Case ID: ny_29/html/0673-01.html
Source: Caselaw Access Project
Author: {"author": "Davies, J. Hogeboom, J.", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

The President, Directors and Company of the Essex County Bank v. David Russell and others.
    Where the case, in this court, contains no statement of the facts found by the court which tried the action, as required by section 267 of the code, but only a statement of facts, signed by the presiding justice of the general term which heard the cause on appeal, the appeal should be dismissed
    Such a statement is not a compliance with the requirements of section 267 of the code, and" cannot be regarded as a substitute for the statement of facts required by that section.
    The only instance in which a general term is authorized to make a statement of facts is that mentioned in section 333 of the code, viz: when it renders a judgment upon a verdict taken subject to the opinion of the court.
    A promissory note for $800 was made by R and endorsed by F. & A. for his accommodation, to retire a previous note of like amount, made and endorsed by the same parties, at the Bank of W. The bank refused to discount the new note, or to receive it for the old one; whereupon W., .without the knowledge of the endorsers, put the note into the hands of C. to get the same discounted and remit the proceeds to the Bank of W. to retire the prior note. C. presented the note to the plaintiffs’ cashier, who discounted the note, giving C. for the proceeds a note for $500, made by B., which, though good and collectable, was past due and protested, and $285.93 in cash. No part of the proceeds of the discount were sent to the Bank of W., or ever came to the hands of the maker and endorsers, or either of them:
    
      deld, that notwithstanding the diversion of the note, the plaintiffs were bona fide holders and entitled to recover the amount, it not having been received under such circumstances as called upon the plaintiffs to institute any inquiries as to C.'s right to the possession of the note, or to procure its discount.
    This is an appeal by the defendants from a judgment of the supreme court, rendered in favor of the plaintiffs. The action was brought to recover the amount due upon a promissory note made by the defendant Bussell, payable to the order of the defendants Allen and Freeman, at the Bank of Whitehall, three months after date, and dated 22d day of April, 1854. The note was made by Bussell and endorsed by the other defendants for his accommodation, to retire another note of like amount made and endorsed by the same parties, at the Bank of Whitehall. The Bank of Whitehall refused to discount the note or to receive it for the one previously given; and thereupon Bussell, without the knowledge of the endorsers, put the note into the hands of one Peter Comstock to get the same discounted and remit the proceeds to the Bank of Whitehall, to retire the prior note held by that bank. Comstock presented the note in suit to the plaintiffs, and they declined to discount it. On the next day it was again presented to the plaintiffs’ cashier by Comstock, who proposed if the plaintiffs’ bank would discount it, to take in part payment of the proceeds a note made by one Brewster for $500, and endorsed by Colvin, Allen & Co., and one P. W. Ames, which had matured a few days previously, and' been protested, if the balance was paid in cash; and thereupon the plaintiff, on the 29th of April, 1854, discounted the note and gave Comstock for the proceeds the Brewster note and $285.9.3 in money. It did not appear that Comstock had any interest in the Brewster note. No part of the proceeds of the note in suit was sent to the Bank of Whitehall, or ever came to the hands of the defendants or either of them. Soon after the note in suit was discounted by the plaintiffs, Comstock sent to the defendant Bussell his check on the Troy City Bank for its amount, less the discount. This check was presented by Bussell for payment, but not paid, and has never been returned by Bussell, or offered to be returned. At the time the note was discounted, the plaintiff had no knowledge or information how it came to Com-stock’s possession, or that it did not belong to him as his own property. Comstock made two payments to the plaintiffs on the note, and this action was brought to recover the balance. The action was tried by the court without a jury, and judgment given for the plaintiffs for the balance due, which, on appeal, was affirmed at the general ter pa.
    
      
      John K. Porter, for the appellants.
    I. The Brewster note having been fraudulently obtained from the bank by Comstock, its title was not divested; and the endorsers having been already charged, it could still enforce payment, even though it had placed the cancelling mark on the paper. (Farrington v. Frankfort Bank, 24 Barb. 554; Watervliet Bank v. White, 1 Denio, 608.)
    II. The note in suit was not received in the ordinary course of business.
    1. The bank could undoubtedly make a valid transfer of paper which it held, either before or after dishonor; but it is an entirely different question whether, in the exercise of the power conferred by its charter—“ to carry on the business of banking by discounting bills, notes and other evidences of debt ”—a discount payable in protested paper is a transaction in the ordinary course of business, giving them the right under the law merchant of bona fide holders of embezzled paper. (Laws of 1832, 442, § 3.)
    2. On the assumption that Comstock was not a party to 'the Baldwin paper, the second presentation to the bank of >i rejected note for $800, and the extraordinary proposition "to take' the bulk of the proceeds in dishonored paper of third parties, was such a departure from the ordinary course of business as to put the bank on inquiry.
    3. Such a discount was, and should be, at the peril of the party making it, even in respect to the cash advanced. (Brown v. Taber, 5 Wendell, 566; 3 Hill, 277, 8, per Nelson, Ch. J.; Wiggin v. Bush, 12 Johnson, 310; Nixon v. Palmer, 4 Selden, 400; Stainer v. Tyson, 3 Hill, 279, 282; Gill v. Cubitt, 10 Comm. Law, 154.)
    4. The cases on this subject are reviewed, and the rule and its reasons defined with great clearness, in the case of Pringle v. Phillips (5 Sandf. Sup. Co. R. 157, 162 to 173). “ It is sufficient to prove that the circumstances known to him were such as ought reasonably to have excited his suspiciorts, and led him to inquire.” “A want of that caution and diligence which an honest man of ordinary prudence is accustomed to exercise in maldng purchases, is in judgment of law a want of good faith.” “Although the question of good faith is that which is commonly submitted to a jury, yet this question involves that of due caution; and he who discounts a bill without using due means to ascertain whether it has been honestly obtained by the holder, takes it at his own peril.” Citing" Ch. J. Paesons, Mr. Justice Duke says: “ Where the endorsee receives the note under circumstances which might reasonably excite suspicion, he ought, before he takes it, to inquire into its validity; and if he does not, he takes it subject to any legal defense that would defeat a recovery by the payee.” _
    5. But, in- this case, the judge not only held • that the plaintiffs were bona fide holders, but rejected the evidence offered, and struck out that introduced to show the contrary—held that it was inadmissible under the answer—and refused to permit the pleadings to be amended, on the ground that the plaintiffs were bona fide holders.
    TTT. The court erred in not permitting the defendants to prove the allegation in their answer, that the balance of the proceeds of the so-called discount was retained by the plaintiff on a precedent debt of Comstock.
    1. The fraudulent diversion of the note having been proved, the onus was upon the plaintiffs to show affirmatively that they parted with actual value for the full amount of the note. The evidence of the cashier and of Comstock ,had left the question in eguilibrio, whether Comstock was or was not a debtor on the Brewster note—and whether the amount was retained as payment of his precedent debt, or as the consideration of a transfer—and the judge held that on this state of facts the plaintiffs must be deemed bona fide holders.
    2. The Brewster note, at the time of the trial, had been more than four years under protest. What became of it after it was obtained by Comstock on the 29th of April, 1854, did not appear, beyond his presumption that it was at home. Comsto.ck, and Brewster the makers, were insolvent at the time of the transaction. Colvin, Allen & Co., who were endorsers, failed shortly after it matured. No attempt had been made to collect it of Ames, during the two years he remained solvent. The maker and endorsers were all insolvent at the time of the trial.
    3. Under these circumstances, the note being only collaterally in question, the court rejected paroi proof of the endorsements and the cancellation marks, on the ground that the instrument was not produced.
    4. The Baldwin note not being the foundation either of the action or the defense, and material only on a collateral question, it was proper; without producing it, to prove who were the maker and endorsers, and whether it bore the mark of the cancelling hammer. (McFadden v. Kingsbury, 11 Wend. 668-9; Lamb v. Moberly, 3 Monroe, 179.)
    5. In the case last cited, the action was for the price of a note of a third person, sold to the defendant. “ In such case, plaintiff need not produce, nor require defendant to produce the note sold, but may prove the existence and sale of it by paroi evidence. The distinction is between the contents of the instrument as evidence of a contract, and the existence of it as a thing and subject of the contract to be proved.” (3 Monroe, 180.)
    6. The purpose was not to show the contract embraced i i the note, for that had been already proved without objection by the cashier, but simply to prove who endorsed land whether it bore the bank mark of cancellation, of which there was no written evidence.
    IV. The court erred in also rejecting the evidence already received, and holding it inadmissible under the pleadings.
    1. The defendants in their answer denied that the note was transferred to the plaintiff for value, and alleged the fraudulent diversion. All else was surplusage; as this constituted a defense, and cast on the plaintiffs the burden of avoiding it, by proof that they parted with the full value in good faith before maturity.
    2. The plaintiff proved the fraudulent diversion; and that proof could not be rejected by reason of variance in the further prpof of allegations in the answer, not essential to the defense. (Rapalee v. Stewart, 27 N. Y. Rep. 310.)
    3. The variance, however, was immaterial, and there was no affidavit or pretense that the plaintiff was misled by it. . 4. If an amendment was necessary, the defendants were, under these circumstances, entitled to it on terms, as matter of right under the code. (Code, § 169; Catlin v. Gunter, 1 Kernan, 368.)
    5. The ground on which the judge rejected evidence tending to show that the plaintiffs were not bona fide holders, was that they were what the defendants sought to prove they were not. - .
    6. The learned judge, on appeal, resorted to the evidence which on the trial he held to be inadmissible, as avoiding the defense of fraudulent diversion, and showing that the plaintiffs parted with full value.
    Y. Assuming, as the defendants claimed, and should have been permitted to prove, that Comstock was a party to the Brewster note, and that the bank retained the bulk of the proceeds on a precedent debt then dishonored, the court erred in holding them in that regard, bona fide holders. (Cardwell v. Hicks, 23 Howard P. R. 281; Youngs v. Lee, 2 Kernan, 555; Stalker v. McDonald, 6 Hill, 93, 99; Rosa v. Brotherson, 10 Wendell, 86; Farrington v. Frankfort Bank, 24 Barbour, 554.)
    
      John H. Reynolds, for the respondent.
    1. The plaintiff was a bona fide' holder of the note in question, having discounted it in the usual course of business, without notice of, or having any ground for suspecting that there was any defect in Comstock’s title. It was not subject to any defense existing between the original parties, and the plaintiff was entitled to recover'the balance due upon it. (Youngs v. Lee, 2 Kernan R. 551; Stalker v. McDonald, 6 Hill, 93; Mohawk Bank v. Corey, Hill, 513; Bay v. Coddington, 5 Johns. Ch. R. 54; Bank of Salina v. Babcock, 21 Wend. 499; Bank of St. Albans v. Gilliland, 23 id. 311; Farrington v. Frankfort Bank, 24 Barb, 554; S. C. 31 Barb. 183.)
    1. The plaintiff had no notice or suspicion that Comstock was not the absolute owner of the note, and entitled to make any disposition of it that his interest or necessities should require.
    2. The plaintiff had full value for it in money, and by the transfer of the note of Brewster for $500, endorsed by Colvin, Allen & Co. and F. W. Ames, which was then good and collectable,
    3. If the plaintiff had paid the entire proceeds of the note to Comstock in money, no question could have been made against the right of the plaintiff to recover, even though he had misappropriated the whole of it,
    4. So far as the plaintiff is concerned, its rights are the same as if Comstock had possession of the note, without any restriction as to the use he should make of it or its proceeds. (Seneca County Bank v. Neass, 3 Comst. 443; Agawam Bank v. Strever, 18 N. Y. 502.)
    5. The Brewster note was at the time the property of the bank, which it had the right to sell and transfer. Com-stock was not a party to it, and its transfer to him in part payment of the proceeds of the discounted note, was not in any sense applying the proceeds in payment of a precedent debt, so as to impair the plaintiff’s title as a bona fide holder for value.
    6. Moreover, the Brewster note was good, and might by due diligence have .been collected. That it was not collected is no fault of the bank. The plaintiff had the right to deal "with Comstock, as the absolute owner of the note, upon the faith of his possession, and can not be made to suffer for aúy fraud he committed upon those who entrusted the note to him for the purpose of getting it discounted. There was nothing in the nature of the transaction calculated to excite any suspicion of the validity of Comstock’s title to the note, or which made it their duty to make further inquiry before dealing in the paper in any way thought consistent with their interest. (Davis v. McCready, 17 N. Y. R. 230.)
    7. The only question in respect to which it can be claimed the plaintiff should have been put upon inquiry, is as to Comstock’s title to negotiate and dispose of the note. If in that respect there is no infirmity in their position, the only other question is as to whether they paid value, and as to that there can be no doubt, for thw Brewster note was at the time worth all it-purported to secure.
    8. In the case of Youngs v. Lee (2 Kernan, 551), the note given up before maturity was of the makers merely, and by its surrender ho endorser or other security was lost. It is impossible to see why the decision in that case would not have been the same if the note of the makers had been given up after maturity for the note of the same makers endorsed by Lee.
    EE. The defendants were guilty of great neglect in not communicating to the bank the facts of the case before all the parties to the note of Brewster had become insolvent.
    1. The note in suit became due and was protested and endorsers notified July 25, 1854, and this action was commenced in 1857. The Brewster note could have been collected up to July, 1856.
    2. Russell knew that Comstock had diverted the note or its proceeds about the time that it was discounted by the bank, for his check for the proceeds, on the Troy City Bank was dishonored in June, 1854, and that check Russell still retains. The bank never had notice that there had been any diversion of the note or proceeds until about the time this suit was commenced.
    III. Parol evidence respecting the Brewster note, or any marks on it, was properly rejected until the note was produced. Moreover, it does not appear what was the evidence proposed to be given, or that it was in any respect material to any question in the case. A party relying on an exception to the rejection of evidence, must show that the evidence rejected was material, and that he was or might have been injured by its rejection, or the exception' will fail.
    IV. Whether the defendants should have been allowed to amend was matter of discretion at the circuit, and can not be reviewed on appeal, and if the plaintiff was a bona fide holder of the note the amendment would not help the defendants.
   Davies, J.

The case contains no statement of the facts found by the court which tried the action, as required by section 267 of the code. It contains a statement of facts, signed by the presiding justice of the general term, which heard the cause on appeal, but the code furnishes no warrant for inserting such a statement in the ’case. The only instance in which a general term is authorized to make a statement of facts, is that mentioned in section 333, where, when the general term renders judgment upon a verdict taken subject to the opinion of the court, the questions or conclusions" of law, together with a concise statement of the facts upon which they arose, shall be prepared by and under the direction of the court, and shall be filed with the judgment roll, and be deemed a part thereof, for the purpose of a review in the court of appeals. In this action no verdict was taken subject to the opinion of the court, and there was, therefore, no authority for the general term of the supreme court to make up the statement of facts contained in tMs case. It is not legitimately there, and, as we have frequently said, such a statement1 is not a compliance with the requirements of section 267, and cannot be regarded as a substitute for the statement of facts required by that section. It follows that the appellants have presented no such case as the code requires, and upon which this court would be authorized to review the judgment of the supreme court. The appeal should) therefore, be dismissed with costs. If, however, the court should be inclined to pass upon the merits as disclosed by the evidence adduced on the trial, and a correct synopsis of which is contained above, the only question arising is, whether the plaintiff was a bona fide holder of the note in suit. The case of Youngs v. Lee in this court (2 Kernan, 551), would seem to have definitely settled that question. There the note in suit had been diverted from its original purpose, by Bell and Goodman, the makers. Lee, who defended that action, was an endorser of another note made by Bell and Goodman, which was about falling due, and he endorsed the note in that suit for the accommodation of Bell and Goodman, to enable them with the proceeds on the discount thereof to take up the old note, which was about falling due. Bell and Goodman, instead of doing this, transferred the note in that suit to the plaintiff therein, who held their note for $943.31, not yet due, requesting' the latter note to be surrendered to them, and that the balance should thereafter be adjusted between them. The plaintiff thereupon gave an order on the Bank, with which Bell and Goodman’s note had been deposited for collection, to deliver the same to them, and it was accordingly delivered to them the day before it fell due. This court held the plaintiffs bona fide holders of the note endorsed by Lee, and that notwithstanding its diversion, the plaintiffs were entitled to .recover. In that case the plaintiffs only demanded the note of Bell and Goodman, the makers of the new note received on such surrender. In this case this plaintiffs- not only transferred and gave in exchange money, but an available and valuable note of other and third parties, not connected with or liable upon the note received on such exchange. The plaintiff was, therefore, a bona fide holder of the note in suit, and it was not received under such circumstances as called upon the plaintiff to institute any inquiries 'as to Comstock’s right to the possession of it, or to procure its discount.

On,the merits, therefore, I have no doubt the judgment should be affirmed.

Hogeboom, J.

The note in question was unquestionably diverted from its intended object, which- was to retire a previous note executed by the same parties. For this purpose it was immaterial whether the note in suit was discounted at the Bank of Whitehall or at plaintiffs’ bank. Either would have been a substantial compliance with the purpose of the parties to the note.

But Comstock, who received the note for this • purpose from Bussell, misapplied it, and negotiated it at the plaintiffs’ bank in part for cash and in part for the purchase of the Brewster note then held by the plaintiffs’ bank. This note, though good and collectable, was over due. The money he received on this negotiation of the note in suit ' Comstock also misapplied, appropriating it to his own use instead of -towards the payment of the note at the Whitehall Bank.

But of this intended misappropriation, the plaintiffs were not advised, nor had they good ground to suspect.it, or even to suppose that Comstock was not the bona fide owner of the note in suit. They were, therefore, on discounting this note, bona fide holders of it for value, at least to the extent of the sum advanced in cash on the discount; arid to that extent, at all events, they would be entitled to recover in this action, having the right as creditors to appropriate the payments made by Comstock upon the. note upon that part of the consideration for it which was composed of the Brewster paper. But as the Brewster paper exceeded the amount of the Comstock payments, and the amount advanced in cash to Comstock on the discount was less than the plaintiffs recovered in this action, it becomes necessary to determine whether the plaintiffs are bona fide holders of the note in suit, in such a sense as to exclude the defense of its misapplication, so far as respects that .part of the discount which was appropriated to the purchase of the Brewster paper.

There was no want of consideration on the part of thn plaintiff to the full atiiount of the note in suit, in the trans action in question. The Brewster note was, though over due, :good and available paper. It was worth its nomina* amount, and was collectable for two years afterwards. 1* was a chose in action which the plaintiffs had a right sell and transfer to Comstock. To the. full extent of it» value it was a valuable consideration. The circumstance of .its being over-due did not detract from this value. B was not a precedent debt in the sense of commercial paper. It was not a debt against any of the parties t*> the- present paper, nor, so far as appears, against Com-stock himself. For aught we can determine, it was papes quite as valuable to the plaintiffs as that now in suiL It was parted with absolutely, and left no remedy ia the hands of the bank against any of the parties to the Brewster note.

All this was, I think, parting with value, within the meaning of the cases on that subject. (See Youngs v. Lee 2 Kernan, 551; Boyd v. Cummings, 17 N. Y. 101.) Indeed it has been held in the superior court of Hew York that parting with value to the amount of the money advanced in cash, at the time of this transfer, makes- it a parting, with value so as to protect it for the full amount of this note from the defense of the accommodation endorsers. (Gould v. Segee, 5 Duer, 260.) When to this is added a sale of valid negotiable paper perfectly good and collectable to the amount "of the whole residue of the note in suit, I think the plaintiffs are entitled to hold the recovery to its full extent.

The judgment should be affirmed.

All the judges concurring. Judgment affirmed.