Bradford v. Harris

Alvey, C. J., delivered the opinion of the Court. This action was brought by the plaintiffs, as assignees of Thomas, J. Wilson, to recover of the defendant the amount of a promissory note for $5,000, dated July 20th, 1888, and payable four months after date, with interest — 157 — at six per cent., value received. The defendant was maker of the note, and it was made payable to his own order, and indorsed by him in blank. This note, at the time of the making and indorsement, was delivered by the defendant to Whitely & Gaither, bankers and brokers in the City of Baltimore, who seem to have been agents for the sale of the stock, thereafter to be issued, of a company known as the Jordan Mountain Manganese Company, then in process of organization, or which, if completely organized, had not then issued and placed on the market its stock. The note, according to the testimony, was made and indorsed by the defendant, and placed in the hands of Whitely & Gaither, with authority to purchase lor him 100 shares of the stock of the company at 50 per cent, of the par value thereof, the par value to be $100 per share. At the time the note was passed to Whitely & Gaither, the defendant took from them a certificate which would, according to its import, have entitled him to receive the 100 shares of stock when issued, or was ready for sale. The stock, it appears, never was validly issued, and the whole enterprise fell through or collapsed, and the shares of stock were never delivered to the defendant, and he, of course, never received any consideration for his note; but, strange to say, he did not require its cancellation or delivery up to him, though he returned to Whitely & Gaither the certificate given to entitle him to receive the stock. The defendant, who testified as a witness, says, that he returned the certificate to the brokers, but he did not ask for the note. His failure to do this, he says, “was simply due to oversight, not regarding the note, under the circumstances, as of any value. I never received any consideration whatever for the note." This note, it appears, was handed over or passed by Whitely & Gaither to Thomas J. Wilson, the assignor of the plaintiffs, as partial security for a large pre-exist — 158 — ing indebtedness then and still due to Wilson, or his assignees; but whether this transfer was before or after the maturity of the note, is left in some doubt on the evidence. It is admitted that Wilson, on the 28th of June, 1890, executed and delivered to the plaintiffs a deed of trust of all of his property for the benefit of his .creditors, and that the note sued on came into the possession of the plaintiffs as assignees and trustees under that deed. The plaintiffs therefore can only maintain their right to recover in respect to the right that was in Wilson; for if Wilson received the note under such circumstances as would preclude him from recovery, if suit had been brought by him, it is very clear that the plaintiffs cannot recover, they standing alone on the right that was in Wilson, the assignor. The defence of the defendant is that the note is totally without consideration; that the note was given for a special purpose to the agents of the defendant, and that that purpose has wholly failed; and that the transfer of the note to Wilson by the brokers was in violation of good faith and in fraud of the defendant; and that such transfer by the brokers to Wilson, whether before or after maturity, was with full knowledge on the part of Wilson, for what the note was given and held by the brokers, and that there was no consideration for it. And if this be so, it is clear there can be no recovery on the note by the plaintiffs. The Court below instructed the jury, at the instance of the plaintiffs, that there was no evidence legally sufficient to be considered by the jury in support of the defence by the defendant, and that, under the pleadings, admissions and proof, their verdict must be for the plaintiffs, for the amount of the note with interest; and the Court rejected the prayers of the defendant, founded upon the supposed facts of the failure or. want of consideration, and t.he knowledge on the part of Wil — 159 — son of the special purpose for which the note was held by the brokers, and the want of consideration therefor, at the time of the transfer to him. The transaction altogether was quite a remarkable one; but we discover nothing in it that would preclude the defendant- from availing himself of the defence set up by him, if that defence be supported by evidence. The objection to the note that there is a total want of consideration to support it, goes to the entire validity of the note and avoids it; and so where there was originally, not a want of consideration, but there has been a subsequent failure thereof. And therefore, in either case, if such defence be made out, it is fatal to the note in the hands of a party against whom such defence may be legally set up. But such defence is not available against every party who may hold the note. The general rule is that the original want or subsequent failure of consideration may be availed of as a bar to recovery as between any of the immediate or original parties to the contract; as in the case of maker against the payee, or by the payee against his immediate indorsee. And the same rule applies to any mere derivative title under them by any person, who acts merely as their agent, or has given no value for the note. It applies to all cases where the party takes the note, even for value, after it has been dishonored or is overdue; for then he takes it subject to all the equities, which properly attach thereto in the hands of the holder. Annan vs. Houck, 4 Gill, 325. And if the party taking the note has notice, at the time of the transfer to him, that the note is affected with the infirmity of the want or failure of consideration in the hands of the party from whom he obtains it, or that such party is disposing of the note in fraud of a party for whom he holds it, the party so taking the note will take it subject to all the equities and defences that could be availed of as against the party so disposing of or trans- - — 160 — ferring the note; These principles are familiar, and are not open to question. Sto. Prom. Notes, secs. 187, 190. But it is equally beyond question that a party will be protected as holder of negotiable paper, although it be fraudulent or without consideration, if he has received it before maturity, in good faith, and for value,, without notice of the infirmity in the paper. And, according to the settled doctrine of this Court, an antecedent indebtedness for which such paper may be taken as security, will form a valuable consideration for its transfer. The question here is, therefore, whether Wilson, at the time he received the note sued on, had such notice of the alleged infirmities of the note as would make it subject to the defence relied on by the defendants; and this depends upon the facts of the case. We have examined the entire evidence with care, and we are all of the opinion that there is evidence that should have been submitted to the jury, and that, com sequently, there was error in directing a verdict for the plaintiffs. There is no pretence that the defendant did in fact receive any consideration for the note placed in the hands of the brokers. Whitely, one of the brokers, testifies very explicitly that he informed Wilson, at the time of passing the note to him, for what the note was given, and t|re circumstances under which it was held, and reminded him at the same time that he, Wilson, knew all about the Manganese Company. Wilson, therefore, knew, if this witness is to be believed, that the defendant had received nothing for the note, and that the brokers had no authority to transfer the note to him, under the circumstances of the case. It would seem that Wilson himself was concerned in the company, or with the stock that was designed to be issued; for in another part of his testimony, in referring to the occasion of transferring the note to Wilson, Whitely — 161 — says: “I explained it to him at that time what it (the note) was given for, and stated to him that he knew all about the Manganese Company, and knew what brilliant prospects there were of making a great deal of money out of it, both for himself and ourselves, and that when that was closed up there would be very little difference between us. He had loaned us quite a large amount of money, and we expected to reimburse out of the profits of this Manganese Company, and divide whatever difference there was after reimbursing him.” There are other circumstances tending to the same conclusion, but which are not necessary to be stated in detail. There is one circumstance, however, that may be mentioned, of some significance, and that is that Wilson should have held the note for more than a year and a half after its maturity, without any effort either to negotiate or collect it, or even to enquire of the defendant as to his ability to pay. Wilson, doubtless, could have explained this, but he was not examined as a witness. (Decided 14th March, 1893.) We think there was error in granting the prayer on behalf of the plaintiffs, and in refusing to grant the first, second and third prayers offered by the defendant. The fourth prayer of the defendant is based upon a theory that may not be sufficiently supported by the •evidence; and in our view of the case it is not material. Judgment reversed, and cause remanded for a new trial.