Finney v. Stanfield Frat. Assn. , 131 Or. 393 ( 1929 )

IN BANC.

MODIFIED. This is a suit to foreclose a mortgage given to secure the payment of seven promissory notes executed by defendant Stanfield Fraternal association in favor of Annie Webster, Florence A. Webster, and Florence E. Finney. Six of these notes were for $1,000 each and one for $500. All of them were dated November 1, 1921. The first note for $1,000 was due one year after date. Plaintiffs allege default in payment of the notes, with the exception of the first note of $1,000 due November 1, 1922, which is alleged to have been paid. The Stanfield Fraternal association admits the execution of the notes and its liability thereon, but denies payment of the $1,000 note in question. As to this note, it is alleged that, in November, 1923, it was sold and transferred to Anna M. Young. The fraternal association asked that she be made a party in order to have a complete determination of the controversy. An order having been made making her a defendant, she interposed an answer and cross-complaint alleging in substance that, on or about November 23, 1923, the note for $1,000 was purchased from the payees named therein and that she is now the owner and holder thereof.

The trial court entered a decree in favor of plaintiffs against the Stanfield Fraternal association in the sum of $5,500 together with interest, and attorney fees amounting to $550. It was further decreed that the intervener Anna M. Young have judgment against the Stanfield Fraternal association for $1,000, together with interest, and an attorney fee of $150. The intervener was also awarded costs against the plaintiffs. It was provided that the proceeds of the sale of the property on execution be applied proportionately to amounts due plaintiffs and the intervener Anna M. Young. Plaintiffs appeal from that portion of the decree in favor of the intervener and against their interests.

The decision of the case hinges on the question as to whether Anna M. Young purchased this note from an authorized agent of the payees. It is not claimed that the sale was made by them directly or that they had knowledge of the transaction at the time of the alleged sale. Florence E. Finney, Annie Webster and Florence A. Webster resided in North Dakota. All of the notes were endorsed to the First National Bank of Fargo, North Dakota, for collection. The endorsements of Annie Webster and Florence E. Finney were made by W.H. Finney as attorney in fact. The endorsement of Florence A. Webster was made by her father who merely signed his initials, "C.E.W." The notes being payable at the Bank of Stanfield in Stanfield, Oregon, the Bank of Fargo, when the first note became due, forwarded it for collection. Correspondence arose between W.H. Finney, acting as agent for the payees, and M.R. Ling, secretary and treasurer of the Stanfield Fraternal association, also vice-president and director of the Bank of Stanfield, wherein payment of the $1,000 note was urged. It is quite evident that the association was in financial streets and was unable to pay the amount due on this note. A son-in-law of Anna M. Young, Frank Sloan, who was president of the association and an officer of the Bank of Stanfield, entered, as her agent, into negotiations with Ling to purchase the note in controversy. Ling claimed to be an agent of the payee having authority to sell the note to the intervener for the amount due thereon. To accomplish the transfer of the title to the note, he changed the original endorsement on the note by inserting the name "Anna M. Young" after the words "Pay to the order of" and by drawing a line through the words "First National Bank, Fargo, N. Dak." The endorsement, after the change was made by Ling, was as follows:

"Pay to the order of Anna M. Young First National Bank, Fargo, N. Dak.

Annie Webster Florence E. Finney (by W.H. Finney, Attorney in fact.

Florence A. Webster By C.E.W."

Ling also crossed out the endorsement of the First National Bank of Fargo which was: "Without Recourse Pay any Bank or Banker or Order. First National Bank of Fargo, N.D.G.W. Jenson, Cashier." Upon delivery of the note to her, Mrs. Young paid to the Stanfield Fraternal association $1,065.30, which was deposited to its account in the Bank of Stanfield. Ling, as treasurer of the association, drew a check in favor of the bank for such sum. On the lower corner of the check was noted, "B.P. 3." meaning bills payable. The bank, by cashier's check dated December 1, 1923, remitted such sum to the First National Bank of Fargo for the benefit of the payee. On August 23, 1923, W.H. Finney, who was pressing the debtor association for payment, wrote its secretary and treasurer, M.R. Ling, in part as follows: "If you can `beg, borrow or steal' the part that is coming to us on your deal, I would very much appreciate if you would send it on at once." On November 30, 1923, Ling thus wrote to Finney:

"We today took up the $1,000 note that was at the Bank of Stanfield for collection, paying interest on same to December first.

"It has been like pulling hens teeth to get money enough together to take care of this note and the interest on the whole thing to Nov First."

Ling again, on December 20, 1923, in answer to Finney's letter of December 17, making inquiry as to the remittance by the Bank of Stanfield, wrote: "We paid the note for $1,000 and the interest to that date at the Bank of Stanfield, on November 30, by our check No. 135, for $1,065.30."

We have searched the record in vain for any competent evidence tending to prove that Ling had authority to sell this note or thus to change the endorsement on it. He does not claim to have obtained authority directly from the payees or either of them. He predicates agency upon correspondence with agents of the payees appointed for the purpose of making collection. At this juncture it is well to observe that an agent who has authority to collect the amount due on a note has no implied authority to sell it. It does not appear to us to be reasonable that an officer of a debtor corporation, the maker of the note, would be delegated authority to sell it. Ling found it difficult to serve two masters. If, indeed, he was acting as agents of the payees, it was his duty to advise them of the alleged sale and not conceal anything affecting their interests. All the evidence tends to show that Ling was endeavoring to make his alleged principals believe that the fraternal association had paid the note. From the correspondence it also appears that Ling, an officer both of the bank and of the association, knew that the note was sent to the bank for collection. Knowing the purpose for which the note was sent, he was bound to know that neither he nor the bank had any authority to sell it. Sloan, also an officer of the bank and of the association, knew that the bank had the note for collection. Since he was admittedly acting as agent for Mrs. Young, his knowledge relative to the note is imputable to her. As a matter of law, she was not an innocent purchaser. It is fundamental that one dealing with a person purporting to act as agent of another does so at his peril: Graef v. Bowleset al., 119 Or. 498 (248 P. 1090). Ling certainly had no specific authority to sell this note nor did he have apparent authority so to do. There is not a scintilla of evidence indicating that any person was ever authorized so to act.

The conduct of Sloan and Ling in this transaction is reprehensible. Both of them were aware of the financial condition of the fraternal association and knew that the property described in the mortgage was inadequate security for the payment of the notes. Yet, if their testimony is to be believed, Mrs. Young, a widow 75 years of age, was induced to purchase this note. Sloan says he obtained legal advice as to the authority of Ling to transfer the title of the note to Mrs. Young. The record does not disclose what advice was given, but if he entertained any doubt as to the authority of Ling it could have been removed by making inquiry of the payees. When suit to foreclose the mortgage was threatened by the plaintiffs, Ling was requested to forward a certified copy of the note in question. In the copy of the note attached to his certificate, it is observed that he failed to disclose that he had drawn a line through the words, "First National Bank, Fargo, N. Dak." and made it appear that the endorsement read, "Pay to the order of Anna M. Young." At the time this certificate was made, the lips of W.H. Finney and C.E. Webster were sealed in death. During their lifetime Ling never contended that he was acting as agent for the payees and had authority to sell this note.

We further analyze the evidence upon which intervener relies to establish agency The letters above quoted written by Finney to Ling, were, in our opinion, in the nature of "duns." There is no indication of the appointment of an agent to sell, assuming that Finney had the authority to make such appointment. Ling testified that he "wrote to Mr. Finney requesting him to endorse the note in blank so we could sell it to some parties because we did not have the money at the time to take it up ourselves." The letter was not produced and secondary evidence was offered as to the contents thereof. Suffice it to say, however, that the note was not endorsed in blank. Sloan testified that Ling had represented to him that he was the agent of the Websters and that he had seen letters from them that made him know that Ling had the authority as their representative to sell this note. An agency can not be established by the declaration of the agent. The letters mentioned by Sloan were not produced and his testimony is inadmissible as being merely a conclusion of the witness. In response to the question, "Now, Mr. Ling, having had this correspondence right along with W.H. Finney, and knowing these payees or part of them as you did, did you honestly feel you had authority to negotiate this note with these people through the Bank of Stanfield to Mrs. Young?" answered, I certainly did." An agency can not thus be established. What Mr. Ling believed as to the extent of his authority is wholly immaterial.

If Mrs. Young actually purchased this note from Ling as agent of the payees, why was not her check made either to the payees or to Ling as their agent? Why was the money deposited to the credit of the Stanfield Fraternal association? It had nothing to sell. Why did Ling make on the check to the Bank of Stanfield the notation, "Bills Payable?" Why did he conceal from the payees the truth about the transaction? Why did Ling twice write to Finney that the note had been paid if, in fact, he had sold it to Mrs. Young? Why did he make a false certificate when inquiry was made as to the endorsements on the note?

It is not contended that the bank sold this note to Mrs. Young. As counsel for respondents say: "* * * the plaintiffs placed the note, after endorsing it as requested by Mr. Ling, in the hands of W.H. Finney, their agent, and that he, through the First National Bank of Fargo, N.D., sent it to the Bank of Stanfield in order that Mr. Ling might dispose of it in some manner for the plaintiffs; that Mr. Ling thereupon, acting for the plaintiffs, did sell the note to Mrs. Young for $1,000; * * *"

In view of the special qualified endorsement, the Bank of Stanfield had apparent authority to sell this note, although it did not have actual authority so to do, for it must be borne in mind that it was sent to the bank for the purpose of collection. Under § 7826, O.L., when a note has been specially endorsed "the endorsement of such endorsee is necessary to the further negotiation of the instrument." So far as the bank is concerned, it is not a question of an irregular endorsement, but it is rather one of failure of endorsement.

It is suggested that, by virtue of § 7841, O.L., Mrs. Young acquired such title as the bank had in the note notwithstanding there was no endorsement of the note by the bank. Conceding that to be true, it does not follow that she acquired title to the note for the simple reason that the bank did not own the note but was merely acting as a collecting agency.

The case was tried upon the theory that Mrs. Young purchased the note from Ling, an authorized agent of the plaintiffs. It will not do for us on appeal to decide it upon an entirely different one, namely, that Mrs. Young purchased the note from the bank, especially since there is no evidence tending to show that the bank sold the note.

We have carefully searched the record for evidence in this case to substantiate the claim of intervener as it is believed that she has been a victim of deceit and misrepresentation. Hard cases, however, should not make bad law. It would, indeed, be a dangerous rule to announce that a person to whom a note was forwarded for collection had the authority to sell the same. Since the payees obtained the money on the note in question, it is as to them a payment and an extinguishment of the note. Since Ling was not an agent of the payees, Mrs. Young did not deraign title from them, but, having furnished the money with which the fraternal association paid the note, it is deemed a reissuance of the note to her by the debtor corporation. She is not entitled to share proportionately in the proceeds of the property upon execution, but is entitled to any surplus which may exist after the proceeds of the sale have been applied to the amount due plaintiffs, together with attorney fees, expenses of sale, and costs and disbursements allowed plaintiffs against the fraternal association in this foreclose proceeding. It is not deemed equitable to award plaintiff's costs and disbursements against the intervener, Anna M. Young.

The controversy between counsel relates to the facts and not to the law of the case. Hence this opinion is practically void of authorities.

The decree of the lower court directing the foreclosure of the mortgage and sale of the property on execution is affirmed with the modification above noted.

The cause is remanded with directions to proceed not inconsistent with this opinion.

MODIFIED.

COSHOW, C.J., concurs in the result.