Case ID: ny_26/html/0442-01.html
Source: Caselaw Access Project
Author: {"author": "Balcom, J. Selden, J.", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

McBride v. The Farmers’ Bank of Salem, Ohio.
    A bank, receiving from another notes for collection, obtains no better title to them, or the proceeds, than the remitting bank had, unless it becomes ■ a purchaser for value without notice of any defect of title.
    It is not a purchaser for value by reason of its having a balance against the remitting bank, for which it had refrained from drawing, and from having discounted notes for the latter upon its indorsement, in reliance upon a ' course of dealings between thé banks to collect notes for each other, each keeping an open account of such collections, treating all the paper sent for collection as the property of the other, and drawing for balances, at pleasure.
    The remitting .bank, having demanded the notes before maturity and the ' proceeds afterwards, and both of them being foreign corporations, assigned its demand to the plaintiff. No new demand was necessary to enable him to sustain an action, nor is it an objection that his assignor, as a foreign corporation, could not .have sued out an attachment against another foreign corporation on a cause of action not arising in this State.
    The cause of action is assignable, notwithstanding any personal disability of the assignor or the assignee to maintain an action in this State.
    It is no fraud against our statute or the defendant to assign the cause of action to a resident, to obviate the objection to an attachment by a nonresident. If it were, it lies with the defendant to prove the fraud, by showing the assignor’s knowledge that the plaintiff was a resident; and it seems that the objection is waived by a full appearance to the action.
    The Farmers’ and Mechanics’ Bank, of Hartford, Connecticut, in October, 1854, holding two notes against Paul & Pritchard of Ohio, amounting to $1,585, payable at the defendant’s Bank, on the 18th of November, 1854, sent them to the Canal Bank at Cleveland, Ohio, for collection, which bank on the 11th October, forwarded them to the defendant for collection, with a request, when paid, to remit exchange. The de-. fendant had no information that the Canal Bank was not the owner of the notes. Those banks had been accustomed to collect notes for each other: each kept an open account of such collections : each treated all the paper sent for collection as the property of the other; 'and each drew for balances whenever they chose to do so. There was no arrangement on the subject. On the 9th of November, the Canal Bank failed, and on the 13th the cashier of that Bank gave to the cashier of the Farmers’ and Mechanics’ Bank, an order on the defendant’s cashier for the two notes,', which was presented to the defendant’s cashier at the bank and the notes demanded. He replied to the demand that he would have to see Paul & Pritchard before giving an answer. On the 16th the order was again presented, and the cashier said he was not ready to give an answer. On that day the notes were paid to the defendant. On the 17th they were again demanded and the order presented, when the cashier said the notes were paid, but that the Canal Bank was indebted to the defendant, that he had passed the proceeds to the credit of the Canal Bank, and that he would not deliver up the notes. On the 8th of January, 1855, the Farmers’ and Mechanics’ Bank wrote to the defendant, claiming those notes, and the letter was received by the defendant on the 12th day of January; the order was again presented at the' defendant’s bank on the 15th of January, and the notes demanded, and the same answer given by the cashier as before. It was shown that at the time when the order was first presented to the defendant, the Canal Bank was indebted to the defendant in the sum of $1,051.42, balance standing on the books of the defendant to the debit of the Canal Bank. When and how this balance arose did not appear. At the same time the defendant held a draft for $2,5.00, on which the Canal Bank .was indorser, which had been discounted by the defendant for the Canal Bank on the 15th of the previous September. This draft became due prior to the 15th of January, when the last demand was made, and was duly protested for non-payment and the Canal Bank duly charged as indorser.
    On the 28th of July, 1855, the Farmers’" and Mechanics’ Bank assigned their demand against the defendant to the present plaintiff, who commenced this action shortly thereafter. The defendant appeared by attorney, and answered the complaint. The case did not show where the plaintiff resided at the time the action was commenced, nor how it was commenced.
    
      The cause was tried before Mr. Justice Clerke, at the New York Circuit, in November, 1856. At the close of the trial, on which the foregoing facts appeared, the defendant claimed that the complaint should be dismissed, on the following grounds:
    1. That the assignee of the plaintiff not having capacity to sue the defendant in the courts of this state, on the claim set out in the complaint, the defendant could not maintain the action.
    2. That the alleged assignment of the claim was colorable merely, and a fraud upon the statutes of New York.
    3. That there was no privity between the Farmers’ and Mechanics’ Bank and the defendant.
    4. That there was no proof of demand by the plaintiff of the defendant before suit brought.
    5. That the defendant was entitled to treat the notes as the property of the Canal Bank, and so treating them there was a balance due to the defendant.
    6. That, the plaintiffs’ title was defective, because, by the laws of Ohio, all assets of the Canal Bank, became vested, on its failure, in a receiver.
    The court denied the motion, and directed a verdict for the plaintiff, for $1,804.64, subject to the opinion of the court at general term on the exception, to be heard there in the first instance, the entry of judgment being in the meantime suspended.
    The court at general term made up, from the evidence which was detailed in the case, a statement of facts found by the court, substantially in accordance with the foregoing, and decided that the plaintiff was entitled to judgment on the verdict. Judgment was entered accordingly, and from that judgment the defendant brought this appeal.
    There was but a single exception taken on the part of the defendant, and that was to a decision of the judge, on the trial overruling the defendants’ objection to the introduction of the assignment from the Farmers’ and Mechanics’ Bank to the plaintiff, on the ground that as that Bank, being a foreign corporation could not maintain an action on the claim assigned in the courts of this state, against the defendant, also á foreign corporation, it could not confer upon the plaintiff a right of action on that claim.
    The cause was submitted on briefs, by
    
      Edwards Pierrepont, for the appellant.
    
      E. Terry, for the respondent.
   Balcom, J.

The most favorable view that can be taken of this case for the defendants, is that the notes against Paul & Pritchard, when received by the defendants, appeared by the indorsements thereon, to be the property of The Canal Bank of Cleveland, and that the defendants supposed the notes belonged to that bank when they received the money thereon and gave that bank credit therefor; and that the defendants had not previously drawn on the Canal Bank for the balance of $1,051.42 due them from that bank, because they expected to receive negotiable paper from such bank to collect and to credit the avails thereof to it, in satisfaction of such balance; and that the defendants did not afterwards draw on the Canal Bank for that balance, for the reason that they believed the notes against Paul & Pritchard were the property of that bank, and that they had the right so to treat them, and retain the money received thereon, and place it to the credit of such bank, in satisfaction of the aforesaid balance, and hold the residue as security for the payment of the draft of S. S. Stone, which the Canal Bank had indorsed and for whom the defendants had discounted the same. This view of the case must be adopted in determining it, for the reason that the court directed the jury to find for the plaintiffs; and the defendants have the right to say, if the jury had been permitted to exercise their own judgments upon the evidence, they might have found that this view of the case was the correct one.

It must be conceded that according to the decisions of the Supreme Court of the United States, in The Bank of the Me tropolis v. The New England Bank (1 How., 284; S. C., 6 id., 212), the defendants acquired a lien on the notes against Paul . & Pritchard and the money received thereon, which enabled them to retain the same in satisfaction of the balance of account that the Oanal Bank owed them. But the rule laid down by the Federal Court in that case, has never been adopted in this State; and it is inconsistent with decisions of our courts which have been regarded as correct expositions of the law for more than forty years.

The decisions of our courts have been uniform from the time Coddington v. Bay (20 Johns., 637), was determined, that before the holder of a note can acquire a better title to it than the person had from whom he received it, he must pay a present valuable consideration therefor; and that receiving it in payment of, or as security for, an antecedent debt is not such a consideration. (Rosa v. Brotherson, 10 Wend., 86; Stalker v. McDonald, 6 Hill, 93; Youngs v. Lee, 2 Kern., 551.) And we must follow these decisions although they are in conflict with that of the Federal Court in Swift v. Tyson (16 Peters, 1).

The case is not altered materially by a. long course of dealing between the parties, by which the holder of the note has been in the habit of receiving payment of balances due him in notes, or because he has omitted to collect a balance due him, by reason of an expectation or promise of payment of it in notes, or in consequence of his omission to collect it after taking such a note in payment of it. He has not in either case parted with or paid any present valuable consideration for the note; and if he fails to collect it or hold it, he is in no worse situation legally, than he was before receiving it. He has only been disappointed by not obtaining payment of an antecedent debt; and that consideration is insufficient to prevent the true owner of the note from claiming the same or its avails, or the maker or indorser • from setting up a defence to it existing in his favor as against the payee of a former holder. The defendants never parted with anything or gave any credit, or relinquished any security, or assumed any burden or responsibility on the faith of the notes against Paul & Pritchard, and in commercial language, were not bona fide holders thereof or of the money received thereon, for value.

According to the decisions of the courts of this State, Paul & Pritchard could have set up any defence to their notes, in the hands of the defendants, that existed in their favor as against the Canal Bank or the Farmers’ and Mechanics’ Bank; and the defendants had no title- to the notes that enable them to retain the money they received thereon as against the true owner.

These views are not inconsistent with the opinions in the following cases. (Clark v. The Merchants' Bank, 2 Comst., 380; The Commercial Bank v. The Union Bank, 1 Kern., 203; Warner v. Lee, 2 Seld, 144; Scott v. The Ocean Bank, 23 N. Y., 289.) It may be remarked that the evidence would have justified the jury (if the case had been submitted to them to determine), in finding that the defendants had sufficient notice before they received the money on the notes or gave the Canal Bank credit therefor, to have put them upon inquiry as to whether that bank owned the notes; and thus brought the case clearly within the decision of Mr. Justice Hand in Van Amee v. The Bank of Troy (8 Barb., 312).

And I am satisfied the defendants were not justified by the facts in coming to the conclusion that the Canal Bank owned the notes at the time they received the money on them and gave that bank credit .therefor. But we cannot so hold by reason of the manner the cause was disposed of at the circuit.

The action must have been commenced by attachment, because the defendants are a foreign corporation. But we must presume the plaintiff is a resident of this State; for there is nothing in the case to show the contrary; and if he was not a resident of the State when the action was commenced, the defendants should have moved on affidavits and notice to set aside the proceedings in it, instead of answering the complaint.

The position taken by the defendants’ counsel that the plaintiff could not maintain the action because his assignors were a foreign corporation and could not commence an action by attachment against the defendants in the Supreme Court of this State is clearly untenable. Besides this question was not within the issues tried; and it should have been raised by motion founded on affidavits.

The point raised by the defendants’ counsel, that the plaintiff should have demanded the money in question of the defendants before bringing the action, is answered by the fact that The Farmers’ and Mechanics’ Bank had demanded the notes of them, and they had refused to deliver them up, and had appropriated the money they received thereon, to their own use before that bank assigned their claim-for the money to the plaintiff, and he took that bank’s right of action for the money by the assignment, as well as its title to the money itself. (McKee v. Judd, 2 Kern., 622.) But no demand-of the money was necessary after they had appropriated it to their own use and had notice that it belonged to the Farmers’ and Mechanics’ Bank. It then became the duty of the defendants to remit it to that bank, and as they did not do so thé plaintiff, as "assignee of that bank, rightfully brought this action. (Stacy v. Graham, 4 Kern., 492; 19 N. Y., 267.)

There is no other question in the case worthy of notice. The judgment of the Supreme Court should be affirmed, with costs.

Selden, J.

All the questions presented in the briefs of counsel have been examined, although strictly, there is nothing in the case for this court to review, beyond an exception taken to the admission of the assignment of the claim against the defendants, from the Farmers’ and Mechanics’ Bank to the plaintiff in evidence on the trial, on the ground -that as the bank being a foreign corporation could not maintain an action on said claim in this State against the defendant, another foreign corporation, it could not, by an assignment to the plaintiff, confer upon him a right of action. (22 N. Y., 425.) No exception was taken to the denial of the motion for a dismissal of the complaint, nor to the ordering of a verdict for the " plaintiff, subject to the opinion of the court, nor to the direction of the general term that judgment should be entered on the verdict.

The defendant, however, has lost nothing by failing to except. The undisputed facts show that there was no defence to the plaintiff’s claim. The notes belonged to the Hartford Bank. The Canal Bank had no claim to them except as the agent of the Hartford Bank. The defendant could get no right to them through any act of the Canal Bank, according to our law, unless such right was obtained as a bona fide purchaser for value, and there is no. pretense that the defendant parted with anything, or gave any credit on account of them. Short of doing one Of those things, it could not, in this State, be regarded as a bona fide purchaser or holder, so as to exclude the legal or equitable claims of other parties. The rule in the United States courts is known to be more favorable to the person receiving such paper, but not, I think, sufficiently so, to furnish to the defendant any defence on the facts of this case. The law of Ohio would probably govern the case if it were before the court, but that not having been proved, the presumption is that the law there corresponds with ours; or the court in the absence of allegations and proof of the for eign law will apply our own law to the case. (1 Cow., 103; 2 Hill, 202, and note, a; 1 Seld., 347; id., 447; 1 Pick., 417, and note, 1).

It was not necessary for the plaintiff to demand the notes or the money after the assignment to him. The right of action was complete by the demand made by the bank, and that perfect right of action passed to the plaintiff on the assignment to him.

Nor is there any doubt that the bank had a right to assign the demand. A chose in action against a foreign corporation is not rendered unassignable by any provision of the statutes of this State. Probably an action against a foreign corporation, could not properly be brought in our courts by a non-resident of the State, unless the cause of action arose or the subject of the action, were situated within the State. (Code, § 427; 4 Abb., 72; S. C., 13 How., 316.) The inability to maintain an action does not, however, create an inability to assign the demand either to a resident or non-resident of this State, and, such assignment in either case would transfer the entire cause of action. In the former case the assignee could maintain an action in our courts, on the demand, in the latter he could not.. It is insisted, on the part of the appellant, that “ the plaintiff being the assignee of a foreign corporation, can stand in no better position than his assignor.” This is true, so far as relates to the cause of action. The assignee takes the cause of action which the assignor had, and no other. If the assignor had no cause of action against the defendant, the assignee acquires none. The defence, however, which is here urged does not touch' the cause of action, but only the right of the party to prosecute in our courts a conceded cause of action. That right, depending upon the residencé of the plaintiff, and not upon the right of action, the plaintiff, being a resident, can maintain the action when his assignor could not. There was no proof in regard to the plaintiff’s residence at the time of the commencement of the action, but if his non-residence was relied upon as a defence, the burden of proof, on that subject, rested on the defendant.

It is insisted that the assignment was merely colorable, and a fraud upon the statutes of Hew York. There is nothing in the case to show that when the assignment to the plaintiff was made, he was a resident of Hew York, or if he was, that the assignor was informed of that fact. In the absence of either of those facts, it is clear that no fraud upon the statutes referred to could have been intended. Fraud is not to be presumed, and if there was any evidence from which it could be inferred, the defendant should have asked to have that question submitted to the jury. This objection to the recovery rests upon the position that fraud was conclusively shown. Clearly, it was not so shown, or even presumptively.

But if it had appeared that the object of the transfer of the cause of action was to obviate this objection to the person of the plaintiff, it would not have been a fraud, either against the statute or the defendant. All that the statute requires is that the plaintiff shall be “ a resident of this State ” (Code, § 427), and if he has a valid cause of action against the defendant, his motives in obtaining it cannot be inquired into.

I am inclined to the opinion that the objection came too late and was waived by full appearance in the action, but it is not necessary to decide that question. (27 Barb., 337; 4 How. Pr., 275; 7 id., 238; id., 516.)

It is further objected that there has been a mis-trial, because the case was not one in which the court was authorized to direct a verdict, subject to the opinion of the court at general term. The language of the statute is: “ When, upon the trial, the case presents only questions of law, the judge may direct a verdict subject to the opinion of the court at the general term.” (Code, § 265.) The defendants’ counsel claims that “ such direction is proper only when the facts are uncontroverted. Whether they are so or not must depend upon the parties or their counsel. They are not uncontroverted if the parties choose to controvert them. Hence such course can only be taken by consent.” This is not the true construction of the statute. Whether the case “presents only questions of law” does not depend on the choice of the parties or their counsel, but upon the -evidence. Whenever the facts constituting a cause of action, or defence, are so clearly proved by either party as to justify the judge in directing a verdict absolutely in favor of such party, he may, if the legal questions involved are of sufficient importance and difficulty to justify that course, direct a verdict subject to the opinion of the general term, although counsel may controvert such facts. Of course this cannot properly be done where any essential fact is left in actual doubt by the evidence. I do not think this point, even in such a case, would be available where no objection was made to the direction. (18 N. Y., 392; id., 558.)

The judgment of the Supreme Court should be affirmed.

All the judges concurring,

Judgment affirmed.