Cunningham v. Scott — 70 N.Y. St. Rep. 543

Majority

p. 543

Laura Cunningham, Resp’t, v. John Scott, App’lt.

(Supreme Court, General Term, First Department,

Filed November 15, 1895.)

Headnote

1. Bills and notes—Bona fide purchaser.

Holders of negotiable paper are only entitled to the benefit of the commercial law, which forbids its validity being questioned when they have purchased such paper in good faith, and in the usual course of business, before maturity, for full value, and without notice of any facts affecting its validity.

3. Same—Presumption.

The holder may make out his title by presumption, but this may be impeached by evidence showing the paper had an illegal inception, and then he can no longer rest upon presumption, but must show the circumstances under which it came into his possession, and that he has acted in good faith.

3. Same—Payment of value.

The payment of value for negotiable paper is a circumstance to be taken into account, with other facts in determining the good faith of the pur chaser, but it is not conclusive, when it appears that the paper was obtained under such circumstances as would have prevented the original holder from maintaining an action thereon, except in the absence of all evidence tending to show notice to, or bad faith on the part of, the purchaser.

4. Same—Question for jury.

The question whether the plaintiff was a bona fide purchaser of the note was held, under the facts of this case, to be one for the jury.

Motion for a new trial of exceptions, ordered to be heard at general term in the first instance.

Dallas Flannagan, for pl’ff; Sol. Kohn, for def’t.

The note upon which recovery was had was made in the state of Texas, and is therefore governed by the law of that state. It does not appear, however, that the statutes of Texas affect in any manner the legal questions which grow out of this controversy, and, in the absence of proof to the contrary, the common law must be presumed to prevail in Texas, as it does in New York; and in this state the law applicable to the facts of the case is that holders of negotiable paper are only entitled to the benefit of the rule of the commercial law, which forbids its validity being questioned when they have purchased such paper in good faith, and in the usual course of business, before maturity, for full value, and without notice of any facts affecting its validity. The holder may make out his title by presumption, but this may be impeached by evidence showing the paper had an illegal inception, and then he can no longer rest upon presumption, but must show the circumstances under which it came into his possession, and that he has acted in good faith. While gross carelessness will not, as a matter of law, defeat title in the purchaser for value, it constitutes evidence of bad faith. The payment of value for negotiable paper is a circumstance to be taken into account, with other facts, in determining the good faith of the purchaser, but it is not conclusive when it appears that the paper was obtained under such circumstances as would have prevented the original holder from maintining an action thereon, except in the absence of all evidence tending to show notice to, or bad faith on the part of, the purchaser. With these rules as our guide, we shall briefly consider the evidence.

At the outset, it may be observed that it is undisputed that the note was obtained by the payee without-consideration. It was made under the following circumstances: In November, 1890, John Scott, the maker, while in the state of Texas, negotiated for the purchase of some land of one E. H. Eopes, with whom he had been acquainted for some period of time. Eopes supposed that he was, or, at least, said that he was, the owner of a tract of land in the county of Nueces, and he agreed to sell the same, and to take defendant’s note therefor, with vendor’s lien on the land to be conveyed. The note was made and delivered to Eopes, and therein was acknowledged the vendor’s lien on the land described as security for the payment of the note. The deed had not been made out when the defendant left the state, and it was agreed that it -should be made out, executed, and forwarded to him. It turned out that Eopes did not own the land, or, at least, he only had title to a part interest; the greater portion of it belonging to a corporation, of which one Stayton was the secretary and also the attorney, and to whom reference will later be made. Eopes, therefore, did not forward to the defendant a deed, as he agreed, as he neither had nor could obtain title. There was a total failure of consideration for the note, therefore, and Eopes had no right to put it in circulation. Eopes indorsed the note, and turned it over to Stayton, as the latter alleges, in payment of debt already due to him from Eopes for legal services rendered. Eopes testifies that it was a loan to Stayton, who reported to him that he would get into trouble

p. 545

unless he had some collateral to put up in addition to papers of his own. That Ropes, and not Stayton, gives the correct account of the transaction, is evidenced by a receipt signed by Stayton, which reads as follows: “ Received of E. H. Ropes, as a loan, one vendor’s lien note for $4,506, dated Corpus Christi, November 24th, 1890, and given by John Scott as part of the purchase money of block number 814, on Port Aransas Cliffs.” At least, the jury would have been authorized to find from this and the other evidence in the record that it whs a loan to Stayton, to be used temporarily as collateral, and then to be returned. They would have been further authorized to find from the evidence that Stayton well knew that there was no consideration for the note. The note, and also the receipt, bore evidence that the consideration for the note was the purchase price of the land referred to in both note and receipt,— land which was at that time owned by a corporation, of which Stayton was the secretary and attorney; and it appears from the testimony of Ropes that Stayton, at his request, had made a search of the title to such land, which showed that the greater part of it, if not all, belonged to the corporation. After Stayton had acquired possession of the note, he turned it over to Messrs. Swearingen & Brooks, for this plaintiff, to whom he was then indebted in the sum of. $2,040, considerably less than half the face value of the Scott note. Swearingen and Stayton would have it believed that Stayton sold to Swearingen’s firm, for the plaintiff, this" note for that sum in cash, but the plaintiff testifies that Stayton owed her that sum of money, with some interest, and that she had notice from Swearingen & Brooks of their getting the note. Under what circumstances they got it, and whether it was as collateral to plaintiff’s indebtedness, ór in payment of it, she does not seem to know, or, at least, her testimony is silent upon that subject. It is certainly quite remarkable that she should have no information in reference to it, and that she should not have felt called upon to inquire how it was that she should be given a vendor’s lien note for more than twice the amount of the indebtedness due to her from Stayton, if it was intended merely as a payment of such indebtedness. There is still another bit of testimony which should not be' lost sight of. As we have already observed, Stayton undoubtedly knew when he borrowed the note that it was without consideration, and that any attempted disposition of it by him would be fraudulent; and yet Ropes testified that he knew that at the time of the transaction Stayton was attorney for Mrs. Cunningham, this plaintiff. Although this testimony was weakened somewhat by a statement of how he acquired the information, still it was entitled to consideration.

In the light of these facts, we think it was a question for the j ury whether she was a good-faith purchaser for value, and not a question of law for the court.

The exceptions should be sustained, and a new trial ordered, with costs to the defendant'to abide the event.

• All concur.