Ives v. Jacobs

The answer distinctly sets up that the transfer unto the plaintiff of the notes in suit, though before maturity, was not for value; and the indorsement by Jacobs was solely for the maker’s accommodation, for which Mr. Jacob’s received no consideration whatever. If the-plaintiff is not an indorsee for a valuable consideration, the question as regards his having had notice of the averred “diversion” of said notes becomes immaterial; for if not such an indorsee, he stands just where his transferor stood. That is the whole of this case - even were the plaintiff a transferee without notice of any diversion of said paper.

It must be kept in mind that Ives was not an indorsee directly from Jacobs, but from the “payee” (Lindau) of the notes. Jacobs’ indorsement was upon the notes before-the “maker,” Lindau, delivered them; that is, Jacobs indorsed each note before its payee did so.

First. Defendant Jacobs, therefore, was prima facie a second indorser only; that is, presumably, subsequent to the indorsement over of each note by the payee unto plaintiff (Phelps v. Vischer, 50 N. Y. 69 ). Hence, evidence dehors each instrument would be requisite to enable this plaintiff (as the payee’s successor) to recover, if not an 1 ‘ indorsee for value, without notice ” (Lester v. Paine, 391 Barb., 616 ; Ellis v. Brown, 6 Barb., 282 ). The “payee” is presumptively to become the first indorser, so that Jabobs (as indorser before delivery) is necessarily the next succeeding indorser, against whom ordinarily no suit can be brought by a preceding indorser. Therefore, there must be paroi proof that such indorsement was made to get the “maker” of the note credit. (Coulter v. Richmond, 59 N. Y., 478 ; Jaffray v. Brown, 74 N. Y., 393 ). The transferees from the payee, in order to recover from Jacobs as such indorsee before delivery and presumptive “second indorser,” must rebut such presumption by pleading (as well as proving)

Second. Mr. Jacobs was entitled to treat the present indorsements herein as undelivered and invalid, until the surrender and return to him of his outstanding indorsements on the previous notes, whereof the notes in suit were in renewal; Lindau (as both “maker” and “payee, to his own order ’ ’) meanwhile possessed such present indorsements simply in trust, or in a sort of escrow, and as fiduciary holder. Chitty on Bills 210, 248; Jones v. Fort, 9 B. and C., 764; Baker v. N. Y. Nat’l Ex. B’k, 100 N. Y., 33 ; and see 73 N. Y., 277 .

If a note, indorsed for the accommodation of the maker, is “ diverted” from the purpose for which it was left with the maker, and so is fraudulently put in circulation, there can be no recovery against such accommodation indorser, without proof that the holder received it “bonafide” and paid for it a valuable consideration. Moore v. Ryder, 65 N. Y., 441 ; Farmers and C. B’k v. Noxon, 45 N. Y., 762 , 765; Wardell v. Howell, 9 Wend., 172 ; Cardwell v. Hicks, 37 Barb., 458 ; Ocean B’k v. Bill, 39 Barb., 577 , 580; Weaver v. Barden, 49 N. Y., 293 , 294. And one, who receives a negotiable note for a “precedent” debt, takes it subject to all equities existing between the original parties. Rosa v. Brotherson, 10 Wend., 86 ; Stalker v. McDonald, 6 Hill, 93 , 100.

The present notes were indorsed for the purpose of taking up other notes. The present plaintiff parted with nothing upon the strength of the notes, but merely sold to his transferor (Breck) on general account a bill of merchandise, accepting the said notes in part payment; and he, therefore, took the notes (according to Breck’s testimony) for a “precedent ” debt.

Third. It is a good defense to a renewal note (like the ones in suit), that the former note has not been returned. Miller v. Ritz, 3 E. D. Smith, 253. And the common pleas general term, in Beauford v. Patterson (63 How. R., 81), reiterated that decision, and further held that the statement and proof that the note was lost at the time would be no excuse. Even an offer to surrender the old notes at the trial would have been insufficient—in view of the wrongful transfer of the paper. Ocean Bank v. Dill, 39 Barb., 579 . To like effect, that non-surrender of the antecedent note is a “diversion,” defeating any recovery. Wardell

Fourth. The plaintiff entirely failed to establish he was a “bona fide holder,” as indorsee. The burden of proof rests upon the indorsee to show that he took the particular note bona fide and for a valuable consideration. Ordiorne v. Woodman, 39 N. Hamp., 541. That is to say, proof of a diversion of commercial paper from the purpose for which it was delivered casts on the holder of it the “onus” of establishing that he is a bona fide holder, or has succeeded to the rights of such a holder. Farmers' and C. Bank v. Noxon, 45 N. Y., 765 , 762; Benedict v. Degroot, 3 Trans. App., 66.

The burden is not on the defendant to impeach the plaintiff’s title; but when there is proof of a fraud or diversion, concerning the note or its indorsement or delivery, the plaintiff must prove he gave value for the note and also the manner in which he took it. A plaintiff suing upon a negotiable note or bill, acquired before maturity, is in the first instance presumed to be a bona fide holder; but when the maker (or indorser) has shown that the note (or indorsement) was fraudulently or wrongfully obtained or so used, the plaintiff then has to show under what circumstances and for what value he became the holder. First Nat. Bank v. Green, 43 N. Y., 300 , 301. The law on this subject is plainly collated in Comstock v. Hier ( 73 N. Y., 273 , 274), in the following language: “Where the bill or note is void in its creation, or was unduly obtained or wrongfully diverted from its purpose and fraudulently negotiated, the party suing on it is bound to show himself to be a bona fide holder. The affirmative thereon is with the plaintiff. If received over due, or with notice of the circumstances under and purposes for which it was issued, he, although he pays a valuable consideration, is not a bona fide holder. If received before maturity and without notice or knowledge of any fraud in its inception or in its transfer, and he gets it simply for a precedent debt, he takes it notwithstanding subject to all its infirmities. And when (like the notes herein) a note is made and indorsed to take up an

Fifth. The maker, indorser and payee of the notes in suit herein clearly proved, by uncontradicted evidence, a “diversion” and ‘(unauthorized transfer ” of said notes, as against the accommodation indorser, Jacobs. And on plaintiff’s part no testimony was given, except of the receipt by him of such notes in partial payment of an indebtedness created on a sale of merchandise. That was not enough. It was requisite, upon plaintiff’s part, to show that he, as holder, had parted with value for the notes and on the faith of them; which is a case entirely different ffom the acceptance of such notes for property previously sold to the transferor of the notes. Grocers’ Bank v. Penfield, 69 N. Y., 502 , 505. Indeed, the plaintiff, though within the jurisdiction, utterly neglected to appear on the trial and testify, as he should have done. These notes, on their face portrayed that Jacobs was but an irregular and accommodation indorser, and the plaintiff thereby was put on his inquiry as to the particulars of the indorsement (.Phelps v. Vischer, 50 N. Y., at p. 74). And, as Jacobs claims, the plaintiff or holder accordingly called upon Jacobs, who duly informed him of the conditions of said indorsement, previous to plaintiff’s acceptance of the paper in question. That alone would bar a recovery by plaintiff, Ives. Crandall v. Vickery, 45 Barb., 156 .

The testimony is clear that these notes were only given unto plaintiff in payment of goods bought of Mr. Ives, the plaintiff, and that this was simply an ordinary transaction; also, that plaintiff’s transferor, at the time, owed to plaintiff something further, “a month’s indebtedness”—i. e., an account summing up a month or so—besides those goods which were delivered immediately. Upon all this, said notes were received in partial payment—that is, for a “precedent ” debt.

Sixth. The purchaser of the merchandise became, by his purchase, generally liable for the value or price of the articles; that created at once an indebtedness from such vendee unto plaintiff Ives, in addition to the said month’s indebtedness, upon which aggregate the notes were taken protanto. Consequently, said notes were accepted wholly for an “already arisen” indebtedness; and hence, the plaintiff cannot maintain this action as tried against Jacobs, the accommodation indorser.

The law of this state is : “ Prior equities of antecedent parties to negotiable paper, transferred in fraud of their rights, will prevail against an indorsee who has received it

Seventh. The notes were made by Lindau to his own order, with Jacobs as indorser thereon before their delivery. Lindau passed and indorsed these notes over to Breck, who transferred them, as above mentioned, to plaintiff. The chain, of deliveries is, therefore: Lindau, as maker and payee, to Breck, and thence immediately to Ives, plaintiff; Jacobs was outside of that chain and never delivered the notes, and that made him an accommodation indorser only, before delivery, right upon the face of the transaction between Breck and Ives_, in which Ives acquired the notes, who thereby necessarily had knowledge that Jacobs was but an accommodation indorser, and that the notes, if misused and diverted, as aforesaid, had against-the said Jacobs no validity in plaintiff’s hands, as received in mere payment for property sold. This was evident from the very form of the notes taken by plaintiff from Breck, and not from Jacobs, the apparent second indorser thereof.

It follows the complaint is, therefore, insufficient, as above shown ; furthermore, the plaintiff did not prove that he paid anything for this diverted paper, now sued on, for only that value by him parted with on the faith of the paper, could he claim to recover. Huffy. Wagner, 63 Barb., 215 , and 76 N. Y., 284 . There must, hence, be an amended complaint herein, and a new trial granted thereupon.

The verdict rendered is set aside, and the plaintiff has liberty to amend his complaint within twenty days, and without costs, in which event a new trial will be ordered thereon upon the plaintiff’s motion, showing a proper amendment, and in default of any such amendment, the complaint herein is dismissed as against defendant Jacobs, with taxable costs and disbursements in favor of defendant Jacobs.