1. An agent may be orally authorized to indorse negotiable instruments on behalf of his principal.
2. To preclude the transferee of a negotiable instrument from occupying the position of a holder in due course because in purchasing the instrument he had "knowledge of such facts that his action in taking the instrument amounted to bad faith," Code 14-506, he must have had knowledge of some facts or circumstances sufficient to prevent the acquisition of the instrument by commercially honest men without further inquiry, so that to remain passive would warrant an inference of dishonest action.
3. Evidence of a practice sufficiently regular and uniform to constitute a habit or custom, if relevant, is admissible.
The Atlantic National Bank cashed a check for $4,000 payable to Claude Pope drawn by C. A. Edmund on the Baxley State Bank. When the check was presented to the drawee bank the drawer had stopped payment. The plaintiff collecting bank, hereinafter called the Bank, sued the drawer claiming that it was a bona fide purchaser for value and holder in due course of the check. The defendant's answer alleged facts showing that the check had been obtained from him by Claude Pope, the payee, fraudulently and without consideration, and contended that the Bank was not a bona fide purchaser for value and holder in due course. The evidence showed that the payee's wife had worked as a typist in the Bank for approximately one year at the time the Bank cashed the check. She brought the check to the Bank and presented it to a teller, who asked her to have one of the officers approve it. Mr. Ogier, the bank officer who initialed the check for cashing, testified that he had been in the banking business nearly 25 years. He had opened an account for Mrs. Pope and had probably seen her and talked with her several times. He did not know Claude Pope. He did not know and had never known or heard of C. A. Edmund (the drawer), or whether he had any property or a bank account. Bank records that were available to him would have revealed that there was $44.28 in the Pope account when Mrs. Pope cashed the check; there had been no more than $204.26. He was relying on the payee and the drawer of the check. He did not know what the Popes had in the bank and did not make an effort to find out. It is the policy of the bank to cash checks for employees that present them. He put his initials on the check and then walked with Mrs. Pope to the teller's window and told the payroll teller to cash it.
Mrs. Pope testified that her husband requested her to cash the check for him, and that he orally authorized her to indorse his name on the check. When she presented the check to Mr. Ogier, she had already indorsed her husband's name and her own on it. She had seen Mr. Ogier around the bank but did not know him. If Mr. Ogier had asked her, she would have had to say that she did not know Mr. Edmund and had never seen his signature, and that she was going to get the cash for the check and turn it over to her husband. She had not inquired and her husband did not tell her what the $4,000 check was for or why Mr. Edmund gave it to him. It was more money than they had ever had. She and her husband had signed signature cards at the bank and Mr. Ogier did not compare the signature on the check with the signature card. She had only seen Mr. Ogier one time before cashing the check.
The jury found a verdict for the defendant, and the Bank, as plaintiff in error in this court, assigns error on the overruling of its amended motion for new trial.
1. The plaintiff complains that the trial court charged the jury to the effect that unless the payee of the check had authorized his wife in writing to indorse the check for him, the Bank would not be a holder in due course.
Generally, the authority delegated to an agent must be conferred upon him with the same degree of formality as is required of the agent in the execution of the powers delegated. Code 4-105; Byrd v. Piha, 165 Ga. 397 (2) (141 SE 48)
. It is also true that under the Negotiable Instruments Law an indorsement must be written on the instrument itself or upon a paper attached thereto. Code 14-402. However, even prior to the adoption of the Negotiable Instruments Law in 1924, an agent's authority to indorse a negotiable instrument did not need to be in writing, but could be conferred by parol. Taylor v. Johnson, 18 Ga. App. 161 (2) (89 SE 77)
; Foster v. Cochran, 89 Ga. 466 (15 SE 551)
; Connor v. Hodges, 7 Ga. App. 153
(4a) (66 SE 546
). The Negotiable Instruments Law (Code 14-219) specifically provides: "The signature of any party may be made by a duly authorized agent. No particular form of appointment is necessary for this purpose, and the authority of the agent may be established as in other cases of agency." (Emphasis supplied.) Both this State and other jurisdictions whose laws contain language similar to Code 14-219 have uniformly held that an agent may be orally authorized to indorse negotiable instruments on behalf of his principal. Cadow v. Dixson Co., 90 Ga. App. 717 (2) (84 SE2d 130)
; 7 Mercer Law Review 9, 12; 1 E. G. L. 599, 25; II Paton's Digest 2076-2077, 10; 3 Am. Jur. 2d 534, 143; 2 CJS 1056, 26; 37 ALR2d 461.
The trial court erred in overruling special grounds I and 2 of the motion for new trial.
2. The trial court charged the jury: ". . . any circumstances which place a prudent man upon his guard in purchasing a negotiable paper is sufficient to constitute notice to a purchaser of such paper before it is due, and the purchaser is charged with knowledge of whatever facts an investigation would have disclosed. Upon this question of notice of the plaintiff, such notice must have been in the purchaser before or at the time he purchased the note in order for the notice to affect him." The plaintiff assigns error on this charge as being unsound as an abstract principle of law in that it placed a duty upon the agents of the Bank to exercise the care of a "prudent man" in accepting a check in order for the Bank to become a bona fide purchaser for value.
Before the adoption of the Negotiable Instruments Law in 1924 the Georgia Code contained the language in the above charge preceding the first comma. This law was repealed by the 1924 act which substituted for it Code 14-506 (Section 56 of the Uniform Negotiable Instruments Law): "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 Georgia Supreme Court has held, in Citizens &c. Nat. Bank v. Johnson, 214 Ga 229
, 231 (104 SE2d 123
), a case involving a promissory note: "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." In this case the Supreme Court cited Gerseta Corp. v. Wessex-Campbell Silk Co., 3 F2d 236 (2d Cir.), in defining "bad faith." In the Gerseta case is a discussion of what this term means in Section 56 of the Uniform Negotiable Instruments Law, concluding that it means that the purchaser "must have knowledge of facts which render it dishonest to take the particular piece of negotiable paper under discussion. Knowledge, not surmise, suspicion, or fear, is necessary; not knowledge of the exact truth, but knowledge of some truth that would prevent action by those commercially honest men for whom law is made; . . ." Thus it appears that Georgia has adopted the objective test discussed in the Gerseta case, supra, for determining bad faith. Actual bad faith need not be shown, but only facts and circumstances sufficient to constitute red lights ahead and to cast upon the purchaser the duty to make inquiries. When the known facts and circumstances are sufficient to prevent the acquisition of the paper by commercially honest men without further inquiry, the purchaser muse not proceed blindly. The neglect to make inquiry under such circumstances is more than mere negligence. It is a lack of commercial good faith. If in a commercial sense the purchaser acted in bad faith, the law will withhold from him the protection it would otherwise extend. The Supreme Court decision is in accord with "the well settled rule . . . that mere knowledge of facts sufficient to put a prudent man on inquiry, without actual knowledge, or mere suspicion of an infirmity or defect of title, does not preclude a transferee from occupying the position of a holder in due course, unless the circumstances or suspicions are so cogent and obvious that to remain passive would amount to bad faith; but the existence of such facts may be evidence of bad faith, if they reasonably warrant an inference of dishonest action." 10 CJS 818-821, 324 and 1963 Supp. See also Britton, Bills and Notes, 414, 101; Beutel's Brannan, Negotiable Instruments Law, 56, p. 776 et seq; 3 E. G. L. 307 308, 45; 8 Am. Jur. 118-125, 383-390; Rightmire, The Doctrine of Bad Faith in the Law of Negotiable Instruments, 18 Mich. L. Rev. 355.
The charge complained of erroneously stated what constitutes notice that will prevent a purchaser for value of a negotiable instrument from being a holder in due course. The evidence in this case presents a jury question whether the Bank had knowledge of such facts that its action in taking the check amounted to bad faith and whether the Bank is a holder in due course of the check. The trial court erred in overruling ground 3 but did not err in overruling ground 5 and the general grounds of the motion for new trial.
3. Evidence offered to establish an oral principal and agency relationship between Mr. and Mrs. Pope did not show a practice sufficiently regular and uniform to constitute a habit or custom in cashing checks at the plaintiff Bank. Green, Georgia Law of Evidence 168, 67; American Law Institute, Model Code of Evidence 32, 189, 307. However, the exclusion of the offered evidence was apparently harmless in view of Mrs. Pope's uncontradicted testimony that her husband orally authorized her to indorse this particular check. The trial court did not err in overruling ground 4.