Case Name: Caruth, &c. vs. Thompson, &c.
Court: Kentucky Court of Appeals
Jurisdiction: Kentucky
Decision Date: 1855-01-19
Citations: 16 B. Mon 572
Docket Number: 
Parties: Caruth, &c. vs. Thompson, &c.
Judges: 
Reporter: Kentucky Reports
Volume: 55
Pages: 572–577

Head Matter:
Caruth, &c. vs. Thompson, &c.
APPEAL FROM MERCER CIRCUIT.
1. A delivery of a note, indorsed in blank, vests the holder with the right to receive the money thereon — to negotiate and fill up the assignment in general termr. (Cope vs. Daniel, 9 Dana, 416.)— So if the delivery be by an agent of the owner. (Slory on Prom. Notes, 150; Baylcy on Bills, 123-4.)
2. Any holder of a bill, with indorsement in blank, who receives it in good faith, for a valuable consideration, is authorized to receive the amount, though it may have been lost, stolen, or fraudulently misapplied. (Slory on Prom. Notes, 148; Same on Bills, 207; Chitty on Bills, 277.) The rule caveat emptor does not apply to those purchasing such bills or notes.
J. M. Thompson & Brothers being indebted to Caruth, &c., about $700, their note was placed in the bands of Handy for collection, who took of the Thompsons sundry notes on other persons, indorsed in blank by the Thompsons; amongst others a note on C. C. Vanarsdale for $117 41 ; before the assignment was filled up, Handy, the agent of Caruth, &c., handed it back to one of the Thompsons who had passed it to him, in order to have it secured; Thompson sold the note to Jones; Caruth, &c., brought this suit against Jones, Vanarsdale, &c., to recover the note or its amount, and failing to do so, have appealed to this court.
/. D. Hardin for appellants—
Argued: 1. That although, whilst the notes were in the hands of the agent, the indorsement might have been filled up, and suit brought in the name of the holder, yet, as it was not done, an equity passed to the appellants. And.by handing over the notes to Thompson to have them secured, that equity was not divested; and though Jones may have paid Thompson for the notes, he had no right to sell them, and could pass no title ; and Jones had notice of the claim of appellants, and want of authority in Thompson to sell the notes, before any assignment was in fact made, and requested to surrender them to the agent.
2. That the equity of the appellants, by the passing of the notes to Handy, their agent, is older than that of Jones; and Jones had notice of that equity before he had any legal assignment of the notes, and therefore the appellants should prevail.
Trapnall for appellee — -
The record shows that Thompson & Brothers practiced a fraud upon the appellants. They first sold the note to appellants with their indorsement, and delivered it to their agent; subsequently the note was placed in the hands of J. M. Thompson, one of the firm, for the purpose stated in the petition; whilst so in his possession, for a valuable considera tion, he passed it to the appellee, Jones, with the same indorsement not yet liiled up, Jones having no notice of appellants’ claim to it.
1. A note indorsed in blank must have the assignment filled up before it can have a legal operation, (Snyder vs. SalterJy, 1 Penn., 87; Menard vs. Wilkerson, 3 Miss., 92 ; Bradford vs. Ross, 8 Bibb, 238.)
2. “When the same right of action is successively sold or mortgaged to two persons, as the title of both is a mere equity, that of the first will be preferred, unless he has been guilty of some laches which has enabled the assignor or mortgagor to practice a deceit on the second; when such is the case, the loss must fall upon the guilty party in case of the innocent purchases.” (White vs. Pudor, Lead, cases in Eq., vol. 2, part 2, p. 234.)
3. A subsequent equity, acquired on valuable consideration, without notice, will overreach a prior equity. (Lyne <§• Co. vs. Bank Ky., 5 J. J. Marshall, 505.)
W. A. Plooe on the same side—
1. Jones, the appellee, purchased the note in contest of one of the payees, with the name of the firm indorsed thereon, without any intimation that it had ever been in the hands of another. The note passed by delivery, and the right of Jones is the better right to the money due upon the note. 1. Because Jones is an innocent purchaser of the note, without any notice of the claim of appellants. 2. Because it was the duty of the appellants’ agent to have filled up the indorsement to himself or his principal, thereby giving notice that they claimed a property therein ; failing to do so, and placing it in the hands of J, M. Thompson, he gave him authority to pass it to any person who might desire to purchase it, and the appellants should not now take advantage of their own wrong, by which they enabled Thompson to impose upon the appellee, Jones. (3 Lilt., 371; 3 Bibb, 278, and 312 ; 2 Marsh., 67; 4 Bibb, 196; 1 Marsh., 58; 10 2?. Mon. 186.)
1, A delivery of a note, indorsed in blanks, vests the holder with the right to receive the money there on, to negotiate and filL up the assignment in general terms. (Cope vs. Daniel, 9 Dana, 416.) So if the delivery be by an agentof the owner. (Story on Prom., note 150; Bayley on Bills, 123-4.)
2. Any holder of a bill, with indorsement in blank, who receives it in good faith for a valuable consideration, is authorized to receive the amount, tho’ it may have been lost, stolon, or frau d ul ently misa pplied. — ■ (Story on Prom., note 14S; Same on Bills, 207; Ohitty on Bills, 277.) The rule, caveat emptor, does not apply to those parchas ing such bills or notea. .
2. The plaintiffs having confided their business to Hand}', and he confided to Thompson, the plaintiffs have no claim against Jones for the indiscretion of the agent.
3. A court of equity had no jui'isdiction of the subject. If the chancellor decides that plaintiffs are entitled to the note, they must sue by ordinary petition to recover it.
January 19.

Opinion:
Judge Stites
delivered the opinion of the Court.
Although the delivery of the notes, with a blank indorsement thereon, by Thompson to appellants' agent, may not, of itself, have vested them with the legal title thereto, it did invest them with a right to receive the amount thereof, to negotiate them, and with authority to complete the evidence of such legal title by filling up the blanks with a formal assignment to themselves. (Cope vs. Daniel, 9 Dana, 416.)
The re-delivery of the notes in contest, by the agent, with the blanks still unfilled, to Thompson, the payee, or to any one else, had the same effect as to such person, and conferred the same right to negotiate, collect or otherwise dispose of the notes.— (Story on Prom. Notes, 150; Bayley on Bills, 123-124.) It was not a full endorsement, mentioning the name of the party in whose favor it is made, and vesting him alone with power to negotiate or collect the paper, but a blank transfer, enabling the holder to fill up to himself, or pass the instrument to another by mere delivery.
One of the consequences resulting from this power to pass a bill or note with a blank indorsement, by mere delivery, is, that if such bill, or note, be lost or stolen, or fraudulently misapplied, any person who may become the holder of it in good faith, for value, and without notice, is entitled to recover the amount thereof, and hold the same against the rights of the true owner at the time of the loss or theft. (Story on Prom. Notes, 148 : Chilly on Bills, 277; Story on Bills, 207.)
The principle is founded upon necessity, growing out of the peculiar character of notes and bills of exchange, constituting, as they do, in an important degree, a circulating medium of commerce. The adoption of any other rule, or the application of the principle of caveat emptor to persons thus honestly acquiring such paper, would necessarily tend to impair confidence in that species of commercial securities, and diminish greatly its usefulness for purposes of trade.
Here Jones, who obtained the note from Thompson, the bailee of appellants, occupies, so far as the record speaks, the attitude of a purchaser in good faith, for a valuable consideration, and without notice of their rights. He is entitled, as such, to sue for and recover the note thus acquired, and the bill of appellants, as to him, was rightfully dismissed. They, and^iot an innocent purchaser, must suffer from the perfidy of their agent.
As to Burks, and William H. Vanarsdale, the case should have been retained. Although the petition, as presented, did not authorize a judgment against them for the amount of their notes, it authorized the injunction prohibiting them from paying until it could be ascertained in whose hands they were. If the notes wrere in the hands of an innocent purchaser, or if they had paid them innocently to Thompson, of course appellants were not .entitled to relief, but otherwise they were. They did not answer the petition, and, as the case stood, the chancellor should have required appellants so to amend their petition, by appropriate allegations, as to compel an answer from them as to the whereabouts or existence of the notes, or authorize a judgment for the amount, upon indemnifying them against another action therefor, or, upon their failure so to do, dismissed their petition without prejudice.
Wherefore, as to the appellees Jones and Cornell-us Vanarsdale, the judgment is affirmed; but it is reversed as to the other defendants, and cause remanded for further proceedings consistent herewith.