Ogden v. Pope — 44 N.Y. St. Rep. 646

Majority

p. 646

Isaac C. Ogden, Jr., Resp’t, v. Henry W. Pope, App’lt.

(New York Common Pleas, General Term,

Filed March 7, 1892.)

Headnote

Bills and notes—Bona fide.holder—Bubden of proof.

In an action on a promissory note, the defense being fraud in its in- ■' ception, the burden is on the plaintiff to show that he had no knowledge or notice of the transaction which affected the validity of the note, and! therefore the defendant is entitled to give evidence of the fraud without. first proving that plaintiff had notice of the same, even though plaintiff is allowed to give evidence of his being a bona fide holder for value and without notice while presenting his case in chief.

Appeal from an affirmance by the general term of the city court of a judgment in favor of the plaintiff entered upon the verdict of a jury directed by the court.

The action was brought upon the following promissory note

“ $370.14. Elizabeth, FT. J., Sept. 14, 1890.

“ One month after date I promise to pay to the order of myself three hundred and seventy and fourteen one hundreths dollars at, First Hational Bank of Elizabeth, FT. J.

“ Yalue received.”

“Henry W. Pope.”

The defense denied the making of the note and the other allegations of the complaint, and alleged that defendant had delivered a blank form of note signed and endorsed by him to one Browne,. writh authority to Browne to fill up the blanks and then use the-note to obtain money for a specific purpose, and that Browne-did not do so but retained the blank, and afterwards he or some-other person without authority from the defendant filled up

p. 647

the same so as to make the note described in the complaint, which was afterwards and before it had any legal inception dismounted at a usurious rate of interest.

Howard T. Stillman, forapp’lt; Charles De H Brower, for resp’t.

The plaintiff testified that he bought the note in ¡suit the day after its date for the sum of $362.64, which was a discount at a rate of interest greater than that allowed by law. He testified that he bought it from one Brower, who was acting as agent for one Kloek, and that he knew nothing of any other party. Brower was sworn, and testified that he received the note on the day of its date from Kloek with a request to sell it for him, which he did, receiving plaintiff’s check for it and thereupon -remitting his own check to Kloek after deducting his fee of $2.50, and that Kloek said nothing to him as to whether he was acting ns principal or agent.

Plaintiff having rested his case, defendant went on the stand to prove his defense, but under objection from plaintiff was not permitted to state at what time he signed the note and whether he received any consideration for it. He was then withdrawn, and .Kloek was called on his behalf, who testified that he first saw the note in possession of one Browne, that it was in blank, and that Browne filled in the blanks at his office and left it with him as his attorney, and that' the witness gave it to Brower to dispose of..

Plaintiff proceeded by cross-examination of Kloek to show -authority in Browne to fill up the note as he did. Kloek swore that he had acted as umpire between Browne and the defendant -under a written agreement, by which they submitted to him all •differences between them growing out of their relations together in the Cayuga Lake Park Company and the Seneca Falls & •Cayuga Lake B. B. Co., and agreed to abide by his decision as to which of the parties was indebted to the other and as to the .amount due, and that he had decided that defendant was indebted to Browne in the sum of $86.06, his decision being in writing dated December 2, 1889; that the $86.06 was included in the amount for which the note was filled out by Browne, together with $40 for the witness’ services as umpire; $125 for a claim of Browne against defendant for one-half of a bill settled by defendant, in which both the latter were jointly interested ; $98 for a violin belonging to Browne which he had lent to defendant, and $21.10 interest, making an aggregate of $370.14, the amount for which the note was filled up.

A letter of defendant to Browne on February 15, 1890, was read in evidence authorizing the latter to make a note for $86, the amount of the award, at four months from February 15th, with interest from the date of the award at six per cent. This letter ref erred to “ other matters,’’ leaving them to Klopkto decide, but did not enumerate them nor- provide that they were to be included in the note. .A letter from the defendant of September 30, 1890, to the witness, Kloek, questions the latter’s bill of $40 for services as referee, if it does not altogether repudiate it.

No authority whatever, therefore, from defendant to include in

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the note any item except the $86.06, the amount of the award, was shown, and defendant then again offered himself as a witness to prove that no such authority was given and that he did not owe Browne the items mentioned. He also offered letters of Browne’s, offering to return the blank note on the receipt of $86.06. All this evidence was excluded upon plaintiff’s objection, and the court, upon plaintiff’s motion, ordered a verdict for the plaintiff, denying the defendant’s request to go to the jury on the fact whether the plaintiff had shown himself, by affirmative proof, to be free from knowledge of the fraud in the note. To the rulings complained of the defendant excepted. All the testimony ruled out was excluded upon the ground that the defendant must show that the plaintiff got the note with full knowledge of the defense, if any, that existed between defendant and Browne.

The trial seems to have been conducted upon an erroneous, view of the law as to the burden of proof. The defendant should have been allowed to prove his defense and the burden "would then have been cast upon the plaintiff to show that he bad received the note for full value and without notice of the equities between the original parties. By permitting the plaintiff to offer-evidence of this in1 the first instance and then shutting out proof of the defense until the defendant could show notice to the plaintiff, the burden of proof as to good faith was wrongfully shifted to the shoulders of the defendant and he was deprived of the advantage to which he was entitled. Nickerson v. Ruger, 76 N. Y., 279 . The defendant was not bound to prove notice to the plaintiff of the facts connected with the execution of the note. On the contrary, the burden was upon the plaintiff to show that he-had no knowledge or notice of the transaction which affected the validity of the paper. Vosburgh v. Diefendorf 119 N. Y., 357 ; 29 St. Rep., 448 .

Another injustice resulted to defendant from the erroneous ruling. He was precluded from offering proof of his defense of usury. He could not enter upon that defense until he had 'proved the facts relating to the making and delivery of the note so as to establish that its first inception was the discount of it by the plaintiff. To do this he had to prove that Browne was not a bona fide holder, having no authority to fill up the note for the-sum inserted in it. If it appeared that the first legal inception of the note took place upon its discount by the plaintiff, and that, was at a greater rate than legal interest, no recovery could have-been had upon it.

There is no force in the contention of respondent that the note-was enforcible for the full amount in the hands of the plaintiff because it was enforcible in the hands of Browne for at least the sum of $86.06, he being concededly authorized to fill it out for that amount. It isonot probable that Browne could violate his. authority by inserting an excessive amount and then recover upon the note for what was actually due. It was held to be forgery for a person having a blank signature of another which he was authorized to fill up with a check or bill for a limited amount to-

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write one for a larger amount. See cases cited in Van Duzer v. Howe, 21 N. Y., 537 . The case cited by respondent, Forman v. Wright, 11 C. B., 481 , was that of a note procured by misrepresentations to the maker as to the amount actually due from him. A recovery was allowed for the actual sum owing, but in that case the note was the maker’s note for the whole amount and not an instrument which the law characterizes as a forgery, and the defense was in effect merely a partial failure of consideration. The rule is that the maker of a note who delivers it in blank to another with authority to fill up the blanks for a certain amount and such authority is exceeded, is bound to a bona fide transferee for value, but this does not help the case for the plaintiff as it .stands; for by the rulings of the court upon the trial the plaintiff on the strength of his prima facie case was assumed to be a bona fide holder, and upon that assumption all evidence in support of the defense was ruled out until the defendant could establish to the contrary. Upon this theory of trying actions upon promissory notes it would not be possible to prove a defense in order to cast the burden of proving good faith where it belongs, upon the holder of the paper.

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

Bischoff, J., concurs