Citizens' National Bank v. Smith

| N.H. | Aug 12, 1875

Lead Opinion

Promissory note — Signature obtained by means of fraudulent representations — Negligence. The question, whether one who has been induced by fraudulent representations, without negligence on his part, to sign a promissory note or bill of exchange, supposing it to be a contract of an entirely different character, is liable on the note or bill to one who has purchased it in good faith for value, before due, has been considered within a few years in quite a number of the states; and the decisions seem to have been nearly uniform that he is not. Several of the cases holding this doctrine are referred to in the able brief furnished us by counsel for the defendant; and an examination of those cases shows, as it seems to me, that the doctrine stands on a very firm basis of reason and legal principle. The same question was decided in the same way by the English court of common pleas in 1869. Foster v. Mackinnon, Law Rep., 4 C. P. 704. That was an action by indorsee against indorser of a bill of exchange, of which the plaintiff became the holder before it became due, and without notice of any fraud. The defendant, who was a gentleman far advanced in years, was induced to put his name on the back of the bill by fraudulent representations, under the following circumstances: One Callow had been secretary to a company engaged in the formation of a railway, in which the defendant was interested, and the defendant had at some time previously, at Callow's request, signed a guaranty for 3,000l., in order to enable the company to obtain an advance of money from their bankers. Callow took the bill in question to the defendant, and asked him to put his name on it, telling him it was a guaranty; whereupon the defendant, in the belief that he was signing a guaranty similar to that which he had before given (and out of which no liability had resulted to him), put his signature on the back of the bill as indorser. BOVILL, C. J., before whom the cause was tried at nisi, prius, directed the jury that "if the defendant's signature to the document was obtained upon a fraudulent representation that it was a guaranty, and the defendant signed it without knowing it was a bill and under the belief that it was a guaranty, and if he was not guilt, of any negligence in so signing the paper, he was entitled to the verdict. The full bench held that this was a proper direction. BYLES, J., who delivered the judgment of the court, in the course of his opinion (p. 711) says — "It seems plain, on principle and on authority, that if a blind man, or a man who cannot read, or who for some reason (not implying negligence) forbears to read, has a written contract falsely read over to him the reader misreading to such a degree that the written contract is of a nature altogether different from the contract pretended to be read from the paper which the blind or illiterate man afterwards signs, then, at least, the signature so obtained is of no force. And it is invalid, not merely on the ground of fraud where fraud exists, but on the ground that the mind of the signer did not accompany the signature; in other words, that he never intended to sign, and, therefore, in contemplation of law, never did sign, the contract to which his name is appended."

I have seen but one case — Douglass v. Matting, 29 Iowa 49" court="Iowa" date_filed="1870-06-15" href="https://app.midpage.ai/document/voorhies-v-atlee-7094515?utm_source=webapp" opinion_id="7094515">29 Iowa 49 — where the rule has been directly held the other way; and I should be prepared to dispose of this case by the application of a doctrine which appears to be so sensible and so well sustained by authority, if the facts found by the referee stopped here; but he found, in addition, that it was a negligent act on the part of the defendant to sign the note without ascertaining whether it was what the payee represented, or something else; and this, I think, puts a very different face upon the matter. That the defendant cannot be held by virtue of any actual contract or promise is very clear, because he never made any contract; but that he should be estopped by his own negligence from denying, as against an innocent holder for value, the usual legal effect of his signature to a negotiable instrument, or be discharged from liability for the proximate consequences to such innocent holder of his own negligent act, seems to be equally clear both upon reason and authority. See Swan v. North British Co., 7 H. N. 603, S.C. in error; 2 H. C. 175, and cases referred to.^*

But the defendant claims that the finding of negligence by the referee is wrong, and that his report ought to be revised in that particular by the court here. I do not think that can be done. The motion to recommit the report for the purpose of a further hearing on this point, or that the question of negligence be tried by jury, should be addressed to the circuit court. If the motion for a re-trial of the facts, either by the referee or a jury should be denied in the circuit court, I am of opinion there must be judgment on the report for the plaintiff.

^* And see Shirts v. Overjohn, decided by the supreme court of Missouri, May term, 1875, and a valuable note thereon, in the Central Law Journal of July 2, 1875, pp. 423-426. REPORTER.

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Concurrence Opinion

The case of Putnam v. Sullivan, 4 Mass. 45" court="Mass." date_filed="1808-03-15" href="https://app.midpage.ai/document/putnam-v-sullivan-6403147?utm_source=webapp" opinion_id="6403147">4 Mass. 45, is very much like the present. There the defendants, having occasion to be absent from home, had intrusted to their confidential clerk several blank papers with the name of the firm written upon them, to be filled up, some of them as notes signed by the firm, and others made payable to the firm, with the firm's indorsement upon them. One of these blanks was intended to be given to the promissor on the note in suit, but he by a fraudulent trick induced the clerk to give him more than one of these papers, and this note had been fraudulently made on one of them.

It was conceded that the plaintiffs were bona fide indorsees for value without notice. The case was ably argued, and judgment rendered for the defendants by PARSONS, C. J. The learned judge, in his opinion, says, — "The counsel for the defendants agree, that, generally, an indorsement obtained by fraud shall hold the indorsers according to the terms of it; but they make a distinction between the cases where the indorser through fraudulent pretences has been induced to indorse the note he is called on to pay, and where he never intended to indorse a note of that description, but a different note, and for a different purpose.

Perhaps there may be cases in which this distinction ought to prevail, — as, if a blind man had a note falsely and fraudulently read to him, and he indorsed it, supposing it to be the note read to him. But we are satisfied that an indorser cannot avail himself of this distinction, but in cases where he is not chargeable with any laches or neglect, or misplaced confidence in others. Here, one of two innocent parties must suffer. * * The loss has been occasioned by the misplaced confidence of the indorsers in a clerk too young or too inexperienced to guard against the arts of the promissor."

In the present case, no fault is imputable to the plaintiff. It clearly stands in the position of a bona fide indorsee for value without notice.

I have nothing to add to the citation above made, from the case of Putnam v. Sullivan. Of two innocent parties, he by whose negligence the loss has been occasioned must bear it.

It is interesting to remark that the law, as held today by the English court in the case cited by my brother LADD, after the discussions of nearly three quarters of a century, stands exactly where the great American jurist left it.

SMITH, J. In Lickbarrow v. Mason, 2 Term 70, ASHHURST, J., says, — "We may lay it down as a broad principle, that whenever one of two innocent persons must suffer by the acts of a third, he who has enabled such third person to occasion the loss must sustain it." This rule is based in a sound legal principle, and commends itself to the good sense of every intelligent person. It has been long established by numerous authorities, both English and American, including several in this state, cited in the briefs of counsel. It appears from the report of the referee that the plaintiff purchased the note in suit, before maturity, in good faith, and without notice of any defect. It further appears from the report, that it was a negligent act on the part of the defendant to sign the note, without ascertaining whether it was what the payee represented it to be. The defendant, then, having by his negligent act enabled another person to occasion a loss, he must sustain it. Unless the circuit court, for cause shown, shall recommit the report, the plaintiff is entitled to

Judgment on the report.