Case Name: Weathered v. Smith
Court: Supreme Court of Texas
Jurisdiction: Texas
Decision Date: 1853
Citations: 9 Tex. 622
Docket Number: 
Parties: Weathered v. Smith.
Judges: 
Reporter: Texas Reports
Volume: 9
Pages: 312–313

Head Matter:
Weathered v. Smith.
Where a note payable to bearer, past due, is placed in the hands of an agent for a particular purpose, and the agent transfers the nole to a purchaser for value in violation of his-trust, the principal may recover possession of it in an action against the purchaser.
It seems that in such a case the rule of law applicable to promissory notes, and not those applicable to agency, apply; or at all events, that the agency is limited by the laws applicable to promissory notes, of which limitation the note itself gives notice.
Although the allowance and approval of a negotiable instrument as a claim against the estate-of the maker will not destroy its negotiability, yet, it seems, it would subject it, when assigned, to defenses against it in the hands of the assignor; and, if lost or stolen, or if it has otherwise come unlawfully into the possession of a holder for value, with notice of its-allowance aud approval, it is subject to recovery from his hands by the true owner.
Error from Walker. Suit by Weathered against J. C. Smith and S. R. Smith, to recover possession of a note, of which the following- is a copy, together with papers annexed, showing- that it had been allowed aud approved as a just claim against tiie estate of tiie maker :
“8S9.G7. One day after date I promise to pay to Francis M. Weathered, sen., “ or hearer, eighty-nine 67-100 dollars, for value received of him this 23d day “ of March, A. D. 1848. George Gillespie.”
The proof was that Weathered, who resided in San Augustine county, caused the note to be sent to Walker county, to one Alexander McDonald, to be presented to the legal representative of Gillespie; that it was presented and allowed and approved by the chief justice; that it was without indorsement;, that McDonald died; and that a short time afterwards tiie defendants purchased the note from one S. D. C. Abbott for “a full valuable consideration.” There was a judgment for the defendants.
Yoakum, fy Campbell, for plaintiff in error.
The defendants aver they paid Abbott for tiie claim, and that they are innocent holders, &c. ■ The claim is not negotiable. It is not only overdue, bitt is reduced to tiie form of a judgment, a probate judgment, long- before defendants received it. It had ceased to be a chose in action. (Comyn’s Dig., Liens ; Bouvier’s.Law Dio., Chose.)As a chose in action it could be taken only subject to outstanding- equities. (S Johns. Olí. R., 443.)
But the defendants took it with notice. The affidavit of Weathered showed that ho was the owner, lie had made no transfer. It is a much stronger case than Hall & Elkins v. Staneell, use of Franklin. (3 Tex. R., 400.) There Franklin had no notice that (.he note had been put'in suit. “He who trusts most shall lose most.” If defendants had an equity, plaintiff had more. Ilis title was both legal and equitable. Ho had parted with nothing; before he sent off tiie BQte he put the affidavit, tiie stamp of absolute ownership, on it.
J. C. fy S. B. Smith, for self.
Tiie property in a note of the above description is transferable by delivery, and it matters not liow defective the title of the person transferring- it may bo. (See Story on Sales, p. 154, and Story on Promissory Notes, p. 124.) In order to defeat tiie holder he mast have had actual or constructive notice of such defect. (Vide, Story on Promissory Notes, p. 197.) Sucli notice must bo averred and proved. In this- case there was no evidence upou that point. It can make no difference whether the holder obtained tiie note before or after maturity, because it is not a question ás to any equity which the maker may have, but a question of title between the payee and holder. A note payable to A or order is transferable by indorsement as well after maturity as before; but lie who takes it does so knowing- that it is subject to all tiie equities of tiie maker. A note payable to A or bearer is transferable by delivery as well after it is due as before, but subject to the same thing; and if a man make an agent wiio is not trustworthy, lie should he the sufferer and not he who lias purchased it in good faith and for a valuable consideration, upon the great principio that lie wbo trusts most must lose most.
It will be contended upon the part of the plaintiff that this uolc became a judgment upon its approval by the chief justice, aud consequently could not be transferred by delivery. This view cannot, however, be sustained. It is a mere form of authentication of indebtedness against the estates of deceased persons. The character of tlie debt is not changed. In t-liis particular case the-allowance of the administrator and tlie approval by the chief justice only show that the maker had no equity against the note. The note is still payable to Weathered or bearer; without the note the oath, allowance, and approval would have been worthless. The holder of it in good faith and for a valuable consideration is entitled to it. It can have no other effect than to revive, its negotiability against the estate of the maker, payable in due course of administration either to Weathered or bearer. It is not a matter of record. If it be a judgment, the administrator is one of the judges; and if he be one of the judges he is not liable for auy error he may commit in the allowance of claims.

Opinion:
IIemP-í-itul, Cu. J.
That the holder of a note transferable by delivery, or if payable, to order indorsed in blank, is prima facie its owner, and holds it on valuable consideration, Is a principle too weli established to be questioned; and although the notes may have come into the hands of a former holder by duress, fraud, theft, or finding, yet that does not defeat the right of a present holder, but only imposes upon him the necessity of proving that he holds bona-fide and for value. Tlie possession of the instrument, acquired in good faith in tlie usual course of trade, gives property, whether the person from whom it was received have title or not. This doctrine, founded on the necessity of' securing the benefits accruing from the free-circulation of commercial paper, had its'origin in the case of Miller v. Race, 1 Burr. R., 452, in application to bank notes, and was subsequently extended to all negotiable instruments transferable by delivery. (1 Smith's Leading Cases, p. 250; Story on Promissory Notes, sections 101-6-7; Greneaux v. Wheeler, 6 Tex. R., 515.)
This rule, in the latitude of its operation in favor of tlie actual holder, is subject to the, important modification that the instrument mast have come into his hands previously to its being due; (Chitty on Bills, 148; Story on Promissory Notes, see. 210;) otherwise, it is taken subject to all the equities between antecedent parties. When acquired after overdue, it is subject to all the objections affecting it in the hands of tlie party who first became wrongfully possessed of it, or by whom it was tortiously transferred. (Ohitt.y on Bills, 157.) And such is the rule in relation to the note which is tlie subject of this controversy. It was transferred after due. It is affected by objections against it in the hands of Abbott, or oilier previous holder, and if recoverable from them, it is likewise recoverable from the defendants.
But the defendants are, upon another ground also, excluded from the-operation of tlie general rule in favor of tiro actual holder. The note had, previous to the transfer, been approved by the chief justice as a claim against the, estate of a deceased person, and was consequently invested with the character of a quasi judgment. This would not destroy its negotiability, but would subject it, when assigned, to defenses against it in the bauds of the assignor; and if lost or stolen, or if it have otherwise come unlawfully iuto-the possession of a holder, it is subject to recovery from his hands by the true owner, or from the bauds of any person with whom it may be found.
'there is no evidence in tills case to prove in what1 way Abbott became possessed of tlie note. And if recoverable from him it was liable to recovery from, the defendants. Judgment reversed'and cause remanded.
Reversed and remanded.