BRANCH BANKING AND TRUST COMPANY
v.
Margaret W. CREASY.
No. 7926SC360.
Court of Appeals of North Carolina.
December 18, 1979.*783 Murchison & Guthrie by Alton G. Murchison, III, Charlotte, for plaintiff-appellee.
Stack & Stephens by Warren C. Stack, Charlotte, for defendant-appellant.
HARRY C. MARTIN, Judge.
We hold the entry of summary judgment for plaintiff was error. The rules and procedures governing motions for summary judgment should now be familiar learning. They are well expressed in Kessing v. Mortgage Corp., 278 N.C. 523, 180 S.E.2d 823 (1971), and it would serve no useful purpose to restate them here.
Plaintiff on the hearing for summary judgment produced the guaranty, admittedly signed by defendant. Then, through the witnesses Miller and Margaret Creasy, plaintiff produced evidence showing nondelivery of the guaranty by defendant, or her attorney Miller, to plaintiff. The evidence of Miller and Mrs. Creasy raises a reasonable inference that the guaranty was stolen by Tom Creasy, signed by him and then returned by him to the bank. Miller testified at one place in the record he intended to cause the guaranty to be delivered to the bank, but at another place he says it was not his intention for the bank to obtain the document. At any rate, he did not deliver or cause the guaranty to be delivered to the bank. Rather, he placed it with other papers relating to the controversy between *784 defendant and her husband where it remained for eleven days. The record is unclear as to how the bank got possession of the paper; Tyler testified the executed guaranty was "returned" to him on 18 November 1975, which indicates that he had possession of the executed guaranty prior to that date.
Nondelivery of a negotiable instrument is a defense to an action upon it. N.C.Gen. Stat. 25-3-306(c). Once evidence of this defense is raised, the holder of the guaranty has the burden of proving that it is a holder in due course. Hooker v. Hardee, 192 N.C. 229, 134 S.E. 485 (1926); Bank v. Furniture Co., 11 N.C.App. 530, 181 S.E.2d 785, cert. denied, 279 N.C. 393, 183 S.E.2d 241 (1971).
Plaintiff contends there was delivery and relies heavily upon Oil Co. v. Welborn, 20 N.C.App. 681, 202 S.E.2d 618, cert. denied, 285 N.C. 235, 204 S.E.2d 25 (1974). We find Welborn clearly distinguishable from this case. In Welborn, the defendant, wife of the principal debtor, after signing the guaranty placed it within the possession of the principal debtor, who then transmitted it to the creditor. The Court held she was liable on her guaranty even though she never authorized delivery of it to the creditor. Here, Mrs. Creasy left the guaranty with her lawyer, where she "figured it was in safe hands." She never authorized delivery of it to the bank, she did not place it within the possession of Creasy, the principal debtor, and her lawyer did not deliver it to the bank. From the materials before the court, we cannot hold as a matter of law that there was a delivery of the guaranty by defendant to plaintiff.
Defendant having raised an issue of nondelivery of the guaranty, we must now examine the materials before the trial court to determine if plaintiff is a holder in due course of the guaranty as a matter of law. A holder in due course takes the instrument free of the defense of nondelivery. N.C. Gen.Stat. 25-3-305(2).
To be a holder in due course, plaintiff must show it is a holder that took the guaranty (1) for value, and (2) in good faith, and (3) without notice of any defense against it on the part of any person. N.C. Gen.Stat. 25-3-302(1)(a), (b), (c). Plaintiff is a holder of the guaranty for value, having received the instrument as security for an antecedent claim against Creasy. N.C. Gen.Stat. 25-3-303(b).
Plaintiff must take the guaranty in "good faith." "Good faith" means honesty in fact in the conduct or transaction concerned. N.C.Gen.Stat. 25-1-201(19). The statute does not further define "good faith" with respect to banks; however, when referring to a merchant the added requirement of the observance of reasonable commercial standards of fair dealing in the trade is applicable. N.C.Gen.Stat. 25-2-103(1)(b). Surely, the standards of good faith of a bank should be no less than those of a merchant. Did plaintiff comply with this standard in dealing with defendant? Plaintiff knew Creasy and defendant were separated, and that Creasy was in financial difficulties (his $35,000 note with plaintiff being in default). Yet the bank gave Creasy a completed guaranty form with directions to secure defendant's signature. Wouldn't a reasonable commercial standard under these circumstances require the plaintiff to have Mrs. Creasy come into the bank for the purpose of signing the guaranty? Even after the guaranty was "returned" to the plaintiff, its officer, Tyler, took no precautions to ensure fair dealing to defendant. He could have easily called defendant and questioned her about her signing the guaranty. There is no evidence that Tyler was familiar with the signature of the witness Miller. Why didn't Tyler call Miller about the guaranty?
In considering fundamental questions of law such as the meaning of good faith, the old cases are often the best cases. In 1838 the Supreme Court in Bunting v. Ricks, 22 N.C. 130, 134 (1838), speaking through the great Chief Justice Ruffin, said:
[M]uch less than actual or particular knowledge in detail is sufficient to convert a person into a trustee who cooperates with a dishonest trustee in an act amounting to a breach of trust. Constructive notice, from the possession of *785 the means of knowledge, will have that effect, although the party were actually ignorantbut ignorant merely because he would not investigate. It is well settled that if anything appears to a party calculated to attract attention or stimulate inquiry, the person is affected with knowledge of all that the inquiry would have disclosed.
Applying this principle to the conduct of plaintiff, we find a substantial question of material fact arises whether the circumstances plaintiff had knowledge of were calculated to "stimulate inquiry" and require it to investigate concerning the guaranty, when it had readily available the means to make such investigation. A phone call to defendant would have disclosed that she signed the guaranty and gave it to her lawyer, not to Creasy. Inquiry of Miller would have disclosed the guaranty was surreptitiously or feloniously taken from his private office. Under the doctrine of Bunting, the plaintiff's position would be affected by such knowledge and plaintiff would not be a holder in due course.
This same reasoning applies with equal force to the requirement that plaintiff be without notice of any defense to the guaranty by any person, and in particular, the defendant. N.C.Gen.Stat. 25-3-302(1)(c). The plaintiff had knowledge of circumstances concerning the guaranty that raise the question whether plaintiff should have made inquiry of defendant and Miller as to its delivery. Bunting v. Ricks, supra. Certainly it would not be a reasonable commercial example of good faith in dealing with defendant to rely solely upon the word or actions of the principal debtor, Creasy, when verification was as close as the telephone on Tyler's desk.
The materials before the trial court were not sufficient to hold as a matter of law that plaintiff was a holder in due course of the guaranty. With this holding, it is not necessary for us to determine whether plaintiff, if it were a holder in due course, took the guaranty free of the defenses of duress in the obtaining of defendant's signature on the paper and the illegality of the transaction based upon the theft or unauthorized taking of the guaranty from attorney Miller's office. We leave these questions for further proceedings in the trial court.
The summary judgment was improvidently entered and it is
Reversed.
ERWIN, J., concurs.
WEBB, J., dissents.
WEBB, Judge, dissenting:
I dissent from the majority because I believe that on the evidence before the court, the bank took the guaranty in good faith. In the light most favorable to the defendant, the evidence shows the guaranty was given to defendant's husband who later returned it to the bank properly executed by defendant. The majority concludes the bank should have done something more such as call the defendant or her attorney to confirm that she meant for the guaranty to be delivered. In this I believe the majority is mistaken. We have held that when a bank delivers a loan guaranty to a customer who later returns the guaranty properly executed, the bank cannot rely on the guaranty without further inquiry. In this I believe we have unduly restricted commercial transactions in this state.
Defendant executed the guaranty and it was witnessed by her attorney. The attorney then carried it to his office where it was available for defendant's husband to take it to the bank. If one of two innocent parties must suffer from the delivery, I do not believe it should be the bank. I believe Oil Co. v. Welborn, 20 N.C.App. 681, 202 S.E.2d 618, cert. denied, 285 N.C. 235, 204 S.W.2d 25 (1974) governs and I vote to affirm.