Shaw v. Outwater — 59 N.Y. St. Rep. 859

Majority

p. 859

David Shaw, App’lt, v. Oliver P. Outwater et al., Resp’ts.

(Supreme Court, General Term, Fifth Department,

Filed April 12, 1894.)

Headnote

1. Bills and notes—Indoksement.

The indorser of a promissory note can have no defense to it on the ground of invalidity for any cause.

p. 860

8. Same—Defense.

The maker lias no defense to a note in the hands of a Iona fide purchaser, where he has, when he gave it, the same knowledge of the general nature of the payee’s business, out of which it arose, as the purchaser had when ho bought it. v.

Motion for a new trial on a case and exceptions ordered to be heard in the first instance at the general term, after a verdict was directed by the court.

D. P, Brong, for the motion; Q. G. T. Parker, opposed.

The action was against the maker and indorser of a promissory note for $100 given-for “seed grain.” The case is one of a class familiar to the courts, but presents some novel features, which complicate the narrative, if they do not materially • affect the disposition of the case. All the parties to this action, successively, yielded to the seductive inducements of a scheme in all respects similar to that known as the “Bohemian Oat Swindle." The pretended corporation at the bottom of the scheme in this case was introduced by its agents as the “Pennsylvania Seed Company, Limited.” The agents of the scheme sold oats for seed at $15 a bushel, and gave what purported to be k “bond" of the company, by which it agreed to sell for the purchaser, the next year, double the quantity of oats sold to him, at the same price which he paid, less 38Í- per cent, commissions; he to receive his pay in the notes, presumably, of the purchasers of his product. The operation in this case began with the plaintiff. In the fall of 1887, he, in company with another man, bought twenty bushels of the seed oats, and gave their note for $300, which "they paid when it became due. Their product, or a portion of it, was sold the next fall (1888), by the agents of the scheme, to the defendant Grossman, on the same terms;, and the plaintiff received, as his share of the proceeds of the transaction, Grossman’s note for $200. In the fall of 1889, ten bushels of Crossman’s product were sold to the defendant Outwater, and Grossman received therefor Outwater’s note for $100, which is the note in suit-. When Cross-man’s note, held by the plaintiff, was about to become due, he proposed to take it up if the plaintiff would accept another man’s note in part payment; and lie offered the plaintiff his choice of two notes of $100 each, one of which was Outwater’s. The plaintiff consented to accept the latter if Grossman would indorse it, which he did, and delivered it to the plaintiff, and ¡laid the balance of his own note in money, and took it up. Both the defendants seek to defend on the ground of want of consideration for their respective contracts, that those contracts were, procured by fraud, and that they were contrary to public policy. In addition to the facts above briefly recited, the testimony on the part of the defendants tended to show that the agents of the scheme, when the oats were sold to them, respectively, represented the Pennsylvania Seed Company, Limited, to be a duly-incorporated company, and a reliable and responsible institution, and that those representations were false and fraudulent; hut the evidence that such representations were made to the defendant Outwater was contradicted by the agent who was charged with making them.

p. 861

Upon these proofs the learned judge at the circuit directed a verdict for both of the defendants. We think the defendants were not entitled to such a direction; but, on the contrary, that the plaintiff was entitled to a verdict in his favor against both of them. The proposition that the contracts in question were void, as against public policy, is negatived by the decision of this court in the case of Watson v. Blossom, 18 St Rep. 726 ; 4 N. Y. Supp. 489 . The defense of want of consideration evidently fails as to both of the defendants. Outwater gave .the note for seed oats which he bought with a speculative intent, and Grossman indorsed the note in consideration of the surrender of his own obligation for the same amount. It is clear, we suppose, that Grossman could have no defense to the note on the ground of its invalidity for any cause, since, by his contract of indorsement, lie himself guaranteed its validity, as well as its payment, Erwin v. Downs, 15 N. Y. 576 ; Revisen v. Graves, 41 N. Y. 475 . And the only ground of defense which remained to Outwater, the maker, was that the note was procured from him by fraudulent representations, viz: as to the corporate character and responsibility of the company which gave him the bond upon which lie relied. But the case is devoid of evidence to show that the plaintiff had any knowledge either that such representations were made to Outwater, or that they were false. He had bought his seed oats two years before of the same company, upon similar assurances, which had been entirely fulñlled.There seems to be no ground whatever, in the evidence before us, for the charge, rather freely made in the argument of counsel, that the plaintiff was engaged in promoting the swindle of the “seed-grain business.” On the contrary, he was, as Grossman and Outwater were, a purchaser of seed grain, for which he gave his note as they did, and, so far as appears, in the same reliance upon the representations and covenants of the seed-graincompany. We find no difference whatever in the legal or moral status of the three, in their relations to the scheme. All of them understood the mode of its operation. The defendant Outwater himself testifies that he knew that, in order that he should profit by the transaction, it must be repeated with some other person. He knew that Grossman had gone into the scheme the previous year, and that this year Grossman’s oats were sold to him, and that his note was to go to Grossman. He understood that, whereas he was a purchaser of “seed oats” this year, he was to be a seller next year, and his only query was “where the thing would stoj).” Unfortunately for his hopes, it stopped too soon for their realization. The “company” went out of business the winter after he bought his seed, and nobody came next year to sell-liis product at §15 a bushel. This was the risk that all three ran, and the only disadvantage to Outwater was in the time when he purchased. His defense to this action, on the record before us, fails because he has failed to show that the plaintiff had any knowledge of the particular fraud perpetrated upon him; and, so far as appears, he had the same knowledge of the general nature of the business when he " gave the note as the plaintiff had when

p. 862

he bought it. The plaintiff’s motion for a new trial must be granted.

So ordered, with costs to abide the event.

All concur.

Cases cited

People v. Mullin 41 N. Y. 475 N.Y. 1977-03-29 p. 861