Case Name: Jane Colson, Respondent, v. Matthias H. Arnot, Appellant
Court: New York Commission of Appeals
Jurisdiction: New York
Decision Date: 1874-05
Citations: 57 N.Y. 253
Docket Number: 
Parties: Jane Colson, Respondent, v. Matthias H. Arnot, Appellant.
Judges: 
Reporter: New York Reports
Volume: 57
Pages: 253–273

Head Matter:
Jane Colson, Respondent, v. Matthias H. Arnot, Appellant.
(Argued January 9, 1874;
decided May term, 1874.)
Where a thief or finder of negotiable paper, payable to order, which has been indorsed and put into circulation by the payee, erases the indorsement, and, subsequently, personating the payee, forge's his signature and transfers the paper to a bona fide purchaser for value, no title passes as against the true owner. (Dwight, 0., dissenting.)
In such case the purchaser does not take from an apparent owner, nor does he rely upon what appears upon the paper, but he relies upon, and is deceived by the representations of the wrong-doer; against such deception the roles applicable to negotiable paper are not intended to protect. (Dwight, 0., dissenting.)
The indorsement by the pajme does not unalterably fix the character of the paper so as to make it negotiable by delivery. The indorsement may be erased by the owner, and then it is only negotiable after the signature of the payee is again procured; and while the finder or thief is as to the true owner a stranger, and so .cannot aiffect the latter’s rights by such erasure, the purchaser deals with him upon the assumption that he is the owner, and, while claiming him competent to give title, cannot deny his power to thus destroy the negotiability of the paper, i(Dwight, 0., dissenting.)
The authorities as to alteration and spoliation of instruments collated by Dwight, 0.
Appeal from order of the General Term of the Supreme Court in the third judicial department, setting aside a verdict for the defendant at the circuit, and granting a new trial.
This action was brought by the plaintiff, after demand and refusal, to recover the possession of two county bonds of $300 each.
The bonds were issued September 1st, 1864, and due March 1st, 1866, payable to the order of one Jonathan S. Boll, a volunteer in the military service of the United States. Boll transferred them before maturity by an indorsement in blank and for a valuable consideration, to the plaintiff. The following is a copy of one of the bonds which were alike, except as to numbers:
II°f Peneca promises to pay to the order of Joña- §' § ■°1.s"p than S. Boll, three hundred dollars, with annual ’2£® interest, at the office of the Treasurer of said g§ 8 fall county. Dated Sept. 1st, 1864. || ||||| “JOSIAH BOCEES, Chairman. tg $»«£■§ tcgILAS Ejnne, GlerhP |o On the 1st day of March, 1866, the county “STATE OF NEW TOBE. No. 305.
There was an indorsement on the bond that interest had been paid to March 1st, 1865.
The bonds were lost or stolen from the plaintiff’s pocket on the 13th day of May, 1865. On the 25th day of October, 1865, and before the maturity of the bonds, they were offered for sale to the defendant at the Chemung Canal Bank, in Elmira, of which institution he was an officer. They were purchased by him in the course of trade, though he did not follow the specific business of buying and selling county bonds. When the bonds were purchased, the indorsement of the payee’s name had been erased, though it was there at the time of the loss or theft. There was no evidence that the defendant had any knowledge of the erasure. The defendant having no acquaintance with the person professing to be the payee, who offered them to him for sale, declined to purchase without identification. This was supplied by a person named Churchill, known to the defendant, who was a person also known not to be of the highest character, but not known to be of positively bad character. The personator of the payee, on writing the first name of the payee on the bonds, spelled it in one case “ Johonithan,” and in the other, “ Johenithan.”
There was evidence at the trial that the plaintiff, on the seventeenth day of May (the next business day after the theft), caused her loss to be advertised in one of the Elmira newspapers. It, however, appeared that the defendant did not take the paper, and he did not see the advertisement. There was some slight evidence that the plaintiff, through her husband’s agency, gave oral notice of the loss at the Che-mung Canal Bank. The weight of testimony was against this view. At all events, it did not appear that the defendant was not cognizant of the notice, even if it were given.
The bonds were purchased for $580. The evidence showed that the amount paid was equal to their market value in Elmira at the time of the sale.
The counsel for the plaintiff, at the close of the trial, asked the judge to direct the jury to find a verdict for the plaintiff on the following grounds, among others: That these bonds having no genuine indorsement at the time of the transfer to the defendant, he did not get title as against the plaintiff; the appearance of the bonds was such that he got no title; he did not get the bonds in the usual course of business; defendant has not shown that he purchased the bonds under circumstances which gave him a valid title as against the plaintiff. The request made on these grounds was refused by the court, and the plaintiff duly excepted.
The plaintiff’s counsel further asked the court to submit to the jury the following propositions:
1. Did the defendant pay for the bonds a full and fair consideration ?
2. Was the act of buying the bonds, without examining to see whether they were indorsed by the payee, an act showing willful ignorance?
3. Was the fact that he did not inquire of the personator of the payee as to points suggested by the appearance of the bonds, an act showing willful ignorance, or that the purchase was not made in the usual course of business ?
4. Was the fact that the defendant purchased without examining the mode in which the name of the payee was spelled, a fact showing that he purchased in willful ignorance, or not in the usual course of business ?
5. Was his act of buying, without examining the indorsement, in accordance with the usual course of trade ?
6. Was the act of buying, without questions, in the usual course of trade ?
7. Was it in the usual course of trade to buy such bonds of strangers only identified by men of bad character ?
These requests having been separately made and refused, the plaintiff duly excepted.
The court directed the jury to find a verdict for the defendant, and to assess the damages for the detention of the bonds at a nominal amount, and their value at $600, to which direction the plaintiff excepted. The exceptions in the cause were ordered to be heard in the first instance at the General Term.
John Murdock for the appellant.
The bonds in question, when indorsed by the payee, became negotiable paper; and when transferred to a bona fide holder his title became absolute, although the transfer was by a thief. (25 N. Y., 496; 29 id., 220; 19 id., 20; 10 Bosw., 332; 26 How., 225.) These bonds having become commercial paper by the indorsement of the payee, t.heir character became thereby fixed, and np act of a thief or trespasser could change them in this respect. (25 N. Y., 496; 10 Bosw., 332; 1 Pars. N. and B., 33; 2 id., 260, 574; Chitty on Bills, 140, 156; 14 Abb. Pr., 278; 8 Mason, 478; 8 Cow., 71; 45 How. Pr., 492; 45 Barb., 236; Miller v. Race, Smith’s L. Cas., 597.) There was nothing in the circumstances attending the purchase of the bonds tending to invalidate defendant’s title to them. (44 Barb., 87; 63 id., 237; 19 Abb., 47; 7 id., 96; 29 How., 409; 1 Pars. N. and B., 254, note; 5 Duer, 269; 2 Dailey, 383; Belmont v. Hoge, 35 N. Y., 68; Magee v. Badger, 34 id., 249; Birdsall v. Russell, 29 id., 220; 47 id, 143; 30 Barb., 224; 34 id., 443; 2 Pars. N. and B., 274-279, 284.) Plaintiff having by her neglect lost the bonds and enabled the finder of them to commit the fraud, is charged with the loss. (47 N. Y., 147; 97 Eng. C. L., 87; 13 id., 420; 4 Mass., 45; Miller v. Racer Smith’s L. Cas., 597; 22 Wend., 348.)
J. E. Dewey for the respondent.
A fraudulent alteration of commercial paper renders it void in the hands of the party making the alteration, or in the hands of bona fide purchasers. (2 Pars. N. and B., 30, 557-559, 564, 571, 574, 582, 584.) The indorsee of paper is presumed to know the handwriting of the indorser, and he is- not at liberty to controvert this presumption. (Edws. on Bills, 290, marg. page; 2 Smith’s L. Cas. [ed. 1855], 619, marg. page, 459.) If any defect appear on the face of a paper, it is matter of legal construction whether it conveyed notice. (7 Bos., 564; 1 Pars. N. and B., 259, note; 15 Wend., 362; 12 J. R., 305; 4 Mass., 370; 29 N. Y., 220, 250, 251; 15 id., 354.) The facts here show mala fides or willful ignorance on the part of the defendant. (Edws. on Bills, 291; 7 Bos., 465; 29 N. Y., 244; 1 Pars. on N. and B., 259, 260; 1 Rob., 546, and authorities cited; 15 N. Y., 354; 20 How. [U. S.], 348, 353, 367, 370; 4 Ad. & El., 870; 2 Pars., 270; 1 id., 276; 5 Sand., 167.) The judge erred in refusing to submit to the jury the question whether Arnot paid a full and fair consideration for the bonds. (16 Barb., 551; 34 N. Y., 247; 35 id.; 2 Pars., 275.) Defendant was not a bona fide holder. (1 Robt., 538.; 5 Sand., 165-170, 172; 5 Wend., 566 ; 12 J. R., 306; 1 Den., 583.) There was sufficient constructive notice to defeat the purchaser’s title. (29 N. Y., 220, 673; 31 id., 33, 43, 49; 37 id., 233; 19 id., 312.) It was not necessary to show mala fides between these parties. (29 N. Y., 554, 568; 26 How., 270.)

Opinion:
Earl, C.
It is undisputed that these bonds, with the indorsement thereon of the name of the payee, were negotiable by delivery, like promissory notes and bills of exchange. A thief or a finder could give title to them to a bona fide purchaser for value; and the same rules are applicable to them- which apply to other negotiable paper. (Bank of Rome v. Village of Rome, 19 N. Y., 20; Birdsall v. Russell, 29 N. Y., 220; Brainerd v. New York and Harlem Railroad Company, 25 id., 496.)
The indorsement of these bonds by the payee did not unalterably fix their character, so as to make them negotiable by mere delivery. Any lawful holder could fill up the blank indorsements by making them payable to his own order or the order of another person, and" then they could not pass by mere delivery. And any person owning them could have erased the indorsement of Roll. This would not have destroyed the bonds but would have destroyed the indorsements, and then they could have been negotiated again only after the genuine indorsement of Roll was again procured. Any lawful owner of such paper can, without avoiding the paper itself, erase and thus cancel, any or ail the indorsements thereon, without affecting his title to the paper or his right to resort to any of the names thereon prior to those erased. (Dollfus v. Frosch, 1 Denio, 367; Chitty on Bills, 230; Story on Promissory Rotes, § 142; 2 Parsons on Rotes and Bills, 29.) Any intentional, material alteration of such paper, by the owner thereof) will destroy it, so that he cannot maintain an action thereon against any of the parties thereto. But an accidental destruction or mutilation thereof, or an unintentional alteration therof, by the owner, will not have such effect; and neither will the destruction, mutilation or alteration thereof by a stranger have such effect. In such cases secondary evidence can be resorted to, to establish the paper, and a recovery had upon it as it was originally made. (1 Grreenleaf's Evidence, 566; 2 Parsons on Rotes and Bills, 574.)
The general rule applicable to personal property is, that the seller, although in possession of the property, can give no better title than he has. From the operation of this rule negotiable paper is excepted. The exigencies of business and commerce are such as to require the free circulation of such paper. It takes the place and performs, to a large extent, the office of money. It is used for the transaction of much the largest part of the business of mankind. It would be most embarrassing, therefore, if every taker of such paper was bound, at his peril, to inquire into the title of the holder, and if he was obliged to take it with all the imperfections and subject to all the defences which attach to it in the hands of the holder. It has, therefore, for more than 200 years, been the settled law of England and this country, that a thief, or any other person having possession of such paper, fair upon its face, can give, a bona, fide purchaser for value, a good title to it, against all the parties thereto, as well as the true owner. To have this quality it must be fair and regular upon its face; it must be payable to bearer, or to order and indorsed by the payee. A forged indorsement, no matter how cautious the purchaser may be, will give no title. (Graves v. American Exchange Bank, 17 N. Y., 205.)
Upon what theory is it that a holder, without title, can transfer title to sucli paper? It is said it is because the law arbitrarily gives him the capacity to transfer title to such paper to a bona fide holder for value. I apprehend that a better statement of the theory is, that he has capacity to give the title, because he is the apparent owner of the paper. Every holder of such paper is presumed to be the owner. Unless he be the apparent owner, he cannot give title even to a bona fide purchaser for value, and unless the purchaser relies upon the apparent ownership, he cannot be a bona fide purchaser. Mr. Justice Clifford, in Goodman v. Simonds (20 How. [U. S.], 365), speaking of such paper, says: " The title and possession are considered as one and inseparable, and, in the absence of any explanation, the law presumes that a party in possession holds the instrument for value until the contrary is made to appear." In Central Bank of Brooklyn v. Hammett (50 N. Y., 158), it is said, by the court, that " one who obtains the transfer of negotiable paper before maturity, and for full value, without notice of any defect in the title of the apparent owner, acquires all the rights of a bona fide holder by title derived from the actual owner. The possession of a bill or note, payable to bearer or indorsed in blank, by one not a party to the instrument, is.presumptive evidence of ownership." In Belmont Branch Bank v. Hoge (35 N. Y., 65), Judge Poetes says: " One who, for value, obtains from the apparent owner a transfer of negotiable paper before it matures, and who lias no notice of any equities between the original parties, or of any defect in the title of the presumptive owner, is to be deemed a bona fide holder."
The thief, in this case, was not the.apparent owner of the bonds. He came to the defendant with two bonds, payable to the order of Boll, without his indorsement upon them. It matters not that he personated Boll, and the defendant believed him to be Boll. The defendant is in no better position as to title than he would have been if he had known who the thief was. He did not take paper, fair and regular upon its face, from a person having possession of such paper, and apparently the owner thereof. The false personation and forgery give him no title He did' not rely upon anything that appeared upon the bonds, and was not deceived or misled by them. But, he relied "upon the representations of the thief, and was deceived by them. Against such deception the laws, applicable to negotiable paper, were not intended to guard. It is their purpose to facilitate the circulation of paper, fair and regular upon its face, and to protect the bona fide purchasers of such paper. The exigencies of business and commerce do not require that paper, payable to order, should circulate freely without indorsement. The reason which lies at the foundation of the laws, in reference to the transfer of negotiable paper, does not apply to such a ease, and the maxim, cessante ratione legis cessat ipso lex, should be applied.
In further illustration, suppose the thief of negotiable paper entirely destroys it, can he. make a fac simile and give any one a cause of action upon the original instrument ? This will not he claimed, and yet the owner has lost none of his rights. He must treat the paper as if it had not been destroyed. He must make demand and protest for non-payment, and bring suit upon the original instrument, and give secondary evidence of its contents. The thief cannot, by false personation or forgery, give title to the cause of action upon the original instrument, because he is not the possessor or apparent owner thereof. Suppose a thief should erase the name of the maker or drawer of a note or bill of exchange, and then forge the same signature, could he give a bona fide purchaser for value, title to the paper ? I am clearly of opinion that he could not. The paper is not fair upon its face. There is a forgery, and although the purchaser may be ignorant of it, the law-merchant does not protect him against such ignorance. He must know at his peril that the signatures are genuine. We are asked, suppose the name of the payee, indorsed upon mercantile paper, fades out so as to be invisible, does'it affect the negotiable character of the paper? Most certainly it does. The title and rights of the owner remain the same as before; but a thief could give no title to such a paper to any one, because he cannot be the apparent, owner thereof, and there is nothing on the face of the paper to induce belief that he is the owner.
But there is another course of reasoning, equally conclusive, it seems to me, which defeats the defendant's claim. The thief was not in every sense a stranger to the bonds; he was such as to the plaintiff, and whenever she has reclaimed them, she will hold them unaffected by anything which the thief has done to them. But was he a stranger as to the defendant? Assuming that he may be treated as a bona fide purchaser, all the title he claims he got from the thief. As to him, the law treats the thief as the owner; he .dealtwith him upon the assumption and presumption of his ownership. It is not for him to say that the thief was not the owner, and while he claims that he was competent to give him title, he cannot deny that he was competent to destroy the paper by its mutilation or alteration. As to him, the thief had the same power, while lie held the paper, to erase the indorsement and thus make it non-negotiable by mere delivery, as the true owner would have had. One who buys such paper from a thief must take it in the condition it is when it leaves the hands of the thief, and he can take it in no other way. I can perceive no reason for awarding a purchaser from a thief, a better position than he would occupy if he had purchased from the same person being the true owner. Suppose the thief had altered these bonds by raising them to $3,000, and had not erased the indorsement, how would that have-affected the bonds? As to the plaintiff, it would have been a mere act of spoliation and would have had no effect. But as to a purchaser from the thief, it would have destroyed them. He could neither enforce them for $3,000 nor $300. It cannot be the policy of the law to facilitate the free circulation of forged, altered or mutilated paper. The purchaser of such paper must take the risk of its genuineness. The law. protects him only in the purchase of genuine commercial paper, in good faith.
It follows, that the order of the General Term must be affirmed, and judgment absolute ordered against the defendant, with costs.