Johnston County Savings Bank v. Scroggin Drug Co., 152 N.C. 142 (1910)

March 9, 1910 · Supreme Court of North Carolina
152 N.C. 142


(Filed 9 March, 1910.)

1. Notes — Equitable Owner — Possession—Defenses.

AVhen a plaintiff sues upon a note as the equitable owner, and not as a holder in due course, it is sufficient for. him to show possession, by producing the note at the trial, whether it is negotiable or not; and he may recover upon it in his own right as a holder thereof, subject to any defenses the maker may have against the original payee.

2. Notes — Principal and Agent — Agent’s Authority — Ratification.

The doctrine that one dealing with an agent of limited authority must ascertain at his peril the ■ extent of the agent’s power to act for his principal, does not apply when it appears that the principal has received the benefit of the act and has acquiesced therein. In this ease the act in question was that of the manager of an incorporated drug-store company giving a note in his principal’s behalf in consideration of jewelry and a piano, sold and delivered, and upon evidence tending to show that the principal received the advantage of the transaction and did not repudiate the alleged unauthorized act, the question was one for the jury.

Appeal by defendant from Gooke, J., October Term, 1909, of FRANKLIN.

The facts are stated in the opinion of the Court.

P. II. Cook and Frank S. Sfruill for plaintiff.

Wm. II. Ruffin and W. H. Yarborough, Jr., for defendant.

Walker, J.

This action was brought to recover the amount of a note for $499.20, payable in fixed installments to the Equitable Manufacturing Company. There was written, on its back, an indorsement to the plaintiff, but there was no proof introduced by the plaintiff of the genuineness of the indorsement, the court ruling that the production of the note was sufficient to show that the plaintiff was its equitable owner, without any proof that the note had been indorsed in writing to it, as the plaintiff does not claim as an innocent purchaser or as a holder in due course. The note was originally signed by the Boddie-Perry Drug Company, by C. B. Avent, manager. The name of the Boddie-Perry Drug Company was changed to that of the Scroggin Drug Company, the defendant in this case, and the case must be considered with reference to the liability of the defendant to the plaintiff, as if the note had been signed in the name of the Scroggin Drug Company, by O. B. Avent, manager. *143Tbe execution of tbe note by tbe defendant, or its predecessor, was alleged in tbe complaint and denied in tbe answer. It was shown tbat tbe note bad been presented for payment to tbe defendant, and tbat payment was refused. Tbis was tbe substance of tbe plaintiff’s testimony. Tbe defendant moved to nonsuit tbe plaintiff; tbe motion was overruled, and tbe defendant excepted. Tbe defendant thereupon introduced testimony for tbe purpose^pf showing tbat C. B. Avent was not authorized to execute tbe note in its behalf. Tbe defendant was engaged in tbe drug business and tbe note was given in consideration of jewelry and a piano, either sold or consigned to tbe defendant. Tbe contention of tbe defendant was, tbat as these were not articles used in tbe drug business, it was beyond tbe scope of tbe authority of C. B. Avent to execute a note for tbe same which would impose any liability upon it. We think, though, tbe evidence tends to show tbat C. B. Avent was tbe general manager of tbe defendant’s business, tbat be was secretary and treasurer of tbe company, and bad full authority over and control of its affairs, and more especially it tended to show tbat tbe defendant, through its proper officers, bad notice of tbe purchase of tbe piano and jewelry and failed to repudiate tbe alleged unauthorized act of Avent, even if it did not ratify tbe same, with full knowledge of tbe facts.

As tbe plaintiff did not allege tbat it was an innocent bolder of tbe note, but only tbe equitable owner, it can recover against 'the maker without showing a written indorsement, and, therefore, tbe ruling of tbe court, as to tbe proof of tbe indorsement, becomes immaterial. Having produced tbe note, tbe plaintiff was entitled to recover upon it as tbe bolder thereof, subject to any defenses which tbe maker bad against tbe Equitable Manufacturing Company, tbe original payee. Tyson v. Joyner, 130 N. C., 69. Tbe authorities upon tbis subject are fully collected in tbe case just cited, and it is unnecessary, therefore, to refer to them more especially, or to discuss tbe general principle which they have established. Indeed, tbe doctrine tbat tbe production of a promissory note at tbe trial of an action to recover tbe amount of it is sufficient proof of tbe plaintiff’s ownership, is too well settled to be now questioned. It is very true tbat tbe plaintiff cannot succeed in tbe cause if tbe defendant has any valid legal or equitable defense as between it and tbe original payee. Tyson v. Joyner, supra.

It is now contended by tbe defendant that tbe doctrine which permits tbe plaintiff to recover upon his equitable ownership of a note, by tbe production of it at tbe trial, which is prima fade proof of bis ownership, nothing else appearing, applies only to negotiable instruments, and counsel cite tbe case of Gregg v. *144 Mallett, 111 N. C., 78, to sustain this position; but we do not think that case is in point. The case of Tyson v. Joyner, which we have already cited, distinctly holds that the production of a note entitles the plaintiff to recover 'as its equitable owner, but does not cut off any defense as between the original 'parties, which can only be done by written indorsement, where the note is payable to order. The headnote in that case, by the former reporter, now Judge Biggs, states clearly the principles which we then laid down, and is as follows: “1. In an action on a note, it is error to hold that the mere introduction of the note, with the name of an indorsee written on the back, is evidence of its indorsement by such indorsee, so as to vest the legal title in the plaintiff and cut off any defenses against the indorsee, as the signature of the indorsers, where indorsement is required to vest the legal title, must be proved. 2. In an action on a note the mere introduction of the note raises a presumption that the holder is only the equitable owner, and it is subject to any equities or other defenses of the maker against prior holders. 3. A note payable to order must be specially indorsed by the payee (and prior indorsees, if any) to the holder, or at least in blank,'to make him its legal owner and the bona fide holder of a title good against prior equities of which he is not shown to have had notice. 4. An instrument payable to bearer can be negotiated by delivery, and consequently no indorsement is required. 5. Where a note is indorsed in blank, the holder has the authority to make it payable to himself or to any other person, by filling up the blank over the signature, and this may be done -at or before the trial. 6. Where in an action on a note the plaintiff has proved only an equitable title thereto, an instruction was erroneous which cut off matters of defense existing between the defendant (maker) and an indorsee.” Tyson v. Joyner, 139 N. C., 69. In the case of Osgood v. Artt, 17 Fed. Rep., 575, Judge I-Iwrlan says: “It is a settled doctrine of the law-merchant that the bona fide purchaser for value of negotiable paper, payable to order, if it be indorsed by the payee, takes the legal title unaffected by any equities which the payor may have as against the payee. But it is equally well settled that the purchaser, if the paper be delivered to him without indorsement, takes by the law-merchant only the rights which the payee has, and therefore takes subject to any defense the payor may rightfully assert as against the payee. The purchaser in such case becomes only the equitable owner of the claim or debt evidenced by the negotiable security, and in the absence of defense by the payor may demand and receive the amount due, and, if not paid, sue for its recovery in the name of the payee, or in his own name when so authorized by the local law.”

*145In Trust Company v. Bank, 101 U. S., 68, it is said: “Tbe contract cannot, therefore, be converted into an indorsement or an assignment. If it could be treated as an assignment of tbe note, it would not cut off tbe defenses of tbe maker. Sucb an effect results only from a transfer according to tbe law-merchant, tbat is, from an indorsement. An assignee stands in'the place of bis assignor and takes simply an assignor’s rights; but an indorsement creates a new and collateral contract.”

But tbe other question now under consideration is considered in 1 DanieTNeg. Instr. (5 Ed.), sec. 574, and tbat able and learned text-writer states tbe principle thus: “When, however, a bill or note unindorsed by tbe payee, or indorsed by tbe payee specially and unindorsed by bis indorsee, is in .the possession of another person, tbe question whether or not its bare possession is evidence of bis right to demand payment is of a different character. Without tbe indorsement of tbe payee or special indorsee, sucb possession would clearly not entitle tbe bolder to tbe privileges of a bona fide- bolder for value, as, at best, be would only bold tbe equitable title to tbe instrument, and could not sue at law upon it as a ground of action.” Eeferring to this extract from tbe treatise of Mr. Daniel, we said, in Tyson v. Joyner, supra, at page 73: “Tbe signature of indorsers, where indorsement is required to vest tbe legal title, must be proved. Norton on Bills and Notes, 331. In tbe case of an assignment of a bill or note, which transfers only tbe equitable ownership, as distinguished from an indorsement according to tbe law-merchant, which transfers tbe legal title, tbe equitable owner being tbe party in interest may now sue in bis own name (Code, sec. 177), and be may recover subject to prior equities. Spencer v. Tapscott and Breese v. Crumpton, supra. When it is said in the cases tbat ‘there is a prima facie presumption of law in favor of every bolder of negotiable paper to tbe extent tbat be is tbe owner of it, tbat be took it for value and before dishonor and in tbe regular course of business,’ it will be found tbat reference is made to a bolder by indorsement or to an instrument which, under tbe law-merchant, was not required to be indorsed, but which was negotiable by delivery. Tbe expression was used in Treadwell v. Blount, 86 N. C., 33, cited by plaintiff’s counsel; but in tbat case tbe note was indorsed and tbe signature of tbe indorser was proved.”

As to tbe authority of C. B. Avent to bind tbe drug company, it is very true, as argued by defendant’s counsel, thát where a party deals with an agent with limited authority, be must ascertain, at bis peril, tbe extent of bis power to act for bis principal, and in some cases this doctrine may extend to what are sometimes called general agents, under certain circumstances. Bank *146 v. Hay, 143 N. C., 326; Swindell v. Latham, 145 N. C., 144; Metal Company v. Durham Company, 145 N. C., 293; 10 Cyc., 940 H. It may also be conceded, for tbe sake of argument and as contended by tbe defendant’s counsel, that a general manager, wbo is not authorized to do so, either expressly or by implication arising out of tbe course or conduct of tbe business of a corporation, or from tbe nature of tbe transaction, has no power to execute a negotiable instrument in its name and behalf. 10 Oyc., 929, and Note 93. We said, in Banh v. Hay, supra, that, “The power to bind a principal by tbe making or indorsing of negotiable paper is an important one, not lightly to be inferred. It should be conferred directly, unless by necessary implication tbe duties of tbe agent cannot be performed without tbe exercise of tbe power, or where, as otherwise expressed, tbe power is practically indispensable to accomplish tbe object of tbe agency, and tbe person dealing with tbe agent, subject to tbe principles heretofore stated, must see to it that bis authority is adequate.” See, also, Tiffany on Agencies, p. 215, sec. 48; Mecbem on Agency (1889), secs. 389-393. "While we have referred to this contention of the defendant’s counsel, it must not be understood that we think tbe principle thus alleged by them to be established has any application to this case, for it sufficiently appears that tbe defendant failed to repudiate tbe unauthorized act of its agent, if be bad no power to act as be did, and so far ratified bis act- as to become liable for tbe amount of tbe note, which is now in suit. It also appears in tbe case that tbe defendant, before this action was brought, made a payment on tbe note and thereby recognized its validity. But however this may be, tbe case, as to tbe ratification of tbe defendant, was properly submitted to tbe jury upon tbe evidence, and they have found against the defendant.

We have examined tbe case of Witz v. Gray, 116 N. C., 48, which is now cited to us by defendant’s counsel, and cannot see that it has any bearing upon tbe question of Avent’s authority to execute tbe note.. Tbe plaintiff does not seek to recover upon this note as a bolder in due course, or as an innocent purchaser of a negotiable instrument properly indorsed, but simply as tbe equitable owner of tbe note, which ownership it has established by producing tbe note at tbe trial. If tbe defendant was liable to tbe Equitable Manufacturing Company upon tbe note when it was executed or delivered to that company, it is now liable to tbe plaintiff upon tbe evidence in this case, nothing else appearing. Tbe case was correctly tried in tbe court below, and we must, therefore, affirm tbe judgment.

No error.