Opinion
No. 31156.
April 2, 1934.
1. BANKS AND BANKING.
Where loan committee of bank had no notice that note was given for stock illegally sold by corporation which had not complied with Blue Sky Law, that bank president who sold note to committee had such notice did not establish notice to bank.
2. BILLS AND NOTES.
In suit on fifth of series of notes by bank, that attorney for holder of fourth note in series who brought suit thereon had stated to defendant after maturity of fifth note that he received fifth note and would amend declaration to include it held not to establish that fifth note was transferred to bank after maturity.
3. BILLS AND NOTES.
Purchaser in good faith of notes before maturity without notice that notes were given for purchase of stock in corporation which had not complied with Blue Sky Law is protected by negotiable instruments law.
4. CORPORATIONS.
Where officer of corporation deals adversely with corporation in transaction, notice to officer is not notice to corporation.
5. BILLS AND NOTES.
In suit on note, giving of new note maturing at later date after suit was brought and defendant knew of all defenses on note held sufficient consideration to authorize recovery.
6. BILLS AND NOTES.
Where party has full knowledge of defenses to note, giving of new note payable at future date constitutes waiver of defenses.
APPEAL from Circuit Court of Montgomery County.
J.J. Breland and Richard Denman, both of Sumner, and W.T. Knox, of Winona, for appellant.
The fact that a promissory note is given for payment for stock in a corporation which had not complied with the "Blue Sky" laws of the state of Mississippi (sections 4178 to 4198, inclusive, Code of 1930), does not constitute a defense in the hands of a bona fide purchaser for value without notice.
Riddle v. Tallahatchie Home Bank, 132 So. 128; Cooper v. Robertson Investment Co., 117 Miss. 108, 77 So. 953; National Bank v. Feeney, 9 S.D. 550, 70 N.W. 874, 46 L.R.A. 732; First National Bank v. Leeton Bro., 131 Miss. 324, 95 So. 445, 448; Brannan Negotiable Instruments, pp. 382, 383 and 432; Scott County Milling Co. v. Powers, 112 Miss. 798, 73 So. 792.
When one gives a note in renewal of another note with knowledge at the time of defenses thereto, the maker who renews the note thereby waives such defenses and cannot set same up to defeat or reduce a recovery on the renewal note.
8 C.J. 444, sec. 858; Colt Co. v. Kelly, 107 So. 757; Brewer et al. v. Automobile Sales Co., 111 So. 579; Colt Co. v. I.T. Kelly et al., 120 So. 216; Memphis Automatic Music Co. v. Chadwick, 146 So. 137; Parson Lbr. Mfg. Co. v. Farrior, 141 So. 696.
V.D. Rowe, of Winona, for appellee.
We submit that the Riddle case, 132 So. 128, did not change the law of a corporation's being charged with notice received by its officers, especially its president, while such officers are attending to that corporation's business.
Notice acquired by an officer of a bank, acting in his official capacity, is notice to the bank.
First National Bank v. C.W. Leeton Bro., 95 So. 445.
A corporation must act through its officers and agents; notice to the corporation is obtained through the knowledge or notice of its officers and agents.
First National Bank v. C.W. Leeton Bro., 95 So. 447; First National Bank v. Burns et al., 88 Ohio St. 434, 103 N.E. 93, 49 L.R.A. (N.S.) 764.
The authorities cited by counsel for appellant with reference to waiver of defenses to a note by a note given in renewal thereof do not apply at all in a case such as the one at bar because the case at bar involves a renewal note given and accepted in the face of full and complete knowledge of the fact that the old note for which the renewal was given was an illegal note, against public policy and unenforceable.
Ellis Jones Drug Co. v. Williams, 139 Miss. 170, 103 So. 810; Aldridge v. Rice, 138 So. 570; Farmers Merchants Bank v. Parker, 263 S.W. 84, 35 A.L.R. 1253; Kennedy v. Welch, 196 Mass. 592, 83 N.E. 11; 8 C.J. 444; Colby v. Title Ins. Co., 160 Cal. 632, Ann. Cas. 1913A, 515; Brown v. Columbus First National Bank, 137 Ind. 655, 37 N.E. 138, 24 L.R.A. 206; Langan v. Sankey, 55 Ia. 52, 7 N.W. 393; Wheeler v. Wheeler, 5 Lans. (N.Y.) 355; Robinson v. Patterson, 71 Mich. 141, 39 N.W. 21; Hardy v. Smith, 136 Mass. 328; Stanard v. Sampson, 23 Okla. 13, 99 P. 796; McCormick Harvesting Mach. Co. v. Miller, 54 Neb. 644, 74 N.W. 1061; Henry v. State Bank, 131 Ia. 97, 107 N.W. 1034.
The Tallahatchie Home Bank filed suit against the appellee, C.H. Aldridge, on one of a series of five notes given by Aldridge to the Keystone Cotton Oil Company, a nonresident corporation, for stock of said corporation. The Keystone Cotton Oil Company is a Tennessee corporation, but was operating a cotton oil mill in Mississippi. The notes were payable to bearer, and the stock was attached to the notes when given as collateral security therefor.
The declaration alleged that the Tallahatchie Home Bank was the purchaser, for value, without notice, prior to the maturity of the notes.
The defense was that the notes were given for the stock of a corporation which had not complied with the blue sky law of this state, which transaction was not permissible under the laws of this state. It was alleged that it was the understanding, when the stock was purchased, that the buyer thereof would never be called upon to pay the notes, but that the notes would be paid from the dividends upon the stock.
It appears from the evidence of J.E. Franklin, a witness employed by the Keystone Oil Company to sell its stock, that the scheme was to interest the gin owners in buying the stock, and that out of the profit of crushing the seed the stock would be paid for; and that he was authorized by one Hardy, one of the principal stockholders of the Keystone Cotton Oil Company, to present this scheme to the gin owners to induce them to buy the stock.
There was nothing in the notes to show that they were given for the purchase of stock, they being ordinary commercial bearer notes, but the stock was attached to the notes as collateral.
It also appears from the record that the charter of the corporation was amended, and the amendment shows that Ned R. Rice, president of the Tallahatchie Home Bank, was an incorporator, he having signed the amendment. This, Rice denied, stating that, although his name appears in typewriting on the certified copy, he is not, in fact, an officer or director of the company.
The representations of Franklin were shown to be authorized to be made by Hardy and show that it was expected that the dividends from the cotton oil company would be sufficient to pay for the stock in the course of five years, and that one note for one-fifth of the value of the stock was payable for each of the five years covered by the series of notes. It is also shown that the dividends for the first year were almost sufficient to pay the note for that year.
Aldridge paid the first three notes. The fourth note was sued on by Ned R. Rice, as owner, who assigned it to the Charleston Bank before maturity, and, when it became due, Rice, as indorser, paid it and brought suit upon it.
It is shown in the testimony of Ned R. Rice and H.H. Womble, one of a committee of the bank to purchase the note from Rice, that the note involved in the case at bar is the fifth note; that the bank had no notice that the note was given for the purchase of stock, being a purchaser before maturity, for value, without any notice. Rice testified that he bought twelve thousand five hundred dollars worth of stock, including the notes given by Aldridge, and he (Rice) knew personally that the notes were given for stock in the Keystone Cotton Oil Company.
Aldridge attempted to show that Rice, as president of the bank, had notice that the notes were given for stock in the corporation, and contends that the notice to Rice given in a telephone conversation, disclosing the representations by Franklin, was prior to the date the note was assigned to the bank.
We have carefully examined this evidence, and we do not think there is sufficient proof to show that notice was ever communicated to the bank. It does not appear in the conversation to which Aldridge testified that the bank was the owner of the notes at that time, or ever had any knowledge of the fact that the notes were given for stock.
It appears that Rice brought suit on the fourth note, and that suit was pending in the circuit court, and the issues had been made up, and it was to be tried at the March, 1930, term of the circuit court; that Aldridge had a conversation with Knox, attorney for Rice, in which Aldridge suggested that there was another note and that the declaration be amended to include it so as to save expense in litigation; that Knox stated he did not know there was another note, but that he would look into it. The April term of the Montgomery county circuit court was pretermitted, and Aldridge claims that, after he received notice that court had been pretermitted, he had another conversation with Knox in which he stated that he had received the other note, which conversation was some days after the maturity of the note here sued on.
It further appears from the testimony of Aldridge that there was some kind of understanding that the declaration filed by Rice would be amended, but this was not done; a separate suit being filed by the appellant here.
This evidence does not tend to show, in our opinion, that Rice held the present note, and it does not contradict the evidence of Womble and Rice that the bank was the purchaser, for value, without notice, before maturity.
However, for the fifth note upon which suit was entered in the name of the Tallahatchie Home Bank, a new note was given, payable at a future date.
The court submitted the question to the jury, which found for the defendant, Aldridge.
At the time the new note was given the case of Riddell v. Tallahatchie Home Bank, 160 Miss. 141, 133 So. 128, had been decided. Therein we held that a purchaser, in good faith, of notes, before maturity, without notice, was protected by the Negotiable Instrument Law, although they were given for the purchase of stock of a corporation which had not complied with the Blue Sky Law of Mississippi. That case involved a note given by Riddell for stock of the Keystone Cotton Oil Company, which note was purchased by the bank without notice, before maturity. We think that case is controlling here. The loan committee of the bank purchased the note involved in the case at bar, said committee being composed of H.H. Womble, C.E. Anderson, and Jake Weinstein, and the notes were sold to the bank by Ned R. Rice, president of the bank, who did not give notice to the bank as to what the security of the notes was, or that they were for the purchase of stock.
We have held in several cases that, where the president or other officer of a corporation deals adversely with the corporation in any transaction, notice to the president is not notice to the corporation whatever the corporation may be. See the cases of Cooper v. Robertson Inv. Co., 117 Miss. 108, 77 So. 953; Riddell v. Tallahatchie Home Bank, supra; First National Bank v. C.W. Leeton Bro., 131 Miss. 324, 95 So. 445, 448; Scott County Milling Co. v. Powers, 112 Miss. 798, 73 So. 792. See, also, National Bank v. Feeney, 9 S.D. 550, 70 N.W. 874, 46 L.R.A. 732, and Brannan on Negotiable Instruments, pp. 382, 383, 430-432.
We do not think there was sufficient evidence to show that the bank purchased the notes with notice, or to overturn the evidence of Ned R. Rice and H.H. Womble. We are further of the opinion that the giving of a new note, under the circumstances shown in this record, constituted a sufficient consideration, and would support the plaintiff's right of action in this case.
It must be remembered that the issues were made up. There was a genuine controversy, and, at least, a doubtful case for the defendant in the suit then pending on the original note filed. Where a party has full knowledge of all defenses to a note, and executes a new note payable at a future date, he then waives all his defenses and becomes obligated to pay the new note. J.B. Colt Co. v. Kelly, 142 Miss. 617, 107 So. 757; Brewer v. Auto. Sales Co., 147 Miss. 603, 111 So. 578; J.B. Colt Co. v. Speight (Miss.), 120 So. 216; Memphis Automatic Music Co. v. Chadwick, 164 Miss. 635, 146 So. 137. See, also, 8 C.J., sec. 858, and R.L. Parsons Lbr. Mfg. Co. v. Farrior, 225 Ala. 61, 141 So. 696.
We are therefore of the opinion that the court below erred in submitting this case to a jury, but should have granted a peremptory instruction for the plaintiff. The judgment will be reversed and judgment entered here for the plaintiff for the amount of the notes, with interest and attorney's fees as shown on the face thereof.
Reversed and rendered.