Court Opinion

ID: 6123611
Source: CourtListenerOpinion
Date Created: 2022-02-04 20:13:51.811948+00
Date Added: 2024-06-11T08:24:25.721393
License: Public Domain

Barrett, J. :
This case, although elaborately argued in voluminous briefs, is really in a very narrow compass.
When J. N. Merriam & Son paid their acceptance, they were under no legal obligation to do so. The draft had been substantially diverted by Southworth, Thayer & Co. Such was the legal effect of its application to a different purpose from that authorized by Merriam & Son. The defendant took the paper in reduction of Southworth, Thayer & Co.’s previous over-drafts. It is true that it had no notice of the restriction, but that does not alter the legal aspect, of the case. There was no present consideration, no parting with value, no security surrendered, no new credit given, nothing but the application on account of the antecedent debt. Consequently, it being a case, not of accommodation paper, but of diversion, the bank was not a bona fide holder for value. (Weaver v. Barden, 49 N. Y., 293, and cases there cited by Allen, J.)
Now, Merriam & Son paid the acceptance, without notice of the diversion and in reliance upon its application by Southworth, Thayer & Co., to the use for which alone it had been authorized. They, therefore, paid it under a mistake of fact, and the defendant is bound ex aequo et bono to make restoration. We find no authority precisely in point, but the general principle is laid down in many cases. (Lake v. The Artisans’ Bank, 3 Keyes, 276; Duncan v. Berlin, 46 N. Y., 685; Merchant’s Bank v. National Eagle Bank, 101 Mass., 285; Appleton Bank v. McGilvray, 4 Gray, [Mass.], 520; Mills v. Alderbury, 3 Exch., 593.) And there would seem to be no good reason why a recovery should not be permitted.
Lake v. The Artisans’ Bank (ubi supra) is almost entirely parallel. There the plaintiff paid a note upon which he believed himself liable as indorser; in fact, he had not been charged. The court held citing Waite v. Leggett (8 Cow., 195); Wheadon v. *353Olds (20 Wend., 174); Chester v. Bank of Kingston (16 N. Y., 336), that if ho paid it under that mistake, there could be no doubt that he -was entitled to recover. “That would not,” said Parker, J., have constituted a “ voluntary payment; ” for the payment, if so made, was not made with full knowledge of all the material facts.
In Comstock v. Hier (73 N. Y., 269) the court went still farther. The note was indorsed for a specific purpose ; there was, as here, a diversion, the makers transferring the note on account of an antecedent debt. These transferees then passed the paper to a bona fide holder for value, who recovered against the indorser ; the latter ivas then permitted to recover over agaiust the original transferees without value. Thus if the bank here had transferred to A. B., for value, and A. B. had thereupon collected of Merriam & Son, the latter could have recovered over from the bank. “I am of the opinion,” said AlleN, J., “that the plaintiff had an election of remedies, trover, for the conversion of the note, or an action for money had and received far the amount which the defendants realized upon the sale of the note.”
If such an action could be sustained, it is difficult to perceive why a recovery could not also be had, in case the amount of the note had been paid by the plaintiff directly to the defendants, in ignorance'of the vice in the latter’s title.
We have been referred to a class of cases, of which Justh v. National Bank of the Commonwealth (56 N. Y., 478); and Stephens v. The Board of Education of Brooklyn (Court of Apps., MSS. op. of Andrews, J., December 9, 1879) are examples, as bearing upon the present question.
These cases, however, proceed upon entirely different considerations and are really irrelevant to the present discussion. They simply apply the old rule that money, fraudulently or even feloniously obtained, cannot bo followed into the hands of one who took it innocently in the way of business, or in payment of a debt. The checks, when paid, were treated as current money. “Being certified to be good,” said JohNSON, J., in the Justh Case, “and having been actually paid, they are to be regarded as money for all purposes.”
It was upon this basis, namely: the importance of strengthening *354public confidence in the currency, that both cases proceeded. “It is absolutely necessary,” said ANDREWS, J.; in the Stephens Case, “ for practical business transactions that the payee of money in due course of business shall not. be put upon inquiry, at his peril, as to the title of the payer. Money has no ear-marks. * * * It is generally impracticable to trace the source from which the possessor of money has derived it.” That there is a plain distinction between such cases, and those arising out of promissory notes, is clearly indicated hy JOHNSON, J., in the Justh Case. “ In support of this claim,” he observes at pages 482 and 483, “ they (the plaintiffs) now insist that the same rules shall be applied to the defendant’s right to retain the money which it has received, as would have been applicable if Gray & Co. had, by the same fraud, obtained their promissory notes, and had passed them to the defendant under the same circumstances as the checks were passed, and the defendant was now prosecuting them on the notes. In this supposition the plaintiffs are mistaken. They are tho parties who were cheated by Gray k Co., and the loss by the fraud on them cannot be transferred to tho defendant, an entirely innocent party. The money which the defendant had received came in the regular course of business in a form as'current as if it had been bank notes or United States currency. If it can be followed by reason that the party who paid it procured it fraudulently, for aught I see, the transaction of business must stop, for no inquiry and no precaution could guard the receiver from responsibility.”
Some other questions were raised, but they call for no special consideration. The testimony objected to was properly received, but the facts to which we have adverted, and on which the case really rests, sufficiently appeared from entirely unobjectionable testimony. There was no question for the jury, as the plaintiff was entitled to a direction upon the few facts which were beyond dispute. This was fully understood, as both parties asked a direction and neither requested a submission.
As to the form of the complaint, that we think was unimportant.
The plaintiff being entitled to recover upon tho facts, and no surprise being claimed or indeed being possible under tho circumstances, it is almost a matter of course to disregard technicalities, or, if necessary, to conform the pleadings to the proofs, even upon *355appeal. In furtherance of justice that may now be considered as done.
As to a demand, we think the attitude assumed by the bank in the correspondence rendered it unnecessary.
Besides, the objection on that head was limited to the alleged failure to prove a demand “ in the right of J. M. Merriam & Son.” It was not necessary for the plaintiff to formulate the theory of the demand. Non constat, if the defendant had simply objected that no demand had been made the plaintiff would have shown a specific demand and refusal independent of the letters. We need not, therefore, consider whether a demand was really essential.
The question of jurisdiction is settled by the case of Cooke v. The State National Bank of Boston (52 N. Y., 96).
The exceptions must be overruled and judgment given for the plaintiff on the verdict, with costs.
Davis, P. ¡I., and Beady, J., concurred.
Exceptions overruled, judgment ordered for plaintiff, with costs.