Witte v. Williams

The opinion of the Court was delivered by Moses, C. J. It is now settled, by a current of authorities that a bona fide holder of a negotiable instrument transferred before due for a valuable consideration, and without notice of any defect which would render it void between antecedent parties, has a right to recover upon it, notwithstanding its want of validity as against one or more of such parties. The convenience and necessities of commerce, which require that instruments so generally used as an apt and ready substitute for coin should be protected by the same rule which, in the absence of fraud, confers a title to coin by its mere possession. The restrictions with which the principle which had before prevailed was burdened through the decision in Gill vs Cubbitt (3 B. & C., 466,) so affected the use of negotiable securities, and the purpose and interest they were to serve, that, after dissatisfaction with the rule which it established had been, from time to time, expressed by the Judges, its authority was finally overthrown by the decision of the Court in Goodman vs. Harvey, (4 A. & E., 870.) It would be an useless consumption of time to trace the succession of authorities by which the Courts of England have adopted the principle which, as already stated, may now be regarded as fixed. The opinion of the Court in Goodman vs. Simonds (20 How., 343,) contains an interesting and exhaustive reference to the cases and a comment upon them in learned and expressive diction. To the same effect are the American cases within our reach: Conroy vs. Warren, 3 Johns. Cas.; Woodhull vs. Jones, 10 Johns., 231; Bay vs. Coddington, 5 Johns. Ch., 54; Belmont Br. B. vs. Hoge, 35 N. Y., 69; Knight vs. Pugh, 4 W. & S., 415; Brown vs. Street, 6 ib., 221; Chapman vs. Rose, 56 N. Y., 137; Thurston vs. McCown, 6 Mass., 428. The principles which governed the decisions in the following cases in this State show that they are founded on the same accepted — 302 — doctrine: Jackson vs. Heath, 1 Bail., 355; Mims vs. Whidden, 2 Bail., 451; Sims vs. Lyles & Street, 1 Hill., 39; Administrators of Lee vs. Ware, ib., 313; Schaube vs. Clark, 1 Strob., 299. Error is charged by the appellant on the part of the presiding Judge in holding that the only question is: “Did the plaintiff know such facts as should have put him on the inquiry?” and in further holding “that he did have notice of such facts as ought to have put him on the inquiry, and that he, therefore, does not occupy the position of a bona fide holder of negotiable paper who has acquired title in good faith, for a valuable consideration, from one capable of transferring it, and without notice of any defect in his title or right to transfer.” It is enough to say that the rule which the Judge below thus applied as the one by which his judgment was governed, so far as it was founded on the existence of notice sufficient to put the appellant on inquiry, is in conflict with the authorities which we have above cited. It is in conflict, too, with the decision in Murray vs. Lardner, (2 Wall., 110,) which affirms Goodman vs. Simonds, and declares, as the settled law of the Court, that “suspicion of defect of title, or the knowledge of circumstances which would excite such suspicion in the mind of a prudent man, or gross negligence on the part of the taker at the time of the transfer, will not defeat his title. That result can be produced only by bad faith on his part.” If the rule adopted by the presidmg Judge is to prevail, by what standard can the required prudence be measured, so that it may be introduced as a necessary element in the constitution of a principle of law? And if no such standard can be found, how could a rule wanting the essential quality of certainty, with any show of reason, be properly applied to a class of instruments of such general use in the commercial business of the country ? While the respondent does not rely upon the ground on which, in part, the Circuit Judge rested his judgment, she contends that the plaintiff cannot maintain his action, because, as against her, he does not occupy the position of a bona fide holder of a negotiable paper. In other words, she claims that his title was not derived from one in possession of the paper, with an apparent right to trasferit, his title having been derived through the drawee of the bills. ■ The instruments were transferred to Witte without any knowledge on his part of the circumstances under which they came to the — 303 — hands of J. D. Kirkpatrick, who alo.ne, from the death of John Kirkpatrick, the senior partner, had carried on the business in the name of the old firm of J. & J. D. Kirkpatrick, and without any notice of his fraud in regard to the drawer, Mrs. Williams. They were'transferred, too, long before maturity by the drawee, in whose possession she had left them, with the dates, time of payment and names' of payees not filled up. These were inserted by J. D. Kirkpatrick ón the very day on which, for valuable consideration, they were discounted by Witte. The acceptor of a bill stands in the same relation to it as the maker does to his note. If the presumption of payment does not arise from the possession of a maker of a note endorsed by another before maturity, why should it arise on a bill before due in the hands of an acceptor? In Aiken vs. Catheart (3 Rich., 133,) the maker transferred the note before due with the name of payee blank, and yet the endorsers were held liable. It is not an unusual thing for the maker to present his note endorsed by others to a bank and obtain its discount. The very fact of a bill being found in the possession of the acceptor before maturity rather leads to the inference that it was left there for a purpose with which the idea of payment would be entirely inconsistent. In the usual course of business the bill is withdrawn by the holder from the drawee on his becoming acceptor and not again presented to him until demand for payment. The knowledge by Witte of the dissolution of the firm was no notice of any wrong, much less fraud, committed by Kirkpatrick. The bills were signed by the respondent and addressed to J. & J. D. .Kirkpatrick for acceptance, with every assurance to Witte, from the-face of the paper, that they had been executed on the days on which they bore date. Does it lie in the mouth of the drawer who so addressed the bills to say that a third party should not have had any dealing in regard to them because the firm on which they were drawn had been before dissolved? Why may not Witte have well supposed that the object of the drawer was to raise funds for the liquidation of debts due by the firm, or for some legitimate business purpose in which it was concerned? The bills, too, as between the drawer and drawee, had been executed on a valuable consideration. Mr. Byles, in his work on Bills, p. 166, referring as authority to Attenborough vs. Mackenzie, (25 L. J. Exch., 244,) says: “A transfer by the acceptor before maturity does not extinguish the bill; — 304 — the acceptor may reissue it before it is due, and the parties whose names are on the bill will be liable to a subsequent holder.” In Hamer vs. Steele, (4 Exch.,) Wilde, C. J., says: “ But we think it is no objection to the negotiability of a bill that it has during currency, before it was payable, become the property of one of the acceptors. Until the time of payment arrives, the contract of the acceptor is unperformed and incapable of being performed. And the right to sue upon it may be transferred with the property in the bill by any lawful owner of it. It is no objection to such transfer, or to an action brought by one claiming under it, that the party making the transfer would be incapacitated to sue if he had retained the bill till maturity.” In Morley vs. Culverwell, (7 M. & W., 174,) the drawer of a bill of exchange before it became due agreed with the acceptor that on his giving a certain mortgage security for the amount, he, the drawer, should deliver up to him the bill of exchange as discharged and fully satisfied. The acceptors accordingly executed the mortgage and received the bill uncanceled: Held, That the drawer was liable on the bill to a party to whom the acceptor afterwards endorsed it for value before it became due. At page 181, Lord Abin-ger said: “ The defendant, the drawer of the bill, agrees with the acceptor, while it is running, to deliver it up to him, in consideration of his having the security of a mortgage of property of the acceptor, and gives up the bill accordingly without striking out his •name as drawer. Before the bill becomes due a party who is ignorant of this transaction discounts it for the acceptor, and before it becomes due transfers it for value to the plaintiff, who is also ignorant of the transaction. The question’then is, whether the discharge of a bill by the acceptor, by an arrangement with the drawer before it is due, can affect the bill in the hands of an innocent holder for valuable consideration ? I think it cannot. The contract of the drawer and each endorser is, that the bill should be paid by the acceptor at its maturity — not before it is due; that it shall be paid according to its tenor and effect, that is, when it becomes due. If upon its being discharged before it becomes due the drawer inadvertently leaves his name upon the bill, he is but in the ordinary case of a party who has a bill in negotiation with his name upon it against his intention. It is in the hands of an innocent holder who has no notice that it has been discharged.” It is contended that Witte is not a bona fide holder of a nego. tiable paper for valuable consideration, because he did not acquire — 305 — title from one capable of transferring it, or in possession of it, with an apparent right to transfer it, and without notice of any defect in his title or right to transfer. The case of the Central Bank of Brooklyn vs. Hammett et al. (50 N. Y„ 158,) is referred to as authority for the position. The principle that governed the decision there may be admitted as correct, to wit: That the possession of such an instrument by a party to it only authorizes a presumption of such rights and obligations of the several parties as are indicated by the paper itself. Contrary to the conclusion which we have reached, as we think, both on principle and authority, as to the presumption arising from the possession of a bill by the acceptor before due, it holds that it could only have been in his possession “either for acceptance or after it had been paid, and in neither case would he have had the right to transfer it.” In our view the restriction which would be thus imposed on the presumption arising from the possession by an acceptor of a bill before maturity is not in accordance with the rules pertaining to negotiable securities, and, if adopted, would so affect their operation as to deprive them of many of the valuable purposes which they afford the public as a most convenient medium of exchange. It may not be out of place to say that in the case just referred to Peckham, J., dissented from the conclusions of his brethren. The loss of Mrs. Williams is to be attributed to her own neglect. By leaving the drafts with Kirkpatrick, with blanks in the dates, names of payees and time of payment, against all wrong intention on her part, she afforded him the means of perpetrating a fraud either on herself or some innocent third party. Between them, who should bear the loss? Does not every dictate of right sanction the rule of law applicable to agencies, which declares “that where one of two innocent parties must suffer through the fraud and negligence of a third party, the loss shall fall upon him who gave the credit or enabled such person to commit the wrongs?” The presiding Judge, without any exception to the report of the Referee to the character of the instrument sued upon, holds that one of them is not a bill of exchange because drawn on J. & J. D. Kirkpatrick, requesting the drawees to pay to their own order a certain sum of money, while a bill of exchange presupposes a duty on them to pay to some other than themselves. The only authority relied on in support of the position is found in Story on Bills, § 35. With the accustomed deference that is due to so distinguished a jurist as the late Mr. Justice Story, we are obliged to say that — 306 — the proposition is not sustainable on either principle or authority. We are the more emboldened to say so because, in the same Section, the learned writer thus expresses himself: “Nay, the drawer may at once become drawer, payee and drawee; as, for example, if he should draw a bill on himself, payable to his own order at a particular place, naming no drawee, and then should endorse it over, the endorsee might sue him as acceptor of the bill or as maker of a promissory note, at his election.” And in Section 36 he says “the drawee and the payee may be also one and the same person.” But in Wildes vs. Savage, (1 Story, 29,) he lays down the rule in direct contradiction to his affirmation cited by the presiding Judge to sustain his own conclusion. We quote the very words of Justice Story: “The argument is that the bill is not a regular bill of exchange because it is drawn by Russel & Co., payable to Wildes & Co., who are the drawees of the bill. * * * An instrument is not the less a bill of exchange because all the parties to it in the character of drawers, payees and drawees are not different persons. A bill drawn by a person payable to his own order has always been deemed to be a bill of exchange in the commercial sense of the phrase, and it would not cease to be such a bill if it should be endorsed by the drawer payable to the drawee. Now, such a bill so endorsed differs in nothing substantially from the present bill. In truth, where the bill is negotiable, and contains a drawer, a payee and a drawee, it is, in a commercial sense, a bill, of'exchange, although one or more of the parties shall fill a double character.’ Mr. Chitty, in his work on Bills, page 25, says: “It is not, however, necessary that there should be three parties to a bill; there are sometimes only two; as where a person draws on another payable to his own order; and, indeed, a bill will be valid where there is only one party to it, for a man may draw on himself payable to his own order. In such cases, however, the instrument may be treated as, in legal operation, a promissory note, and declared on accordingly, but in practice it is usual to declare upon the instrument as if it were a bill not admitting the identity of drawer and drawee.” The objection thus taken by the presiding Judge to one of the bills cannot prevail, and, in conformity with our views herein expressed, the-judgment must be set aside and the case remanded to the Circuit Court for a new trial. It is so accordingly ordered. Wright, A. J., and Willard, A. J., concurred.