Cover v. Myers

23 A. 850, 75 Md. 406, 1892 Md. LEXIS 76

• Court: Court of Appeals of Maryland
• Decided: March 15, 1892
• Status: Published

Opinion

Alvey, C. J.,

delivered the opinion of the Court.

This is an action brought by the appellant against the appellee to recover the amount of a promissory note, dated the 11th of July, 1887, for $150. The note was made payable on the first day of August, 1888, to P. Huddle, or hearer, at the First National Bank of Westminster. The note bears the indorsement on its hack, in blank, of William B. Thomas; though the date of the indorsement does not appear; nor is it shown under what circumstances or for what consideration the note was passed or transferred from Huddle to Thomas.

It appears that the note was given for the price of fifteen bushels of seed wheat, which the defendant was induced to agree to purchase of “The Carroll County Industrial, Grain and Seed Company,” of which P. Huddle was president. At the time of taking the note, the agent acting for the company, represented to the defendant that if he, the defendant, would buy fifteen bushels of. Barnhouse’s wheat, he, the agent, would sell for the defendant double the quantity the latter bought, at $10 a bushel, with $2.50 a bushel off, as commission, in time to pay off the note; and at the time of such agreement and the making of the note, the agent delivered to the defendant the following bond:

“No. 3. Pleasant Valley, July 11th, 1887.

“The Carroll County Industrial, Grain and Seed Co., incorporated under the laws of Maryland, P. Huddle, president, C. J. Stewart, secretary, Wm. A. Wampler, treasurer, doth hereby agree to sell 30 bushels of Seneca Chief Wheat for Mr. William Mj’-ers, of Jno., of Union-town Dis., Carroll County, State of Md., at ten dollars per bushel in good notes, less $2.50 per bushel commission, on or before the first day of July, 1888. We make no monetary statements, and the person accepting this bond acknowledges to have purchased the grain at a speculative value.

í{í tfc i{c ¡fc. ^ JsealJ :£ ;}< jJ< ;}i

P. Huddle, President.

The defendant was assured by the agent that the note would not have to be paid until the bond was redeemed. That some time afterwards the defendant received fifteen bushels of wheat, but which was of an ordinary kind; that the defendant never afterwards saw the agent or the parties he represented; and there was no offer or attempt whatever to sell any portion of the product of the wheat for which the note was given, as was obligated to be done by the bond.

It further appears in evidence that William B. Thomas, the indorser on the note sued on, was, at the time of such indorsement, a broker and dealer in notes and other paper, in the town of Westminster, in Carroll County, and that he was a man of reputed wealth. That on the 19th of June, 1888, he left home, taking with him fifty-six promissory notes of various makers, including the note sued on in this case; but whether all the notes were made to the same payee the record does not disclose, except by implication or inference; and which notes in the aggregate amounted to $8,400, including interest to the 21st of June, 1888; and with said notes he went to the house of the plaintiff, near Front Royal, in the State of Virginia, a distance of about 140 miles from Westminster; and then and there, upon agreement, he indorsesd and transferred all^the fifty-six notes to the plaintiff, for the sum of $7,907.98, at a discount of five and a half per cent, on the $8,400. All the notes were near maturity, but none were in fact overdue; and a day or two after this transfer of the notes, the plaintiff transmitted them to the Union National Bank of Westminster for collection; and upon default of payment being made when due, he directed that the notes should be placed in the hands of an attorney at Westminster for suit, including the note sued on in this case. In this Bank, Thomas, the indorser, kept his account, and to the credit of which were deposited the money and checks which he received of the plaintiff on the transfer of the notes. The plaintiff’s principal business is that of conducting or carrying on a tannery at his home in Virginia, and running a grocery store in connection therewith; and he says he occasionally buys notes and speculates in Virginia lands. The notes indorsed to him by Thomas were all made hy Maryland people, and only some of such makers were known to the plaintiff; and it may he inferred from the fact that all the notes were sent to a Westminster hank for collection, that the makers were mostly, if not all, residents of that vicinity.

The principal testimony in the case, as disclosed hy the record, was given hy the plaintiff himself. He testified to what may seem somewhat remarkable, that Thomas did not state anything about the consideration of the notes, or how they were obtained, and that he, the plaintiff, had no knowledge on the subject, and made no inquiry as to the consideration upon which they were founded, or how they were obtained; that he had no knowledge at that time of any fraud in obtaining the notes, and had never before heard of P. Huddle, or of any business that he was engaged in; but he bought the notes solely because he had the money to spare from his business of tanning, and wished to invest the same, and thought that the interest to accrue on the notes and the discount of 5-|- per cent, would be a good profit on his money. He paid Thomas for the notes by a check on the Bank of Warren, in Virginia, and which check was duly paid in money and checks or drafts.

At the time of the transfer of these notes by Thomas to the plaintiff, and as part of the same transaction, Thomas, on request of the plaintiff, executed and delivered to the latter the following agreement or guarantee:

“ Brown to tvn, Va., June 19th, 1888.

“I agree that, provided there be any costs in collecting any of the foregoing fifty-six notes, I will refund any and all amount of costs to the said E. P. Cover; also agree that provided any of said notes should fail to be paid-to said E. P. Cover, or order, when due, that I will refund him said amt. of money which may be due him on any such notes, with all costs which may be upon same, after he having made an effort to collect same from the makers and fails.

Wm. B. Thomas.”

The record does not show that either Huddle, the payee of the note, or his agent who obtained it from the defendant, or Thomas, who indorsed the note to the plaintiff, appeared as witnesses; but the case of the plaintiff was mainly rested upon the ordinary presumptions that obtain in favor of the rights of innocent holders of negotiable paper acquired before maturity. But in this case there is an element introduced by the proof that modifies, to a certain extent, those ordinary presumptions. That the note had a fraudulent inception is cléar beyond doubt; and upon this being shown, it was incumbent upon the plaintiff to show under what circumstances he acquired title to the note. That the note would have been fully embraced by the Act of 1888, ch. 415, passed for the purpose of preventing, and also for punishing such frauds, but for the fact that the note antedates the statute, is clear. The case falls fully within the principles .of the case of Griffith vs. Shipley, 74 Md., 591. It is a well settled doctrine, applicable to these cases, that where a negotiable instrument is originally infected with fraud, invalidity, or illegality, the title of the original holder "being destroyed, the title of every subsequent holder which reposes on that foundation, and no other, falls with it. But if any subsequent holder takes the instrument in good faith and for value, before maturity, he is ■entitled to recover on it, and so any person taking title under him may recover, notwithstanding such latter holder may have knowledge of the infirmities of the instrument; and all that is required of the holder in such -case is, that it be proved that he, or some preceding holder or indorsee under whom he claims, acquired title to the paper before maturity, tona fide and for value. Commissioners, &c. vs. Clark, 94 U. S., 278, 285; Collins vs. Gilbert, Id., 753.

Therefore, if Thomas, under whom th e plaintiff asserts title to the note, was in fact a bona fide purchaser or holder of the note for value, then the plaintiff, notwithstanding any knowledge that he may have had at the time of the endorsement to him, of the fraudulent origin ■of the note, would be entitled to recover by virtue of the right acquired from Thomas. In such case the plaintiff would succeed to all the rights of Thomas, and would be ■entitled to enforce them. For the rule is now well settled, as laid down by the Supreme Court of the United States in Cromwell vs. County of Sac, 96 U. S., 51, 59, “that whenever negotiable paper has passed into the hands of a party, unaffected by previous infirmities, its ■character as an available security is established, and its holder can transfer it to others witli the like immunity His own title and right would be impaired if any restrictions were placed upon his power of disposition. This ■doctrine, as well as the one which protects the purchaser without notice, says Judge Story, fis indispensable to the security and- circulation of negotiable instruments, and it is founded on the most comprehensive and liberal principles of public policy.’ Sto. Prom. Notes, sec. 191. The only exceptions to this doctrine are those where the paper is absolutely void, as when issued by parties having no authority to contract; or its circulation is forbidden by law from the illegality of its consideration, as when made upon a gambling or usurious transaction.” The same doctrine has been very fully adopted by the former Court of Appeals of this State in the case of Boyd vs. McCann, 10 Md., 118.

It was therefore incumbent upon the plaintiff, to entitle him to recover, to prove either that he became bona, fide purchaser of the note for value before maturity, or that he purchased the note from Thomas, and that the latter had acquired title to the note bonafide and for value, before maturity, and that it was as successor to the right and title of Thomas that he sought to recover. If, however, Thomas was but an agent of Huddle to get off the paper, the note being payable to bearer, the title of Thomas would be no better than that of his principal, and his title to the note would be infected with the fraud of the origin of the note. Solomons vs. Bank of England, 13 East, 135. But whether Thomas was agent or not, if both he and the plaintiff had knowledge of the infirmities or fraudulent origin of the note at the time they respectively became holders thereof; or if they colluded together for the purpose of avoiding the effect of such knowledge, and of placing a colorable title in the plaintiff, to enable him to sue for the recovery of the note, then, clearly, there can be no recovery by the plaintiff. And such knowledge of the fraudulent origin of the note may be shown to have been possessed by the parties either by direct proof, or by facts and circumstances that fairly lead to that conclusion..

Keeping these principles in view, there is no difficulty in disposing of the several questions raised by the exceptions taken by the plaintiff. Some of the exceptions were taken to the admissibility of evidence, and others to the refusal to grant prayers offered by the plaintiff, and to the granting of severa 1 instructions on the request of the defendant.

The circumstances offered and relied on, as stated in the first five hills of exception, we think were properly admitted. They were not of any great probative force of themselves, it is true, but as circumstances to be considered in connection with other proof, reflecting upon questions of knowledge and good faith, they were admissible, and we perceive no error in the rulings in these exceptions.

There was certainly no error committed by the Court below in rejecting the third, fourth, and fifth prayers offered by the plaintiff. Those prayers each segregated a certain fact or circumstance, and asked the Court to declare that such fact or circumstance, was not legally sufficient to authorize the jury to find against the proof of the plaintiff; and that the jury should not he at liberty to consider such fact or circumstance to defeat the right of the plaintiff to. recover. This mode of dealing with separate pieces or items of evidence, segregated from all the other evidence 'of the case, is wholly unwarranted, and has no support in any principle of reason. The strongest case or defence, proved by a combination of facts, might be overcome and destroyed by that method of dealing with the separate facts or items of proof. And for like reason that the prayers just mentioned were rejected, the Court was right in rejecting the sixth, and twelfth prayers of the plaintiff. The seventh and eighth prayers, as presented, were calculated to mislead the jury, and therefore properly refused.

By the ninth prayer of the plaintiff the Court was asked to instruct the jury, that they could not impute to the plaintiff bad faith in the purchase of the note sued on, even though they might believe from the evidence that Thomas, at the time of the transfer of the note to the plaintiff, had notice of the fraud practised upon the defendant by Huddle or bis agent. And by the eleventh prayer the Court was asked to instruct that there was-no legally sufficient evidence in the cause, from which the jury could find that Thomas, at the time he endorsed the note to the plaintiff, had knowledge of the fraudulent manner by which said note had been obtained from the defendant, or that the same was without consideration. And further, by special exceptions to the defendant’s prayers for instruction, the plaintiff resisted the-granting thereof, because, as alleged, there was no legally sufficient evidence in the cause from which the jury were-at liberty to find that the plaintiff had knowlege, at the-time he purchased the note, that the same had been pb~ tained by fraud from the defendant.-

These propositions taken together, required the Court to instruct the jury that there was no evidence legally sufficient upon which it could be found that either Thomas or the plaintiff had knowledge of the fraudulent origin of the note at the time it was taken by them respectively, and therefore the verdict should be for the plaintiff. But such an instruction would have been wholly unwarranted, and the Court therefore was clearly right in refusing it. There was evidehce legally sufficient to be considered by the jury, of knowledge of' the fraudulent origin of the note, on the part of both Thomas and the plaintiff; and the Court could not do-otherwise than allow it to be considered by the jury. As-the case will have to be re-tried, we shall refrain from comment upon the facts and circumstances of the case; but portions of such evidence are referred to in the-prayers of the defendant, granted by the Court.

The tenth prayer offered by the plaintiff would seem to be unobjectionable in principle ; but there was no-error in rejecting it by the Court. It had been fully embraced and covered by the plaintiff’s first and second prayers, which had been granted by the Court. The repetition of the same proposition, though in different phraseology, would have answered no useful purpose, and could only have served to incumher the case and embarrass the jury.

We perceive no error in any of the prayers of the defendant granted by the Court, except the third and the sixth. In these two, just mentioned, we think there was substantial error. By the third prayer the jury were instructed, that if they believed from the evidence the note sued on had been obtained from the defendant by fraud, then the verdict must he for the defendant, unless they should further find that the note had been 'obtained by the plaintiff without knowledge of such fraud at the time he purchased the note ; and that it was incumbent upon the plaintiff to show such want of knowledge on his part by preponderating proof.

This instruction entirely ignored the right of the plaintiff to stand upon and assert the rights of Thomas, the indorser, to whose rights the plaintiff succeeded, in the event that the jury might find that Thomas was an innocent and hona fide holder of the note. The instruction, by the terms in which it was granted, cut off and entirely precluded the plaintiff from any possible right resulting from the good faith of Thomas, if the jury should find such to have existed in his acquiring title to the note. In this we think there was error. And so in regard to the sixth prayer, the plaintiff was confined to the hona,fides of his own conduct in acquiring title to the note, without any reference to or dependence upon what may have been a good and hona fide title acquired by Thomas, to which the plaintiff succeeded by indorsement.

It is contended, however, by the defendant, that the plaintiff is not entitled to occupy the position of indorsee of the note ; that at the time of the transfer of this and other notes to the plaintiff the latter exacted and took from Thomas a guarantee of indemnity, and that it was upon that and not the indorsement that he relied in taking the notes and paying the money to Thomas. And in support of this contention the defendant cites and relies on the case of Trust Co. vs. National Bank, 101 U. S., 68. But that case is quite unlike the present. There the note was not indorsed to the Trust Company, and it was not, therefore, taken in the usual course of business by that mode of transfer in which negotiable paper is usually-transferred. The payment of the note was merely guaranteed, and the Court held that not to be in effect equivalent to an indorsement. Here, though the note was payable to Huddle or bearer, it was indorsed by Thomas to the plaintiff, and in such case, the indorser incurs the same liabilities and obligations as the indorser of a negotiable note, payable to order. Sto. Prom. Notes, sec. 132. And while it is difficult to perceive why the individual guaranty of Thomas should have been taken, when he had indorsed the notes in a manner to secure to the plaintiff all the liability of a commercial indorsement of the paper, yet the motive, and purposes to be accomplished by such transaction, form a question, in a case circumstanced like the present, solely for the jury.

(Decided 15th March, 1892.)

It follows, from the foregoing review of the case, that for the errors in the third and sixth instructions granted for the defendant, the judgment must be reversed and a new trial awarded.

Judgment reversed, and new trial awarded.