Watson v. Blossom — 18 N.Y. St. Rep. 726

Majority

p. 726

Theodore D. Watson, Resp’t, v. Justin Blossom, App’lt.

(Supreme Court, General Term, Fifth Department,

Filed October 19, 1888.)

Headnote

1. Bills and notes—Negotiable paper—Simultaneous agreement as between the original parties.

A note and bond having been made at the same time and pursuant to the same agreement must, as between the original parties, he construed together and treated as parts of the contract.

3. Same—When void—When holder is bound by the pacts op the ORIGINAL TRANSACTION.

The rule in respect to commercial paper is such that a party taking it in regular course of business for value before maturity has the right to assume that it is valid, and it will he so treated in his hands until it is shown to have been void by force of some statute, or until it is made to appear that when he received it he was chargeable with notice of facts which, as between the parties to it, would he available as a defense to defeat recovery upon it.

3. Same—Gaming contracts—Contracts against public policy—Contracts IMPOSSIBLE OP PERFORMANCE.

A note was given by the appellant Blossom for $510, payable to J. M. Orcut or bearer in thirteen months, with interest, for thirty-four bushels of Bohemian oats at fifteen dollars per bushel (being fifty times their value), with an accompanying bond and agreement of '‘The Bohemian Oat and Cereal Company” that it would sell for the maker on or before the maturity of the note sixty-eight bushels of Bohemian oats at fifteen dollars per bushel; the maker to pay the company the commission of thirty-three and one-third per cent for selling the same. The payee of the note was the superintendent of the company making the agreement; and as such signed the bond, and agreement for the company. Similar notes had been given by other’ persons in the town, with like bonds and agreements of the company, and those parties had found the deal profitable. The plaintiff had obtained the note before maturity, for value, but there was evidence that he had notice of the character of the transaction between the original parties, and further, tliat'he had read articles in the newspapers of the county that the transactions of the character in question were fraudulent, and that the plantiff had expressed his opinion that those transactions of the company were “ a gambling scheme and that somebody would be the loser.” Held, that the contract was in terms an agreement to pay differences dependent upon the condition of the market and was not a gaming contract within the meaning of the statute, and is not void as such. 1 R. S. 663, § 8; 3 id. (7th ed.), 1963. Hallv. Bergen, 19 Barb., 133 , distinguished.

4. Same—Void as against public policy.

Held, that the note and agreement were not void as against public policy.

p. 727

5. Same—Void because the agreement is impossible of performance.

Held, that the undertaking of the company was not impossible of performance, and therefore did not come within the rule of laws that an impossible consideration will not support a promise.

<8. Same—Evidence—What facts must be proved as against holder for value to require the case to go to the jury.

Held, also, that there being some evidence that the plaintiff was charged with notice of the facts which, as between the original parties, would be a defence to the action, it was sufficient to present the question to the jury.’

Appeal from judgment entered on verdict of Orleans circuit, and from order denying motion for a new trial.

The action was brought against the appellant as maker and Luther Collamer as endorser of a promissory note of date October 26, 1886, for $510, payable to_ J. _M. Orcutt, or bearer, in thirteen months from its date, with interest. The consideration of the note was a sale to the maker of thirty-four bushels of Bohemian oats, at the price of fifteen dollars per bushel, and the delivery to him of a written instrument of which the following is a copy:

“ No. Capital stock, $100,000.

“Home Office, Ypsilanti, Mich., “A bond from

“The Bohemian Oat and Cereal Company,

“ Incorporated under the Laws of the State of Michigan, December 21, 1884.

“ Know all men by these presents that the Bohemian Oat and Cereal Company do hereby agree to sell sixty-eight bushels of oats for Mr. J. Blossom, at fifteen dollars per bushel, in cash or by note, for which said J. Blossom is to - pay thirty-three and one-third per cent commission for selling, said commission to be paid in notes for which said grain is sold, said grain to be sold on or before October 26, 1887, the price on this grain being a fictictious value for speculative purposes.

“ In testimony whereof the said Bohemian Oat and Cereal Company has úaused this bond to be signed and sealed by the superintendent of said company this 26th day of October, 1886. This company is not to be held responsible for any outside contracts made by agents other than those expressed on face of this bond.

“This bond is void without the company seal and signature of superintendent.

[L. s.] “J. M. ORCUTT,

“ Superintendent.”

Among other matters is alleged the defense that the note was obtained from the defendant by fraud. The verdict for the plaintiff was directed by the court.

Thomas & Desmond, for app’lt; W. E. Hobby, for resp’t.

The note and bond having been made at the same time, and pursuant to the same agreement, they

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must, as between the parties to them, be construed together, and treated as parts of the contract to the effect (in view of the extrinsic attending facts), that the defendant agreed to and did purchase of the Bohemian Oat and Cereal Company 1¡hirty-four bushels of Bohemian oats at fifteen dollars per bushel, making $510, secured by his note payable in thirteen months, and the company agreed and by its bond undertook to sell for him within one year sixty-eight bushels of like oats at fifteen dollars per bushel and render to him the proceeds of the sale less thirty-three and one-third per cent commission.

The first inquiry is, whether the transaction itself, represented by what then occurred, was in its character illegal, or as between the parties for any reason, furnished to the defendant means of defense against liability on the note. The defendant was at liberty to pay, or promise to pay, that price for the oats, and if he could find a buyer, to sell oats for a like price, although they were actually worth no more than thirty cents per bushel. He evidently made .the purchase, and promised to pay that large price, with a view to the profit he expected to realize out of the contract from the performance by the company of the undertaking of its bond, to sell for him double the quantity of his purchase at the same price, which being done before the maturity of his note, would enable him to pay it, and leave him a profit of $170, less the accrued interest on the note. This was the advantage the defendant was induced to rely upon as the result of the transaction.

The contract was not a gaming one, within the meaning of the statute, and is not void as such. 1. R. S., 662, § 8 ; 2 id., 7th ed., 1962. While it is true that the sale which the company undertook to make depended upon its ability to do so, and was a matter of uncertainty, it was not in terms an agreement to pay differences dependent upon the condition of the market. It purported to be an agreement that one party should furnish to the other the property, which the latter should sell at, or not less, than a specified price. The company apparently by it took the hazard of a market which should permit performance, and of liability for damages in cases of default, yet the terms of it do not import that the parties were speculating upon the ability of the company to sell, with a view simply to the payment of a sum to represent the difference between the price the company agreed to, and could obtain for the property within the time specified. Bigelow v. Benedict, 70 N. Y., 202 ; Story v. Salomon, 71 N. Y., 420 ; Yerkes v. Salomon, 11 Hun, 471 .

The construction applicable to this contract is clearly distinguishable from that of the agreement upon which was

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brought the action in Hall v. Bergen ( 19 Barb., 122 ). There the price to be paid for a horse was made dependent upon the speed it made in a race against time, which was held to be in the nature of a wager, while in the case at bar the agreement to give the defendant the benefit of a sale at a particular price was unqualified. It contravenes no statute of this state to which our attention has been called. The defense, founded on the alleged illegality, must, therefore, rest upon the common law for its support; and if any part of the consideration may be characterized as illegal, it vitiates the contract, and, as between the parties to it, would defeat a recovery on the note. It is contended that the agreement in question was against public policy.

This proposition involves the inquiry whether it was repugnant to good morals, prejudicial to the public welfare, or in violation of some principle or law. We are now dealing with the legal import of the terms of this contract, and in that view* it is difficult to see that it is obnoxious to any rule of law, or void as against public policy. It is true that the stipulated value of the oats, and the price for which the company undertook to sell them for the defendant, was fictitious, and purposely made so for “ speculative purposes.” This was declared in the bond, and so understood by the parties to it. The consummation of the expressed purpose might be produced by unfair means, it might require deception, and its use result in prejudice to the innocent and unwary, but not necessarily so.

This is the consequence of requiring exorbitant prices for property of any kind. The offer of the oats in the market for the price the company undertook to sell might not find the response of a purchaser. It very likely was not a wise one, but that does not necessarily bring the undertaking within legal inhibition. As a rule, men of full age and understanding have the liberty of contracting, and their contracts, when entered into voluntarily are ordinarily held binding, unless they are contrary to public policy or in violation of some rule of law. Printing, etc., Company v. Sampson, L. R., 19 Eq., 462, 465; 12 Moak, 841.

If the undertaking of the company was impossible of performance, that "would be an effectual defense to an action on the note, because an impossible consideration will not support a promise. 1 Parsons on Con., 382. To be such the impossibility must exist in the nature of the thing to be done. The difficulty or improbability of doing it is not sufficient to defeat its effect as a consideration. This case, we think, is not brought within that rule.

In the view taken of the case, the only ground upon which the defense can rest is that the note was obtained

p. 730

from the defendant by fraudulent means, and that the plaintiff was not a holder of it in good faith. The inquiry in this respect relates to the purpose and intent of the party or parties who, in the transaction, dealt with the defendant and obtained from him his note. The contract was a remarkable one, and in view of the actual value of the property which was the subject of the deal, the undertaking of the company and its performance were apparently impracticable as a 'business engagement, The oats purchased by the defendant furnished no adequate consideration for the note he gave. This he understood. The main inducement and consideration of the note was the agreement of the company to sell for him oats at a price nearly, or quite, fifty times their value, which he was induced to believe was made in good faith, and would be so performed as to make his investment a profitable one.

With the aid of these facts the inference from the instru- • ment itself was permitted, that the superintendent who made the bond, or the company he represented, did not, at the time it was made, intend to perform the undertaking expressed in it, but that it was made as an inducement to the defendant to give his note, and with the intent to cheat and defraud him. It might be difficult to understand how a man of ordinary sagacity could be led into such a contract if it had not in the past been historically recorded and demonstrated to observation that belief in representations quite unreasonable is too frequently supported by misplaced confidence in those whose purpose is to circumvent their confiding victims.

There was also evidence tending to prove and permitting the conclusion, that for the purpose of inducement to the defendant to enter into the contract it was represented to him that the company had a capital of $100,000, and was abundantly responsible, and that this was not.true, but on the contrary that while the capital stock was nominally such the amount paid in was only ten per cent, and that may have been represented by notes.

It is not deemed necessary to make specific reference to the fortifying circumstances employed and which the operators in the name of the company had produced by previous transactions with two or three persons in the town, who are said to have profited by performance. It may be that such fact with the aid of those persons in support of the representations of the principal actors in the transaction may have had some influence upon the defendant and others who entered into like contracts.

Whether this pioneer enterprise in the town tends to indicate good faith on the part of the agents of the company in making the contract in question or was designed as a

p. 731

leader preparatory to a business of this character more extended there, and disastrous to their customers, is a matter which may be entitled to some consideration with the other facts bearing upon the question of the purpose and good faith of the parties who conducted the transaction with the defendant.

The evidence presented a question of fact for the jury. And upon it the conclusion was warranted that the company through its agents, did not at the time it was made, intend to perform its undertaking expressed in the bond, and that the defendant was, by fraud on their part, induced to enter into the agreement and make the note in question. Sutton v. Beckwith, 36 N. W. R., 79; 12 W. R., 647 ; Nace v. Kennedy, 36 id., 187; 12 W. R., 654 ; McNamara v. Gar gett, 36 id., 218; 12 W. R., 654 .

But the fact so found would not defeat the right of the plaintiff to recover, unless he was charged with notice of such fraud. The note was negotiable. He in the outset has the benefit of presumption that he became the holder of it in good faith for value. And the duty was not imposed upon him of inquiry into the circumstance under which the note was given. The rule in respect to commercial paper is such that a party taking it in regular course of business for value before maturity, has the right to assume that it is valid and it will be so treated in his hands, until it is shown to have been void by force of some statute, or until it is made to appear that when he received it, he was chargeable with notice of facts which, as between the parties to it, would be available as a defense to defeat recovery upon it. Welch v. Sage, 47 N, Y., 147 ; Seybel v. National Currency Bank, 54 id., 288 ; Dutchess Co. Mut. Ins. Co. v. Hachfield, 73 id., 228 ; Parker v. Conner, 93 id., 127.

The evidence given on the subject tends to prove affirmatively that the plaintiff purchased the note before maturity, and paid value for it. And there is also evidence tending to prove that before he purchased it he was advised of the deal and contract pursuant to which the note was given, that he had notice of the nature and terms of the bond given by the company, and further that he understood by reading articles published in a newspaper of the county upon the subject, that the transactions of the character of that in question conducted in the name of the Bohemian Oat and Cereal Company were fraudulent on the part of the agents of the company, and that their purpose in making the contracts and obtaining the notes of the farmers, was to swindle, cheat, and defraud them. There is, also, some evidence to the effect that in talking upon the subject, the plaintiff had expressed his opinion that those transactions were “a gambling scheme and that somebody would be the loser.” Without referring more specifically to the evidence bearing

p. 732

upon the question of plaintiff’s knowledge of the consideration of the note, the circumstances under which it was obtained, and of his information, and the reason he had to suppose that in the transaction the agents of the company in dealing with the defendant, and obtaing his note, acted in bad faith, and with the intent to defraud him, the evidence was sufficient to present the question to the jury as one of fact, and to permit the finding that when the plaintiff purchased the note he was chargeable with notice of such facts and fraudulent intent, and, as a consequence, the benefit and character of a purchaser or holder of the note in good faith was denied to him. The consideration, however, of this question of fact by the jury is dependent upon the finding by them of the one before mentioned in the affirmative. Otherwise the question whether or not the plaintiff is a holder mala fide will not arise.

If these views are correct, the conclusion follows that the case should have been submitted to the jury, and that the exceptions to the refusal of the court to do so, and to the direction of a verdict were well taken.

The judgment and order should be reversed, and a new trial granted: costs to abide the event.

Barker, P.' J., Haight and Dwight, JJ., concur.