It appears without dispute that the appellants, the Scotts, acquired a perfect title to the note in controversy by special indorsement of the payee plainly written on the instrument. The only question presented for review is the decision of the trial court on the evidence, adjudging that the title of the Scotts, as indorsers, was defeated by the act of their agent, Kelley, in selling and indorsing the note to the appellee, the Traders' Investment Company.
In support of the judgment, appellee urges four propositions: (1) That Kelley had written authority from the Scotts to dispose of the note as he saw fit, including the power to sell it even at a substantial discount.
(2) That, in any event, Kelley had verbal authority from the Scotts to do so.
(3) That even though Kelley had no such authority, appellee's title to the note should nevertheless be protected against the claim of the Scotts, because they were at fault in arming Kelley with an indicium of ownership — possession of the note — by means of which he was able to deceive appellee as to his right to sell it.
(4) That appellee was a purchaser for value in due course of a negotiable instrument.
1. An examination of the terms of the written authority given to Kelley to collect the note shows clearly that he had no authority beyond the mere collection of the notes. The stipulation that the notes were "to be used by W. E. Kelley in collecting these notes as he desires, by foreclosure or as he sees fit to do," armed him with a discretion only as to his mode of procedure in effecting the intended collection, but certainly not with any power of disposition other than the cancellation and surrender of the notes when paid.
2. The verbal authority, claimed by Kelley to sell the notes to raise money for his own use, rests upon the unsupported testimony of Kelley himself. Apart from its intrinsic improbability, it is specifically denied by the Scotts. Moreover, our reading of the record, and especially of Kelley's own testimony, utterly discredits his veracity and renders it unacceptable as a basis for any conclusion of fact. Our conclusion is that Kelley was without authority, verbal or written, to sell the notes.
3. To render available the maxim that, where one of two innocent parties must suffer loss from the act of a third party, he must bear the loss whose conduct has primarily caused it, the party invoking the principle must show that the other party has done or omitted some act in the nature of negligence which prompted and rendered feasible the deception practiced upon himself. Citizens' Bank v. Commercial Bank, 209 Ala. 280,96 So. 324.
That maxim can have no application to a case like this. Here the Scotts did no more *Page 237 than intrust the possession of the note to Kelley, with authority to collect it and with implied authority, of course, to cancel and surrender it when paid. It carried on its face the plain evidence of its ownership; viz., the special indorsement of the payee to the Scotts. Except by a fraudulent alteration, sweeping and apparent, the agent could not use the notes as the property of any one but the indorsees; and the act of the indorsees in giving the mere possession of the notes to Kelley was in no sense negligent or culpable, nor was it promotive of Kelley's fraudulent deception of the appellee in any legal sense.
4. The purchaser of negotiable paper in due course is a favorite of the law, but he is nevertheless chargeable with notice of every fact shown upon the face or the back of the instrument. The note here in question showed that it had been indorsed by the payee to the Scotts. It was not in the custody of the payee. It was offered to appellee at a discount of about 12 per cent. of its face value, although it was known to be far less than one-third of the purchase money for the land and was secured by a mortgage on the land itself. Appellee's officers, who were representing it in this transaction, made no inquiry whatever as to the presence of the indorsement on the note — why it was placed there, why it was canceled by crosslines and by whom, or who and where the indorsees were. Presumably, the payee and indorser, Ida Kelley, would have given information warning appellee of the true ownership of the note had it been asked for in connection with the power of attorney required of her. Our clear conviction is that appellee was guilty of flagrant negligence, which compels the conclusion of bad faith, in the purchase of the note. We do not mean to hold that the mere fact of buying the note at a substantial discount would alone be sufficient to show bad faith, but, in connection with the other circumstances of the case, it is a factor to be considered in aggravation of that conclusion. Spires v. Jones,212 Ala. 117, 119, 101 So. 753.
The fraudulent act of appellants' agent, Kelley — in legal effect, a forgery — could not destroy their title; and his transfer of the note to appellee, acting as agent for the payee, who was not the owner, could not pass the title, in the absence of negligence on the part of appellants or of some conduct resulting in their equitable estoppel to assert their title as against appellee. Nothing of that nature appearing, we are constrained to hold that appellants are the owners of the note and are entitled to its proceeds.
The decree of the trial court will be reversed, and a decree will be here rendered to that effect, ordering the register of the circuit court to pay to appellants the sum of $825, being all of the fund paid into court by the original complainant in satisfaction of the note in suit.
It is further ordered and decreed that the original complainant is entitled to the relief prayed; and that the respondent, the Traders' Investment Company, shall deliver up to the register the Wilkinson mortgage transferred to it by Kelley, to be indorsed "satisfied" by the register and delivered by him to said complainant; and, further, that the register shall appropriately indorse upon the margin of the record of said mortgage the fact of its payment and satisfaction.
Reversed and rendered.
ANDERSON, C. J., and THOMAS and BOULDIN, JJ., concur.