Claffy v. Farrow — 44 N.Y. St. Rep. 789

Majority

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John Claffy, Resp’t, v. Edward S. Farrow et al., App’lts.

(City Court of New York, General Term,

Filed March 10, 1892.)

Headnote

1. Bills and notes—Pbooe ob title.

A judgment roll entered upon default against subsequent endorsers of a note is not admissible against a prior endorser to show title to the note in plaintiff. The proper way to prove title by endorsement denied is by offering note with proof .of the genuineness of the signatures of the endorsers.

2. Same.

When the maker or endorser of a note has shown that the note was obtained from him by duress, or that he was defrauded of it, the. plaintiff should bo required to show under what circumstances and for what value he became the holder.

Appeal from judgment entered on verdict directed by the court against defendant Farrow.

Nichols & Bacon, for app’lts ; Kellogg, Rose & Smith, for resp’t.

This action is upon a promissory note made by the defendant, Worth, to the order of defendant, Farrow, who endorsed the same payable to the order of the defendant, Barnegat Co., by whom it was endorsed, as well as by the defendant, Flew York Improvement Co., and the plaintiff claimed to have subsequently acquired the same before maturity and for value. It appears that the two defendant corporations were duly served with the summons herein in March, 1891; that the Improvement-Co. failed to plead; that the Barnegat Co., although answering, suffered an inquest to be taken against it; and that thereupon on April 18, 1891, a judgment was • entered against them by default. The defendant, Farrow, who was served October 13, was the only defendant who appeared at the trial, which was had on December 18, and which resulted in a verdict being directed by the court in favor of plaintiff for the full amount of note and interest. Every allegation of the complaint, except as to the incorporation of the two defendant corporations, was put at issue by the answer of Farrow, which also set up an affirmative defense. At the trial plaintiff offered in evidence this judgment-roll, filed on April 18 in this case against these two defendant corporations, “ as to the title to this note, which comes through them. The other side denies that we are the owners of the note, ” and it was admitted against the objection of counsel for Farrow, the only defendant

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defending, and exception. was taken. This was error, for the proper way to prove title by endorsement denied is by offering the note with proof of the genuineness of the signatures of the endorsers. Plaintiff’s counsel contends that this was harmless error, because the note was subsequently offered in evidence and purported to be regularly endorsed by all of these defendants, and as he contends was admitted without objection although an exception appears to have been taken to its admission during a colloquy between the court and defendant’s counsel had at that very moment, and at the close of which plaintiff’s counsel immediately moved to dismiss on the ground “ that there was no evidence that the title to the note is in this plaintiff.’’

It does seem that although this exception may not be strictly regular, yet, viewed in the light of this mutual discourse between the court and counsel as appears by the record, it should be deemed available to defendant in so far as to have required proof of the genuineness of the endorsement of the Barnegat Company as appearing on the note, for, as already said, the judgment roll did not prove the genuineness of the same. The genuineness of this endorsement was material, for it must be remembered that defendant Farrow, the payee, had endorsed the note payable to the order of the Barnegat Company, which precluded the passing of title thereof by delivery alone and required the endorsement of that company in order to permit of plaintiff acquiring title thereto. However, there is another and further reason why this judgment should be reversed. The plaintiff neither gave nor offered any affirmative proof of the bona fides of his holding of the note, but the plaintiff, assuming that the note and the endorsements were properly proven and in evidence, simply relied upon the legal presumption raised thereby. Of course, upon the production in court of a note, with endorsement properly proven, the presumption of law is raised not only that the plaintiff is the holder of it, but that he was the holder thereof before maturity and for full value, but this presumption is overcome by proof on behalf of a defendant that the note has been diverted from the purpose for which it was delivered, or that it was obtained from the defendant by fraud or theft.

A witness for defendant Farrow was allowed to testify, without objection from plaintiff, as follows: “I am the partner of Mr. Farrow in the banking businessI remember his giving this note to me; it was some time in September, 1890; I had it with a number of others in my desk, at No. 40 Wall street, New York; I never parted with possession of it; it was stolen from my possession I never parted with title to it; after the note was stolen from mv desk, the next I heard of it was this gentleman, who introduced himself as Mr. Claffy (the plaintiff), came to our office, No. 40 Wall street, and asked me about the note, and I served notice upon him that the note was stolen from me; that the parties that endorsed it never received any value for it whatever, and he was not entitled to it; that was after he purchased the note, but before maturity.”

The defendant had testified that the last he saw of the note was

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when he handed it to his partner, and he was asked by his counsel this question : “ Did it ever pass out of your personal possession later.” “ Objected to. Objection sustained. Exception.” This evidence on behalf of defendant certainly put the plaintiff to affirmative proof of the bona fides of his holding. The rule as to the shifting of the burden of proof under such circumstances is aptly stated by Judge Rapallo in First National Bank v. Green, 43 N. Y., 300 , as follows: “A plaintiff suing upon a negotiable note or bill purchased before maturity is presumed, in the first instance, to be a bona fide holder. But, when the maker has shown that the note was obtained from him under duress, or that he was defrauded of it; the plaintiff will then be required to show under what circumstances and for what value he became the holder. The reason for this rule, given in the later English cases, is that ‘ where there is a fraud the presumption is that he who is guilty will part with the note for the purpose of enabling some third party to recover upon it, and such presumption operates against the holder, and it devolves upon him to show that he gave value for it.’ ” This rule applies with equal force in favor of a payee who endorsed the note payable to the order of a particular person, as did the defendant in this action, and therefore the plaintiff could not simply rely upon the presumption arising from the production of the note, but was called upon “ to show under what circumstances and for what value he became the holder,” which, however, he failed to do, and hence it was error to direct a verdict in his favor.

The judgment is reversed and a new trial granted, with costs to appellant to abide the event.

Eitzsimons, J., concurs.