Case Name: Consolidation National Bank, Appellant, v. Elmer E. Kirkland, Respondent
Court: New York Supreme Court, Appellate Division
Jurisdiction: New York
Decision Date: 1904
Citations: 99 A.D. 121
Docket Number: 
Parties: Consolidation National Bank, Appellant, v. Elmer E. Kirkland, Respondent.
Judges: 
Reporter: Appellate Division Reports
Volume: 99
Pages: 121–125

Head Matter:
Consolidation National Bank, Appellant, v. Elmer E. Kirkland, Respondent.
Discount of a note — when the hank is not shown to he a bona fide purchaser thereof for mlue—application of the proceeds to the payment of an existing indebtedness. ,
The action of a bank in discounting a promissory note, and placing the avails thereof to the payee’s credit, does not of itself constitute the bank a hona fide holder for value of the note.
The fact that the payee died insolvent the day after the discounting of the note, and that at the time of his death the amount to his credit in the bank was less than the avails of the discount, does not establish that the bank is a hona fide holder for value of the note to the extent of the difference between the amount remaining to the payee’s credit and the avails of the discount, where no proof is given as to whether the difference resulted from the payment by the bank of an overdraft of the payee, or of some other past-due obligation of the payee, or from the payment of checks drawn by the payee against his account.
If the avails of the discount were applied to the payment of an existing indebtedness of the payee to the bank, it would be incumbent upon the bank, in order to establish that it was a hona fide holder for value of the note, to show that it was expressly agreed between the bank and the payee that the avails should be so applied.
Houghton, J., dissented.
Appeal by the plaintiff, the Consolidation National Bank, from a judgment of the Supreme Court in favor of the defendant, entered in the office of the clerk of the county of Broome on the 23d day of January, 1904, upon the decision of the court, rendered after a trial at the Broome Trial Term (the jury having been discharged), dismissing the complaint upon the merits.
Maurice E. Page, for the appellant.
Hinman, Howard & Kattell, for the respondent.
This case was decided in December, 1904.

Opinion:
Chester, J.:
The finding that the note sued upon was fraudulent in its inception is sustained by sufficient evidence. That being so, the burden was upon the plaintiff, to whom it was transferred by Wilson, the payee, to show, before it could recover against the defendant, that it was a bona fide holder for value. (Neg. Inst. Law [Laws of 1897, chap. 612], § 98; Vosburgh v. Diefendorf 119 N. Y. 357; Grant v. Walsh, 145 id. 502; Mitchell v. Baldwin, 88 App. Div. 265.)
We do not think the plaintiff sustained this burden in this case. It does not appear that the plaintiff paid anything to Wilson at the time it discounted the note in question for him, which was made by the defendant, but it does appear that the entire amount of the avails of the note discounted was placed to Wilson's credit on the books of the plaintiff bank. That credit alone, however, was not a payment for the note or a parting of value on the part of the plaintiff. (Albany County Bank v. People's Ice Co., No. 1, 92 App. Div. 47.) Wilson died insolvent the next day after the note was so discounted. It is true that at the time of his death the amount to his credit was a sum much less than the amount of such avails, but there is no proof as to what caused the difference, whether it came from the payment by the plaintiff of an overdraft of Wilson's or by the payment of some other past-due obligation held by the plaintiff against Wilson, or by the payment of checks drawn by Wilson against his account, and we have no right to infer or presume that the difference resulted from any such payments. (Spring Brook Chemical Co. v. Dunn, 39 App. Div. 130.)
If the avails of the discount were applied to the payment of an existing indebtedness of Wilson's to the plaintiff, it was incumbent on the plaintiff to show that it was expressly agreed between it and Wilson that the avails should be so applied in payment and extinguishment of such indebtedness in order to establish that the plaintiff was a bona fide holder for value (Case last cited; Phoenix Ins. Co. v. Church, 81 N. Y. 218); but there was no such proof.
Nor was there any proof that any checks were drawn by Wilson against his account and paid by the plaintiff, or charged to his account, after the discount and before his death.
We think, therefore, that the plaintiff failed to satisfy the burden resting upon it and that its complaint was properly dismissed.
The judgment should be .affirmed, with costs.
All concurred, except Houghton, J., dissenting in a memorandum.