Grimes v. Hillenbrand — 11 N.Y. Sup. Ct. 354

Majority

p. 354

WILLIAM H. GRIMES, Plaintiff, v. JOSEPH HILLENBRAND, Impleaded, etc., Defendant.

Headnote

Negotiable paper — illegality in consideration — when void in hands of abona fide holder.

Negotiable paper in the hands of an innocent holder, who has received it in good faith and in the ordinary course of business, for value and without notice of any defense to it, is not rendered invalid by reason of any illegality in its consideration, unless it is expressly declared void by statute.

Motion for a new trial upon exceptions taken at the Circuit, and ordered to be heard in the first instance at the General Term.

The action was upon a promissory note of $500 against maker and indorser.

The defense was, that the note was executed to prevent opposition by a creditor of the maker, to the discharge of the said maker in bankruptcy, and in fraud of the bankrupt law; and also that it was given in pursuance of the terms of a composition deed executed by the creditor of the maker, the creditor to whom it was given receiving a greater percentage of his debt than the other creditors. Plaintiff was a bona fide holder of the note, having received it before its maturity for a full consideration.^

Humphrey & Lockwood, for the plaintiff.

Daniel Pratt and Rowan & Helm, for the defendant.

The note in suit is-void under the insolvent laws, and also void under the general provisions of law, it being given to induce the creditor to sign a compromise, and thereby gain a preference over other creditors, and perpetrate a fraud on the other creditors. (Payne v. Eden, 3 Caines’ Cases, 213.) It is a well settled rule of law that any separate advantage attempted in composition with creditors is void. (Townsend v. Newell, 22 How. Pr., 164 ; Higgins v. Mayer, 10 id., 364.) Every secret advantage to one creditor, and every security not provided for in the deed, are void. ( 12 Johns., 309 ; 1 P. Wms., 768 ; 4 East, 372; 3 Caines, 213;) It is not only a fraud upon the other creditors, but is against public policy. ( 4 Johns., 410 ; 12 id., 306; 19 id., 311; 2 id.,

p. 355

386; 3 Caines Cases, 213.) A note is of no greater validity than a naked promise. (Bliss v. Matteson, 45 N. Y., 22 -25; Carroll v. Shields, 4 E. D. Smith, 466; 36 N. Y., 129 ; Beach v. Ollendorf, 1 Hilt., 41; Higgins v. Mayer, 10 How., 363 .)

The verdict of the jury settles the question of fact, that the plaintiff was a bona fide holder of the note in suit, and that he 'received it before maturity, and without notice of any of the circumstances which would have made it invalid in the hands of the original owner; and also that said note was not given to induce Scheti, the original holder, to refrain from opposing the discharge of the maker in bankruptcy. The jury were properly instructed, that if the note was given and received for that purpose, it was void, and their verdict should be for the defendant. If the note was given, as the jury must have found under the charge and the evidence of the witness Schen, to induce said witness to sign the compromise deed, or agreement, produced in evidence and set out in the case, although it was fraudulent and void as between the original parties, it still was valid in the hands of a bona fide holder.

The judge stated the rule correctly, that negotiable paper, in the hands of an innocent holder who had received it in good faith, and in the ordinary course of business, for value, and without notice of any defense to it, is not invalid by reason of any illegality in the consideration, unless it is expressly declared void by statute. (Chitty on Bills, 92 ; Hill v. Northrup, 4 N. Y. S. C., 120; Edw. on Bills, 336, 337; Story on Prom. Elotes, § 192.) It is doubtless true as the defendant’s counsel insists, that all transactions forbidden by statute are void, as are also all agreements for suppressing evidence or compounding criminal prosecutions, felonies or misdemeanors, or against sound morals, public policy or interest, as between the original parties. The case of Conderman v. Hicks ( 3 Lans., 110 ), illustrates the rule. The action in that case was upon a promise to pay money, not negotiable, given to compound a criminal offense. The defense to it was good and available, the same as it would have been between the original parties.

These views meet, I think, all the substantial points presented upon the defendant’s exceptions.

p. 356

The case was very fairly submitted to the jury upon a charge quite elaborate and clear, and essentially sound. Rone of the exceptions taken to it, or to the refusals of the judge to charge, or modify the charge, I think, are well taken.

The motion for a new trial should he denied, and judgment ordered for the plaintiff upon the verdict.

Present — Mullin, P. J., Smith and Morgan, JJ.

Ordered accordingly.