Parker, J.
As against Brown, to whose order the check was payable, the bank had a good defense. But it could not defeat a recovery by a
bona fide
holder to whom the check had been indorsed for value. By an oversight on the part of both Brown and Bingham
&
Co. the check was accepted and cashed without the indorsement of the payee. Before the authority to indorse the name of the payee upon the check was procured and its subsequent indorsement thereon, Bingham
&
Co. had notice of the fraud which constituted a defense for the bank as against Brown. Can the recovery had be sustained
%
It is too well settled by authority, both in England and in this country, to permit of questioning, that the purchaser .of a draft, or check, who obtains title without an indorsement by the payee, holds it subject to all equities and defenses existing between the original parties, even though lie has paid full consideration, without notice of the existence of such equities
and defenses.
(Harrop
v.
Fisher,
30 L. J. [C. L., N. S.] 283;
Whistler
v.
Forster,
14 C. B. [N. S.] 246;
Savage
v.
King,
17 Me. 301;
Clark
v.
Callison,
7 Ill. 263;
Haskell
v.
Mitchell,
53 Me. 468;
Clark
v.
Whitaker,
50 N. H. 474;
Calder
v.
Billington,
15 Me. 398;
Lancaster Nat. Bank
v.
Taylor,
100 Mass. 18;
Gilbert
v.
Sharp,
2 Lans. 412;
Hedges
v.
Sealy,
9 Barb. 214-218;
Franklin Bank
v.
Raymond,
3 Wend. 69;
Raynor
v.
Hoagland,
7 J. & S. 11;
Muller v. Pondir,
55 N. Y. 325;
Freund
v.
Importers &
Traders’
Bank,
76 id. 352; Trust Co. v. Nat.
Bank,
101 U. S. 68;
Osgood
v. Artt, 17 Fed. Rep. 575.)
The reasoning on which this doctrine is founded may be briefly stated as follows: The general rule is that no one can transfer a better title than he possesses. An exception arises out of the rule of the law-merchant, as to negotiable instruments. It is founded on the commercial policy of sustaining the credit of commercial paper. Being treated as currency in commercial transactions, such instruments are subject to the same rule as money. If transferred by indorsement, for value, in good faith and before maturity, they become available in the hands of the holder, notwithstanding the existence of equities, and defenses, which would have rendered them unavailable in the hands of a prior holder.
This rule is only applicable to negotiable instruments which are negotiated according to the law-merchant.
When, as in this case, such an instrument is transferred but without an indorsement, it is treated as a chose in action assigned to the purchaser. The assignee acquires all the title of the assignor and may maintain an action thereon in his own name. And like other dioses in action it is subject to all the equities and defenses existing in favor of the maker or acceptor against the previous holder.
Prior to the indorsement of this check, therefore, Bingham & Co. were subject to the defense existing in favor of the. bank as against Brown, the payee.
Evidence of an intention on the part of the payee to indorse does not aid the plaintiff. It is the act of indorse
ment, not the intention, which negotiates the instrument, and it cannot he said that the intent constitutes the act.
The effect of the indorsement made after notice to Bingham & Oo. of the hank’s defense must now he considered. Did it relate back to the time of the transfer, so as to constitute the plaintiff’s holders by indorsement as of that time ?
While the referee finds that it was intended both by Brown and the plaintiffs that the check should be indorsed, and it was supposed that he had so indorsed it, he also finds that Brown made no statement to the effect that the check was indorsed; neither did the defendants request Brown to indorse it There was, therefore, no agreement to indorse. Nothing whatever was said upon the subject. Before Brown did agree to indorse the plaintiffs had notice of the bank’s defense. Indeed, it had commenced an action to recover possession of the check.
It would seem, therefore, that having taken title by assignment, for such was the legal effect of the transaction, by reason of which the defense of the bank against Brown became effectual as a defense against a recovery on the check .in the hands of the plaintiffs as well, that Brown, and Bingham & Oo., could not, by any subsequent agreement or act, so change the legal character of the transfer as to affect the equities and rights which had accrued t® the bank. That the subsequent act of indorsement could not relate back so as to destroy the intervening rights and remedies of a third party.
This position is supported by authority.
(Harrop
v.
Fisher; Whistler
v.
Forster; Savage
v.
King; Haskell
v.
Mitchell; Clark v. Whitaker; Clark v. Callison; Lancaster Nat. Bank
v.
Taylor; Gilbert
v. Sharp, cited,
supra.)
Watkins
v.
Maule
(2 Jac. & Walk. 243) and
Hughes
v.
Nelson
(29 N. J. Eq. 547) are cited by the plaintiff in opposition to the view we have expressed.
In
Watkins
v. Maule, the holder of a note, obtained without indorsement, collected it from the makers. Subsequently the makers complained that the note was only given as a guarantee to the payee who had become bankrupt. Thereupon the
holder refunded the money and took up the note upon the express agreement that the makers would pay any amount which the holders should fail to make out of the bankrupt payee’s property. The makers were held liable for the deficiency.
Hughes
v.
Nelson
did not involve the precise question here presented. The views expressed, however, are in conflict with some of the cases cited but we regard it in such respect as against the weight of authority.
Freund
v.
Importers & Traders' Bank (supra)
does not aid the plaintiff. In that case it was held “that the certification by the bank of a check in the hands of a holder who had purchased it for value from the payee, but which had not been indorsed by him, rendered the bank liable to such holder for the amount thereof. By accepting the check the bank took, as it had a right to do, the risk of the title which the holder claimed to have acquired from the payee.
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Parker, J.
As against Brown, to whose order the check was payable, the bank had a good defense. But it could not defeat a recovery by a
bona fide
holder to whom the check had been indorsed for value. By an oversight on the part of both Brown and Bingham
&
Co. the check was accepted and cashed without the indorsement of the payee. Before the authority to indorse the name of the payee upon the check was procured and its subsequent indorsement thereon, Bingham
&
Co. had notice of the fraud which constituted a defense for the bank as against Brown. Can the recovery had be sustained
%
It is too well settled by authority, both in England and in this country, to permit of questioning, that the purchaser .of a draft, or check, who obtains title without an indorsement by the payee, holds it subject to all equities and defenses existing between the original parties, even though lie has paid full consideration, without notice of the existence of such equities
and defenses.
(Harrop
v.
Fisher,
30 L. J. [C. L., N. S.] 283;
Whistler
v.
Forster,
14 C. B. [N. S.] 246;
Savage
v.
King,
17 Me. 301;
Clark
v.
Callison,
7 Ill. 263;
Haskell
v.
Mitchell,
53 Me. 468;
Clark
v.
Whitaker,
50 N. H. 474;
Calder
v.
Billington,
15 Me. 398;
Lancaster Nat. Bank
v.
Taylor,
100 Mass. 18;
Gilbert
v.
Sharp,
2 Lans. 412;
Hedges
v.
Sealy,
9 Barb. 214-218;
Franklin Bank
v.
Raymond,
3 Wend. 69;
Raynor
v.
Hoagland,
7 J. & S. 11;
Muller v. Pondir,
55 N. Y. 325;
Freund
v.
Importers &
Traders’
Bank,
76 id. 352; Trust Co. v. Nat.
Bank,
101 U. S. 68;
Osgood
v. Artt, 17 Fed. Rep. 575.)
The reasoning on which this doctrine is founded may be briefly stated as follows: The general rule is that no one can transfer a better title than he possesses. An exception arises out of the rule of the law-merchant, as to negotiable instruments. It is founded on the commercial policy of sustaining the credit of commercial paper. Being treated as currency in commercial transactions, such instruments are subject to the same rule as money. If transferred by indorsement, for value, in good faith and before maturity, they become available in the hands of the holder, notwithstanding the existence of equities, and defenses, which would have rendered them unavailable in the hands of a prior holder.
This rule is only applicable to negotiable instruments which are negotiated according to the law-merchant.
When, as in this case, such an instrument is transferred but without an indorsement, it is treated as a chose in action assigned to the purchaser. The assignee acquires all the title of the assignor and may maintain an action thereon in his own name. And like other dioses in action it is subject to all the equities and defenses existing in favor of the maker or acceptor against the previous holder.
Prior to the indorsement of this check, therefore, Bingham & Co. were subject to the defense existing in favor of the. bank as against Brown, the payee.
Evidence of an intention on the part of the payee to indorse does not aid the plaintiff. It is the act of indorse
ment, not the intention, which negotiates the instrument, and it cannot he said that the intent constitutes the act.
The effect of the indorsement made after notice to Bingham & Oo. of the hank’s defense must now he considered. Did it relate back to the time of the transfer, so as to constitute the plaintiff’s holders by indorsement as of that time ?
While the referee finds that it was intended both by Brown and the plaintiffs that the check should be indorsed, and it was supposed that he had so indorsed it, he also finds that Brown made no statement to the effect that the check was indorsed; neither did the defendants request Brown to indorse it There was, therefore, no agreement to indorse. Nothing whatever was said upon the subject. Before Brown did agree to indorse the plaintiffs had notice of the bank’s defense. Indeed, it had commenced an action to recover possession of the check.
It would seem, therefore, that having taken title by assignment, for such was the legal effect of the transaction, by reason of which the defense of the bank against Brown became effectual as a defense against a recovery on the check .in the hands of the plaintiffs as well, that Brown, and Bingham & Oo., could not, by any subsequent agreement or act, so change the legal character of the transfer as to affect the equities and rights which had accrued t® the bank. That the subsequent act of indorsement could not relate back so as to destroy the intervening rights and remedies of a third party.
This position is supported by authority.
(Harrop
v.
Fisher; Whistler
v.
Forster; Savage
v.
King; Haskell
v.
Mitchell; Clark v. Whitaker; Clark v. Callison; Lancaster Nat. Bank
v.
Taylor; Gilbert
v. Sharp, cited,
supra.)
Watkins
v.
Maule
(2 Jac. & Walk. 243) and
Hughes
v.
Nelson
(29 N. J. Eq. 547) are cited by the plaintiff in opposition to the view we have expressed.
In
Watkins
v. Maule, the holder of a note, obtained without indorsement, collected it from the makers. Subsequently the makers complained that the note was only given as a guarantee to the payee who had become bankrupt. Thereupon the
holder refunded the money and took up the note upon the express agreement that the makers would pay any amount which the holders should fail to make out of the bankrupt payee’s property. The makers were held liable for the deficiency.
Hughes
v.
Nelson
did not involve the precise question here presented. The views expressed, however, are in conflict with some of the cases cited but we regard it in such respect as against the weight of authority.
Freund
v.
Importers & Traders' Bank (supra)
does not aid the plaintiff. In that case it was held “that the certification by the bank of a check in the hands of a holder who had purchased it for value from the payee, but which had not been indorsed by him, rendered the bank liable to such holder for the amount thereof. By accepting the check the bank took, as it had a right to do, the risk of the title which the holder claimed to have acquired from the payee. In such case the bank enters into contract with the holder by which it accepts the check and promises to pay it to the holder, notwithstanding it lacks the indorsement provided for, and it was accordingly held that it was liable upon such acceptance upon the same principles that control the liabilities of other acceptors of commercial paper.”
(Lynch
v.
First National Bank of Jersey City,
107 N. Y. 183.) But one question remains.
The learned referee held, and in that respect he was sustained by the General Term, that the bank by its certification represented to every one that Brown had on deposit with it $5,000 ; that such amount had been set apart for the satisfaction of the check, and that it should be so applied whenever the check should be presented for payment, and that Bingham & Co., having acted upon the faith of these representations and having parted with $5,000 on the strength thereof, the bank is estopped from asserting its defense.
The referee omitted an important feature of the contract of certification. The bank did certify that it had the money; would retain it and apply it in payment,
provided
the check should be indorsed by the payee.
(Lynch
v.
First National Bank of Jersey City, supra).
If the check had been transferred to plaintiffs by indorsement the defendant would have had no defense, not because of the doctrine of estoppel, but upon principles especially applicable to negotiable instruments.
(Mechanics’ Bank
v. N.
Y.
& N.
H. R. R.
Co., 13 N. Y. 638.)
If the maker or acceptor could ever be held to be estopped by reasons of representations contained in a negotiable instrument he certainly could not be in the absence of a compliance with the provisions upon which he had represented that his liability should depend.
But it is well settled that the maker or acceptor of a negotiable instrumént is not estopped from contesting its validity, because of representations contained in the instrument. In such cases an estoppel can only be founded upon some separate and distinct writing or statement.
(Clark
v. Session, 22 N. Y. 312;
Bush
v. Lathrop, 22 id. 535;
Moore
v.
Metropolitan
Bank, 55 id. 41;
Fairbanks
v.
Sargent,
104 id. 108;
Mechanics' Bank
v. N.
Y. & N. H. R. R. Co., supra.)
The views expressed especially relate to the action of Bingham & Oo. against the bank and call for a reversal of the judgment.
We are of the opinion that the action brought by the bank against Bingham & Oo. to recover possession of the check cannot be maintained and in that ease the judgment should be affirmed.
All concur, except Haight J., not sitting.
Judgments accordingly.