Bailey v. Griswold — 36 N.Y. Super. Ct. 68

Majority

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E. M. BAILEY, Plaintiff and Respondent, v. ALMON W. GRISWOLD, et al., Defendants and Appellants.

Headnote

In an action brought by the endorsee and holder to recover the amount of a promissory note of the maker and the payee as first endorser, the answer alleged that the plaintiff purchased the note with notice and knowledge of all the facts and circumstances attending the making and delivery thereof by the defendants, as in the answer thereinafter set forth, and thereafter the defendants set up and alleged matters that were a good defence in the action as against the person who 'endorsed the note to plaintiff, if the plaintiff was not a bond-fide 7iolder, etc. The facts proved on the trial established the making and delivery and endorsement of the note to one Gustavus D. Dows, the plaintiff’s endorser and vendor, by defendants. It was for §2,000, dated March 10, 1870, and fell due November 15th thereafter. Dows held the note until about the 7th day of October, and then sold the same to the plaintiff for one thousand dollars in cash and §1,000 in a note payable at four months with interest. That the latter note had not been paid. That the plaintiff was in the employ of the firm of which, said Dows was a partner, at a salary of $15 per week. The sale was negotiated and perfected between Dows and said plaintiff by a brother and agent of said Dows and a member of the same firm by whom plaintiff was employed, and also the father-in-law of the plaintiff. After the sale and transfer of the note to the plaintiff, he returned it to the safe of the firm where it had been deposited before its sale, and there it remained until he sent it to New York, by express, to one D. G. Wild for collection, an attorney who had had the same in his possession before, as the attorney for said Dows.

The defendants on the trial claimed that these facts established that the plaintiff was'not a bond-fide holder of the note, and offered to _ prove the other facts set forth in his answer as a defence ; also claiming that if the

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court held that plaintiff was a bond-fide holder, the facts set forth being proved that the plaintiff could only recover $1,000, the amount of cash he paid for the note. The court below excluded the evidence proposed, and also refused to allow the defendants to go to the jury on the question as to whether plaintiff was a bond-fide holder, and directed the jury to find a verdict for the plaintiff on the testimony.

Before Barbour, Ch. J., and Monell and Vah Vorst, JJ.

Decided, May 3, 1873.

Held by the General Term, That under these facts and circumstances the question as to whether the plaintiff was a bond-fide holder of the note was a proper question for the consideration of the jury, and should have been submitted to them by the court, and that it was error to refuse so to do.

This action is brought by the plaintiff, the endorsee, against Griswold, as the maker, and Dickinson, as the -endorser, of a promissory note for $2,000, payable in gold. The date of the note is March 10,1870, and it was payable on the 15th November, 1870.

The answer of the defendants alleges that the note in suit was one of four notes made by Griswold and endorsed by Dickinson, three being for $2,000 each, payable in gold, and the fourth for $1,600. That the four notes were all endorsed over and delivered to Gustavus D. Dows on the same day. That the four notes were •obtained from the defendants by Dows through false representations made by him to Griswold, the maker, the particulars of the fraudulent statements and inducements being set up in the answer.

That the notes, including the one in suit, were made and delivered to Dows without consideration, were obtained through his fraudulent statements, and are void.

The answer also alleges that the plaintiff took the notes from Dows with knowledge of the facts and circumstances attending the making and delivery of the same to Dows, and without consideration.

Upon the trial it appeared that the plaintiff became the purchaser of the note in suit from Dows on the 7th

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October, 1870, the note then having less than forty days to run, and being endorsed over to plaintiff by Dows, at the time of the .purchase. That the consideration given by the plaintiff on the purchase was one thousand dollars in currency, and his own note for one thousand dollars, payable in four months, and which, though past due, has not been paid.

That the plaintiff is a mechanic in the employment of the firm of which Dows is a member, and was so at the-time of the purchase of the note, superintending a soda apparatus factory, earning wages at the rate of $15 per week, payable weekly. That he had received no compensation during the year other than his salary, except for some over-work which amounted to one hundred dollars.

That the plaintiff was first asked to buy the note by the brother of Gustavus D. Dows, at the office of the firm in Boston, in September, 1870, his reply being that he would see to it.

That on the 7th October following he was again asked to buy the note, and he made the purchase, paying the money and giving his note for $1,000 above mentioned.

After the purchase, the plaintiff put the note in the safe in the office of his employer, with other papers. There it remained until he transmitted it to blew York, shortly before it was due, to an attorney for collection. The attorney to whom the note was sent was also the-attorney of Gustavus D. Dows.

It appears by the evidence that two of the notes made-by Griswold and endorsed by Dickinson, and delivered to Dows, falling due before the transfer to the plaintiff of the note in suit, had matured while in the hands of Dows, and had been sued by him, and that the defendants had interposed a defence to the same, which actions are pending.

After the plaintiff had rested Ms case, the defendants claiming that the plaintiff was not a bond fide holder of

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the note, “offered to prove the facts set forth in the fourth subdivision of the answer,” being the facts and circumstances referring to the fraud by Dows in obtaining the note, and claimed that if a bona fide holder, the facts set forth in the answer being proven, plaintiff could recover only to the extent of one thousand dollars, with interest, the amount he had paid in cash on the note.

The court excluded thé evidence, to which the defendants excepted.

The defendants further requested to be allowed to go to the jury on the question whether the plaintiff was a bond fide holder of the note, which was refused, and the defendants excepted.

The court thereupon directed the jury to render their verdict for the amount of the note and interest in currency, the plaintiff having waived the demand for gold or gold value, to which ruling the defendants excepted.

The jury found a verdict for the plaintiff for $2,330 in currency. The exceptions were directed to be heard in the first instance at General Term. Judgment meanwhile suspended.

D. G. Wild and Sidney S. Harris, for plaintiff.

J. C. Darrow, attorney, and Aaron J. Vanderpoel, of counsel, for defendants.

The answer of the defendants alleges matter which, if satisfactorily established, would constitute a complete defence to the action on the note.

The concurrence of the two essential conditions, the obtaining the note by Dows through fraudulent inducements and without consideration, and the purchasing of same by plaintiff with notice of the fraud, or without paying therefor a valuable consideration, would avail

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to prevent a recovery Tby him. As Dows himself could not, Tby reason of the fraud alleged, have acquired a valid title to the note, or have recovered thereon, neither could he place any other person, Tby a transfer of the note, in any "better position than himself, unless such person acted in good faith, and parted with a valuable consideration.

When an action is brought by an endorsee of a promissory note, the plaintiff is not bound in the first instance to prove the consideration paid for the note, nor the circumstances of good faith on his part in taking same.

The note imports by its terms to have been given for a good consideration, and the fact that he holds the same property endorsed, proves his legal title.

But the maker is entitled to prove, on the trial, fraud and total want of consideration at the time of the making and delivery of the note, and upon such proof being made, the burden is then cast on the plaintiff, to show that he was a bona-fide purchaser for a valuable consideration.

A reason for this rule is stated by Parke, B., in Bailey v. Bidwell (13 M. & W. 76), who says “that if the instrument in question was proved to have been obtained by fraud, or affected by illegality, that affords a presumption that the person guilty would dispose of the bill or note, and would place it in the hands of another person to sue upon it.” Here the plaintiff did not rest his case upon his presumptive legal rights as a holder for value arising from his possession under a claim of ownership, but affirmatively, before resting, offered evidence showing the consideration paid by him, and the circumstances under which he had taken the instrument.

This is, however, a question of order in the taking of proof on the trial, and to which no objection was made in this casé. But it had the effect, from the view taken by the judge of the plaintiff’s evidence, to entirely ex-

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elude the evidence of the defendants in respect to the fraud and want of consideration in the making and delivery of the note.

According to the plaintiff’s evidence, the consideration paid by him was $1,000 in currency, and his own note at four months for an additional one thousand dollars. As the note purchased was by its terms payable in gold? the consideration paid, conceding that the one thousand dollar note was good and collectable, was about $250 less than the face of the note.

The case shows that on an inquiry by the court after the plaintiff had rested, the defendants’ counsel admitted that they had no further evidence to offer as to the transfer of the note to the plaintiff, but they claimed that the plaintiff was not a boná-fide holder of the note, and offered to prove the facts set forth in the fourth subdivision of the answer, and asked to be allowed to go to the jury on the question whether the plaintiff was a bona-fide holder.

The learned judge, without doubt, as the grounds of. his refusal of these offers and requests, regarded the ■consideration paid by plaintiff as good and valuable, and the evidence as establishing the good faith of the plaintiff, and accordingly held that under such circumstances no fraud of Dows’ could defeat the plaintiff’s right to recover.

But it seems to us that the question as to whether plaintiff was a bona-fide holder was, under the circumstances of this case, a question for the jury.

The payment of a valuable consideration tends to show good faith. It is, however, only presumptive, not conclusive, evidence.

There were considerations arising from the evidence which might have been properly considered by the jury in determining the good faith of the plaintiff. He was an employé of Dows’ at a small weekly salary ; before taking the note he made no inquiries. The transaction

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took place in the employer’s office : for one-half of the face of the note he gave his own unsecured obligation at four months, when the note he bought had less than forty days to run. The note was left in the safe of his employer, until forwarded to Mew York to the attorney of his employer for collection, and when Ms own note matured it was not, and is not yet, paid, while the note he purchases has the security of the endorsement of his employer. These considerations are entitled to some weight on the subject of good faith. They may be consistent with a fair and boná-fide sale, but we apprehend that they are for the consideration of the jury. From the nature of the transaction, and the relation of plaintiff and Dows, all the evidence of the transfer which took place in the Boston office, would be substantially limited to their, own version of what transpired on the occasion. In Harger v. Nelson ( 63 Barb. 250 ), Taloott, J., says: “We think the price paid on the purchase of the note may go to the jury on the question of good faith.” In that case, a note for one thousand dollars, obtained from the maker through fraud, had been purchased by the plaintiffs, who were bankers and brokers, for $900.

It may reasonably be urged that in all judicious inquiries- where the “ good faith ” of a party in his action and conduct is a substantive matter, the determination of such question upon all the facts and circumstances is for the jury.

The payment by the plaintiff of one thousand dollars in currency, and the giving of his note, payable at a subsequent day, for a like amount, may have proceeded from a collusive understanding between the parties, not expressed in words perhaps ; for to persons standing to-each other in the relation in which plaintiff was placed to Dows, words may not have been necessary. A desire that plaintiff should purchase, simply expressed, might prove both significant and sufficient. That Dows had a

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motive to get rid of the note, and to place the same in the hands of a third party "before maturity, so as to deprive the maker and endorser of their defence, may he inferred, without violence, from the fact that it was claimed by them that his possession was fraudulent, and that in the two actions which he had commenced on similar notes his fraud had been set up.

This case cannot be dismissed without alluding to the defendants’ claim that in no event should the plaintiff be allowed to recover more than $1,000, the currency claimed to have been paid by him. The character, quality, and value of the consideration paid, is involved in, and affects, the question of good faith.

The jury might have attached little value to the plaintiff’s unsecured and unpaid note given on the purchase.

It has been repeatedly adjudicated that a bona-fide holder of commercial paper, to which as between maker and payee there is a good defence, is entitled to be protected only to the amount of the value which he has paid. (Stalker v. McDonald, 6 Hill, 93 ; Cardwell v. Hicks, 37 Barb. 458 ; Huff v. Wagner, 63 Barb. 215 ; Harger v. Nelson, supra).

The verdict should be set aside and a new trial ordered with costs to abide the event.

Barbour, Oh. J., and Monell, J., concurred.

Cases cited

Cardwell v. Hicks 37 Barb. 458 N.Y. Gen. Term 1862-05-05 p. 75
Huff v. Wagner 63 Barb. 215 N.Y. Sup. Ct. 1872-06-04 p. 75