Court Opinion

ID: 6246864
Source: CourtListenerOpinion
Date Created: 2022-02-17 21:02:06.636726+00
Date Added: 2024-06-11T08:59:18.967080
License: Public Domain

Opinion by
Mr. Justice Potter,
The question which arises at the outset in this case is, whether the relations between the parties to this action are such as to admit of inquiry into the consideration for the note in suit.
The defenses set up were, first, fraudulent misrepresentations which induced the making of the note by the defendant; and second, an entire failure of consideration. These defenses, if proven, would undoubtedly be good as between the immediate parties; but they are not such as can be allowed to prevail in an action brought by the purchaser of an instrument for value, without notice. Does the plaintiff stand in that position ?
The particular note upon which this suit was brought, was given by Sigel Ashman to L. B. Doty, or order, for the sum of $5,000, under date of August 17, 1893, payable in ninety days. It was indorsed by Doty to the plaintiff, the Central Banking Company, a partnership, of which Doty was at that time, and had been for several years, a member. This note was the fifth in a series of renewals, in all of which the defendant Ashman and L. B. Doty were the immediate parties. The original note of the series was given upon February 12, 1892, differing slightly in form from the others, in that it was drawn by Sigel Ashman to his own order, and by him indorsed, and given to L. B. Doty. After receiving the note, Doty brought it to the office of the plaintiff, and showed it to the cashier. It; was not *541at that time discounted by the plaintiff firm, but was handled by it, and forwarded to the Reeds ville National Bank. The note was, however, payable at the office of the Central Banking Company, at Mt. Union, Pennsylvania, and shortly before its maturity, Doty wrote to the defendant, asking him to see to the note, and if not convenient for him to pay it, to have it renewed, and offering to indorse. The cashier of the plaintiff company also wrote to the defendant with regard to this first note, urging prompt payment, and enclosing a renewal note, payable to the order of Doty, and offering to renew for three months.
In so far as the record shows, the Reedsville National Bank had no communication whatever with the defendant, but acted only at the instance of the plaintiff in discounting this first note, and the subsequent renewals were made by the plaintiff, with the indorsement of Doty. Of course the relation of the plaintiff to the paper was fixed by the knowledge which it had of the condition under which the first or original note of the series was issued. If there was fraudulent misrepresentation which induced its issue, or if there was failure in the consideration for it, all the subsequent renewals were open to the same defense: Campbell v. Sloan, 62 Pa. 481.
We are not without authority in this state as to the effect upon a partnership of the knowledge of one partner concerning the facts connected with the issue of a note. In the course of the opinion in National Bank of Bedford v. Stever, 169 Pa. 581, Justice Green refers to the fact that in Stockdale v. Keyes, 79 Pa. 251, “ we held that the knowledge of a member of an unincorporated banking firm, of the facts relating to the issue of the note held by his firm, was knowledge of his firm, and prevented them from being considered as innocent holders.”
The same principle was more fully elaborated, and the reasoning upon which it is founded, clearly set out in McClurkan v. Byers, 74 Pa. 405.
Following the line of these decisions, we are impelled to hold that the knowledge of Doty as to the origin of the note, and the circumstances of its creation, must be imputed to his fellow members in the partnership, and that the learned trial judge correctly instructed the jury that the plaintiff was not in law an innocent holder, but that the note in its hands was subject *542to all the defenses to which it was liable in the hands of Doty, to whom it was immediately given.
' It is suggested in the argument of counsel for appellant, that the defendant is estopped from setting up the defense of fraud at this time, because of the fact that he paid the discount upon the several renewals, without at the time making any protests as to the misrepresentations which induced the giving of the original note. We cannot adopt this suggestion. The discounting of the various notes given in renewal was not done at the instance of the defendant, nor was it in any way for his benefit; but it was wholly in the interest, and at the suggestion of Doty.
Holding as we do that there was at least constructive notice to the plaintiff, by reason of the actual knowledge of Doty, who was one of its members, there is no room for the operation of the principle of estoppel. In order that it should apply, the utmost good faith is required from both parties. When the holder of an instrument is aware of any illegality connected with it, he cannot be protected by any such claim. We cannot attempt to define the exact limits within which the knowledge of Doty should be imputed to his partners, but it is sufficient to say that if the evidence of the defendant be accepted as true, the manner in which the note was handled, and the conduct of the plaintiff’s cashier in receiving a commission for the sale of stock, to be paid for out of the proceeds of the note, did not exhibit upon the part of the plaintiff that entire good faith, which equity exacts of one who would deprive a defendant of the right to set up the true condition of affairs as a defense.
The note of February 12,1892, was drawn by Sigel Ashman to his own order, and then indorsed by him and transferred to L. B. Doty. It is undisputed, however, that the real relations between Ashman and Doty were such as to make them immediate parties to the note. In so far therefore as the controversy between them is concerned, any defense sufficient to prevent the enforcement of an ordinary contract, will prevail. Lack of consideration, therefore, would be sufficient. It is admitted that no money consideration was given. The testimony of the defendant is that Doty obtained the note under the promise that it would only be used by him for the ptirpose of buying stock in the Bedford Springs Company from other persons; *543that if he did not succeed in getting options on a majority of the stock, no stock was to be bought for the defendant, but the note was to be returned to Ashman. He testifies also that Doty made various representations as to the value of the stock, and as to its earning capacity and the payment of dividends, and various other matters, all of which were afterwards found to be false. This evidence was contradicted by Doty, but he, while contending that the consideration for the note, was the sale of stock, admitted that none was delivered-to Ashman at the time the note was made, nor could he say that any of the stock was ever delivered to Ashman. The testimony was in many respects contradictory, but the credibility of the witnesses was for the jury. If they believed the evidence of the defendant, there was ample to justify a finding of misrepresentation upon the part of Doty, and that the purpose for which the note was executed was never fulfilled, and that the contemplated consideration for the note, was never delivered, and that the promise made when the note was executed, as to its use, was subsequently violated.
We cannot regard this case as being merely that of oath against oath, with the persuasive evidence of the note, in favor of the plaintiff. It is rather one in which the attending facts and circumstances speak in favor of the defendant, and these may well be regarded as the equivalent of another witness. The peculiar circumstances under which the note was procured from the defendant; the fact that Ashman and Doty were strangers, and were introduced by Bell, the cashier of the plaintiff company, who was paid a commission upon the sale of the stock; the representations made as to the financial condition of the Bed-ford Springs Company, and as to the profits of the business : the interest which Doty had in securing for himself a controlling interest in the stock, and the benefits which would accrue to him by reason thereof; the correspondence between Doty and the defendant as bearing upon the representations made when the note was given, and as inducements to him to sign the various renewals ; the fact that no stock was ever delivered by Doty to the defendant; all these and various other matters appearing in the testimony, were for the consideration of the jury as tending, at least, to corroborate the defendant, and they may have been potent in convincing the jury that his version of the affair was the true one.
*544As all tbe assignments of error relate to the refusal of the trial court to give binding instructions in favor of the plaintiff, none of them can be sustained. We see no sufficient reason for complaint by the plaintiff, as to the manner in which the case was submitted to the jury.
The judgment is affirmed.