Case Name: First Nat. Bank of Springfield v. Haulenbeek
Court: New York Supreme Court, General Term
Jurisdiction: New York
Decision Date: 1892-06-29
Citations: 19 N.Y.S. 567
Docket Number: 
Parties: First Nat. Bank of Springfield v. Haulenbeek.
Judges: 
Reporter: West's New York Supplement
Volume: 19
Pages: 567–568

Head Matter:
First Nat. Bank of Springfield v. Haulenbeek.
(Supreme Court, General Term, First Department.
June 29, 1892.)
L Action on Note—Want of Consideration—Recovery by Bona Fide Holder.
It is competent to prove, in an action on a note, that it was made without consideration, and that it was converted by one to whom it was given to be discounted, though plaintiff is a bona Jide holder, since plaintiff in such case could recover only the amount actually paid for the noté.
2. National Banks—Usury.
Since Rev. St. U. S. §§ 8197, 5198, provide that national banks shall forfeit all interest if they reserve more than is allowed by the laws of the states in which they are located, it is competent to show, in an action by a national bank on notes discounted by it, the amount for which it bought them.
Appeal from circuit court, New York county.
Action by the First national Bank of Springfield, Mass., against Peter Haulenbeek. From a judgment for plaintiff, defendant appeals.
Reversed.
Argued before Van Brunt, P. J., and Patterson, J.
Nelson Smith, for appellant. Charles A. Wendell, (Julius M. Mayer and Signal D. Woodward, of counsel,) for respondent.

Opinion:
Patterson, J.
The complaint in this action is upon foul-promissory notes made by the defendant,—one dated September 2,1886, for $995.50, payable to the order of the maker four months after date; another dated September 27, 1886, for $1,050.05, payable to the order of the New York Textile Filter Company, payable four months after date at the Horth River Bank; the third, dated September 30, 1886, for $1,050.40, to the order of the New York Textile Filter Company, payable four months after date at the Horth River Bank; the fourth, for $1,050, dated October 29,1886, payable four months after date to the order of the New York Textile Filter Company, payable at the Horth River Bank. The answer sets up several distinct defenses. It is necessary to consider only the second and third'. The second defense relates to the note dated September 30,1886, and it is averred that it was made without consideration; was obtained from the defendant by one Morris, who, when he received it, promised to deliver to the defendant coffee therefor, at the market price before the note was put in use; that Morris diverted the same from its purpose, and wrongfully delivered it to one Hotchkiss under and pursuant to a corrupt and usurious agreement, by which Hotchkiss was to be paid a greater rate of interest than 6 per cent, per annum. The third defense relates to the three other promissory notes, and as to them it is alleged that they w-ere given without consideration to Morris, and for the purpose of borrowing money on them; and that, instead of so doing, Morris negotiated and delivered the notes to Hotchkiss under a corrupt and usurious agreement, by which Hotchkiss reserved more than 6 per cent, per annum on the amount of the notes, respectively, contrary to the statutes of this state and of the state of Massachusetts, (the plaintiff is an incorporated national bank located in Massachusetts,) and of the statutes of the United States, by which the plaintiff, as a national bank, was prohibited from taking interest in excess of that which was allowable by the law of the states of New York, Massachusetts, and of the United States.
On the trial the cashier of the plaintiff was examined. The notes were shown to him, and he testified that he bought them, before maturity, of Hotchkiss, who was a note broker in the city of Hew York. Hotchkiss testified that he personally took the notes to Springfield, Mass., and there sold them to the plaintiff. The precise amount paid for each of the notes was not proven, but Morris, to whom they were delivered by the defendant, and who gave them for sale to the broker, testified that the discount upon the notes was either 10 or 12 per cent., and not less, as to either of them, than 10 per cent. At the close of the plaintiff's case the defendant was called as a wit ness on his own behalf, to prove that the paper, and all of it, was'diverted paper; and he was asked to state, as to the note dated September 2, 1886, whether it had any consideration, and the circumstances under which it was delivered. That was objected to, and the objection was sustained; the court stating that it would allow the defendant to show that the notes were given to Morris for the purpose of having them discounted, and that they were accommodation notes; but that was not the exact aspect in which the defendant intended to present the case, for it was distinctly claimed that, as to the notes of September 2d, September 27th, and September 30th, they were made without any consideration, were delivered to Morris to be discounted, and that the defendant, Haulenbeek, never received anything for them. With reference to the note of the 80th of September, the offer made was to prove that that note was parted with on the promise of Morris that coffee would be furnished for it, and that the consideration had wholly failed. The learned judge excluded all the testimony thus offered, and to that an exception was taken. Thereupon the learned judge directed a verdict for the plaintiff for the amount of all the notes, including interest from the dates at which they respectively matured. As the case was tried, we consider these offers broad enough to cover what is contained in the second and third defenses as .they are set forth in the answer, and we are of opinion that the learned judge was in error in not allowing the testimony to be given. If proof could be made, as to the three notes, that they were given to Morris in order that money might be raised upon them for Haulenbeek, and, instead of their being applied to that purpose, they were discounted by Morris, either for himself or for the company of which he was treasurer, then there certainly was a misuse amounting to a diversion of the notes; and, under such circumstances, all that a bona fide holder could recover would be the amount actually advanced on the notes, and there is nothing to show the exact amount the plaintiff paid. As to the third note, the diversion, if the facts appeared in evidence as they are claimed by the defendant to exist, the same rule of recovery would apply. But there is'another aspect in which this testimony is material, at least to reduce the amount of the obligation of the defendant on each of the notes. If the defendant's claim were established that all these notes were originally discounted at usurious rates of interest of from 10 to 12 per cent., then the plaintiff, being a national bank, would not be entitled to recover any'interest •whatever on those notes under the statutes of the United States, (sections 5197, 5198, Rev. St. U. S.,) which provide "that an association organized under the national banking law may only take and reserve such interest as is allowed by the laws of the state, territory, or district where the bank is located, and no more, except where, by the laws of any state, a different rate is limited for a bank of issue organized under the state law, in which event the national bank may charge the rate so limited; and the consequences of taking usurious interest are declared by section 5198, namely, that there shall be a forfeiture of the entire interest which the note, bill, or other evidence of debt carries with'it, or which has been agreed to be paid thereon." We think the testimony that was offered to be given by Mr. Haulenbeek was clearly admissible, at least upon the question of the amount actually paid for these motes by the plaintiff, and also upon the question as to whether or not any interest should be charged against the defendant upon them. These items of interest amount to a considerable sum,—nearly a thousand dollars; and for the error in rejecting the testimony referred to we think that this judgment must be reversed, with costs to appellant to abide the event.