Court Opinion

ID: 8656072
Source: CourtListenerOpinion
Date Created: 2022-11-24 21:16:04.14646+00
Date Added: 2024-06-11T16:56:43.369765
License: Public Domain

McCÁRTY, C. J.
I dissent. Comp. Laws 1907, section 1606, provides:
“When the transferee receives notice of any infirmity in the instrument or defect in the title of the person negotiating the same before he has paid the full amount agreed to be paid therefor, he will be deemed a, holder in due course only to the extent of the amount theretofore paid by him.” (Italics mine.)
When Miller learned of the infirmity in the note, namely, that it had been obtained by Conrad from Marks by fraud, he had paid but $100 on the purchase price of the note. Now, if the foregoing section of the statute means what it says— and I submit that it does — Miller is entitled to recover “only to the extent of the amount” paid by him before he had notice of the fraud by which Conrad procured the execution of the note by Marks. Miller, at the time he delivered his two checks to Conrad, did not have sufficient funds in the bank on which they were drawn to pay them.' It was agreed between them that the checks would not be presented to the bank for payment until the following day, and that in the meantime Miller would make provision to have sufficient funds in the bank to pay the checks when presented. I have not been cited to, nor have I been able-to find, an authority that holds that the giving and acceptance of a check under such circumstances is a completed transaction and unconditional payment of the *274property received therefor. It would, however, be a work of supererogation to cite the numerous authorities that sustain a contrary position. Miller received notice — had actual knowledge — two hours after he delivered the check to Conrad that the transaction in which Conrad obtained the note,was impregnated with fraud. At the time Miller received notice of the fraud, as stated, he had paid but $100 on the purchase price of the note. His cheeks held by Conrad had not been, and would not be paid until the following day. Miller, therefore, had ample time and opportunity to protect himself before the checks were presented to the bank for payment. The payments made by Miller on the purchase price after he received notice of the fraud were made under circumstances which, under the great weight of authority, afford him no protection. A question similar to the one under consideration was involved in the case of Dresser v. Missouri, etc., R. R. Const. Co., 93 U. S. 92, 23 L. Ed. 815. That was an action to recover on three promissory notes the aggregate amount of which was $10,000. The defense interposed was that the notes were obtained by fraud. The plaintiff claimed to have purchased the notes under an oral agreemtent and that the money should be paid therefor as required. He paid $500 on the purchase price before he received notice of the fraud. The trial court instructed the jury that:
“If the fact of fraud he established, and the jury find from the evidence that the plaintiff paid $500 upon the notes without notice of the fraud, and that after receiving notice of the fraud the plaintiff paid the balance due upon the notes, he is protected only pro tanto; that is, to the amount he paid before he received notice.”
This instruction was approved by the Supreme Court on appeal. In the course of the opinion the court says :
“The notes in question were purchased upon an unexecuted contract, upon which $500 only had been paid when notice of the fraud and a prohibition to pay was received by the purchaser. The residue of the contract on the part of the purchaser is unperformed, and honesty and fair dealing require that he should not perform it; certainly that he should not he permitted, by performing it, to obtain from the defendants money which they ought not to pay. As to what he pays after notice, he is not a purchaser in good faith. He then pays with knowledge of the fraud, to which he becomes a consent*275ing party. -One who pays with knowledge of a fraud is in no better position than if he had not paid at all. He has no greater equity, and receives no greater protection. Such is the rule as to contracts generally. * * * The plaintiff here occupies the same position as the bona fide purchaser of the first of a series of notes, of which, after notice of a fraud, he purchases the rest of the series. He is protected so far as his good faith covers the purchase, and no farther. Upon receiving notice of the fraud, his duty was to refuse further payment; and the facts before us required such refusal by him. * * * The case before us is governed by the rule that the portion of an unperformed contract which is completed after notice of a fraud is not, within the principle which protects a bona fide purchaser. No respectable authority has been cited to us sustaining a contrary position, nor have we been able to find any.” (Italics mine.)
The court cites with approval the case of Crandall v. Vickery, 45 Barb. (N. Y.) 156 (this case is also cited and briefly discussed by Mr. Justice STRAUP in the foregoing prevailing opinion), and says:
“That case is stronger for the holder than the case before us, in the fact that the checks were there given on the original transaction, which might have been presented or passed oft to the prejudice of the maker.” (Italics mine.)
So in this case Conrad might have “presented or passed off the checks to the prejudice of the maker” immediately after he received them; but he did not do so. If a third party had purchased the checks from Conrad in good faith without any knowledge of the fraud, a question quite different from the one before us would be presented. This case and the Crandall Case, I think, in principle are identical. The contract in each ease was, at the time the maker of the checks received notice of the fraud, executory. In some respects Crandall v. Vickery is a stronger case for the holder than is the case at bar. In that case the drawer had sufficient funds in the bank to pay the checks first issued, and doubtless the checks would have been paid if they had been presented, in which case Crandall would have been a bona 'fide holder. In this case Miller, when he delivered the checks to Conrad, did not have sufficient funds in the bank to meet them. It appears that the amount of the checks exceeded his credit at the bank $1,100. There *276is no assurance whatever that the check for $2,000 would have been cashed by the bank if it had been presented before the $1,100 was deposited by Miller to the credit of his account; and I think, under the circumstances, the presumption may be fairly indulged that the bank would not have honored the larger of the two cheeks if it had been presented on the day it was issued.
I am clearly of the opinion that, under the circumstances, good conscience and fair dealing required of Miller, when he learned of the fraud, to notify the bank not to pay either of the cheeks. Having failed to do this, he ought not to be permitted to recover from Marks any sum of money in excess of the $100, with interest thereon, that he paid before he received notice of the fraud. '
The case is clearly distinguishable from the ease of Matlock v. Scheuerman, 51 Or. 49, 93 Pac. 823, 17 L. R. A. (N. S.) 747. In that case it does not appear that Matlock ever learned that the Scheuerman check was given for a gambling debt until the filing of the answer in which it was alleged that the consideration for the check was a gambling debt.