Talman v. Gibson — 1 N.Y. Super. Ct. 308

Majority

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James T. Talman versus John Gibson.

Dec. Term, 1828.

Headnote

Where the holder of a promissory note has obtained possession of it by fraud, he cannot maintain an action upon the note against any of the parties to it.

Possession is prima facie evidence of a transfer to the holder: yet, if the defendant can show that the plaintiff obtained the note by his own fraudulent act, he has a right to defeat the action on that ground, although he may be liable to pay the note to the true owner.

The consideration merely, on which the note was received by the holder, is not to be questioned; but the defendant may show that no consideration was paid by - the holder, as one step towards the proof of fraud, on his part, in obtaining the note.

This was an action upon a promissory note, made by one George Gibson, in favour of the defendant, endorsed by him to one Rogers, by Rogers to Samuel C. Hyslop, by Hyslop to one Peter W. Spicer, and by him to Charles B. Spicer.

Plea, the general issue. -

The. cause was tried on the 12th day of September, 1828, before Mr. Justice Hoffman.

At the trial, the counsel for the defendant stated, that it was not denied, that George Gibson owed the note in question, nor was the defendant’s liability, as endorser, denied. That this defence was set up "by Samuel C. Hyslop, (one-of the endorsers,) who claimed to be the true owner of the note. That Hyslop Rad put the note into the hands of Peter W. Spicer, as his agent, for the purpose of having it discounted. That Spicer, in order to procure the money, employed one Samuel Healy, as a broker, who received the note, but neglected to account for it, and refused to give any information as to what had become of it. That Hyslop, upon investigation, finally discovered that the note had been lodged by the plaintiff in the Mechanics’ Bank for collection,. That he called upon the plaintiff, and demanded the note as his property ; but the plaintiff refused to surrender it up, unless the full amount thereof was paid: saying, that he had received the note of Healy as security for a debt of $70, due from Healy to him.

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The counsel for the plaintiff objected to the admission of this evidence, upon the ground, that the facts, if proved, could not be interposed by Hi{slop as a defence to this action. That the defendant, having negotiated the note upon a good consideration, could not inquire into the consideration passing between subsequent holders.

It was ruled, by the presiding Judge, that the facts stated by the defendant’s counsel, if proved, would form no defence agaipst the plaintiff’s claim.

The defendant then called Peter W. Spicer as a witness, who testified, that the note in question actually belonged to Hyslop: that the witness had called upon the plaintiff for it, but he refused to deliver it up, saying that he had received it in payment of, cu-as security for, a debt due to him from Healy.

The defendant also called Healy, and offered to prove by him, that the plaintiff had given no consideration for the note; that there was no debt due to him from the plaintiff at the time the note passed into his hands, but on the contrary, that the plaintiff was actually indebted to the witness.

The Judge decided that this evidence was not admissible to form a defence between these parties. That Hyslop’s remedy (if he were the true owner of the note) would be by action of trover against the plaintiff: that there would be no safety in negotiable paper, if a defence of this kind could be interposed between the holder and a party who had received a full consideration for it.

To this opinion and decision, the counsel for the defendant excepted ; and the jury, under the direction of the Judge, found a verdict in favour of the plaintiff, for the full amount of the note.

The defendant now moved for a new trial; and Mr. Mulock contended,

I. That the defence offered, was improperly rejected. The testimony showed that the note was the property of a third person, who had lost it: the plaintiff was therefore bound to prove the consideration upon which his title rested. Were he an innocent purchaser, without notice—or if he had negotiated the note,

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for a valuable consideration, the defendant would have been concluded, because the note would then have been in the hands of a bona fide holder. In this case, the defendant is not the plaintiff’s debtor ; and he cannot be made such by the plaintiff’s wrongful possession of a note to which he has no title.

II. This defence may be set up by the true owner of the note. It invades no principle of policy—it disturbs no rule applicable to negotiable paper: on the contrary, a wrongful holder ought never to be permitted to recover, xvhere the true owner is known, and asserts his rights. The title of the plaintiff is not strengthened, because the defendant has received a full consideration for the note. If he recovers, he must recover by the strength of his oxvn title, and not from the fact that the defendant owes the mohey. The plaintiff who holds anote, obtained from the trueoxvner by fraud, without having paid value for it, holds it in privity with the wrong doer; and the latter certainly cannot recover, where the true owner interposes the defence. It is of no consequence to the defendant, whether he pays the money to the holder or the true owner; but it is a matter of much importance to the latter, to prevent the money from passing into the hands of an irresponsible and fraudulent holder, from whom he might not be able to recover it.

The right to inquire into the consideration, which the plaintiff paid for this note, rests upon the same ground on which the law places the right to inquire, whether the holder of a stolen note has received it innocently, and for a proper consideration, in the course of its circulation. If the consideration upon xvhich the remote holder of a note received it, can never be inquired into, in an action against the maker or endorser, then the mail robber may enforce his claims against the rightful owner with impunity and success. It is believed that the law xvill not permit such injustice to be done. [He cited 3 Kent’s Com. 51. Chit. on Bills, 190. 2 Camp. Rep. 574. 1 Connect. Rep. 494. Shepard v. Hall.]

Mr. Geo. T. Talman for the plaintiff.

Gibson, the defendant, having negotiated the note upon a

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valuable consideration, cannot inquire into that, which passed between the subsequent parties to it. If it were competent for him to do so, he does not set up this defence, but it is interposed by Hyslop for him. To what purpose 1 If a recovery by the plaintiff be defeated, Hyslop will not receive his money, but must resort to an action of trover to recover the note out of the plaintiff’s hands. Until the note can be placed in the hands of a person entitled to sue upon it, the defendant can never be compelled to pay the amount, which he justly owes. He received the full value of the note when he passed it away, and if this defence can prevail, the defendant, who does not deny the justice of the demand upon him, will securely hold the money to which he has no title.

II. The case shows, that the plaintiff is an innocent purchaser for a valuable consideration. He received the note as security for his debt, without notice that Hyslop had been defrauded of it by Healy. The note came into the plaintiff’s hands by regular endorsement, and he deposited it in the Bank for collection, according to the course of his business. But the defendant offered to contradict this state of facts by Healy himself. The testimony of this witness, besides the general suspicion cast upon it from the transaetionitself, was properly rejected. It would have drawn into controversy the state of his accounts with the plaintiff and the latter in an action against Gibson, could not have expected to investigate matters entirely collateral. He would therefore have been taken by surprise, and the learned Judge was perfectly right in rejecting his testimony. The plaintiff, at all events, should have had notice as to the nature of the defence. [He cited Chit. on Bills, p. 91. Braman v. Hess, 13 John. Rep. 52 . Russel v. Ball, 2 John. R. 50. 4 Taunt. 114.]

This was an action on a promissory note, made by one George Gibson, payable to the defendant, and endorsed by him and Samuel C. Hyslop. The defendant admitted his liability on the note in question,—but offered to show by way of defence to this action,—that the plaintiff held the note fraudulently and without consideration. The defendant called one Spicer as

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a witness, who testified that the note in controversy was actually the property of Hyslop, and that he had, as agent for Hyslop, called on the plaintiff to deliver up the note, which he refused t0 do, saying, that he had received it in payment, or as security, from one Healey. The defendant then called Healy, and stated, that he expected to prove by him, that there was no consideration for the negotiation of the note by him to the plaintiff, and that there was no debt due from him to the plaintiff at the time the plaintiff got the note ; but that on the contrary, the plaintiff was indebted to him, (Healy.)

The Judge excluded the evidence, saying, that the defence offered, could not be interposed between a holder of negotiable paper, and a party who had negotiated it on a good consideration» The jury found a verdict for the plaintiff.

The defendant now moves for a new trial.

It is believed to be well settled, that if the holder of a note obtains it by fraud, he cannot maintain an action on it against any of the parties to it. He must aver and prove, that the note was transferred to him; and, though his possession of the note is prima facie evidence of the transfer, yet, if the defendant can show that the plaintiff obtained'the note by his own fraudulent act, he has a right to defeat the action on that ground, although he may be liable to pay the note to the true owner. He has not a right to question the consideration merely on which the holder received the note; but he may be permitted to show, that there was no consideration paid by the holder, as one step towards the proof of fraud on his part in obtaining it. This proceeds on the general doctrine, that no man can acquire a right by his own fraud, to sustain an action in any court; and it is a principle of universal application. This doctrine is fully recognized as applicable to Promissory Notes, Bills of Exchange, and Bank Notes. [ Solomons v. The Bank of England, 13 East. 135. Rees v. Marquis of Headfort, 2 Camp. 574]

The offer in the present case, on the part of the defendant, to show that the plaintiff obtained the note fraudulently, seems t<j come within the general rule here laid down.

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The fact, that no consideration was paid by the plaintiff, and that Healy was not indebted to him, as he alleged, if proved, in connection with other evidence which, the defendant would perhaps have produced, if he had been permitted to proceed in his defence, might, for aught the court can say, have established the fact of fraud against the plaintiff. Considering then, that the offer on the part of the defendant was, to show fraud, on the part of the plaintiff in obtaining the note, and not merely to show a want of consideration for the negotiation of it to him, I think that the Judge erred in excluding the testimony of Healy.

In Paterson v. Hardacre. 4 Taunton, 114. the court held, that where a bill had been obtained fraudulently from the defendant, the holder must prove that he came to the possession of it upon good consideration: but that the defendant could not require such proof, unless he had given seasonable notice to the plaintiff that he meant to insist at the trial, that he should prove the consideration on which he received the bill.

I should be much inclined to adopt this rule in like cases, but in the present instance, it does not appear that any objection was made by the plaintiff of the want of notice of the defence which the defendant intended to set up. There must be a new trial.

JVew trial granted.

[Hoffman & Talman, Att’s for plff. W. Mulock Atty for the deft.]