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Gould v. Segee

12 N.Y. Super. Ct. 260 5 Duer 260 Court N.Y. Super. Ct. English

Delivered by Bv the Court. Duer, J.

Contents

Majority

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Charles Gould v. Boltis M. Segee, impleaded, &c.

Headnote

The rule that protects the bond fide holder of negotiable paper, fraudulently or feloniously put into circulation, applies to all negotiable paper, whether payable to bearer, or order, immediately, or on a future day.
The protection of the rule is not confined to those whose usual business it is to deal in negotiable paper, but extends to every person to whom such paper may be lawfully transferred, and who, by the payment of value, may acquire a title.
The satisfaction of a precedent debt, this court has frequently decided, is a valuable consideration, within the meaning of the rule, and this, since the decision of the Court of Appeals, in Youngs v. Lee, (2 Her. 652,) must be deemed the settled law of the state.
When a parting with value is proved, the amount of the consideration paid is not otherwise important than as bearing on the question of actual or constructive notice.
Hence, when usury is not set up as a separate defence, unless it is so gross as to create a presumption of fraud, the proof of its existence may be justly disregarded.
A person whose name, written by himself, is on the back of a negotiable bill or
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note, is liable as an endorser to a bond fide holder, although he may not have delivered the paper to any one for the purpose of transferring a title.
Verdict for defendant set aside, and new trial granted,
(Before Duer, Bosworth and Hoffman, J.J.)
Heard, January;
decided, February, 1856.
Appeal, by plaintiff, from a judgment in favor of defendant, Segee.
The action was against Segee, as the maker, and Frederick W. Greissenhainer, as the endorser, of a promissory note for $195.00, dated February 28, 1853, and payable, three months after date, to the order of Greissenhainer. The complaint (Contained the usual averments.
The defendants answered separately. Each answer admitted the making and endorsement of the note, and set up as a defence the following facts.
That the note was made for the accommodation of Greissenhainer, to whom it was delivered by Segee. That Q-eissenhainer endorsed the note, and put it in a desk in his office; that, during his absence, one H. Parker came there, took the note from the desk, and carried it away under a pretence of procuring the same to be cashed; that Parker passed, the note to one Oourtlandt Palmer, who gave no valuable consideration for it, but took it in payment of an old debt; that Palmer was the holder of the note when it became due, and that the plaintiff had not acquired the same for a good and valuable consideration.
The cause was tried before Oakley, Ch. J., and a jury, in October, 1854.
The following are the proceedings on the trial.
The plaintiff produced and put in evidence the following note and endorsements, and proved the amount of principal and interest due by the face thereof was $192.24.
$175. February 28th, 1853.
Three months after date, I promise to pay, to F. W. Greissenhainer, Jr., or order, one hundred and seventy-five dollars—value received. Boltis M. Segee, 820 Broadway.
(Endorsed) F. W. GIeissenhaiwer, Jr.
(Also endorsed) C. Palmer.
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The defendant Segee called, as a witness, his codefendant, Frederick W. Giessenhainer, Jr., who testified, that Segee lent him the note, for his accommodation, and to enable the witness to raise money to take up a previous note of the witness, endorsed by Mr. Segee, which had been discounted in bank, and was then about to become due, and he never gave Mr. Segee any thing for it; that he, the witness, did not negotiate the said note, or pass it away, but, having endorsed it, he placed it with another note, in a drawer of a desk in his office, and never saw it afterwards, nor did he know, of his own knowledge, how it got into circulation or into the hands of the plaintiff.
Cross-examined.—The witness added as follows: I left my office, where the desk was, at two o’clock; I returned the same afternoon, about four o’clock, and found the notes gone; I inquired of my clerk, Mr. Donaldson, what had become of them, and he said one Hiram Parker had come in, and, having opened the drawer and found the notes, took them away, and said he would get them cashed; I found fault with him for allowing Parker to take them; he said, that Parker said “ it was all rightI never delivered this note to Parker, for that or any other purpose; I went to look for Parker, but could not find him; I went to a place where he had kept an office, and to other places, but could find nothing of him, and shortly afterwards I found Parker locked up in Eldridge street jail; I went to the jail and saw Parker, and asked him for the note; he .promised to return it to me, and said he had not used it; from what he said, I inferred it was among his papers, somewhere else, and not there in the jail; I did not advertise the note, nor give public notice of its loss, because I expected to find him, daily, until I found him in the jail, and because, when I saw him, he promised to return it; I did not bring an action against him, to recover the note, for the same reason, and because it would be useless; he was already in jail, and I could do no more than put him there, and, besides, he promised to return it; Parker had been at my office several times; he was not a client; he had sold some lots to me, and I had paid him money on account of them, but I ascertained that he had no authority to sell them; I had known Parker two or three months, but had known him as a real estate broker for some years; he has never settled with me, in regard to the lots he professed to sell me; I borrowed this note from Mr. Segee, for my
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own use; I intended to get it discounted, for the purpose of paying a note then in bank, but, having received some money from another source, I put it into my drawer, after having carried it in my pocket three or four days; Parker had an office in the Fourth avenue, and I went there to look for him; I also went to the Sixth avenue, where he formerly had an office, but could not find him; I lived in Fourteenth street, near Fourth avenue, at the time, and Mr. Segee kept a store at the corner of Broadway and Twelfth street.
Direct.—I received this note on the day of its date; Parker was utterly irresponsible, and generally known to be so; he left the country, on his release from prison, and I understand he has gone to California.
Alexander Donaldson, a witness for both defendants, testified as follows: I am clerk of Giessenhainer, and have been so since February 1st, 1853; I have seen this note before; I cannot fix the exact time, but it was shortly after the date; Mr. Geissenhainer had it, and placed it in a drawer of his desk; whilst Mr. Geissenhainer was absent from his office, Hiram Parker came and sat down at Mr. Geissenhainer’s desk, and wrote something; he then opened the drawer where the notes were, and, after looking at them awhile, he got up to go out; I told him, “ I cannot authorize you to take away those notes,” but he said it was “ all rightI told him I had no authority to deliver them to him, but he repeated that it was all right, that they were intended for him, or something to that effect, and went out; when Mr. Geissenhainer came in, I told him what Parker had done, and he found fault with me; he said he would go and find Parker and get them back, and went out; I never saw any thing of Parker afterwards, until I was informed he was in the Eldridge-street prison; I then went to see him, by direction of Mr. Geissenhainer, and asked him for the notes; he said he had them and would return them, and I reported to Mr. Geissenhainer what he said; I understand Parker is gone to California, and that he went directly after he was liberated from prison.
Cross-examined.—This witness added: that he knew Parker before, and had seen him several times in Mr. Geissenhainer’s .office, and knew him very well; upon this occasion, he sat at the desk and wrote, perhaps, ten minutes, before he opened the drawer and took out the notes; Parker was a real estate agent or broker, and I have heard him say that he sometimes negotiated bills and notes;
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he did not say that he was going to take this note to get it discounted, and I did not tell Mr. Geissenhainer that he said so; Mr. Geissenhainer thinks that I told him so, but he is mistaken; I did not, and could not have told him so; I inferred from Parker’s manner that he intended to get the note discounted, and may have told Mr. Geissenhainer that inference, but I have no recollection of it; Mr. Geissenhainer said he must go and hunt him up, and went out; I never saw Parker about town, after his liberation from Eldridge-street jail, but understood he was about a short time.
Charles Gould, the plaintiff, being called by the defendants, testified as follows: After this note fell due, I purchased it for $162.50; it had been endorsed by Oourtlandt Palmer; I bought it of him, and paid him for it; it is exclusively my own.
Oourtlandt Palmer, a witness for the plaintiff, testified as follows : In March, 1853, before the maturity of the note, I discounted it in good faith, for a valuable consideration, without notice or suspicion of any defence existing against it; I took it from Hiram Parker; he requested me to cash the note to oblige him, and told me that it was a business note which he owned, and which he had received from the endorser, Mr. Geissenhainer, for commissions on the sales of real estate, and I believed what he said; after some conversation, I told him I would cash the note, if he would deduct the interest till maturity, and satisfy, from its proceeds, a due-bill I then held against bim for about twenty dollars and interest; this he declined doing at that time; about two days afterwards, Parker called a second time, at my office, with this note, and then said he would comply with said terms; I thereupon took the note from him, gave bim my check for $145, which was paid at the bank, and cancelled his debt on the due-bill, which, with interest, came to a little more than the balance of this note; his first call, with the note, was March 6th, and his second call March 8th, and, both times, he came openly to my office, on Broadway, and remained at his ease there; afterwards I endorsed the note, and had it discounted, and, after receiving notice of protest, I took it up, and subsequently transferred it, through a friend, to Mr. Gould; on receiving the notice of protest, I called on Segee, and asked him what it meant; he then told me, that he gave the note to Geissenhainer, as a business note, and for business purposes.
Cross-examined.—This witness added: The due-bill I discharged
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was an old one, but it was not seven or eight years old; it was not barred by the statute of limitations; it was not outlawed; I did not deliver the due-bill to Parker, for I had not got it with me; I never delivered it; I purchased this note as a business note; there is no understanding between me and the plaintiff, and I gave no orders for the bringing or prosecution of this action; when Parker came to my office, both times, he was alone; I did not notice a sheriff, or sheriff’s officer, in company with Parker, or in the neighborhood of him; I may be indebted to Mr. Segee; I believe he has a small bill against me; I did not tell his clerk that I would pay it, because I had a claim against Mr. Segee, on this note; I did not give that reason, but I said I would not pay it; Mr. Segee knows where I live, and has his remedy; I never called on Segee about the note, till after it was protested.
No other evidence was given on the trial.
The plaintiff's counsel requested the court to charge the jury, that the note, having been acquired by Palmer in good faith, and for a full and valuable consideration, before its maturity, and having been transferred, by him, to the plaintiff, the plaintiff was entitled to enforce the note, and have a verdict in this action, notwithstanding the alleged defence; and, also, that the plaintiff was entitled to recover the full amount of the face of the note, with interest.
The court thereupon charged the jury, that if they were satisfied, from the testimony, that Palmer received the note, before maturity, and for a valuable consideration, and subsequently transferred it to the plaintiff, the plaintiff was subrogated to all the rights of Palmer, at least, to the extent of what he paid for it, and might recover upon it, notwithstanding that he received it after it became due. That, notwithstanding what had been said about the note, as a business note, it was clear, that the note was loaned, by Segee, to G-eissenhainer, for his accommodation, and had no vitality, until it was delivered to some one, as evidence of a valid subsisting debt. That, if the evidence for the defendant was entitled to credit, Parker had no legal title to the note, but his possession of it was tortious and fraudulent, though he could not be said to have stolen it. That the question, for the jury to pass upon, and upon which their verdict must depend, was, whether Mr. Geissenhainer had done what a prudent man should do, to reclaim the note, after he was informed that Parker had taken it, or whether he was guilty
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of such, laches, and neglect, as would authorize them to infer -that he assented to Parker’s possession of the note, for the purpose of negotiating it. That, in rendering their verdict, they had a right to discriminate, and render a verdict in favor of one defendant, and against the other. That, so far as Geissenhainer was concerned, testimony given by him must be laid out of view, in considering their verdict, and they must look into the other testimony, to see whether he had succeeded in establishing his defence, but that his testimony was competent for the defendant Segee.
The court declined to charge the jury otherwise than herein contained.
The plaintiff’s counsel hereupon excepted to that part of the charge which stated, that the question for the jury, on which their verdict must depend, was whether Geissenhainer had done what a prudent man should do, to reclaim the note, after he was informed that Parker had taken it, or whether he was guilty of such laches, and neglect, as would authorize the jury to infer that he assented to Parker’s possession of the note, for the purpose of negotiating it.
The plaintiff's counsel also excepted to the refusal of the court above mentioned.
And the court further charged the jury, that, if they found for the plaintiff, against either or both of the defendants, their verdict must be limited to the sum paid by the plaintiff for the note, with interest on the sum from the time of such payment; to which charge and instruction the plaintiff’s counsel excepted.
The jury found, for the plaintiff, the sum of $177.66, against the defendant Giessenhainer, and in favor of the defendant Segee.
To set aside which verdict, as to Segee, and obtain a new trial against him, and also to recover judgment for the debt and interest against him, and also to ask for an increase of the verdict against Geissenhainer to the sum of $192.24, a case was made, with leave to the plaintiff to turn the same into a bill of exceptions or special verdict.
January 30.—The case and exceptions were now argued.
O. Tracy, for the plaintiff.
The note was valid in Palmer’s hands, and the plaintiff, by his
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purchase, acquired all Palmer’s rights. The Judge’s charge was, therefore, erroneous, both for his refusal to instruct the jury as he was requested, and for the instruction given that the verdict depended upon the authority of Parker to negotiate the note to Palmer. The judgment in favor of Segee ought, therefore, to be reversed, and, as against him, a new trial be granted. I refer to the following authorities, as conclusive in favor of the plaintiff. ( 1 Duer, 309 ; 4 Comst. 166; 5 Barb. 429 ; 21 Wend. 409 ; 23 id. 311; 1 Denio, 583 ; White v. Springfield Bank, 3 Sand. S. C. R. 222.)
The Judge’s charge was also erroneous, in limiting the recovery against Greissenhainer to the sum paid for the note by the plaintiff. The verdict ought to have been for $192.24, the sum actually due upon the note, and I move the court to increase it to that sum. ( 7 Wend. 569 ; 8 Paige, 552; 13 John. 52 ; 4 Hill. 482 .)
J. S. Carpentier, for defendant, Segee.
The note never had a valid inception, and created no liability on the part of the maker, either to the payee or any other person; it was made for the accommodation of the payee, and, in the proper sense of the term, was never endorsed by him to any one. His accidental endorsement, not the result of a contract, could give no title to any one except, perhaps, to a person receiving the note in good faith, in the course of his business, without notice, and for a valuable and full consideration. (Bromage v. Lloyd, 1 Excheq. R. 32; Brind v. Hampshire, 1 Mees. & Welsby, 365; Marston v. Allen, 8 id. 494 ; Cox v. Troy, 5 B. & Ald. 474.)
Palmer was not k bond fide holder for value. He took the note for a precedent debt, and paid only a balance in cash. He did not give that full, fair and valuable consideration, which the authorities show was requisite to render his title perfect. (Goldsmith v. Lewis Co. Bank, 12 Barb. 407 ; Bay v. Coddington, 5 John. Ch. R. 54; S. C. 20 John. 639 ; Catlin v. Gunter, 3 Kern. 368.) As to the plaintiff, he bought the note for less than its nominal value, after it had been dishonored, and is chargeable, in law, with full notice. ( 12 John. 306 ; 1 Bos. & Pull. 648; Holbrook v. Mix, 1 E. D. Smith, 154. There was no error in the charge of the Judge, as to the amount of the recovery against Greissenhainer.
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In fact, the verdict against him was for a larger sum than it ought to have been.
None of the exceptions to the charge of the Judge were well taken, and the judgment, instead of being reversed, ought to be affirmed, with costs.

We apprehend that no rule of the law merchant is more fully settled, than that which affirms the title of a bond fide holder, for value, of negotiable paper, notwithstanding the person by whom it was transferred to him, had acquired its possession by felony or fraud; nor do we at all doubt that the salutary rule is just as applicable to paper transferable only by endorsement, as to that transferable by delivery alone; it is just as applicable to bills of exchange and promissory notes, payable to order, as tc/bank bills, payable to bearer. That such is the law is declared, or necessarily implied, in nearly every case, having any bearing on the question, that is to be found in the books, including those which, upon the argument, were cited, and mainly relied on, by the counsel for the defendant; and, using the very words of the Supreme Court of the United States, we hold ourselves justified in saying, that “ the doctrine is so well and so long established, that it is laid up among the fundamentals of the law, and neither reasons nor authorities are now necessary to be brought forward in its support.” (Swift v. Tyson, 16 Peters, p. 1.) It is true, that the plaintiff purchased the note in suit after it became due, and if Palmer, from whom he made the purchase, had no right to transfer it, he cannot recover; but if the title of Palmer was unquestionable, that of the plaintiff cannot be impeached. He stands in the place of Palmer, and has succeeded to all Palmer's rights and remedies.

The first question, therefore, is, whether, upon the evidence, we are not bound to say that Palmer was an endorsee for value, and without notice, and, consequently, whether, as the facts were undisputed, the jury ought not to have been instructed that the plaintiff was entitled to their verdict against both defendants. Palmer was the only witness by whom the transfer of the note was proved, and he was uncontradicted and unimpeached.

We must, therefore, regard it as certain, that the note came into Palmer’s hands before it was due, and that he gave value for it

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when he received it; nor, unless he had actual or constructive notice of the fraud of Parker, is his good faith, in thus receiving it, liable to question. That he had actual notice is not pretended, and we are clearly of opinion, that no circumstances were shown that ought to have awakened his suspicions, and put him upon inquiry, and, consequently, that there was no ground for imputing to him a knowledge that was not proved.

It has, however, been contended, that, admitting that the facts attending the transfer of the note were exactly such as stated by Palmer, we are still bound, by prior decisions, to say that he acquired no title, ap.d could, therefore, pass none to the plaintiff. It appears, it is said, that the note was not received by him in the usual course of his business, and. that the consideration for its transfer was not full, and was usurious, and each of these circumstances, it is insisted, is of itself, a bar to the plaintiff’s recovery. We are far from thinking so.

In every action, by a holder for value, of negotiable paper, which has been put into circulation by fraud, it, is, doubtless, a proper inquiry, whether the bill or note was taken by him in the ordinary course, not of his own business, but of similar transactions ; for, where it appears that the circumstances accompanying the transfer, were unusual, the question, whether they ought not to have awakened his suspicions, and put him upon inquiry, in other words, whether they did or did not amount to constructive notice, must be submitted to the determination of the jury. But it is a mistake to suppose that the protection, which the law extends to a bona fide holder for value, is limited to a particular class of persons ; to those only who deal in negotiable paper, as a part of their regular and ordinary business, such as merchants, bankers and brokers. As we understand the law, the protection of the rule extends to every person to whom negotiable paper may be lawfully transferred; to every person, who, by the payment of value, may acquire a title.

The objection that there was not a full and fair consideration for the transfer of the note in suit, is contradicted by the evidence. If the debt, cancelled by Palmer, is added to the sum which he' paid inz-cash, the amount, it is proved, exceeds the face of the note. / The actual satisfaction of a precedent debt, it was decided by this court, in White v. The Springfield Bank, (3 Sand. 222,) is

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as truly a valuable consideration as the payment of money, and we think, by a recent decision in the Court of Appeals, this is now established as the law of the state. (Youngs v. Lee, 2 Kernan, 552.j) But had there been no other consideration proved, for the transfer of the note, than the payment in money, that was made by Palmer, we are not to be understood, as intimating, that the plaintiff would not be entitled to recover. When, in cases like the present, a parting with value is proved, the amount of the consideration is not otherwise important, than as bearing on the question of actual, or constructive, notice. Hence, when usury is not set up as a separate defence, unless it is so gross as to raise the presumption of. fraud, the proof of its existence may be justly disregarded. Where! an accommodation note is purchased at a rate of discount, exceeding that of lawful interest, the transaction, in judgment of law, is usurious, but the mere fact that it is so, is no evidence of the bad faith of the purchaser; is no evidence that he knew, or suspected,/ that the holder of the note, from whom he derived his title, had no right or authority to transfer it. J

The objection that remains to be stated, is, at first view, more plausible than those that have been considered. The plaintiff, it is said, can have no title to the note, unless it was endorsed by Greissenhainer, the payee, and its endorsement by him is disproved by the evidence. It is true, his name, in his own handwriting, is on the back of the note, but the note was never delivered by him, either to Parker, or to any one, either for value, or for the purpose of being negotiated, and to render an endorsement valid, as passing a title, such a delivery is alleged to be essential. In support of this position, we are referred to several cases, in which the courts, in England, have held that a plea, denying the endorsement of a payee, is sustained by proof that the bill or note, on the back of which his name is written, was never delivered by him, with the intent of passing an immediate title, or an authority to transfer it. The authority of these cases, to which several, not cited by defendant’s counsel, might be added, is not meant to be ¡ denied, but upon examining them, it will be found that in not 1 one of them was it proved that the plaintiff was a bona fide holder, j for value, and in most of them it is distinctly admitted that, had ' this proof been given, the defence would not have been allowed to ' prevail. The doctrine, therefore, which these cases establish, is ;

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this, and only this, that where the non-delivery, by the payee, of , a negotiable bill or note is proved, the burden of showing that: a valid title was acquired, by its subsequent delivery to a holder, without notice, and for value, is cast upon the plaintiff.

The case,uin which the law on this subject seems to have been the most fully considered, is that of Marston v. Allen, in the Court of Exchequer, (8 Mees. & Welsby, 494.) The action was against the acceptor of a bill of exchange, which, the declaration averred, had been endorsed by the payee, John Hanop, to one E. Marston, and by him to the plaintiff. The plea denied the endorsement of the payee. Upon the trial, Hanop was called as a witness for the defendant, and, admitting that his name on the back of the bill was in his own handwriting, swore that he had received the bill as the accountant of a bank, to which it belonged, and that he had delivered it to a clerk, one W. Marston, to be kept by him in safe custody for the bank.

E. Marston, the second endorser, was then called as a witness for the plaintiff, and proved that he had received the bill from W. Marston, for value, and that he had endorsed and delivered it, for value, to the plaintiff To rebut this evidence, the counsel for the defence then offered to show that both E. Marston and the plaintiff had received the bill with full knowledge of the fraud committed by W. Marston, in transferring it. The learned Judge who tried the cause, held that this proof was inadmissible, under the pleadings, and directed the jury to find a verdict for the plaintiff. A new trial was moved for, on the ground that the evidence, so offered, was improperly rejected. The court in bank, after a full argument, being of that opinion, the motion was granted, and a new trial ordered.

Alderson, B., in delivering the judgment of the court, said, (inter alia,) “ that they had been much pressed with the difficulty that there had been a delivery of the bill to the plaintiff for the purpose of transferring it, and, no doubt, (he added,) had this delivery been bona fide, and for value, it would have been quite sufficient to give a title to the plaintiff” He then proceeded to lay down the general rule of law, in the words following: “By the law merchant, every person, having possession of a bill, has, notwithstanding any fraud on his part, in acquiring or transferring it, full authority to transfer said bill, but with this limitation," that

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to make such transfer valid, there must be a delivery by him, or by some subsequent holder of the bill, to some one who receives such bill, Iona fide and for value, and is himself either the holder, or the person through whom the holder claims.” (Vide, also, Lloyd v. Howard, 20 Law Jour. R. (N. S. p. 1;) 1 Law & Eq. R. 227; Palmer v. Richards, 1 Law & Eq. R. 529; Hardey v. Towers, 4 Law & Eq. R. 531.)

It is obvious that the terms of the rule, thus laid down, were carefully selected, and they plainly embrace the case before us. Parker, notwithstanding his possession and transfer of the note were fraudulent, had full authority to transfer it to a person, receiving it without notice of the fraud, and for value. The evidence shows that it was so received by Palmer, to whom he delivered it, and that Palmer is the person through whom the plaintiff, the present holder, claims.

It follows that the verdict for the defendant is against law and evidence, and must be set aside, and a new trial be ordered; and if, upon the next trial, the evidence shall be the same as upon the first, the jury must be instructed to find a verdict for the plaintiff, for the amount of the note, with interest.

Hew trial, costs to abide event.

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