Case Name: The A. E. McBee Company, Inc., Respondent, v. Robert E. Shoemaker, Appellant, Impleaded with Root Knight Company, Inc., and Others, Defendants
Court: New York Supreme Court, Appellate Division
Jurisdiction: New York
Decision Date: 1916-07-10
Citations: 174 A.D. 291
Docket Number: 
Parties: The A. E. McBee Company, Inc., Respondent, v. Robert E. Shoemaker, Appellant, Impleaded with Root Knight Company, Inc., and Others, Defendants.
Judges: 
Reporter: Appellate Division Reports
Volume: 174
Pages: 291–297

Head Matter:
The A. E. McBee Company, Inc., Respondent, v. Robert E. Shoemaker, Appellant, Impleaded with Root Knight Company, Inc., and Others, Defendants.
First Department,
July 10, 1916.
Trial—effect of mutual motions for direction of verdict—credibility of witnesses — bills and notes — action against indorser of note of corporation — proof not establishing diversion of note—rights of holder in due course — acceptance of note in part payment of antecedent debt —when transferee not put upon inquiry.
Where both parties move for the direction of a verdict and neither attempts to withdraw the submission by requesting to go to the jury on any question of fact or otherwise, and the court directs a verdict for the plaintiff, it will "be deemed on appeal that all controverted questions of fact were resolved in the plaintiff’s favor, including questions of fact which involve the credibility of witnesses, although not controverted by other evidence.
In an action against the indorser of a promissory note of a corporation, of which the indorser was a stockholder and director, the defense was that. the indorsement was made for the renewal of a previous note about to become due, but that the note was diverted and not used for that purpose. The defendant’s indorsement contained no restriction, and the only evidence respecting such restriction in the use of the note was his own uncorroborated testimony, while the testimony offered by the plaintiff showed that it took the note before maturity without notice of any restriction, in part payment of an existing indebtedness, credit being given for the balance. On all evidence, held, that the credibility of the defendant was for the trial court, and "that a direction of a verdict for plaintiff was justified.
Where the indorsement and delivery of a negotiable instrument is without restriction as to the use thereof, the indorser is liable to a subsequent holder in due course, even though it took the note in conditional payment, or as a collateral security for an antecedent debt.
In such action by a holder, where the defense is diversion, it is sufficient to entitle the plaintiff to recover the full amount of the note, notwithstanding the diversion, to show either that it or any former owner was a holder in due course.
Assuming that said note was diverted, the plaintiff is entitled to recover where it is shown that it received the note before maturity in due course for full value, and without notice that it was indorsed or delivered for a special purpose.
Quaere, as to whether the rule laid down in Coddington v. Bay (20 Johns 637) as to the rights of a holder of a note taken as conditional payment of, or as security for an antecedent debt, is still the law of this State.
Under the present rule the honesty and good faith of a purchaser of negotiable paper are thekests of his right to recover, and not mere notice of suspicious circumstances, or notice or knowledge of facts from which on inquiry the infirmity might be discovered.
Appeal by the defendant, Robert E. Shoemaker, from a judgment of the Supreme Court in favor of the plaintiff, entered in the office of the clerk of the county of New York on the 20th day of November, 1915, upon the verdict of a jury rendered by direction of the court, and also from an order entered in said clerk’s office on the 13th day of December, 1915, denying appellant’s motion for a new. trial made upon the minutes.
Frank E. Loughran, for the appellant.
John J. Quencer, for the respondent.

Opinion:
Laughlin, J.:
This is an action on a promissory note and against appellant as indorser. At the close of the evidence the attorney for plaintiff moved for a direction of a verdict on the ground that the evidence material to the right of his client to recover, consisting of the testimony of the witness Lackey, was uncontroverted; and the attorney for the appellant thereupon conceding that his client was liable for $500, but claiming that to be the extent of the liability, moved for a direction of a verdict for plaintiff for that amount. Both parties thus submitted the facts to the court and neither party attempted to withdraw the submission by requesting to go to the jury on any question of fact or otherwise. It must, therefore, be deemed that all controverted questions of fact have been resolved in favor of plaintiff (Reed v. Spear, 107 App. Div. 144; Zeller v. Leiter, 114 id. 148), and this necessarily involves questions of fact involving the credibility of witnesses although not controverted by other evidence. The indorsement and delivery of the note by appellant were admitted, and due presentment and protest and notice thereof were proved. The sole ground upon which appellant defended is that the note was diverted from the purposes for which it was made and for which he indorsed it, and that plaintiff faffed to bear the burden of showing that it was a holder in due course, which rested upon it on proof of diversion of the note. The note was for $2,500 and was signed "Boot-Knight Go., Inc., M. J. Boot, Pres., W. L. Smith, Treas.," and was payable 120 days after date to the order of " ourselves." It was indorsed precisely the same as it was signed. The appellant's indorsement was next, and after it were indorsements by said Boot and Smith individually, and by one Van Nostrand and by the plaintiff.
The appellant testified that he was a stockholder in and director of the maker of the note, and that at the request of said Boot, the president, he indorsed it in blank to be used to take up, by renewal, a like note which was soon thereafter to fall due at the Harriman National Bank, and that the note was not used for that purpose. The plaintiff, with a view to showing that it received the note in due course before maturity, that is for value and without notice that it had been indorsed by plaintiff for a special purpose or that it had been diverted, in discharge of the burden then resting upon it (Neg. Inst. Law [Consol. Laws, chap. 38; Laws of 1909, chap. 43], § 98), called as a witness one Lackey, who was the vice-president of the Street Railways Advertising Company and also of the plaintiff. He testified that the Scot-Mint Company was indebted to the Street Railways Advertising Company, and that he had been pressing payment of the claim; that Van Nostrand, who was also an officer of the maker, and said Root, both of whom were officers of the Scot-Mint Company, brought the note to him representing that it was owned by the Scot-Mint Company and requested that the Street Railways Advertising Company advance $1,000 on the note and apply the balance on the Scot-Mint Company account; that he refused to do that, but finally agreed that the Street Railways Advertising Company would take the note and pay $500 in cash and apply the balance on said account, which would practically extinguish it; that the agreement was consummated and at the request of Van Nostrand a check for the cash payment was drawn to the order of the Root-Knight Company and mailed to it and charged to said account. The evidence does not expressly show what credit entry was made on the Scot-Mint account; but from the fact that the check for $500 was charged to that account, it would seem that the entire amount of the note was credited on the account, and if so, the transaction having been, according to the testimony of Lackey, with the Scot-Mint Company, the latter company took the note, not conditionally or as security, but in payment of the indebtedness to the extent of the face value of the note less $500 and thereby extended the time of payment of said indebtedness until the note fell due, which constituted a good consideration. (Strong v. Sheffield, 144 N. Y. 392; Muir v. Greene, 191 id. 201.) The Root-Knight Company, in acknowledging the receipt of the check, stated that the balance of the note was to be credited to the Scot-Mint Company account. Lackey also testified that his company received the note before maturity and without notice or knowledge of any kind with respect to the purpose for which the note was made or indorsed, or that it had been diverted; that the Street Rail ways Company transferred the note to the plaintiff and that the consideration for the transfer was " the face value of the note." The secretary of the plaintiff testified that plaintiff, received the note before maturity.
Appellant through his counsel concedes that if his indorsement and the delivery were without restriction as to the use of the note he would be liable, even if plaintiff or its transferor took the note in conditional payment or as collateral security for an antecedent debt, and such is the rule of law. (Neg. Inst. Law, § 2, 51; Grocers' Bank v. Penfield, 69 N. Y. 502; Continental Nat. Bank v. Townsend, 87 id. 8; Milius v. Kauffmann, 104 App. Div. 442; Isaacs v. Cohn, 10 id. 216.) The only evidence with respect to a restriction in the use of the note is the uncorroborated testimony of the appellant. The judgment can be sustained on the ground that his credibility was for the trial court and that it does not appear that his testimony has been or should have been accepted as true. He was a stockholder and director and his interest in the company was such that he was acting as accommodation indorser for it. Its relations with the Scot-Mint Company are not fully disclosed, but its letter heads show that it was advertising the business of the other company. The facts with respect to the transaction by which the Scot-Mint Company became the owner of the note were not brought out; but it was not necessary for plaintiff on proof of diversion to show the title of all prior holders. It is sufficient to entitle plaintiff to recover the full amount of the note, notwithstanding the diversion, to show either that it or any former owner, was a holder in due course. (Neg. Inst. Law, § 98, 51, 52, 55, 91, 96; Sutherland v. Mead, 80 App. Div. 103, 107; Mindlin v. Appelbaun, 62 Misc. Rep. 300.) It is not necessary to rest affirmance on the ground that appellant did not satisfactorily bear the burden of showing that the note was diverted, for, assuming that it was diverted, the evidence fairly' warrants the inference that the plaintiff received it before maturity in due course for full value and without notice that it was indorsed and delivered for a special purpose, and I think that the Street Railways Advertising Company was also a holder in due course. The testimony of Lackey to that effect stands uncontroverted. The particulars with respect to "the face value " forming the consideration parted with by plaintiff on receiving the note were not drawn out. The argument in behalf of appellant is based on the contention that neither the plaintiff nor the Street Railways Company parted with any present or new consideration, other than the $500, on receiving the note, and that it was taken in conditional payment of or as security for an antecedent debt. If such were the fact it is conceded that under the rule applied in the United States courts (See Swift v. Tyson, 16 Pet. 1; Railroad Co. v. National Bank, 102 U. S. 14), and in many of the States there would be no defense; but it is contended that Coddington v. Bay (20 Johns. 637) and United States Nat. Bank v. Ewing (131 N. Y. 506) and kindred authorities holding the contrary are still the law in this jurisdiction. This court in King v. Bowling Green Trust Co. (145 App. Div. 398) unanimously expressed the opinion that the Negotiable Instruments Law effected a change from the rule of Coddington v. Bay (supra) to conform the law here to the rule in the Federal courts and in other States. It is true, as urged by counsel for appellant, that this court had theretofore held that there had been no change in the rule in this State. (Sutherland v. Mead, 80 App. Div. 103; Bank of America v. Waydell, 103 id. 25; affd. on another point, 187 N. Y. 115, 119. See, also, Roseman v. Mahony, 86 App. Div. 377; Citizens' State Bank v. Cowles, 180 N. Y. 346.) The former decisions are not cited, and the opinion in King v. Bowling Green Trust Co., supra, shows that they were not considered. As we view the facts, that point is not. presented for decision now, and should be left to rest on the existing decisions until it arises directly. Since the plaintiff received the note before maturity, if there was a defense as against the Street Railways Advertising Company it would not follow that it would be good against the plaintiff. It cannot well be argued on the evidence in the record before this court for review that either the plaintiff or the Street Railways Advertising Company took the note in conditional payment of or as security for an antecedent debt, for. it merely shows that plaintiff paid full value for it, and what that consisted of was not brought out, and that the Street Railways Advertising Company took it for cash and in' part payment of an existing indebtedness. The reasonable inference from the evidence is that the Street Railways Advertising Company received the note for the $500 and in part payment unconditionally of the indebtedness owing to it by the Scot-Mint Company and not conditionally or as security, and, therefore, no defense good as against that company is presented. (Wallabout Bank v. Payton, 123 App. Div. 727; Roseman v. Mahony, supra.)
It is further claimed in effect that Lackey, who represented the plaintiff in the transfer of the note to it, knew of the relations between Root and Van Nostrand and the Root-Knight Company and Scot-Mint Company. The facts, with respect to such knowledge on his part were not very fully developed. The note was not payable to or indorsed by the Scot-Mint Company and" presumably Lackey knew that. He also knew that the check for the cash was drawn to the order of the maker. It is contended that these facts constituted notice to him which was imputable to the plaintiff that the note had been diverted; but manifestly under the rule which now obtains by which honesty and good faith are the tests and not mere notice of suspicious circumstances or notice or knowledge of facts from which on inquiry the infirmity might be discovered (See Neg. Inst. Law, § 91; Cheever v. Pittsburgh, etc., R. R. Co., 150 N. Y. 59; Cole v. Harrison, 167 App. Div. 336; Oliner v. Goldenberg, 168 id. 874) such facts and knowledge are insufficient to' show that plaintiff or the Street Railways Advertising Company was not a holder in due course. In fact the contrary was conceded in appellant's motion for a direction of a verdict for plaintiff for $500.
It follows that the judgment and order should be affirmed, with costs.
Clarke, P. J., Dowling, Page and Davis, JJ., concurred.
Judgment and order affirmed, with costs.