Case Name: Nathaniel L. Carpenter and Others, Respondents, v. James P. Maloney, Defendant, Impleaded with George W. Hoadley, Appellant
Court: New York Supreme Court, Appellate Division
Jurisdiction: New York
Decision Date: 1910-05-13
Citations: 138 A.D. 190
Docket Number: 
Parties: Nathaniel L. Carpenter and Others, Respondents, v. James P. Maloney, Defendant, Impleaded with George W. Hoadley, Appellant.
Judges: 
Reporter: Appellate Division Reports
Volume: 138
Pages: 190–202

Head Matter:
Nathaniel L. Carpenter and Others, Respondents, v. James P. Maloney, Defendant, Impleaded with George W. Hoadley, Appellant.
First Department,
May 13, 1910.
Bills and notes — delivery of promissory note subject to conditions — when transferee not holder in due course — performance of condition prerequisite to recovery — special verdict received without objection conclusive.
It is a good defense to an action brought by the transferee of a promissory note, who has not parted with value, against an indorser, to show that the note was indorsed and delivered to the payee, who was also the maker, under an agreement that he should retain possession, and that the note was to be paid solely out of the proceeds of stock sold by him, and that the indorser was in no event to be personally liable on the instrument. '
Such transferee, not parting with value,' is not a holder in due course, even though prior to the transfer he had a claim against either the maker or indorser,' if the liability on that claim .was not released in consideration of the transfer. A special verdict warranted by the evidence and received without objection stands as a finding of undisputed facts.
Where the delivery of a note is limited by the conditions upon which the delivery is made, the performance of .these conditions is essential to its validity, and the transferee, or subsequent transferees who are not Iona fide holders for value, cannot recover thereon until the Condition be performed.
Ingraham, P. J., and McLaughlin, J., dissented, with opinion.
Appeal by .the defendant, George W. Hoadley, from a judgment of the Supreme Court in favor of the plaintiffs, entered in the office of the clerk of the county of New York on the 22d day of October, ' 1909, upon the verdict of a jury rendered by direction of the court pursuant to a special verdict of the jury.
John H. McCrahon, for the appellant.
Edmund L. Mooney, for the respondents.

Opinion:
Scott, J.:
The defendant Hoadley appeals from a. judgment entered upon a verdict for the plaintiff directed by the court. The appellant is' sued as indorser upon promissory notes made by the defendant Maloney to his own order, and indorsed by the appellant. The plaintiffs are stockbrokers. Maloney who, although named as a defendant, has not been served with process, was the manager of their branch office at Boston, Mass. The appellant resided at Providence. Some time in July, 1906, Maloney opened a speculative account for account of appellant under the wholly fictitious title of " Fred. Williams, Special." It is not made clear whether appellant in the first instance authorized the opening of this account, but it is clear tliat he soon knew of it and received notices concerning it from time to time. He was not required to put up any margin. The account ran along until about August 25, 1906, when it showed a small loss of about one' hundred dollars. Appellant's testimony is that on this date he notified Maloney by telephone to close the account out, and at the same time repudiated any responsibility for it or interest in it. Maloney's story' is that he did receive a telephone message from appellant, but his understanding was that he was to continue to trade in the account according to such instructions as he might receive from plaintiffs' Hew York house. Appellant went off on a journey and appears to have had nothing further to do with the account or knowledge as to what Maloney was doing with it. Maloney did not close it out. Some time during the month of September there was a sharp and sudden rise in the price of cotton (with which the account dealt),, and the account was closed out at a loss of several thousand dollars. Demand was made upon appellant for the amount of the deficit, which he refused to pay, disclaiming any responsibility. Plaintiffs then declared that unless appellant assumed responsibility the loss would fall upon Maloney and that he would be discharged from his position. Appellant, in order to relieve Maloney, and still disclaiming any responsibility on his own part,, proposed that he should intrust Maloney with the selling of a large amount of mining stock in^which lie was interested, and that Maloney might pay the amount of the loss out of the first proceeds of the sale of such stock. He also, at Maloney's solicitation, indorsed the notes in suit. Maloney started in to sell the mining stock, using plaintiffs' letterheads to solicit purchases. Owing to objection on the part of the officers of the New York Stock Exchange, Maloney was directed to discon'tine the use of plaintiffs' name in connection with' the marketing of the mining stock, but was authorized to undertake to market it in his own name, on-condition that he turn over to plaintiffs the notes involved in this action, and which he had up to that time retained in his own possession. This was on H ovember 23,1906, nearly two months after the execution of' the notes. Thé defénse is that the notes were delivered to Maloney upon condition that they were to remain in his possession and control; that they were to be paid solely out of the proceeds of the sale of the' mining stock above mentioned, and that appellant was in no. event to be held personally liable for their payment.
This defense, if established, was available to appellant as against the plaintiffs. They were not bona ficie holders for value, for they had parted with nothing in consideration of the notes. They held a claim against either the appellant or Maloney; against appellant if lie was legally responsible for the account, which he always denied;, against Maloney if he had carried - on the account in the face of appellant's instructions to close it out, and without plaintiffs' consent. In either case, their claim was for an. antecedent debt, which they did not release upon receiving the notes. . The question of appellant's liability'upon the account was not-litigated. The court submitted to the jury certain specific questions which, as the record shows, were carefully formulated by agreement between counsel for both parties. The questions and the answers given by the jury were as follows: Q. "Was-it agreed by Maloney with Hoadley, at the -time the notes in suit were given, that, he (Maloney) would keep the notes in his possession as evidence of Maloney's authority to apply the money received ón the sale of the stock of the Cathedral Mining Co. in payment of said notes; that the notes would, be held and the proceeds of such- sales applied to their payment and Hoadley not be compelled' to pay anything on them otherwise than out of the proceeds of such sales?" A. "Yes." Q. " If you find that Maloney made such promise or agreement, did he make it on behalf of Carpenter, Baggot & Co., or as his own personal promise or agreement % " A. "Yes; Carpenter, Baggot & Company."
The special verdict thus found by the jury was not objected to in any way, and no motion was made to set it aside. There was evidence to sustain it, and the findings of fact thus found stand as the undisputed facts of the case. Notwithstanding the special verdict, the court directed a verdict in favor of plaintiffs.
The question which we have to consider is, therefore, whether the facts thus found constitute a defense to the action. The first question submitted to and answered by the jury is substantially identical with that which was submitted in Andrews & Co. v. Hess (20 App. Div. 195), the affirmative answer to which was held to establish a defense. In that case the rule was recognized, which has been stated in one form or another in many cases, that when the delivery of a note is limited by the conditions upon which the delivery was made, the performance of these conditions is essential to the validity of the notes. In Benton v. Martin (52 N. Y. 570, 574) the rule is thus stated: " Instruments not under seal may be delivered to the one to whom upon their face they are made payable, or who by their terms is entitled to some interest or benefit under .them, upon conditions, the observance of which is essential to their validity. And the annexing of such conditions to the delivery is not an oral contradiction of the written obligation, though negotiable, as between the parties to it, or others having notice. It needs a delivery to make the obligation operative at all, and the effect of the delivery and the extent of the operation of the instrument may be limited by the conditions with which delivery is made. And so also, as between the original parties and others having notice, the want of consideration may be shown." To the same effect are many other authorities, in one of which the words quoted above are adopted and reiterated. (Higgins v. Ridgway, 153 N. Y. 130.) In Jamestown Business College Assn. v. Allen (172 N. Y. 291) a very different question was presented. In that case the defense relied upon was.that the note was to become void upon the happening of a future event. The court pointed out very clearly the dis- tinction between such a case and one like that which we have to consider, saying: Had the parties agreed that the note should not be regarded as completely delivered until the defendant should take such instructions, or until she could sell her scholarship, it would not have become operative until either of these events had transpired. The agreement which the parties did make w-as just the reverse of that. The note is stated to have been actually and unconditionally delivered, and was to be' and remain a note until the defendant should decide either to sell the scholarship, if that were possible, or to-abandon, the projected course of instruction: This was not a conditional delivery which held the consummation of the contract in abeyance, but an absolute delivery which, as the defendant supposed, could be. annulled in a certain contingency at her option. It. is obvious, therefore, that there is a radical distinction between a conditional , delivery, which .is not to become complete and effective until the happening of some condition precedent, and. a complete delivery, like the one at bar, which is sought to be defeated by subsequent contingencies that may or may not arise. In the one case there is no contract -until the condition has been complied with; in the other- there is a binding contract, notwith-. standing the happening of the contingency relied- upon to defeat it." The verdict of the jury in the case at bar has established it as a fact, undisputed upon the record, that the delivery of the note- sued upon was a conditional one, and that the rule of Higgins v. Ridgway (supra) and other like cases applies;, aiid not the rule in the Jamestown Business College Assn. case. The contingency upon .which it was to become valid and-binding, never arose, and hence no personal liability upon the note eyer arose against the appellant-in favor of Maloney, or of the plaintiffs, who, not being holders for value; are in no better position than he. The defense upon which appellant relied was, therefore, sufficient and- was established by the special-verdict, which, as the record comes to us, we cannot1 review.
Our attention has beeti called to a written contract between Maloney and the' appellant, dated about two months after the notes had been delivered and after they had come into the possession of the plaintiffs, which states the condition upon which the notes had been delivered somewhat differently from the statement made by appellant in his testimony. ' This paper does not purport to be the • contract which accompanied the delivery of the notes, but a later recitation of what the contract was. At most, it was only one piece of evidence, in the shape of an admission by Iioadley, to be considered by the ¡jury in determining what the real agreement was. As there is no exception permitting us to review the verdict upon the facts, we cannot sustain the judgment merely because of one piece of evidence which appears to bear in plaintiffs' favor.
It follows that the judgment appealed from must be reversed, and judgment directed upon- the'special verdict-in favor of the appellant, with costs to the appellant in this court and in the court below, including the special allowance which it was stipulated upon the trial should follow the judgment.
Clarke and Dowling, JJ., concurred; Ingraham, P. J., and McLaughlin, J., dissented.