The opinion of the court was delivered by
Watkins, J.
The object of this action is the recovery of possession of two promissory notes, in capital aggregating about $6000, which were executed by the petitioner to the order of J. B. Lallande, payable at a future date, and presently in the possession of the defendant.
Petitioner’s averment is that J. B. Lallande was, at the time of their execution, his factor and commission merchant, and they were furnished to him as collateral security for his current and running account.
That they were discounted and the proceeds thereof placed to his [355]*355credit. That from time to time during the cotton season he made shipments of cotton to Lallande, and when some was sold the proceeds were placed to his credit on open account, just as the proceeds of the notes had been previously. That against these assets in the hands of Lallande, he drew drafts and orders from time to time as suited his convenience and the wants of his business as planter and country merchant.
His further claim is that subsequently Lallande failed in business and made a cession and surrender to his creditors, and that at the time there was upon his commercial books credit in his favor to the amount of $4992.28, and that consequently the notes were only bound to him for the difference between that sum and their face value, to-wit, $1492.47; and that upon the payment of that sum he is entitled to the restitution and surrender thereof.
He further alleges that -the defendant received said notes from Lallande as a pledge, or collateral security for his indebtedness, but without right or authority so to do, and without petitioner’s knowledge or consent. That by virtue of said pretended pledge defendant acquired no right or title whatever to said notes, they being petitioner’s property, and that he was entitled to possession of the same upon payment of the Manee due, which sum he tendered and offered to pay upon the surrender thereof to him. That the defendant’s pretended acquisition of said notes was mala fide, and that this appears by asimple inspection of the notes and endorsements thereon.
The salient facts of this case are in accord with the foregoing averments, except in one or two important particulars. The exceptions are: (1) That on the notes and their endorsement there is no evidence of mala fides on the part of the defendant, and no proof of it furnished by the record; and (2) defendant’s title is evidenced by a written act of pledge signed by Lallande, on the 25th of March, 1889, the maturity of the notes having been previously extended by the plaintiff to the 25th of February, and they are consequently not due at the time.
The proof discloses that Lallande accidentally omitted to endorse his name upon the notes at date of their being pledged to the defendant, but that he, subsequently to his cession and surrender, placed his name upon them, with the knowledge and consent of the defendant, but without that of- the. plaintiff, who remained uninformed of the transaction throughout.
[356]*356The pertinent recital of the act of pledge is as follows, viz.:
“Having executed a promissory note, dated New Orleans, March 25, 1889, for $9000, payable * * * to the order of I. H. Stauffer, on the 16th of February next, 1890, * * * I do hereby pledge, pawn and deliver to said I. H. Stauffer and his assigns, as collateral security for said note, * * * the following,” that is to say the two notes in controversy.. The act then proceeds as follows, viz.: “ In default of payment of my said note, principal and interest, at maturity, I do hereby authorize said I. H. Stauffer, or his assigns, to sell or cause to be sold said collaterals, at public or private sale, * * * and to apply the proceeds * * * to the payment in part or whole of my before mentioned note.”
It is in proof, further, that at the time of the execution of the act of pledge it was within the contemplation of the parties that Lallande should formally endorse the notes, and that he subsequently placed his endorsement upon the notes for the purpose and with the expectation of thereby remedying the defect. The evidence satisfies us, as it satisfied the district judge, that there was neither fraud nor bad faith in the transaction in so far as the defendant, Stauffer, is concerned.
Lallande is not a party to this suit, nor is his syndic a party; yet it is manifest that he had a real and actual interest in the notes to the extent of $1492.47, and his creditors have at this time. This is the plaintiff’s admission.
Under this state of fact, has plaintiff a case entitling him to relief at the defendant’s hands? From the foregoing statement, it is apparent that either the plaintiff must lose $4992.28, or the defendant very nearly that sum, inasmuch as other collaterals enumerated in the act of pledge have comparatively little value.
We have, therefore, a ease in which one of two innocent parties must suffer; and equity requires that the one whose voluntary act put it in the power of another to inflict the injury must sustain the loss, unless there is some precept of positive law to the contrary.
It is certainly true that, upon plaintiff’s own statement, Lallande had the legal possession of the notes, and the right to discount them and convert them into proceeds. It is equally true that when thus discounted, plaintiff had the right to draw, and did draw, against the same. By so doing he evidently placed the notes, collateral for [357]*357his account though they were, beyond his control, until he covered his drafts by shipments and sales of cotton.
But this the plaintiff has not done.
We need not go further or do more than cite our decision in Bank vs. Cason, 39 An. 865, as governing and controlling the question under consideration. From an examination of that case it appears that the State National Bank was the holder of defendant’s note, by transfer in due form, before maturity. That defendant executed and delivered same to his factors and commission merchants, as collateral security for plantation supplies advanced and to be advanced, and that by shipments of cotton to the latter his supply account was completely paid, and nothing was due by him on account for which the note could longer be held as security.
That at the time of the assignment of the note to the bank it was informed of its consideration — that is to say, that it was only collateral paper — but it was not informed that the defendant’s indebtedness to its transferror had, in point of fact, been, at the time, completely paid.
On this state of facts the opinion proceeds, and the court say:
“ The consideration of the note was a lawful and valuable consideration. ■ * * * As the consideration of the note was a valuable one, plaintiff could not have been affected prejudicially by the knowledge of it. If the consideration be lawful, the knowledge of that consideration can, of itself, have no bearing on the rights of the transferee.
“It is the knowledge of the failure of the consideration, or of seci’et equities between the original parties thereto, that would prevent recovery thereon, as between said parties.
Free access — add to your briefcase to read the full text and ask questions with AI
The opinion of the court was delivered by
Watkins, J.
The object of this action is the recovery of possession of two promissory notes, in capital aggregating about $6000, which were executed by the petitioner to the order of J. B. Lallande, payable at a future date, and presently in the possession of the defendant.
Petitioner’s averment is that J. B. Lallande was, at the time of their execution, his factor and commission merchant, and they were furnished to him as collateral security for his current and running account.
That they were discounted and the proceeds thereof placed to his [355]*355credit. That from time to time during the cotton season he made shipments of cotton to Lallande, and when some was sold the proceeds were placed to his credit on open account, just as the proceeds of the notes had been previously. That against these assets in the hands of Lallande, he drew drafts and orders from time to time as suited his convenience and the wants of his business as planter and country merchant.
His further claim is that subsequently Lallande failed in business and made a cession and surrender to his creditors, and that at the time there was upon his commercial books credit in his favor to the amount of $4992.28, and that consequently the notes were only bound to him for the difference between that sum and their face value, to-wit, $1492.47; and that upon the payment of that sum he is entitled to the restitution and surrender thereof.
He further alleges that -the defendant received said notes from Lallande as a pledge, or collateral security for his indebtedness, but without right or authority so to do, and without petitioner’s knowledge or consent. That by virtue of said pretended pledge defendant acquired no right or title whatever to said notes, they being petitioner’s property, and that he was entitled to possession of the same upon payment of the Manee due, which sum he tendered and offered to pay upon the surrender thereof to him. That the defendant’s pretended acquisition of said notes was mala fide, and that this appears by asimple inspection of the notes and endorsements thereon.
The salient facts of this case are in accord with the foregoing averments, except in one or two important particulars. The exceptions are: (1) That on the notes and their endorsement there is no evidence of mala fides on the part of the defendant, and no proof of it furnished by the record; and (2) defendant’s title is evidenced by a written act of pledge signed by Lallande, on the 25th of March, 1889, the maturity of the notes having been previously extended by the plaintiff to the 25th of February, and they are consequently not due at the time.
The proof discloses that Lallande accidentally omitted to endorse his name upon the notes at date of their being pledged to the defendant, but that he, subsequently to his cession and surrender, placed his name upon them, with the knowledge and consent of the defendant, but without that of- the. plaintiff, who remained uninformed of the transaction throughout.
[356]*356The pertinent recital of the act of pledge is as follows, viz.:
“Having executed a promissory note, dated New Orleans, March 25, 1889, for $9000, payable * * * to the order of I. H. Stauffer, on the 16th of February next, 1890, * * * I do hereby pledge, pawn and deliver to said I. H. Stauffer and his assigns, as collateral security for said note, * * * the following,” that is to say the two notes in controversy.. The act then proceeds as follows, viz.: “ In default of payment of my said note, principal and interest, at maturity, I do hereby authorize said I. H. Stauffer, or his assigns, to sell or cause to be sold said collaterals, at public or private sale, * * * and to apply the proceeds * * * to the payment in part or whole of my before mentioned note.”
It is in proof, further, that at the time of the execution of the act of pledge it was within the contemplation of the parties that Lallande should formally endorse the notes, and that he subsequently placed his endorsement upon the notes for the purpose and with the expectation of thereby remedying the defect. The evidence satisfies us, as it satisfied the district judge, that there was neither fraud nor bad faith in the transaction in so far as the defendant, Stauffer, is concerned.
Lallande is not a party to this suit, nor is his syndic a party; yet it is manifest that he had a real and actual interest in the notes to the extent of $1492.47, and his creditors have at this time. This is the plaintiff’s admission.
Under this state of fact, has plaintiff a case entitling him to relief at the defendant’s hands? From the foregoing statement, it is apparent that either the plaintiff must lose $4992.28, or the defendant very nearly that sum, inasmuch as other collaterals enumerated in the act of pledge have comparatively little value.
We have, therefore, a ease in which one of two innocent parties must suffer; and equity requires that the one whose voluntary act put it in the power of another to inflict the injury must sustain the loss, unless there is some precept of positive law to the contrary.
It is certainly true that, upon plaintiff’s own statement, Lallande had the legal possession of the notes, and the right to discount them and convert them into proceeds. It is equally true that when thus discounted, plaintiff had the right to draw, and did draw, against the same. By so doing he evidently placed the notes, collateral for [357]*357his account though they were, beyond his control, until he covered his drafts by shipments and sales of cotton.
But this the plaintiff has not done.
We need not go further or do more than cite our decision in Bank vs. Cason, 39 An. 865, as governing and controlling the question under consideration. From an examination of that case it appears that the State National Bank was the holder of defendant’s note, by transfer in due form, before maturity. That defendant executed and delivered same to his factors and commission merchants, as collateral security for plantation supplies advanced and to be advanced, and that by shipments of cotton to the latter his supply account was completely paid, and nothing was due by him on account for which the note could longer be held as security.
That at the time of the assignment of the note to the bank it was informed of its consideration — that is to say, that it was only collateral paper — but it was not informed that the defendant’s indebtedness to its transferror had, in point of fact, been, at the time, completely paid.
On this state of facts the opinion proceeds, and the court say:
“ The consideration of the note was a lawful and valuable consideration. ■ * * * As the consideration of the note was a valuable one, plaintiff could not have been affected prejudicially by the knowledge of it. If the consideration be lawful, the knowledge of that consideration can, of itself, have no bearing on the rights of the transferee.
“It is the knowledge of the failure of the consideration, or of seci’et equities between the original parties thereto, that would prevent recovery thereon, as between said parties.
“The right of the plaintiff to recover on the note is the more apparent when we consider that, in this instance, in accordance with the mode in which business is usually conducted between commission merchants and planters, this note, we must infer, was executed for the purpose of being negotiated, that, by means of such negotiation and discount of the note, a sufficient sum might be realized and placed to the credit of the defendant to enable his merchants to furnish the promised advances.”
The court in so deciding followed the precedent laid down in Sadler vs. White, 14 An. 177. In that case the court said:
“Plaintiff received the note before maturity, and before a failure [358]*358of consideration. Even if it was known to him, taking it that the consideration was future and contingent, and that there might be offsets against it, this would not make him liable to the equities between the defendants and payee.
“ It can not affect the negotiability of a note that its consideration is to be hereafter realized, or that, from some contingency, it may never be enjoyed. Any one having sufficient confidence in another to give his written obligation for something to be given, or enjoyed hereafter, is at liberty to do so, and the maker can not cepsure any future holder for having purchased it and for seeking to enforce it, for it was the faith of the maker in the payer, that he would execute his promise and allow no obstacles to defeat it, that created the note and gave currency to it.”
That opinion is exceedingly clear and well expressed, and applies to this ease with peculiar force. But neither of the two cases cited are as securely founded in equity as the instant one is for the defendant — the account of the plaintiff being paid, in part only, and defendant having acquired the pledged notes in the usual course of business, and without knowledge of their consideration.
On the other and remaining feature of the case little need be said. The absence of any written endorsement on the notes, at time of their being pledged to the defendant, is not of itself a badge of fraud or bad faith on the part of defendant. The act of pledge formally and circumstantially recites a transfer and pledge of them to the defendant. It evidences a complete agreement of the parties to the transfer. They were pledged for a valuable consideration.
The pledge was the controlling and dominant act of the parties, to which the written endorsement, clearly contemplated, was merely subsidiary.
This being the situation, it is not readily perceived what impropriety there was in Lallande supplying the ellipsis by supplementing the evidence of assignment in the act of pledge by the addition of his signature on the notes.
Text writers are agreed that under such facts “ such subsequent endorsement will relate back to the time of the transfer, and will shut off equities as effectually as if it had been inade at the same time.” Tiedeman on Com. Pap., p. 410, citing: Southard vs. Porter, 43 N. H. 380; Haskell vs. Mitchell, 53 Mo. 468; Watkins vs. Maule, 2 Jacob & W. 237; Weeks vs. Medler, 30 Kan. 57.
[359]*359The same principle is recognized by Randolph. 2 Randolph on Oom. Pap., p. 450, citing: Ex parte Gunning, 13 Ves. 206.
The same principle is recognized by Daniel. 1 Daniel’s Neg. Ins., p. 252, see 260, citing: Hersey vs. Elliott, 67 Mo. 527.
But what makes defendant’s case much stronger is that the assignment of the notes by means of the act of pledge passed an interest in the notes, and created a case not depending upon a mere latent intention to endorse resting upon parol evidence exclusively.
We are of the opinion that the judge of the District Oourt entertained a proper appreciation of both the law and evidence and decided the case correctly.
Judgment affirmed.