Lane v. Krekle

Dillon, J. 1. Bills and notes negotiable: fictitious payee. I. The fact that the note in suit is made payable to bearer, relieves the case of some difficulties that would arise were it payable to the person named, or order. In the latter case, we would embarrasse(} by the question, how far, if at all, we would be bound by the line of decisions in the English courts, respecting bills and notes made payable to a fictitious payee. (As to the cases in England, see Chitty on Bills, 185 ; . Story, Id., §'§ 56, 200; Edwards, 126 ; 1 Parsons on Notes and Bills, 32, and note). Even under the English rule, if the defendant Imowingly made the note to a fictitious person or order, and the plaintiff became a holder for value and without notice of the fact that the person named as payee was a myth, he could recover. This proposition we do not understand the defendant’s counsel to deny. But he insists that this case does not fall within the above rule because, first, the defendant made the note in ignorance of the fact that the person named as payee had no existence, and because, second, the facts averred in the answer, affect the plaintiff with notice of the fact, and hence he is not a bona fide holder. 2._ payable to bearer. Upon reason and principle we are clear, that, if the plaintiff is a bona fide holder for value and ^thout notice, the fact that the note is made [404] payable to a fictitious person, is no defense. In- such case, tbe defendant would be estopped, as against tbe plaintiff, from setting up the fact. It was the defendant who made the note. By making' it payable as he did, he affirmed the existence of such a person as the payee, therein named; and he should not, against a person ignorant of that-fact, one who may reasonably be presumed to have acted upon the faith of the fact thus represented, be allowed to assert the contrary. This principle of estoppel in pais has a very extended and just application in the law of bills and notes, the doctrines of which are designed to give credit and circulation to negotiable paper; and to that end throw its protection around the honest and fair holders thereof. See Frazer v. Massey, 14 Ind., 382; 1 Parsons on Notes and Bills, 560, 589; Id., 244; Story on Notes, § 80; Edw. on Bills, 250; Hogg v. Skeen, 114 Eng. C. L., 426, 432, per Willes, J.; Erwin v. Downs, 15 N. Y., 575; Smith v. Lusher, 5 Cow., 688, 711. In respect to such a holder, the maker is bound, to know that the payee is a real person, or thereafter “ hold his peace.” See the very recent case of Phillips v. im Thurn, 114 Eng. C. L., 694; S. C., Id., 400; 1 Law Rep., C. P., 463, A. D. 1865. This was a case where the defense was, that the payee was a fictitious person, in ignorance of which fact, the drawer drew the bill. It was 'considered by the- court, that since the drawer would be estopped to set up the fact that the payee was a fictitious name, the like estoppel would apply to an acceptor for tiie honor of the drawer. In principle this case is strongly if not decisively against the' defense in the case at bar. 3. — indorsement by agent. The ingenious and, at first view, somewhat plausible argument of the defendant’s counsel, to show that the plaintiff is not, upon the facts averred in the answer, a bona fide holder, is in this wise: The payee is fictitious, hence there is no promise to pay [405] any one; the note consequently was void; the indorsement or transfer in the name of such fictitious payee can confer no title, certainly where the transferee takes it with notice. In this case it was transferred by an agent, and the plaintiff purchasing it from the agent, was bound to take notice of his authority, and, as the agent had no authority, it follows that the plaintiff acquired no title. Argu. i. Title of holder. The argument is in part inapplicable to the present case, and in part unsound. It is inapplicable because the n°te is payable to becvrer, and hence the title thereto will pass by delivery. The plaintiff is not bound to deduce or claim title to the note through the indorsement appearing thereon. This indorsement has full effect by treating it as intended to secure the liability of the payee as an indorser. It is not to be treated as the mode or medium through which the plaintiff acquired title. Plaintiff may rely for title upon his possession and the delivery to him (of which possession is evidence), and is not bound to be considered as having acquired the property in the note by or through the indorsement thereon. So that the case comes to this: Suppose Henry, the alleged agent, had met plaintiff and said.to him, “I am the agent of I,Sr. Vanservens, and I wish to sell you this note,” exhibiting the note in suit; and suppose the plaintiff had thereupon bought it and took a transfer of it by delivery in good faith and before due, would he in this event be.open to equities existing in favor of the maker? "We think not. It is not averred or claimed in the answer that the plaintiff had notice of the facts upon which the defense rested. It is only claimed that he had, in the way before stated, notice that Henry • was an agent, and that this was sufficient to put him upon inquiry as to the existence of his principal. If this be admitted, we hold that he was bound to inquire no further than the note itself, which on its face contains an admis [406] sion by the defendant of the existence of the person named-as payee. 4. _ notice to holder. And in thus deciding the point we do not wish to be understood as holding that, if the plaintiff had received the note with knowledge that the payee was fictitious, that this alone would defeat his right to maintain an action upon it. This is a question which we leave open, remarking simply, that the decisions in England on this subject are such as, in our judgment, to require at least an examination into the grounds upon which they rest, before assenting to their correctness. It is not unusual to make bills, bonds, bank-bills, etc., payable to a fictitious name or bearer, and such paper is generally regarded the same as if. payable to bearer. 5. _ fraud: onus. ■ II. It will be noticed that the answer, although pleading facts which show that the note was fraudulently procured, neither alleges that it was taken by the piaintiff after it was due, or that the plaintiff gave no value for it, or that he had notice of the alleged fraud. It is argued, however, by the defendant’s counsel, that the answer is nevertheless sufficient. That argument is based upon the rule, that where a note has been obtained by fraud, the burden of proof is upon the plaintiff to show that he is a lónafids holder. Such is the prevailing, and, in our judgment, the correct doctrine. It is the unquestioned rule of the English courts — Queen’s Bench, Common Pleas and Exchequer. Of these courts, in late years, the Common Pleas has been most distinguished for its ability; and Lord Chief ■Justice Erle thus, in a recent case, states the rule and the estimation in which he holds it: “I consider it td have been' established by a long course of precedents, that, on proof being given that the bill is tainted with fraud in its inception, the burden is thrown upon the party who [407] seeks to enforce payment, to show that he gave value for the bill. And. this I consider to be a most salutary rule for the prevention of fraud and usury against an innocent party.” Per Erle, Ch. J., in Hogg v. Skeen, 114 Eng. Com. Law Rep., 426, 429, A. D. 1865. And see Fitch v. Jones, infra.; Byles on Bills, 61. And such is also the prevailing rule in this country. 2 Parsons on Notes and Bills, 438; Munroe v. Cooper, 5 Pick., 412; Gray v. The Bank, etc., 29 Penn. St., 365, and prior cases in that State referred to; Perrin v. Noyes, 39 Maine, 384; 16 Id., 465 ; Ellicott v. Martin, 6 Md., 509; Vather v. Zane, 6 Gratt., 246. 6. — mala fides: pleading. But this is a rule relating to evidence and not to pleading. Where the action is by a person not a payee, it is necessary to allege notice of the facts pleaded in deiense, or that the holder gave no value, or received the paper after due. And this precise point was so ruled, as will be seen on a careful examination in Clapp v. Cedar County (5 Iowa, 15, 59). And see also Uther v. Rich, 10 Ad. & El., 784; S. C., 37 Eng. C. L., 232-233, per Lord Denman ; Fitch v. Jones, 85 Id., 238, S. C., 5 El. & Bl., 238; Bailey v. Bidwell, 13 M. & W., 73. 7. Pleading and practice: interogatories. The answer fails to do this, and is therefore insufficient on demurrer; unless the appellant’s further position is sound, that a pleading is not demurrable where, as hi this instance, facts are sought by interrogatories annexed thereto. Rev., § 2985, et. seq. But this is only a special mode of procuring evidence ; when elicited, it is provided that it “ may be read by either party as a deposition.” It is .quite plain that neither the interrogatories nor the answers thereto will on demurrer, aid a defective pleading, by making good as a pleading, one which would .otherwise be bad. . Affirmed.