Wheeler v. Guild

37 Mass. 545

• Court: Massachusetts Supreme Judicial Court
• Decided: October 8, 1838
• Status: Published

Opinion

Shaw C. J.

delivered the opinion of the Court. The facts of this case present a very important question for the consideration of the Court. Whatever affects the negotiability, and the free currency of promissory notes and bills of exchange, is of the utmost importance to a mercantile community, the business of which is to a great extent transacted through the medium of these instruments.

The facts which may be deemed material are these. The plaintiff became the holder of the note in question by regular indorsement for valuable consideration, soon after it was made, being a note dated September 1, 1833, payable in three years, with interest, and the last indorsement being in blank. Within a year from the date of the note, to wit, in March, 1834, the plaintiff, John Wheeler, as surety, joined with Daniel G. Wheeler in three promissory notes, one to Brigham & Goodrich, attorneys and partners, in Worcester, one to Tappan & Co. and one to Stewart & Co. of New York, for both of which parties Brigham & Goodrich were agents and attorneys. On that occasion, the plaintiff, John Wheeler, delivered to Brigham and Goodrich, as collateral security to his three joint and several promises, the note in question, indorsed in blank, and took their receipt, specifying that it was so received, and to be by them held, as collateral security for the payment of those notes. In September, 1835, these three notes had been fully paid. Though Brigham and Goodrich were in partnership as attorneys at law, yet Brigham was engaged in much other business, and had many separate negotiations, and the business in question had been done in the partnership name, but in fact by Goodrich. In December, 1835, the plaintiff applied to Goodrich for the note, who then produced and exhibited it from a file of private papers, where it had been kept ay him, and he would then have given it up to the plaintiff, nut the plaintiff had not his receipt with him, to exchange for it. In the mean time, before this application of the plaintiff to Goodrich, viz. on the 28th of November, 1835, Brigham had received of Stafford, one of the firm of A. H. Guild & Co. and one of the defendants, $500 to pay the note in question, describing it as a note payable in September, 1836, and gave him a receipt, in his separate name, signed D. T. Brigham, stating that the $500 had been received in full payn ent of the note, and the note to be delivered up to Stafford. Soon after the application of the plaintiff to Goodrich above stated, viz. about the 24th of December, Stafford, one of the defendants, producing Brigham’s receipt, applied to Goodrich for the note, who declined giving it, on the ground that Brigham had no right to receive pay for, and discharge the note, and by mutual consent, it was placed in the custody of a gentleman, for the use of the party having the better title to it, by whom it was produced in this Court on the trial.

Some inferences are to be drawn from this evidence, which may have a bearing on the case ; but we think they are plainly deducible from the circumstances stated, and they are these ; that Goodrich did not assent to the payment received by Brigham, and did not in fact know of it till after he had been applied to by the plaintiff for the note ; that Goodrich had the actual possession and custody of the note, and that at the time that Brigham received the money and gave the receipt, he not only did not produce or exhibit the note, but that he had not the actual custody of it, nor was it so amongst the partnership papers, as that it was in the actual joint custody of the parties as partners. If he had it in his possession, or had regular access to it, in the ordinary way of business, there is no reason why he did not deliver it up to Stafford, instead of giving him a receipt, and a promise to deliver it.

The law in regard to bills of exchange and promissory notes, is so framed as to give confidence and security to those who receive them, for valuable consideration, in the ordinary course of business, when payable to bearer or indorsed in blank so as to be transferable by delivery ; and in general a party taking such a bill under such circumstances, has only to look to the credit of the parties to it, and the regularity and genuineness of the signatures and indorsements. So that if such a bill or note be made without consideration, or be lost n, stolen, and afterwards be negotiated to one having no knowledge of these facts, for a valuable consideration and in the usual course of business, his title is good and he shall be entitled to receive the amount. Miller v. Race, 1 Burr. 452; Peacock v. Rhodes, 2 Doug. 633 ; Grant v. Vaughan, 3 Burr. 1516. The credit which the law thus attributes to notes and bills of exchange which are transferable by delivery, arises mainly from the confidence inspired by the actual custody and possession, and the actual delivery of the security upon such negotiation. To so great an extent is this principle carried, that in regard to bank notes, and in most respects in regard to all other bills and notes transferable by delivery, the title and the possession are considered to be inseparable. And it will be presumed that the party thus in possession of a bill, holds it for value, until the contrary appears ; and the burden of proof is on the party impeaching his title. Collins v. Martin, 1 Bos. & Pul. 648.

But these rules are adopted with this limitation, that the party thus taking the note or bill, does it in the ordinary- course of trade, when not overdue or otherwise dishonored by any thing apparent upon the face of it, and without notice that it had been lost or stolen, or that the holder had obtained it wrongfully, or had no just right to receive it in the way of business. Paterson v. Hardacre, 4 Taunt. 114. If one takes a note or bill with actual notice, that it has been lost by the owner, he cannot hold it against the true owner. Lovell v Martin, 4 Taunt. 799.

It has been argued, that where a party has a legal title by indorsement and delivery, and the actual possession of the bill or note, although he holds without any just right to negotiate or collect it, still as he has a legal title, a transfer from him will vest a legal title in another and authorize such other to take for his own use. But this consequence, we think, does not follow. The true , ground is expressed by Eyre C. J., in the case above cited, Collins v. Martin. He says, “ for the purpose of rendering bills of exchange negotiable, the right of property passes with the bills themselves. The property and the possession are inseparable. This was necessary to make them negotiable and in mis respect they differ essentially from goods.” In another part of his judgment, in assigning the reason why a person thus having a legal title, may not enforce the collection of the bill, whether he has given value for it or not, he says, “ If it can be proved that the holder gave no value for the bill, then he is in privity with the first holder, and will be affected by every thing that affects the first. This all proceeds upon an argumentum ad hominem. It is saying, you have the title, but you shall not be heard in a court of justice to enforce it against good faith and conscience.” The same reasoning applies to other cases, where a party has the custody of a bill, without any just right or lawful authority to collect or negotiate it, as where it has been lost or stolen, or embezzled from the true owner, or intrusted to an agent, for a special purpose only ; if these facts are known to the party receiving it, he is in privity with the party from whom he receives it, and cannot be heard in a court of justice, though having a legal title to enforce an inequitable and unjust demand. Such a case is not within the reason of the rule, which is designed only to protect bills and notes, when taken in good faith, in the course of business. If a note is paid, not in the usual course of business, or to a person having the custody, but not authorized to receive payment, and that known to the party paying, though the note be given up, it is no discharge against the true owner. Kingman v. Peirce, 17 Mass. R. 247.

So, payment of a bill or check, before it is due, will not be a discharge, unless made to the real proprietor of it ; and therefore where a banker, contrary to usage, paid a check the day before it bore date, which had been lost by the payee, it was held, that he was liable to repay the amount to the person losing it. Da Silva v. Fuller, Sel. Cas. 238, cited in Chi tty on Bills, (6th Engl, ed.) 148. In this case, although the holder had the legal title arising from the possession of the check, yet he was not bona fide the holder with authority to collect, and as' the banker paid it out of the usual course of business, he paid it at the risk of being obliged to pay it again, if the party presenting it had not just right to receive it.

Most of the same principles and reasons apply alike to transfers and to payments. We think the rules deducible from the cases, are these : where a party takes a bill transferable by deliver) . not overdue nor otherwise apparently dishonored, for valuable consideration, in the usual course of business, and without notice, actual or constructive, that the holder came by it unlawfully or without title, and has no just right to collect and receive it, the party taking it shall hold it as a valid security, notwithstanding that it has been lost by the true owner, or stolen from him, or taken by the holder as a mere agent to keep, or for other special purpose, without any authority to collect or transfer it, otherwise he shall not be deemed to have a good title to hold and enforce payment of it, or to withhold the bill itself or the proceeds of it, from the party justly entitled. Bleaden v. Charles, 7 Bingh. 246. The same rule applies to payments ; if a bill be paid at maturity, in full, by the acceptor, or other party liable, to a person having a legal title in himself by indorsement, and having the custody and possession of the bill ready to surrender, and the party paying has no notice of any defect of title or authority to receive, the payment will be good. But in both cases faith is given to the holder, mainly on the ground of his possession of the bill, ready to be surrendered or delivered, and the actual surrender and delivery of it upon the payment or transfer. If therefore, upon such payment, the holder has not the actúa possession of the bill ready to be delivered, and does not in fact surrender it, but gives a receipt or other evidence of the payment; and if it turns out that the party thus receiving, had not a good right and lawful authority to receive and collect the money, but that another person had such right, the payment will not discharge the party paying, but will be a payment in his own wrong ; he must pay the bill again to the right owner, and must seek his redress against the party receiving his money, on the pretence that he had a right to receive it as the holder of the bill, when in fact he had no such right.

Applying these principles to the present case,, the Court are of opinion, that the payment made by Stafford to Brigham, under the circumstances, did not operate as a payment and discharge of this note, and that the plaintiff is entitled to recover.

The plaintiff was the holder of this note by indorsement, oefore it was pledged to Brigham and Goodrich, and had the ampíete legal and equitable title to it, and the whole beneficial interest in it. Being transferable by delivery, when transferred to Brigham and Goodrich, they took the legal title, with a right to collect it, and apply the proceeds to the payment of the notes, for the security of which it was pledged, if they should not be otherwise paid. But when those notes were paid, all right of Brigham and Goodrich to transfer or collect it ceased, and they had the mere naked possession of it for the plaintiff, to be surrendered on demand. Now whatever might have been the effect of an actual surrender and delivery of this note to one of the promisers, on receiving payment, it is very clear, that according to all the rules applicable to this subject, without surrendering and delivering up the note, the payment must be considered as made at the risk of the party paying ; and as the party receiving, in fact had no right to receive payment, such payment and receipt did not discharge the note, as against the true owner. It is not necessary to consider whether Brigham was acting in his partnership capacity or not; because after the purpose was accomplished, for which the note was pledged to the partners, they had no just right or lawful authority to transfer or collect the note, as against the plaintiff. If they had jointly transferred it in the due course of business, although their transfer without notice might have held it, it would be in virtue of the law which protects such transfers to a party without notice, in order to give effect to the currency of bills and notes, and not because Brigham and Goodrich had any right or lawful authority. If therefore they had given a transfer in writing with a promise to deliver the note, not delivering or producing it, no title would have passed as against the plaintiff, because such transfer without delivery, would not be within the reason or .principle of the rule.

But we think the other point is equally decisive. Brigham not only did not produce or exhibit the note, but he had not the actual custody or possession of it. He did not profess to act for the partnership, but signed the receipt in his own name. Had Brigham and Goodrich as partners, been the true holders of the note, or if they had had a joint authority to collect it, it may well be admitted, that the act of one or the receipt of one would bind both. But all the right and authority which they ever had over the note, except to give it back to the plaintiff, agreeably to their contract, had ceased. A receipt of one therefore in his own name and not purporting to be for the use of both, was not within the scope of the partnership authority, and did not bind his partner. The defendant Stafford gave credit to Brigham only. For though his receipt purports to be, not merely ex-ecutory, but a present discharge of the note, yet as he had no authority to discharge it, either by himself, or for himself and partner, and as he had not the note to surrender and give up, the legal effect and operation of his receipt, was, an executory undertaking, that he would procure a discharge of the note and surrender it. The consequence is, that Stafford paid his money to the wrong person, and must look to him for an indemnity.

Besides, the note was not paid in the due course of business. It was paid many months before it was due ; the full sum was not paid, there being more than two years interest due on the notes, which was wholly relinquished ; no notice was given to Goodrich, the partner who transacted the business of taking these notes, and giving the receipt for them, and who had the actual custody of this note ; all of which would be strong evidence to go to a jury, to establish the fact of constructive notice to Stafford, that Brigham had no right, either in his own name or as a partner with Goodrich, to receive payment of, or to discharge this note. But the other grounds are sufficient, without relying upon these circumstances.

The grounds, upon which the Court place their judgment are these : The plaintiff had once a good title to the note. It was delivered to Brigham and Goodrich, for a special purpose, which was accomplished. After that, Brigham and Goodrich had a mere naked custody of the note for the plaintiff and had no right or lawful authority either to negotiate or collect it; a fortiori, Brigham alone had no such authority. The defendant Stafford was not lawfully called upon to pay Brigham, as having the possession and custody with a prima facie title, because he had no such custody or possession, and the note was not due. Stafford was not deceived into taking the note by the production and deliverv nf it, because it was not delivered or produced ; if he paid it therefore to Brigham, without having up his note, he did it on the faith that Brigham had good right to receive payment and discharge it, and of course under the liability to pay it over again to the rightful proprietor if Brigham had not such right. In fact and law, Brigham had no such right, but the plaintiff was at the time the rightful proprietor, and of course the defendants obtained no discharge by such payment, but upon the maturity of the note they were bound to pay it to the plaintiff. The note having been put by Mr. Goodrich into the hands of a common friend, for the use of the party entitled, and the plaintiff having shown himself entitled, the note was rightly brought in by the person to whom it was thus intrusted, as evidence for the plaintiff.

Judgment for plaintiff.