Case Name: MARGARET H. McDONALD, Plaintiff and Appellant, and EEL RIVER AND EUREKA RAILROAD COMPANY, Intervener and Appellant, v. A. W. RANDALL et al., Respondents
Court: Supreme Court of California
Jurisdiction: California
Decision Date: 1903-06-09
Citations: 139 Cal. 246
Docket Number: S. F. No. 2440
Parties: MARGARET H. McDONALD, Plaintiff and Appellant, and EEL RIVER AND EUREKA RAILROAD COMPANY, Intervener and Appellant, v. A. W. RANDALL et al., Respondents.
Judges: 
Reporter: California Reports
Volume: 139
Pages: 246–257

Head Matter:
[S. F. No. 2440.
In Bank.
June 9, 1903.]
MARGARET H. McDONALD, Plaintiff and Appellant, and EEL RIVER AND EUREKA RAILROAD COMPANY, Intervener and Appellant, v. A. W. RANDALL et al., Respondents.
Action by Wife to Cancel Note and Mortgage—Joint Note for Outlawed Debt of Husband—Want of Consideration—Protection of Purchaser.—An action cannot be maintained by a wife to cancel her note and mortgage for want of consideration, in that it was given for an outlawed debt of her husband, with whom she joined in the execution of a negotiable note, which the mortgage secured, where the defendant was a bona fide purchaser of the joint note and the mortgage before maturity, in the regular course of business,- without notice of any defense thereto on the part of the wife.
Id.—Constructive Notice to Bank as Purchaser—Action of President as Payee.—The bank, as purchaser, is not affected with constructive notice of any defense to the note and mortgage on the part of the wife, by reason of the knowledge thereof by its president, as payee, where it appears that in procuring the purchase thereof by the bank he was acting solely in his own behalf as payee, and at arm’s-length with the bank, and that the note and mortgage were purchased by vote of the directors of the bank, at a meeting at which the president was not present, without any knowledge on their part of a defense thereto.
Id.—Agents of President—Secretary of Bank.—Where it appears that the former secretary of the bank, and also the secretary elected in his place, obtained knowledge of the consideration of the note and mortgage, while acting as agents of the president, as the individual payee, and that the secretary-elect presented the note and mortgage to the bank on behalf of the president as payee, the bank, which purchased the note by vote of its directors, is not chargeable with such knowledge. [Beatty, C. J., dissenting. Henshaw, J., and Shaw, J., expressing no opinion.]
Id.—Recorded Conveyance from Husband to Wife—Note and Mortgage to Secure Husband’s Debt.—The fact that the husband had conveyed the mortgaged property to his wife, and that such conveyance was of record when the joint note and the mortgage were executed by the wife on her part, to secure the husband’s debt, cannot affect the bank, which purchased the note and mortgage before maturity, with constructive notice of a defense of the wife to the note and mortgage for want of consideration, of which the bank had no actual notice. [Beatty, C. J., dissenting. Henshaw, J., and Shaw, J., expressing no opinion.]
Id.—Extension of Time to Husband—Consideration for Wife’s Mortgage.—The extension of time to the husband evidenced by the note executed by him was a sufficient consideration for the execution of the mortgage on the part of the wife to secure the payment of the husband’s debt evidenced by such note. [Per Shaw, J., and Henshaw, J.]
APPEAL from a judgment of the Superior Court of Humboldt County. G. W. Hunter, Judge.
The facts are stated in the opinion of the court.
J. P. Coonan, and Mahan & Mahan, and J. N. Gillett, for Appellants.
The bank was not a dona fide purchaser. It was chargeable with notice of all facts which it might have ascertained by inquiry, having readily accessible means of inquiry. (Mont gomery v. Keppel, 75 Cal. 131; Shain v. Sresovich, 104 Cal. 405; Tynan v. Kerns, 119 Cal. 451; Svetinich v. Sheean, 124 Cal. 217; Wood v. Carpenter, 101 U. S. 135; Bank of Mendocino v. Baker, 82 Cal. 117; Prouty v. Devin, 118 Cal. 260; Svetinich v. Sheean, 124 Cal. 218.2 *) Notice to an agent or officer of a corporation is notice to the corporation. (Bruce v. Red Bluff Hotel Co., 31 Cal. 165; Watson v. Sutro, 86 Cal. 517; Jefferson v. Hewitt, 103 Cal. 630; Balfour v. Fresno Canal Co., 123 Cal. 397; Holden v. New York and Erie Bank, 72 N. Y. 286.)
C. M. Wheeler, for Randall Banking Company, Respondent.
The note of the husband extending time for the payment of his note was a sufficient consideration for the wife’s mortgage. (Lyon v. Robertson (Cal.), 59 Pac. Rep. 990; Civ. Code, sec. 1605.) The knowledge of the president as an individual acting on behalf of the bank was not imputable to the bank. (Thompson on Corporations, sec. 5191.)
Frank McGowan, for J. R. Hanify, Respondent.
The burden of proof was on the plaintiff to show that the defendants were not innocent purchasers, that fact being alleged in the complaint. (Kohler v. Wells, Fargo & Co., 26 Cal. 611.) Also, to show the want of consideration. (Civ. Code, secs. 1614, 1615; Rogers v. Schulenberg, 111 Cal. 281.) The moral obligation of McDonald was sufficient to sustain his note, payable at a fufure day, and the morgtage given to secure it. (Feeny v. Daly, 8 Cal. 84; Booth v. Hoskins, 75 Cal. 271; McCormack v. Brown, 36 Cal. 184; Chabot v. Tucker, 39 Cal. 437; Womack v. Womack, 8 Tex. 397 ; Jones on Mortgages, see. 113, p. 88; Stewart on Husband and Wife, 134; Spear v. Ward, 20 Cal. 659; Queen v. Scranage, 19 Iowa, 46 ; Low v. Anderson, 41 Iowa, 476; Campbell v. Tompkins, 32 N. J. Eq. 170-173; Connover v. Grover, 31 N. J. Eq. 539-554; Collins v. Warsell, 34 Ark. 17-33; Cornegys v. Clarke, 44 Md. 108; Lyon v. Robertson (Cal.), 59 Pac. 996.)
7 Am. St. Rep. 125.
71 Am. St. Rep. 50.
95 Am. Dec. 170.
58 Am. Dec. 119.
87 Am. Dec. 447.

Opinion:
McFARLAND, J.
On February 15, 1897, plaintiff and her husband, Thomas McDonald, since deceased, made and delivered to A. W. Randall their joint negotiable promissory note for $12,895.45, payable to the order of said Randall on February 15, 1900, three years from date; and on the same day, and concurrently with the giving of said note, the plaintiff executed and delivered to Randall, as security for said note, a mortgage on certain real property of plaintiff. This action is brought to obtain a decree canceling said mortgage, on the ground of want of consideration. The action is against said Randall, the Randall Banking Company (a corporation), and J. R. Hanify. The Eel River and Eureka Railroad Company intervened. Judgment went in the court below for defendants, and the plaintiff and intervener appeal from the judgment. It seems to be admitted, and, at all events, the fact is, that the rights of the intervener in the premises are dependent upon those of the plaintiff, and the rights of Hanify upon those of the Randall Banking Company; so that the questions involved are practically those between plaintiff and said banking company.
The court found that the only consideration for the note and mortgage was a past indebtedness of the husband, Thomas McDonald, to Randall, which was barred by the statute of limitations,—that is, if an action had been brought upon said indebtedness, Thomas McDonald could, if he should choose to do so, have successfully pleaded the bar of the statute to such action. Upon this state of facte counsel for the respective parties elaborately argued the question whether, although this past outlawed indebtedness was a sufficient consideration for the making of the note by Thomas McDonald, it was a sufficient consideration for the making of the note and mortgage by the plaintiff. But under our views of the case, it is not necessary for us to decide this question; for we think that the judgment must be affirmed upon another ground.
The note, to which the mortgage was an incident, was a negotiable instrument. It was regularly indorsed by the payee, Randall, and delivered to the respondent, the Randall Banking Company, on April 12, 1897,—of course, long before its maturity. At that time Randall was indebted to the banking company in an amount much larger than the amount of the note, and the banking company received the note and mortgage as part payment of Randall's indebtedness to it, and credited the full amount of the note on such indebtedness. The court found "that the said Randall Banking Company purchased said note and mortgage in good faith, in the ordinary course of business, and for value, before its maturity, and in ignorance of the fact that as to Margaret H. McDonald it was given without consideration, or for a debt which was barred by the statute of limitations. ' ' This finding, if sustained by the .evidence, is determinative of the case against the appellants. It is contended, however, that this finding must be held to be unwarranted, because it appears, and the court found, that Randall was the president of the bank and knew of the consideration of the note. But when he procured the bank to take the note as part payment of his indebtedness, he was acting individually and at arm's-length to the bank, and his knowledge was not the knowledge of the bank. The same may be said of the former secretary, Murray, who was absent when the bank acted in the matter of accepting the note and mortgage, and who obtained his knowledge while acting for Randall individually; and also of Roberts, who was elected secretary on the day the bank acted, and who presented the note and mortgage to the bank for and as agent of Randall. The note and mortgage were accepted at a meeting of the board of directors of the bank, at which were present Hill, the vice-president, and four of the other directors, Randall not being present. Neither Hill nor any of the other directors knew that the consideration of the note was an outlawed indebtedness. The fact that some of them knew, or should be held to have known, that shortly before the making of the note and mortgage the property covered by the mortgage had been conveyed to the plaintiff by her husband,—it formerly having been community property,—and that the conveyance had been recorded, is of no significance. The validity of the transaction here involved was in no way dependent upon the time at which she acquired title to the mortgaged premises. That a corporation is not chargeable with the knowledge of one of its officers or agents who is acting on his own behalf, and not for the corporation, is beyond question the law. Sufficient authorities are cited to the point in Bank v. Burgwyn, 110 N. C. 267. It is there said, among other things: "In such transactions the attitude of the agent is one of hostility to the principal. He is dealing at arm's-length, and it would be absurd to suppose that he would communicate to the principal any facts within his private knowledge affecting the subject of his dealing, unless it would be liis duty to do so, if he were wholly unconnected with the principal. As was said by the court in Wickersham v. Chicago Zinc Co., 18 Kan. 481, 'Neither the acts nor knowledge of an officer of a corporation will bind it in a matter in which the officer acts for himself and deals with the corporation as if he had no official relations with it'; or, as was said in Barnes v. Trenton Gas Light Co., 27 N. J. Eq. 33, 'His interest is opposed to that of the corporation, and the presumption is, not that he will communicate his knowledge of any secret infirmity of the title to the corporation, but that he will conceal it.' "
We are of the opinion that the finding above discussed cannot here be disturbed; and therefore it is unnecessary to consider any other point argued by respondents.
The judgment appealed from is affirmed.
Lorigan, J., Angellotti, J., and Van Dyke, J., concurred.
26 Am. Rep. 784.