WACHOVIA BANK AND TRUST COMPANY
v.
SMITH CROSSROADS, INC., and E. L. Smith.
No. 393.
Supreme Court of North Carolina.
February 1, 1963.Ted G. West and W. C. Palmer, Lenoir, for defendant-appellants.
Womble, Carlyle, Sandridge & Rice by W. P. Sandridge and C. F. Vance, Winston-Salem, for plaintiff-appellee.
RODMAN, Justice.
The note was negotiable in form. Prima facie it was issued for valuable consideration. G.S. § 25-29. It was also under the seal of each of the parties. This created a rebuttable presumption of consideration, Mills v. Bonin, 239 N.C. 498, 80 S.E.2d 365. Defendants had the burden of proving their defense of want of consideration; but the verdict was in response to a peremptory instruction. Defendants assign this as error.
The evidence on which the parties based their respective contentions is to this effect: Crossroads is a Ford dealer. Individual defendant *117 is its president. He owns about 90% of its stock. Carl Smith (hereafter manager) was in September 1959 and had been for some years prior thereto Crossroads' office manager and bookkeeper. He was a trusted employee. Crossroads had for several years prior to September 1959 financed a substantial part of its business by loans obtained from plaintiff. One of the purposes for which it regularly applied to plaintiff for loans was to purchase new automobiles from other dealers. When Crossroads purchased a new vehicle from another dealer, it would execute a mortgage and note to plaintiff on the vehicle so purchased. This note and mortgage would then be attached to a draft on plaintiff. The draft would be deposited in Union National Bank of Lenoir to the credit of Crossroads. Plaintiff would honor the drafts so drawn. Boyd J. Smith, E. L. Smith, and B. A. Lutz had authority to draw drafts on plaintiff. It had cards showing their signatures. Manager was not authorized to draw drafts, but he did have authority to sign checks on Crossroads' account with Union National Bank. Manager, for a substantial period of time prior to September 1959, had been converting to his own use monies paid to him for Crossroads. To balance his books he would deposit to the account of Crossroads with Union National Bank a draft on plaintiff purportedly drawn by Lutz for Crossroads, to which drafts were attached mortgages securing the amount of the drafts. Manager forged Lutz' name to the drafts and mortgages. On 30 September 1959 plaintiff held drafts to the amount of $166,000, secured, or purportedly secured by mortgages on new motor vehicles owned by Crossroads. This amount included $117,892 of forgeries. Plaintiff inquired of Crossroads about the amount of the debt and the location of the motor vehicles securing the loans. Manager then confessed that the motor vehicles listed on most of the drafts did not exist. The monies obtained from plaintiff by means of the forged drafts had been deposited in Crossroads' account at Union National Bank to cover the shortages created by his previous thefts of cash belonging to Crossroads.
Upon disclosure of these facts, defendants executed a note to plaintiff dated 30 September 1959 for the shortage$117,892. Before the maturity of that note, payments were made reducing plaintiff's claim to $95,000. A note for that amount was executed 23 October 1959. A renewal note for like amount was executed 21 February 1960. A payment of $10,000 was made and renewal note for $85,000 was executed 21 April 1960. A payment of $20,000 was made and renewal note for $65,000 was executed 6 June 1960. A payment of $15,000 was made and the note sued on was given.
Defendants contend since the drafts were all forged no liability could be imposed on Crossroads. They rely on G.S. § 25-28.
The statute does not relieve the party whose name is signed to a forged document "unless the party against whom it is sought to enforce such right is precluded from setting up the forgery or want of authority."
It is conceded the amounts called for by the drafts were credited to Crossroads' bank account. Manager never had possession of any of these funds. Plaintiff never extended him credit. That being so, Crossroads could not deny liability on a claim made by plaintiff without repaying the monies it received on the face of the forged instruments. Mills v. Bonin, supra, 239 N.C. 503, 80 S.E.2d 368; Jones v. Bank of Chapel Hill, 214 N.C. 794 (799), 1 S.E.2d 135; Lawson v. Bank of Bladenboro, 203 N.C. 368, 166 S.E. 177; Citizens' Bank v. Grove, 202 N.C. 143, 162 S.E. 204; Brittain v. Westhall, 135 N.C. 492, 496, 47 S.E. 616; Brown v. Smith, 67 N.C. 245; Union Bank & Trust Co. v. Long Pole Lumber Co., 70 W.Va. 558, 74 S.E. 674, 41 L.R.A.,N.S., 663; 3 Am.Jur.2d 557.
If there was no ratification of manager's acts in drawing drafts, Crossroads nevertheless received consideration for the original and renewal notes because of the monies *118 deposited by plaintiff in Crossroads' bank account under the belief it had been requested to make the deposit. United States Fidelity & Guaranty Co. v. Reagan, 256 N.C. 1, 122 S.E.2d 774; Dean v. Mattox, 250 N.C. 246, 108 S.E.2d 541; Rhyne v. Sheppard, 224 N.C. 734, 32 S.E.2d 316; Sparrow v. John Morrell & Co., 215 N.C. 452, 2 S.E.2d 365; White v. Green, 50 N.C. 47.
Since the evidence fails to establish Crossroads' plea of lack of consideration, individual defendant is liable by reason of his endorsement
The conclusion here reached that defendant could not deny liability on the note without refunding the monies paid Crossroads in reliance on the drafts renders it unnecessary to consider the question of competency of audits of Crossroads' records for the purpose of establishing its profits or losses in differing periods.
No error.