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HOME FINANCE COMPANY OF ROME, GEORGIA, INC. v. BANK OF LAFAYETTE et al.
37621.
Action on checks. Floyd Superior Court. Before Judge Hicks. January 6, 1959.
FELTON, Chief Judge.
1. Where the customer of a bank deposits checks therein to the credit of the depositor and the bank permits the depositor to draw against the account before the checks deposited are actually collected, nothing else appearing, the bank becomes a holder in due course of the checks deposited. The petition to recover on checks so deposited (payment having been stopped) not showing on its face any facts which would demand the conclusion that the bank was not in fact a holder in due course, was not subject to general demurrer.
2. Where the court sets a time for hearing demurrers and a demurrer is ruled on unconditionally without the court's attention being called to the fact that the demurrer was filed subject to a plea in abatement and traverse of service, the action by the demurring party in acquiescing in the ruling on the merits is a waiver of the plea and traverse of service.
3. The evidence raised a question for the jury's determination as to whether the plaintiff acted in good faith, and it was error for the court to direct a verdict for the plaintiff.
4. The court erred in admitting testimony which tended to contradict the provisions of the deposit slip.
5. The court did not err in excluding testimony which illustrated no issue.
The Bank of LaFayette sued Home Finance Company of Rome, Georgia, to recover $9,430, plus interest, on two checks. The defendant appeared specially and filed a plea in abatement and a traverse of service on the ground that the person on whom process was served was not and never had been an agent of the defendant and that the defendant had never been legally served and had not waived or acknowledged service and had not otherwise submitted to the jurisdiction of the court. The sheriff and deputy sheriff were made parties. After the plea in abatement and traverse were filed, the defendant filed a general demurrer and an answer, both subject to the plea in abatement and traverse of service. At a time appointed by the court the defendant's general demurrer came on for a hearing the attorneys for both parties were present. The defendant's attorney stated that he did not care to argue the general demurrer and that the court could enter an order overruling the defendant's general demurrer if the court felt that that was proper, which the court did. The defendant's attorney prepared the following, order which was signed by the court: "After hearing, the within demurrer is overruled as to all grounds. This 25th day of August, 1958. M. G. Hicks, J. S. C. R. C." No mention was made at the hearing on the demurrer by either the court or an attorney as to what effect the ruling on the demurrer would have upon the defendant's plea in abatement nor did the defendant make any mention of a reservation of the right to insist upon the plea before the ruling on the general demurrer was entered. When the case was sounded for trial the plaintiff made a motion to dismiss the plea in abatement and traverse of service on the ground of waiver and estoppel. In connection with this motion the presiding judge and counsel for both parties made certain statements, as follows: "By Mr. Smith: The plaintiff, the Bank of LaFayette, moves the court to dismiss the plea in abatement and traverse of service filed in this case by the defendant on the ground that the defendant sought and obtained a ruling on its general demurrer concerning the merits of the case, thereby waiving its plea in abatement. By Mr. Morgan: I would like to put in the record the factual background of the situation. By the court: All right. I will permit you to go into it. By Mr. Smith: Your Honor, I don't mind his adding that if I am permitted the same right. By the Court: I will permit either, one of you to put in the record what you contended here. By Mr. Morgan: I want to state in my place as counsel for the defendant that the defendant's general demurrer was filed in this case expressly subject to its plea to the jurisdiction and its traverse of service, and the court set the general demurrer down for hearing on the court's own motion without any request by defendant's counsel; and the court did that because by pre-arrangement between the court and the counsel for the plaintiff and for the defendant it had been decided that the case would be set down for trial on both the traverse and on the merits; that the traverse would
be tried before a jury, and that if that jury found against the traverse, the trial on the merits would immediately be held. That being so, the court set the general demurrer down on the general demurrer calendar during a week in August of 1958, that at that time counsel for both parties appeared in chambers and counsel for the defendant stated to the court that he did not care to argue the general demurrer, and that the court could enter its order overruling the general demurrer if the court felt that that was the proper ruling, which the court did. Under the established custom of this court and under the previous announcement of this court, since a general demurrer had been set for hearing, if counsel for defendant had not appeared a ruling would have been automatically entered by the court, because the case was to be tried on its merits in the second week of civil court. Never at any time did the defendant or its counsel intend to waive its traverse, nor at any time did counsel for the defendant indicate either to the court or to opposing counsel that the traverse was being waived. On the contrary; after the ruling on general demurrer the counsel for the defendant on several occasions discussed the matter with the court as to the trial of the traverse; and on many occasions after the ruling on the general demurrer, counsel for the defendant discussed the matter of the trial of the traverse with counsel for the plaintiff, and neither the court nor counsel for the plaintiff, with whom the matter had been discussed on several occasions after the ruling on general demurrer, could have entertained any question as to whether the defendant was insisting on its traverse. Both the court and opposing counsel knew or should have known that counsel had not waived and did not intend to waive its traverse. By the Court: Of course, the court has discussed previously the question of the trial of the case from time to time on both the merits and on the traverse. Of course, the court is not practicing law and is under no obligation as far as he knows to advise counsel when and where he is preserving his rights or how he is preserving his rights. Actually, I think unless you had preserved your rights again in the ruling on the demurrer to proceed -- I think you could have done it by preserving that in the ruling on the demurrer but you didn't. Go ahead, Mr. Smith. By Mr. Smith: Your Honor, I think that Mr. Morgan is mistaken in some of the things he has stated. I think the record should show that counsel for the plaintiff made no effort to urge a ruling on these demurrers; that if there was any one party taking initiative or seeking such a ruling, it was counsel for the defendant. I would like to further state that I don't know of any practice that this court has. I don't believe there is one that in a case like this where there was a traverse to be tried there is any custom of this court to automatically overrule a demurrer. I should also like to state that counsel for the plaintiff made no effort at the time of hearing to get the ruling, but that counsel for the defendant suggested the court's ruling, and counsel for the defendant actually himself in his own handwriting prepared the order which Your Honor signed. There are other ways in which I think opposing counsel has been mistaken, but those are the essentials I can think of at the moment. By the Court: As far as the court was concerned, the court was unaware of the fact that there was a plea to the jurisdiction, or plea of no service, or traverse to the service, at the time the demurrer was argued. I don't recall knowing anything about it. The demurrer came on my calendar, and I had previously announced that those who desired to argue demurrers might appear and do so, and if they did not in a specified time as I recall it, a ruling would be made on the demurrer; but I have no recollection of anyone insisting on anything else at the time the demurrer was argued. Very well. Tell the jurors to come back in and we will proceed to strike a jury."
The court then granted the plaintiff's motion to dismiss the defendant's plea in abatement and traverse of service and dismissed them. On the trial the court directed a verdict for the plaintiff in the total amount sued for. The defendant excepts to the overruling of its general demurrer, its motion for a judgment notwithstanding the verdict and its amended motion for a new trial, both of which last two motions were filed subject to the plea in abatement.
1. The Bank of LaFayette sued Home Finance Company of Rome, Georgia, Inc., to recover the amounts of two checks dated December 10, 1957, drawn on The National City Bank of Rome by Home Finance Company of Rome, Georgia, Inc., and payable to Mavity Motor Company. The petition alleged that Mavity Motor Company endorsed said checks "for deposit only to Mavity Motor Company" and deposited the checks to the credit of Mavity Motor in The Bank of LaFayette. The petition further alleged that at the time Mavity Motor Company endorsed and deposited said checks in said bank, the bank credited the full amount of the checks to the general account of the Mavity Motor Company without restriction and that thereafter on the same date the bank, relying upon the checks, allowed Mavity Motor Company to check and that said Mavity Motor Company did check, against said deposit in the full amount of said checks, and that after the defendant had made and delivered said checks and after they had been deposited in the plaintiff bank and the Mavity Motor Company had been allowed to check against said deposit the defendant ordered and directed the drawee, The National City Bank of Rome, not to pay the same, and that upon presentation of the said checks to The National City Bank of Rome for payment they were dishonored by the drawee and were not paid for the reason that the defendant had countermanded payment of the checks. Under the authority of Pike v. First National Bank of Rome, 99 Ga. App. 598 (109 S. E. 2d 620), the court did not err in overruling the general demurrer to the petition.
2. We have been unable to find an authoritative ruling which fits the facts in this case but we think that the special concurrence by three justices in Faughnan v. Bashlor, 163 Ga. 525 (136 S. E. 545), states the correct rule and we think that the principle stated therein controls under the facts of this case. The concurring opinion in the above cited case states: "One of the defendants filed a motion to dismiss the petition for lack of service upon her. She likewise demurred generally to the petition, but filed the same subject to her motion to dismiss, reserving the right to insist upon this motion. Thereafter the demurrer was heard by the trial judge, and it does not appear that the defendant made any objection to the hearing upon her demurrer, or that she then insisted on her motion to dismiss the petition for want of service. A judgment was rendered by the trial court overruling the demurrer, and thereafter the defendant insisted on her motion to dismiss for want of service. In these circumstances she waived her right to insist upon her motion to dismiss for lack of service, and service was thereby waived. The fact that in this case the judge himself set the time for the consideration of demurrers and the fact that the parties had discussed the trial of the traverse and the attack upon the service does not take this case out of the foregoing rule. The judge would not be expected to remember whether demurrers were filed subject to other pleadings or contentions or not and it would have been quite easy for defendant's attorney to object to the hearing of the general demurrer before the issue as to service had been decided. Any other conclusion would put a defendant in such a case as this in the position of being able to take a chance on a favorable ruling on the demurrer and if it lost to fall back upon its attack on the service. In this case it would have been a simple and easy matter for the defendant's counsel to call the court's attention to the attack on the service and to either insist on a continuance as to the demurrer or to request the judge to make his ruling on demurrer subject to the outcome of the attack on the service. We think that under the facts the defendant waived the attack upon the service.' The ruling in Pate v. Brock, 95 Ga. App. 594 (98 S. E. 2d 404), does not control here for the reason that in that case there was an attack made upon the service actually attempted and there was no traverse of the officers return. Another distinction is that the question raised by the demurrer was the same as that raised by the plea.
Mavity to withdraw in cash $9,510.03, which virtually depleted the account; that he let Mrs. Mavity have this money, knowing not only that the withdrawal was on uncollected items but that the uncollected items were checks drawn by Home Finance Company. Code 14-502 provides in subsection 3 that, "a holder in due course is a holder who has taken the instrument . . . in good faith and for value." Code 14-506 provides, "to constitute notice of an infirmity in the instrument or defect in the title of the person negotiating the same, the person to whom it is negotiated must have had actual knowledge of the infirmity or defect, or knowledge of such facts that his action in taking the instrument amounted to bad faith." The facts above stated made a jury question whether they were sufficient to place the bank on inquiry as to whether the defendant would stop payment on its checks and whether with such notice the cashing of the two checks for the Mavity Motor Company amounted to bad faith on the part of the bank. It was therefore error for the court to direct a verdict in favor of the plaintiff. Stewart v. Western Union Telegraph Co., 83 Ga. App. 532 (64 S. E. 2d 327) and cases cited; Code 14-506, 37-116; Bank of Commerce v. Knowles, 32 Ga. App. 800 (2) (124 S. E. 910) and cases cited; Archibald Hardware Co. v. Gifford, 44 Ga. App. 837 (3) (163 S. E. 254); Park v. Burton, 10 Ga. App. 356 (73 S. E. 557).
4. The first ground of the amended motion for new trial complains that the court erred in permitting the vice-president of the plaintiff bank to testify: "We paid absolutely no attention to it; that is a form put on there by the printer and every deposit ticket in the world has it there and we don't pay any attention." The objection to this testimony was that it varied the terms of the contract contained in a deposit slip. The form provision in the deposit slip provided that as to items for collection the bank acted only as collecting agent, for the depositor subject to final payment in cash or solvent credits. The court technically erred in admitting this testimony as intended to vary the terms of the contract contained in the deposit slip. Under the facts this was harmless error as the facts show that the bank became a holder in due course provided it acted in good faith.
5. In special ground 2 the defendant complains that the court refused to allow the bank's vice-president to answer the following question: "Will you explain just why and how a check dated December 13th was paid and cleared through your bank on December 3rd?" The refusal to admit this testimony was not error for the reason that it illustrated no valid and pertinent issue in the case.
The court did not err in overruling the defendant's general demurrer to the petition or in dismissing the plea in abatement and traverse of service or in denying the defendant's motion for a judgment notwithstanding the verdict, but did err in denying the motion for new trial as amended.
ON MOTION FOR A REHEARING BY BANK OF LAFAYETTE.
1. The Bank of LaFayette contends that the ruling in Citizens & Southern Nat. Bank v. Johnson, 214 Ga. 229 (104 S. E. 2d 123) controls this case. All the Supreme Court held in that case was that under the facts there might have been a mistake in judgment and that a mere mistake of judgment did not amount to bad faith. The court there stated in different words what we understood the rule to be to wit: "To constitute bad faith by a purchaser of a negotiable instrument before maturity he must have acquired it with actual knowledge of its infirmity or with a belief based on the facts or circumstances as known to him that there was a defense or he must have acted dishonestly." (Emphasis supplied.)
2. The bank also contends that Code 37-116 was superseded by that section of the Negotiable Instrument's Law, now Code 14-506. Code 37-116 provides: "Notice sufficient to excite attention and put a party on inquiry shall be notice of everything to which it is afterwards found such inquiry might have led. Ignorance of a fact, due to negligence shall be equivalent to knowledge, in fixing the rights of parties." The rule before the passage of the uniform act in 1924 was embodied in Code (1910) 4291 which provided: "Any circumstances which would place a prudent man upon his guard, in purchasing negotiable paper, shall be sufficient to constitute notice to a purchaser of such paper before it is due." The gravamen of the old rule was diligence. That of the new rule is actual knowledge of facts indicative of a defense, or bad faith. The subject of bad faith was not in the old law. The new law, while it eliminated the former rule that negligence alone would defeat the holder, added another element, that of bad faith. Since mere negligence was eliminated and bad faith or actual knowledge substituted, it follows that Code 37-116 was not superseded for all purposes by the uniform act since bad faith can be manifested by a failure to notice and investigate facts when good faith requires investigation. And while mere negligence is not enough to show bad faith, negligence can reach such a degree that a jury could infer bad faith therefrom. See Britton on Bills and Notes, 100 through 112. We hold that Code 37-116 was not repealed completely by the act of 1924 (Ga. L. 1924, pp. 126-165), but that it is still applicable to negotiable instruments covered by the act insofar as it becomes pertinent to the application of the provisions of Code 14-506. See Pickett v. Bank of Ellijay, 182 Ga. 540 (186 S. E. 426). The ruling in this case is based on the fact that the knowledge of all the facts by one individual officer of the bank raises the question of good faith. It is not implied that the question would arise under any other circumstances. Large banks employ many officers and employees and we do not mean to intimate that the aggregate knowledge of two or more officers or employees would have the effect of raising the issue of bad faith when partial knowledge of any individual uncommunicated to another would not in itself raise the issue.
Rehearing denied.
Wright, Rogers, Magruder & Hoyt, Clinton J. Morgan, for plaintiff in error.
DECIDED JUNE 26, 1959 -- REHEARING DENIED JULY 16, 1959.
Saturday May 23 01:03 EDT


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