Crandall v. Vickery

By the Court, Johnson, J. The important question in this case is, whether the plaintiff was a bona fide holder of the notes in question, for a valuable consideration. That he had no notice of any fraud on the part of any one connected with the notes or of any infirmity in the notes, is expressly found. The referee found as a conclusion of law from the facts established, that he was not a holder for a valuable consideration, as against the indorser. The notes were clearly transferred to the plaintiff in fraud of the rights of the indorser, and they can not be enforced against him or his representatives, unless the plaintiff is a bona fide holder for value. The plaintiff gave his- checks for the amount of both notes, upon a bank in which he had sufficient funds for their payment at the time they were given, and at the time contemplated between the parties for their presentment, or for the presentment of their substitutes for payment. One of these checks was dated at the time of the transfer of the notes to the plaintiff, and the other was delivered at the same time, though it bore date about one month in advance of that time. It was expressly agreed, though verbally, between the parties to the transaction, that these checks should not be presented at the bank; but that when the money was wanted for the purpose of taking up the notes indorsed by Hibbard, they should be returned to the plaintiff and new checks given from his check book. The notes indorsed by Hibbard fell due respectively, on the 23d and 29th of August, after the transfer, and did not equal the amount of the two notes transferred to the plaintiff into about the sum of $200. This verbal arrangement in regard to holding and returning the checks, and taking new ones as the said notes should fall due, was subsequently carried out. The new checks were given-and the notes taken up therewith as the notes fell due respectively. The excess of two hundred dollars the plaintiff still retains, never having paid it to any one, and no one having requested him to pay-it. Before the checks had been presented or ex [162] changed, and before any thing had been paid or was to he paid according to the arrangement, the plaintiff was fully informed of the fraud which had been practiced and of all the circumstances, by the defendant’s intestate, and was requested not to pay or advance any more money on them, or on account thereof, to Hibbard. The plaintiff thereupon told Vickery he had paid $>1000, toward the notes, and should pay the remaining $200 when called upon, as he had agreed. At this time no money had been paid, and nothing, given in exchange for the notes hut the two checks which were then outstanding under the agreement that they should be returned and exchanged for other checks. These checks were returned and the new checks given, according to the verbal arrangement, after the plaintiff was notified as above stated. I am clearly of the opinion that the referee decided this question correctly, and that the plaintiff was not a tona fide holder of these notes for a valuable consideration. According to all the decisions in this state a valuable consideration, in a case of this kind, consists in something of value parted with before notice of the fraud. It is unnecessary to cite any other authorities than the leading cases of Coddington v. Bay, (20 John. 636,) and Stalker v. McDonald, (6 Hill, 93.) These decisions have never been departed from by our courts, and must he regarded as the settled law. It is claimed, however, by the plaintiff’s counsel, that in giving these checks, which imparted and constituted a legal obligation against him, he did part with Something Valuable as matter of law, and without any notice of the fraud affecting the indorsement. But in determining this question as it is presented in this case, we must look at the entire arrangement in all its parts and bearings, for the purpose of ascertaining what was intended and contemplated by the parties at the time the arrangement for the transfer of the notes to the plaintiff was made—what was the real transaction beyond the mere form. Looking at it in this view, it is seen that it was not contemplated by the parties, or. intended, that these checks then [163] given should ever be presented or paid. They were never in fact presented, and nothing was ever advanced on them. The money was paid on other checks, substituted for the first, according to the arrangement first, made. At the time, therefore, when the plaintiff was fully notified of the fraud, he had only these checks outstanding, which were not to he presented, but which were to he returned to him at a future day. One of them was ante-dated and could not then have been presented. Neither of them, as is most manifest, ever operated or were intended to operate, as an assignment of so much of the plaiutiff’s funds in the bank. The arrangement hears evidence upon its face of having been only intended to be a special temporary arrangement, put in this form as evidence of the real agreement, which plainly was, that the plaintiff, whenever the notes indorsed by Hibbard should fall due and his contingent liability as indorser should become fixed and absolute, should, for the notes in question,, advance a sufficient sum to take up the notes so indorsed by Hibbard, and pay him the balance of $200 whenever thereafter he should call for it. If Hibbard’s liability as indorser should never become fixed, the arrangement obviously did not contemplate the presentment and payment of the checks, at all. The first checks, therefore, were not intended to create an absolute unconditional liability against the plaintiff. It was not expected they would he presented, or their payment enforced. The whole transaction, at that time, rested in this loose executory agreement, to he performed at some future time, altogether uncertain in the minds of the parties. It seems to me plain from this, that nothing valuable had been parted with by the plaintiff at the time the notice was given. The real obligations upon which the money was advanced were given long afterwards, and at a time when their date, and presentment, and payment, would afford the plaintiff no protection. It does not appear to 'me to he any answer to this view, to say that these first checks purport on their face to be legal [164] and valid checks, and might have been presented, and their payment enforced, as between the plaintiff and Hibbard. Technically this may be so. But looking beyond this, we see that the arrangement, the real agreement understood and ultimately acted upon, and carried out, was altogether different. By that nothing was parted with, or intended to be. It all rested substantially in the parol executory agreement.. In pursuance of that, the first checks were returned, and were never presented or sought to be enforced, in strict accordance with the terms and spirit of the agreement as a whole. [Monroe General Term, December 4, 1865. Beside this, the transaction, as it appears from the finding, strikes me as quite unusual and out of the ordinary course of dealing in the purchase of commercial paper. I do not, however, lay any considerable stress upon this circumstance, but .prefer to place the decision upon the broad ground, that upon all the facts, the plaintiff had really parted with nothing, had paid, in short, no valuable consideration for the notes, until after he was notified of the fraud. I am of the opinion, therefore, that the judgment should be affirmed. Johnson, E. Darwin Smith and James C. Smith, Justices.]