed to hold that the finding of that court was manifestly wrong in holding that the defendant was not deceived by the plaintiff's conduct.
The defendant claims that the court erred in sustaining objections to evidence of deposits of Mr. Edge in names other than his own, and which he stated belonged to him. In no event could the plaintiff be presumed to know that the defendant was the owner of the deposits in names other than his own. There is no direct evidence that the plaintiff had actual knowledge of the deposits, and the law presumes that a deposit belongs to the person in whose name it is entered. 7 Corpus Juris, 639. In view of the further fact that knowledge of defendant's deposits by the plaintiff would not have enabled the defendant to set off such deposits in a suit on the note by Miss Stuckey, a bona fide holder in due course, the trial court properly rejected the evidence of the deposits.
Upon a review of the entire record we do not find any prejudicial error, and the judgment is affirmed.
Judgment affirmed.
Matice, P. J., and Middleton, J., concur.