Court Opinion

ID: 3633078
Source: CourtListenerOpinion
Date Created: 2016-07-06 00:12:03.485489+00
Date Added: 2024-06-11T13:45:13.564106
License: Public Domain

The real questions in this case are two in number. I. Can the defendant, assuming that he acted in good faith and paid value, make title to the bonds in controversy from a finder or a thief, as the case may be, though the name of the payee, indorsed by himself, has been erased from the bonds by such finder or thief, after the paper has gone into circulation and before it was acquired by the defendant? II. If this question be answered in the affirmative, is there any such evidence of want of good faith, on the defendant's part, as required a finding upon it by the jury?
I. The first of these questions leads to a consideration of some extraordinary circumstances to which the researches of counsel have found no parallel in any reported case. A thief or finder erases the genuine blank indorsement of a payee of a negotiable county bond after the paper has passed into circulation. The erasure is made carefully, so as not to attract attention, at least that of a casual observer. In its mutilated *Page 263 
condition the paper is offered for sale to the defendant, an officer of a bank, who has made other purchases of county bonds. The offerer personates the payee and is so identified by a person known to the defendant. The paper is indorsed by him and the purchase is made, as will be assumed, at the present stage of the inquiry, in entire good faith, and the market value paid. The question is, is the payee's indorsement, though actually erased, still in point of law a part of the bond, so that a holder can establish its existence by secondary evidence and trace his title through it? It will not be denied that, if the indorsement had remained on the bonds in controversy, as it was when they were stolen, the thief or finder could have conferred a complete title upon the defendant, purchasing in good faith and for value, thus defeating the title of the plaintiff. (Miller v. Race, 1 Burrow, 452; 1 Smith's Leading Cases, 250, and cases there cited.) The rule there established as to promissory bank notes is applicable to such securities as were transferred in the case at bar. (Bank of Rome v. Village of Rome, 19 N.Y., 20;Birdsall v. Russell, 29 N.Y., 220; Brainerd v. N.Y. andHarlem R.R., 25 N.Y. 496.)
The grounds of this rule must be briefly considered. It excepts negotiable paper from a principle applicable to all other personal property. In general, it is familiar law that a thief, finder or bailee, can transfer to another no greater title than he himself possesses. The reason of the exception in the case of negotiable paper was first fully disclosed in Miller v. Race
(supra). It is rested by Lord MANSFIELD on grounds of public policy and the interests of trade. He said "trade and commerce would be much inconvenienced by a contrary determination." In another part of his opinion he presents the same view in another form. "It is necessary, for the purposes of commerce, that the currency of bank notes (the transfer of which he was specially considering) should be established and secured."
As preliminary to a consideration of the defendant's rights in the present case, it is important to examine the nature of *Page 264 
the act done by the thief when he erased the indorsement. It was not in the legal sense of the word, an alteration. It was aspoliation. The counsel for the plaintiff has been misled by confounding these different acts. Had Roll himself (the payee), before issuing these bonds to the plaintiff, written his name on the back of them and then erased it, and they had been lost, no title would have passed from a finder to the defendant, as there would have been no true "indorsement," which ex vi termini
imports a delivery. If the plaintiff, while owner, had canceled the indorsement through which it was necessary for her to claim title, it might have been claimed that her act had rendered the contract implied from the indorsement void. (1 Greenleaf on Evidence, § 565; Grimes v. Piersol, 25 Ind., 246.) But in the present case, the act was done by a person who had no title at all. It was a pure wrongful act, adverse to the interests of the owner, and impairing the evidence of ownership, but having no effect upon the owner's right. (1 Greenleaf on Evidence, § 566; 2 Parsons on Notes and Bills, 574.) Says Greenleaf: "A distinction is to be observed between the alteration and the spoliation of an instrument, as to the legal consequences. * * Alteration is, at this day, usually applied to the act of the party entitled under the deed or instrument, and imports some fraud or improper design to change its effect. But the act of a stranger, without the participation of the party interested, is a mere spoliation or mutilation of the instrument, not changing its legal operation so long as the original writing remains legible, and if it be a deed, any trace remains of the seal. If the instrument in this way is mutilated or defaced, so that its identity is gone, the law regards the act, so far as the rights of the parties to the instrument are concerned, merely as an accidental destruction of primary evidence, compelling a resort to that which is secondary, and, in such case, the mutilated portion may be admitted as secondary evidence of so much of the original instrument." Mr. Parsons states the rule in the following language: "A broad distinction is made between alterations by parties and by strangers, which latter have been *Page 265 
styled spoliations. In this country, any alteration, however material, does not avoid an instrument if made by a stranger to it, unless it be such as to render the original words illegible or uncertain, in which case it operates like the destruction of the paper, and then we think it would open the case for the proof of its contents by secondary evidence." Another view of the case is, that an erasure by a stranger is a mere accident, like a destruction by the elements. (Lee v. Alexander, 9 B. Mon., 25; Harrison v. Tuberville, 2 Humph., 242; Bigelow v.Stelphen, 35 Vt., 521.) In Justus v. Cooper (7 Blackf., 7) the payee's name was erased so as to be illegible. The court held he could recover by proper parol evidence. This course of reasoning shows that spoliation has no effect upon the rights
under a contract; it only modifies the remedy, or calls into operation a subordinate rule of evidence. It is well settled, that every indorsement of negotiable paper imports a contract. Notwithstanding the erasure, Roll still remained liable on that contract to the plaintiff, until a valid transfer to another was made. Had the plaintiff received back the bonds from the thief and then indorsed the name of Roll in the same manner as the thief did, she would have undoubtedly passed to the defendant, not only the bonds themselves, but the right to claim under Roll's indorsement and to sue him upon it, though it were invisible and its existence unknown to the defendant. The whole matter thus becomes narrowed down to this single point, could the thief, on the day of the sale, make as complete a transfer of the bonds, and the valid subsisting indorsement of Roll as the plaintiff could have done, had she been present through an agent and performed the same acts?
The true principle governing the case is, that the finder, for the purpose of protecting a purchaser in good faith, is placed in such a position that, while he is not owner in any sense, he has by a rule of public policy, a capacity to transfer the paper to such a purchaser. So, in England, a thief may give a good title to ordinary chattels, by a sale in open market to a purchaser in good faith. It cannot be pretended, in *Page 266 
such a case, that a thief is an owner, or has any title beyond a mere naked and wrongful possession. The law, from reasons of public policy, gives him a capacity to sell, not derived from ownership but from a positive and arbitrary legal rule. A sale in market overt, is governed by the same general rule as that of negotiable paper, and is upheld in like manner only in the case of purchasers for value and in good faith. (Benjamin on Sales, 6-10.)
The result is that the defendant, acting in good faith, may rest his case on the proposition that the thief, holder of the bonds and personator of Roll, conferred upon him all existing rights derived from the bonds themselves and their indorsement. He fulfills the accepted definition of a bona fide holder — "one who acquires the paper in good faith and for a valuable consideration from one capable of transferring it." (1 Parsons on Notes and Bills, 254.)
The plaintiff, however, claims that the defendant's protection, as a purchaser, depends upon the fact that the evidence of the payee's indorsement is presented to him and that, upon the faith of that evidence, he parts with value. The indorsement must be visibly written, and not merely potentially present. The doctrine requires that if there were any number of special indorsements, they must all be visible and also legible. It casts upon the holder, in the rapidity of commercial business, the duty of recognizing at his peril, the actual existence of a series of special indorsements, and shuts him out in the case that the indorsement is potentially but not visibly present, from any proof of its presence by secondary evidence. Had the indorsement been made in ink which had faded so as to be invisible, would negotiability have been lost? If Roll's personator had in that case forged his name, could not a purchaser in good faith, on discovering the facts, have traced his title, through the original indorsement, by parol evidence? It will scarcely be contended that if the ink had faded after the purchase, the buyee could not show the indorsement by parol. If the plaintiff's theory is sound, the defendant's title is made to turn upon the point whether invisibility *Page 267 
creeps over the indorsement before or after the transfer.
This proposition, so inconvenient to the commercial class, cannot be maintained either upon principle or authority. It is the fact that paper has become negotiable and partakes of the nature of currency, that protects the defendant, on broad grounds of public policy, and not the evidence of the fact. The plaintiff's doctrine would even extend to bank notes; which could no longer be circulated with safety and taken from a thief, by one receiving them in good faith, unless the holder were able to show, affirmatively, that when he took the paper the signatures of the bank officers were visible.
It will be admitted that the plaintiff lost no rights by the erasure of the indorsement. What if she, herself, had put them in circulation in exactly the form adopted by the thief? It may be supposed that he returned them to her with the forged indorsement, and that she, thereupon, issued them. Would not the purchaser, then, have been entitled to the invisible indorsement, so as to have charged Roll, in case the county did not pay, at maturity? If so, then the thief does not, under the plaintiff's theory, have the same power of transfer, to a holder in good faith, as the owner possesses. Commercial men must, then, recognize two rules of transfer — one for owners, another for thieves — while they have no means of distinguishing whether the person with whom they are dealing is an owner or not. Such a principle would subvert the great rule of public policy enunciated in Miller v. Race (supra), and which has become so firmly imbedded in our commercial law. How is this rule, requiring that a purchaser should have ocular evidence, to be applied? Supposing that the erasure, by a powerful microscope, can be made visible, or, that the color of the ink can be restored by some chemical process; shall the title of the purchaser in that case fail? Or, must the purchaser actuallysee the indorsement before he purchases? In that case, must the blind, or those of imperfect vision, cease to deal in commercial paper? How much more satisfactory is Lord ELLENBOROUGH'S theory (in 6 *Page 268 
East, 309), where, an award having been altered by a stranger, he said he would read the case with the eyes of the law, and so read the award as it originally was. The sound view is, that the only way in which a failure of the evidence can be made available is, to show that the holder did not take title in good faith. That point is not now under consideration.
It is further claimed, on the plaintiff's behalf, that the thief, as far as the defendant is concerned, must be regarded as owner; that the defendant traces his title through him, and, therefore, that the erasure was not an act of spoliation by a stranger, but of alteration by an owner, thus destroying the title to the instrument, in reference to the defendant. This is a misconception of the rule governing the subject. A thief or a finder is in no sense an owner. Before the transfer of the paper, he has no greater rights than a casual bailee of merchandise. His capacity begins at the moment of transfer, and applies only to one form of dealing, a sale to one buying in good faith. Says Parsons: "The thief of a stolen note has obviously no title or property in it himself, although one ignorant of the theft may derive title from him." (2 Bills and Notes, 265; Martin v.Bank of U.S., 4 Wn. C.C., 253; Chitty on Bills, 257.) His power to sell the stolen paper is derived from a rule of public policy, and his capacity to do any act respecting it, must be affected and, in fact, measured by that rule. This is established solely for the protection of purchasers, and cannot be so strained or perverted as to work them an injury. For the purpose of protecting a purchaser, a finder or depositary has the power of disposition. When he does an act despoiling the purchaser of his rights, his act is that of a pure wrong-doer, no more affecting the purchaser than the owner himself. There can be no element of public policy in the view that a spoliator, because he happens to hold the place of a mere depositary, can overthrow the interests of a purchaser, by secretly and cunningly altering the instruments on which such purchaser has an apparent right to repose.
These views are sustained by the case of Commonwealth *Page 269 
v. Emigrant Industrial Savings Bank (98 Mass., 12, 18). The controversy there was, whether an immaterial alteration of the numbers of certain negotiable bonds destroyed them in the hands of an innocent holder? It was conceded, that if the alteration had been made by an owner with fraudulent intent, the instrument would have been avoided in his hands. (2 Parsons on Bills and Notes, 572, and cases.) It was uncertain whether the alteration was made by a holder for value, or a thief. The court discussed the question in both aspects, and held that the doctrine of invalidity in such a case could not be extended to a holder in good faith. It said: "Should it be held that one who claims title under the fraudulent person shall only succeed to his rights, it is difficult to see the just application of the principle to the case at bar. The innocent holder of a negotiable security, payable to bearer, does not take his title from that of any previous holder, but under the original contract of thepromisor, as construed by the law. The thief who stole these bonds had no title to them whatever. The innocent holder does not claim under him in form or substance." (Page 18.) The true view is, that an owner having paper which can enter into circulation, is estopped from saying that the thief has not the power to make the transfer. It is but the application of the salutary rule, that, when one of two innocent persons must suffer, he who has enabled the third person to occasion the loss must sustain it. This is the principle, as stated in Chitty on Bills, 256. When one promises, in a negotiable instrument, to pay A. or his order, and A. indorses it in blank, any holder, for value, may write his name over the blank indorsement, and claim that the originalpromise was made to him. In such a case, if he took the paper from a thief, he would not trace his title through him, but through the transfers made by indorsement. The thief has been merely an instrument, by which he has been put in a position to have the promises contained in the bill or note made to himself.
It is scarcely necessary to add that the forged indorsement of Roll's name by the personator had no legal effect either in *Page 270 
giving a right to the defendant or in destroying one otherwise vesting in him.
If the defendant took the bonds in good faith they belong to him.
II. The next inquiry is, whether there is any evidence to go to the jury as to the good or bad faith of the defendant. I think not. After the plaintiff had proved the loss of the bonds it was incumbent on the defendant to show that he paid value for them. The evidence on this point is satisfactory. The burden of proof was then shifted to the plaintiff to establish the bad faith of the defendant. Some cases have held that the holder's title is defective, unless he exercises due caution. He must not have acquired the paper under circumstances which ought to have excited the suspicion of an ordinarily prudent and careful man. (Gill v. Cubitt, 3 B.  C., 466.) This doctrine is now wholly exploded in England. Negligence or even gross negligence is not sufficient to impeach the holder's title. It has been well remarked that "reasonable caution" is difficult to define, and presents a dangerous question to leave to a jury. The present English view that the holder's title can only be impeached by evidence of bad faith is maintained in this country by Goodman
v. Simonds (20 How. [U.S.], 343); Murray v. Lardner (2 Wall. [U.S.], 110); Belmont Branch Bank v. Hoge (35 N.Y., 65,68); Welch v. Sage (47 id., 143); Spooner v. Holmes
(102 Mass., 503); Phelan v. Moss (67 Penn. St., 59); Seybel v.National Currency Bk. (54 N.Y., 288). The rule is well stated in Magee v. Badger (34 N.Y., 249) by PORTER, J. "A holder of commercial paper is not bound, at his peril, to be on the alert for circumstances which might possibly excite the suspicions of wary vigilance. He does not owe to the party who puts negotiable paper afloat the duty of active inquiry to avert the imputation of bad faith. The rights of the holder are to be determined by the simple tests of honesty and good faith, and not by a speculative issue as to his diligence or negligence." These propositions are reaffirmed in Belmont Bank v. Hoge
(supra). They are applied specifically *Page 271 
to the case of stolen bonds in Welch v. Sage (47 N.Y., 143). It is there said "the law may be regarded as settled that a purchaser for value of negotiable paper, including bonds, is not bound to exercise such care and caution as wary, prudent men would exercise. Negligence will not impair his title. It is a question simply of good faith in the purchaser. Unless the evidence makes out a case upon which a jury would be authorized to find fraud or bad faith in the purchaser, it is the duty of the court to direct a verdict." (Pp. 146, 147.)
There is no evidence in the present case to impeach the defendant's title, such as this rule requires. The defendant paid the market value for the bonds. He took them in the course of business or of trade. It is not necessary, for his protection, that a purchaser should follow the specific business of buying or selling bonds. It is enough if he takes them "in the course of trade." (3 Kent's Com., 81; Byles on Bills, 125; Peacock v.Rhodes, 2 Douglas, 633; Goodman v. Simonds, 20 How. [U.S.], 343.) There may have been some want of the most active diligence in the failure to observe the misspelling of the payee's name. The fact that the name of the indorser is wrongly spelled does not vitiate the indorsement. (Leonard v. Wilson, 2 Cr.  M., 589; S.C., 4 Tyr., 415; Dunn v. Clements, 7 Jones [N.C. Law], 58.) In the first of these cases "Farley" was spelled "Farelly," and the indorsement was held to be sufficient to pass the title. The fact that these bonds were taken with the name "Jonathan" misspelled, was consistent with the defendant's good faith. It is a matter of common knowledge that the soldiers who received these bonds were in many cases persons of but little education, quite likely to spell common words wrongly, and particularly proper names. They seldom had occasion to write their names or to transact such business as the present. At the time when these bonds were negotiated such instruments were frequently presented by this class of persons, soiled in their appearance, and in quite different plight from commercial paper held continuously in the possession of mercantile men. These facts tended to *Page 272 
quiet suspicion if any was likely to arise. Nor was there any such lack of due caution as to lead to the suspicion of bad faith in the matter of identification of the person presenting the bonds. All the circumstances being considered, it was enough if there was reasonable ground to suppose that the presenter of the paper was the payee. It would be inconvenient and impracticable to hold as a rule that a person identifying another should be of the highest character. The correct view is that it is enough if that person whose representation is made would be regarded as sufficiently trustworthy by a person of ordinary prudence. The same general remark may be made of the erasure. An erasure on the back of an instrument of this kind, is not to be treated in the same way as if it were made on its face. There may be writing there for various reasons, as for example, indications of partial payment, or memoranda of the address of parties, or of the ownership of the securities and the like. It is held in Finney
v. Turner (10 Mo., 207), that in an action on a note it is not necessary to explain an erased indorsement, which may have been, as already shown, a mere memorandum. At all events, the mere fact of an erasure is not of itself evidence of an irregularity in a transfer so as to impute bad faith to a holder. (Birdsall v.Russell, 29 N.Y., 220.) It must be of such a nature as to arouse suspicion. In the present case, no one would suspect that the indorsement had been erased and a forged one substituted in its place, as that would be contrary to the apparent interest of any holder, as its tendency would naturally be to render negotiation more difficult. Where the alteration is against the holder's interest, there is strong evidence that it was not wrongfully made. (2 Parsons on Bills, etc., 565, 582; Humphreys
v. Guillow, 13 N.H., 385.) Its natural effect would be to disarm suspicion. The bonds were exhibited to the court on the argument by consent of counsel. The erasures were not of such a kind as readily to attract attention, or to justify an inference of bad faith on the defendant's part. The attempt to prove that he had notice of the theft failed. *Page 273 
This examination results in a complete adoption of three principles, which are said, by a well known writer, to be devised for, and well adapted to secure the unrestricted circulation of negotiable securities. 1. That, though at common law no man can acquire a title to any personal chattel from one who has no title to it himself, except by purchase in market overt, a complete exception to this rule is made in favor of negotiable paper. 2. The bona fide holder of a lost, stolen or tortiously transferred note or bill, transferable by mere delivery, and not overdue or otherwise apparently dishonored, who has taken it without knowledge or actual or constructive notice of the loss or fraud, in the usual course of business, and for a full and valuable consideration, has a perfect title to that note or bill against the world, and becomes, by the taking of it, its true owner. 3. The title of such a holder is not defeated by proof that he was negligent, or even grossly negligent, in taking the note or bill, and he omitted to make inquiries, which common prudence would have dictated. But while gross negligence is not itself mala fides, it may be evidence thereof for a jury.
On the whole, it was the duty of the court at the circuit to have directed the jury to find a verdict for the defendant.
The order of the General Term granting a new trial should be reversed, and judgment entered for the defendant upon the verdict.
All concur with EARL, C., except DWIGHT, C., dissenting.
GRAY, C., not sitting.
Order affirmed, and judgment absolute against defendant. *Page 274