Joy v. Diefendorf — 40 N.Y. St. Rep. 491

Majority

p. 491

Henry Joy, Resp’t, v. John F. Diefendorf, App’lt.

(Court of Appeals, Second Division,

Filed October 20, 1891.)

Headnote

1. Fraud—Bona fide purchaser—Trial.

In an action upon a promissory note, there was evidence on the part of the defendant that the same had been procured from him by fraud. The only evidence to show that plaintiff was a bona fide purchaser was given by the plaintiff himself as to the circumstances attending its purchase, and his knowledge of the person from whom he obtained it. Held, that the credibility of his testimony was for the jury to determine, and that it was error for the court to direct a verdict for plaintiff.

2. Bills and notes—Usury.

The note in suit was given on the fraudulent representation that the payees were members of a firm; that they could buy their partner out, and to enable defendant to become a partner in his stead. It was agreed that the notes were to be held by the firm, and were not to be disposed of or sold, but to be paid out of the proceeds of the business. Held, that it could not be said that the note had no legal inception, as it was intended to represent an obligation, and that the defense of usury in the discount thereof by plaintiff at a greater rate than legal interest was not available.

Appeal from a judgment of the general term, third judicial department, which affirmed a judgment entered upon a verdict directed by the court

Z. S. Westbrook, for app’lt; Henry Bacon, for resp’t

This action was brought to recover the amount claimed to be due upon a promissory note made by the defendant, whereby he promised to pay to H D. Henderson or bearer $1,000, with interest six months after date, at the Spraker National Bank at Canajoharie, and by said Henderson transferred for value to the plaintiff within a few days after its execution.

The principal defense relied upon to defeat a recovery was that the plaintiff was not a bona fide holder of the note.

The trial court directed a verdict for the plaintiff, thus disposing of this question as one of law, and refused a request by the defendant to submit it to the jury.

The evidence given upon the part of the defendant was sufficient to warrant the conclusion that the note had been obtained

p. 492

from him through a fraud practiced upon him by Henderson and Yan Yalkenburgh, and the burden was thus cast upon the plaintiff to show that he was a bona fide purchaser. Vosburgh v. Diefendorf, 119 N. Y., 357 ; 29 N. Y. State Rep., 448, and cases cited.

This burden the plaintiff met by his own evidence as to the circumstances attending the purchase and his knowledge of the party from whom he obtained it, and the credibility of his testimony was for the jury to determine.

That question was decided in Canajoharie National Bank v. Diefendorf, 123 N. Y., 191 ; 33 N. Y. State Rep., 389. That case was upon a note obtained by the same parties from this defendant and grew out of the same transaction as the note in suit, and was transferred to the bank by Henderson.

The question of the good faith of the bank’s purchase depended entirely upon the evidence of its cashier, and it was held that his relations to the bank and his interest in the transaction brought him within the rule that the credibility of a party or an interested witness is a question for the jury to determine. No.distinction in this respect is apparent between that case and the one under consideration. The court, therefore, erred in refusing to submit the case to the jury and the judgment must be reversed.

It was also claimed that the note was void for usury, in that before it had any legal inception it was transferred to the plaintiff at a discount much greater than the legal interest.

The question of usury was not raised at the trial in the Canajoharie Bank case and there was no ruling which presented it for consideration in this court, and we cannot therefore assume that the court decided it although it was incidentally referred to in the opinion.

We think that defense is not available in this case.

The substance of the defendant’s evidence was that Henderson and Yan Yalkenburgh represented that they with one Ackley were engaged in business as partners; that they could buy out Ackley for $8,000, and by these and other representations induced 1 defendant to agree to become a member of the firm in Ackley’s place and to execute and deliver his notes to them for $8,000. That the notes were to be held by the firm and were not to be sold or disposed of and were to be paid out of the proceeds of the business.

Although these representations were false it cannot be said that the notes had no legal inception. They were intended to represent an obligation.

The rule which renders void a note in the hands of a third party who has purchased at a discount greater than the legal interest applies to instruments that have no inception between the parties or which are not intended to be available until discounted. This note in suit does not.fall within that rule.

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

All concur, except Potter, J., not sitting.