Marshall County Bank v. Citizens Mutual Trust Co.

I am sorry that I must, with all the deference to which the majority of the court is entitled, withhold my concurrence in the result arrived at in this case.

The notice of motion states that the plaintiff, Marshall County Bank, will move for judgment upon a note "made, signed, executed, indorsed and delivered by and through your agent, Hazlett and Burt, to the said plaintiff * * *." The notice alleges that the note was made payable upon demand to "ourselves" and signed by G. W. Hannan and W. H. Koch and indorsed by them. The notice states that in acquiring the note, the bank got it "for money borrowed by the said George W. Hannan and you, the said W. H. Koch, from the said Marshall County Bank". There are no other allegations of ownership nor of holding in due course by the bank. Under the notice, both of these essentials depend upon the agency of Hazlett Burt. The agency thus becomes the determining factor and is not an allegation that may be disregarded as surplusage. The defendants, the personal representative of Hannan and W. H. Koch, appeared and filed their counter affidavits denying any liability in consequence of the matters alleged in the notice, and filed their pleas of general issue thereto. This was sufficient to put in issue the existence of the agency upon which the demand in the notice was based. Bank v. Bank, 99 W. Va. 544,130 S.E. 142, pt. 10, Syl.; Connor v. Gaskins, 82 Fla. 389,90 So. 379. The fact that the counter affidavit and general denial put the existence of the agency in issue, shows that it is a material allegation. Being material, it cannot be called surplusage. The money from the note was paid by the bank to Hazlett Burt, along with money for several other notes, the total aggregating $30,020.65. The plaintiff offered no evidence to sustain the allegation of agency. To the contrary, counsel for W. H. Koch offered to show that he was an accommodation maker on the note and that the bank knew that fact when it received it. Koch further offered to show that he had never authorized Hazlett Burt or either of them to act as his agent, and that he had never received anything the Marshall County Bank may have paid for the note. After these offers were all refused, a verdict was directed for the plaintiff.

The plaintiff says that it paid the makers of this note approximately $12,000.00 for it through their agents, Hazlett Burt. Both of the defendants deny this in their counter affidavit. There was absolutely no proof of the agency of Hazlett Burt. Therefore, I think that the plaintiff failed to sustain a material and indispensable allegation of his notice, and no matter what informality may be allowed in a notice of motion, the fact yet remains that it is essential to allege a cause of action and to prove the same cause of action that is alleged.

This transaction should not be confused with a transaction with Hazlett Burt under the Negotiable Instruments Act. On plaintiff's own theory, Hazlett Burt did not have possession of this paper as owners or holders in due course. They had possession of the paper merely as the agents of the makers. There had been no delivery of the paper. There could be no delivery of it, unless Hazlett Burt were authorized to deliver. This authorization not only was denied by both the defendants, not only did the plaintiff fail to prove it, but, on behalf of Koch, proof was tendered to show that Hazlett Burt were never his agents for any purpose. Therefore, there could not have been a delivery of this paper on the theory advanced by the plaintiff. If there could have been no delivery, then the paper is not effective to bind the makers, and the law merchant has no application to it.

An allegation that commercial paper was acquired through an agent for the maker is not sustained by proof showing merely that the paper was in possession of the agent, indorsed in blank, or in form amounting to an indorsement in blank. Possession of paper as holder under the law merchant and possession as agent will not stand together. "Ownership of the note and possession thereof in the capacity of agent, are inconsistent things." Bank v. Ohio Valley Furniture Company,57 W. Va. 625, 635, 50 S.E. 880. In the same case, Judge Poffenbarger reviews a number of the cases holding the principal bound by the act of his agent respecting the negotiation of paper. After doing so, he makes the following observation:

"It is to be observed, however, that in none of these cases was the fact of agency known to the purchaser of the note. He did not deal with the holder on the basis of agency or with knowledge of any agency. He dealt with him as the owner of the paper. Nor is this relation of the parties ignored by Mr. Randolph, for he says in the same section, 'From these cases the rule may be laid down that the possession carries with it presumptively the ownership and power to dispose of negotiable paper, payable to bearer or indorsed in blank.' To this proposition, he adds the one previously quoted from the same section as a consistent and sequential one. When the party has possession of the paper and neither the fact of agency nor any other circumstance inconsistent with title in the holder is known to the other party, he may deal on the basis of ownership although there is in fact an unknown agency. He may take good title despite this indisputable fact of which he has no knowledge. These cases furnish no authority for the position that the note is the equivalent of a power of attorney."

This Court, in an opinion by Judge Brannon, inHazeltine v. Keenan, 54 W. Va. 600, 46 S.E. 609, has held that a note indorsed as attorney by the payee, to whom it was made payable in that capacity, put the taker upon such inquiry as that persons having an interest in the note may afterwards assert their equities against the person who received it from such payee-indorser. This was because the word "attorney", appearing after the name of the payee-indorser, signified his agency. The principle could not be different in a case like this where the fact of agency itself was known. This is borne out by reverting to the case of Bank v. Furniture Co., 57 W. Va. 625,50 S.E. 880, the fourth and fifth points of the syllabus, in which it is stated:

"An agent having in his possession, for discount, sale, safekeeping or other purpose, on behalf of his principal, bills, notes or other paper belonging to his principal, indorsed in blank, or in such other form as to permit transfer of title thereto by mere delivery, may be regarded, by strangers having no notice of the agency or the capacity in which such paper is held, as the owner thereof, and dealt with accordingly in respect to it."

"But, if in such case, the stranger has notice of the fact of agency, his dealings and transactions, respecting the paper, are governed by the law of agency. He must regard the paper as the property of the principal and confine his dealings with the agent, concerning it, within the scope of the authority of the latter, actually or apparently conferred."

The language quoted is adopted verbatim as a correct statement of the law in 3 Rawle C. L. at page 1083.

A person who deals with an agent knowing of the agency is bound to look to the nature and extent of the agent's authority. Curry v. Hale, 15 W. Va. 867; Dyer v. Duffy, 39 W. Va. 148,19 S.E. 540, 24 L.R.A. 339; Wells v. Life Ins. Co.,41 W. Va. 131, 23 S.E. 527; Crawford v. Whittaker,42 W. Va. 430, 26 S.E. 516.

The above rule applies with all its vigor to dealings in negotiable instruments by agents. Bank v. Ohio Valley FurnitureCo., 57 W. Va. 625, 50 S.E. 880; Hazeltine v. Keenan, 54 W. Va. 600,46 S.E. 609; Dowden v. Cryder, 55 N.J.L. 329,26 A. 941; Atwood v. Munnings, 7 Barn. C. 278, 108 Reprint 727;East India Co. v. Tritton, 3 Barn. C. 280, 107 Reprint 738; Randolph Com. Paper (2nd Ed.), sec. 388.

In addition to the two principles just laid down we have the principle that a person alleging a cause of action in which an agency forms an integral part, cannot recover without proof of the agency. Ross v. Bliss, 110 Mass. 293; McCabe Steen v.Farrell, 34 Tex. Civ. App. 36, 77 S.W. 1049; Lafourche Transp.Co. v. Pugh, 52 La. Ann. 1517, 27 So. 958; NokomisNational Bank v. Hendricks, 205 Ill. App. 54.

It is to be remembered that the Bank of Moundsville, according to its own declaration, did not deal with Hazlett Burt as the owners of this paper. They dealt with Hannan and Koch. Hazlett Burt were but the agents for the true owners. Therefore, any of the principles of the Negotiable Instruments Act that can be invoked by the bank, must be invoked on the basis of a transaction between it, on the one hand, and Hannan and Koch, on the other. Hannan and Koch have denied such a transaction and the bank has failed to prove it. It may well be that if the bank had dealt with Hazlett Burt as the owners of the note, and if, at the time of so dealing, there had been no knowledge of the agency, the bank could recover under the Negotiable Instruments Act. It could recover by proving the agency it has alleged. As has been pointed out, however, the bank cannot in the same proceeding plead that it dealt with Hazlett Burt as agents for the negotiation of the paper, and take the altogether inconsistent position of recovering on the theory that it dealt with them as holders in due course of the paper. To permit a recovery without proof of the agency means that the bank must be regarded as having received the paper from a holder in due course. It says in its own verified notice that this is not the case. It was denied by the pleadings of Hannan and Koch, and Koch offered to adduce proof to the contrary.

The defendants were summoned into court upon notice that the case to be presented against them would be based upon an agency under the terms of which they were bound by the act of Hazlett Burt. They came to meet that issue, and no such issue was tried. Instead, a verdict was directed in favor of the plaintiff on an entirely different theory of recovery.

For the reasons stated, I would reverse the case.