Case Name: Johnson County Savings Bank, Appellant, v. Lewis Kornhauser, Respondent
Court: New York Supreme Court, Appellate Division
Jurisdiction: New York
Decision Date: 1916-10-06
Citations: 174 A.D. 136
Docket Number: 
Parties: Johnson County Savings Bank, Appellant, v. Lewis Kornhauser, Respondent.
Judges: 
Reporter: Appellate Division Reports
Volume: 174
Pages: 136–139

Head Matter:
Johnson County Savings Bank, Appellant, v. Lewis Kornhauser, Respondent.
Second Department,
October 6, 1916.
Bills and notes — acceptance of draft obtained by fraud—proof raising questions for jury — finding that plaintiff is not holder in due course.
Action by the transferee of a draft against the acceptor. It appeared that the defendant, a foreigner, unable to read English, had entered into a contract with a manufacturing jewelry company by which he was to sell their jewelry on commission, but was not to be charged for any goods which he was unable to sell. Later, on the day the jewelry was received, he was induced by another agent of the vendor to sign four documents under the representation that the goods were sent on commission and that the papers were to be held merely as collateral security. The papers were in fact drafts which the defendant, by his signature, accepted and which by transfer came into the hands of the present plaintiff, a bank located in a town in a foreign State where the jewelry company had its place of business. It further appeared that the jewelry received by the defendant was-worthless, that he had returned the same and repudiated all liability. On all the evidence,
Held, that the jury were justified in finding that the acceptance of the defendant was procured by active fraud and deceit, and to find further that the plaintiff was not a bona fide holder in due course, even though, with the assistance of the jewelry company, it gave testimony to that effect.
Appeal by the plaintiff, Johnson County Savings Bank, from a judgment of the County Court of Westchester county, entered in the office of the clerk of said county on the 16th day of December, 1915, upon the verdict of a jury, and also from an order entered in said clerk’s office on the 24th day of November, 1915, denying plaintiff’s motion for a new trial made upon the minutes.
On February 7, 1914, this action was begun against defendant on an acceptance of a draft which had been drawn by the United Jewelers’ Manufacturing Company of Iowa City, la., and accepted by him on February 23, 1907, payable in twelve months. -Defendant kept a small shop in the village of Peekskill, and could read but little English. On February 6, 1907, a salesman from this jewelry concern visited defendant’s store, and invited him to engage in the sale of this jewelry on the basis of a twenty per cent commission, besides receiving the benefit of certain local advertising at the expense of this jewelry company. Finally he produced a long, closely printed contract (which defendant could not read), being in form an order for jewelry to be shipped to him at Peekskill to the amount of $756, to he paid one-fourth each three months. The instrument contained a guaranty that the gross profits should be not less than fifty per cent of the amount of this order, each year, for a period of two years from the date of invoice. The soliciting agent assured defendant that if he did not succeed in selling, defendant would not lose, as at the end of the year the jewelry company would pay him storage upon the goods unsold. Defendant signed this paper after hearing it read.
On February twenty-third a tall, well-dressed stranger came to defendant’s store, seemingly in a great hurry. He announced that defendant’s shipment was at the local express office, but before its delivery defendant must first sign the four yellow papers which he produced — being four drafts, each for $189, payable in three, six, nine and twelve months. The last is the one here in suit. It does not clearly appear whether the word “ accepted ” had then been written, but defendant’s signature on the back is admitted to be genuine. The stranger repeated that the goods were sent on commission; that these papers were merely to be held as- collateral security, and that at the end of every quarter defendant was to remit the proceeds of whatever he had then sold, less twenty per cent commissions, whereupon the draft then falling due should be returned to him.
On that same day defendant received a box about eighteen inches square from the express company. When, the following day, the glittering articles were exposed in the show cases, they soon lost their lustre. After trying to wipe off one that appeared tarnished, defendant discovered their true character, and at once put them back and on that day returned by express the entire lotto the United Jewelers’ Manufacturing Company. About the middle of May defendant received from the Johnson County Savings Bank, also an institution of Iowa City, a letter, in which that hank claimed to he the holder of the draft then maturing, with demand for remittance payable at Iowa City. Through his attorney, defendant wrote back repudiating any liability. Later came notice of protest, and like demands and protests on the three succeeding drafts followed, including the one for twelve months here in suit.
It appeared that suits had been instituted on the three drafts which came due in 1907, but that after having been at issue, the complaints were finally dismissed.
Plaintiff’s proofs from Iowa City were taken by commission under section 888 of the Code of Civil Procedure. It was deposed that the draft in suit had been transferred on March 19, 1907, to plaintiff for its face value, less a discount of seven per cent. The assistant manager of the jewelry company deposed in denial of having communicated any information to the bank as to the consideration for this draft. The president of the plaintiff bank denied knowledge from any source as to the original transaction with defendant or as to the consideration for this acceptance.
The issues, including plaintiff’s disclaimer of knowledge or information and as to plaintiff’s bona fides, were submitted to the jury, who gave a verdict for defendant, which the learned county judge declined to set aside. This appeal is from the judgment and the order denying new trial.
Omar Powell, for the appellant.
James Dempsey, for the respondent.

Opinion:
Per Curiam:
From all the circumstances attending defendant's signing this jewelry order, showing a tissue of misrepresentations practiced on an illiterate foreigner, the jury could well find that defendant, without his fault or neglect, was induced to sign these acceptances by active fraud and deceit. (Page v. Krekey, 137 N. Y. 307.) On proof of such initial fraud, plain tiff had to satisfy the jury that the bank took the draft as an innocent bona fide holder. (Vosburgh v. Diefendorf, 119 N. Y. 357; Smith v. Weston, 159 id. 194, 198, 199.) This issue was not to be determined alone on the statements of the assistant manager of the jewelry company in unison with the testimony of the bank president to the effect that the bank was ignorant of the original consideration. The jury might take such testimony with some reserve. And if it looked improbable that a bank in the same town with this jewelry company took such irregular paper in entire ignorance of its customers' methods of trade, it was for the jury to say how far they credited such disclaimer of knowledge involving a lack of ordinary banking precautions. (Canajoharie Nat. Bank v. Diefendorf, 123 N. Y. 191; Citizens' National Bank v. Weston, 162 id. 113, 118.)
In view of the scheme of fraud perpetrated on respondent, and the presumptive knowledge growing out of the relations between the fraudulent drawer and the plaintiff, we cannot say that this verdict in favor of the defendant was unsupported.
The judgment and order of the County Court of Westchester county are, therefore, affirmed, with costs.
Jenks, P. J., Thomas, Carr, Stapleton and Putnam, JJ., concurred.
Judgment and order of the County Court of Westchester county affirmed, with costs.