Cothran v. Collins

Lead Opinion

By the court, Grover, J.

The only questions in this case arise upon the exceptions to the charge of the judge, and to his refusals to charge as requested. These exceptions present the question whether payment of a note, which has been lost or stolen from the owner, by the maker to the finder or thief, without fraud ; in other words, under the belief that he was the true owner, but under circumstances showing that the maker was grossly negligent in not learning the facts, and which would have excited suspicion in an ordinary person, is available as a defence against the real owner.

The judge upon the trial held, and so instructed the jury, that such payment constituted a defence against the owner. Such I understand to be the fair construction of the charge. The plaintiff insists as one ground why such payment is not good, that it was made after the note became due. .It is well- settled that a party purchasing a note or bill after the same becomes due, takes it subject to all defences the maker or other parties would have against the party from whom he purchases. But this doctrine, I think, has no application to payment made to a party in possession, by the party liable. The rule as to a purchaser is founded upo.n-.a presumption that valid notes or bills áre paid bjr'tlie parties liable thereon at the time they become due, and that non-payment at that time is notice to all. subsequently acquiring title to the paper, that the same is for some reason invalid, or that there is no subsisting cause of action thereon. But the maker of a note has no reason for supposing from the fact that he has not paid the same when due, that the title of the possessor is invalid. Indeed, notes are very rarely paid before due, and cases of presentment for payment before that time are still more rare.

At one time it was the rule in England that payment made to a purchaser or a party in possession, under circumstances calculated to excite the suspicions of a prudent man as to liis ownership, was not good as against the real owner who had lost the paper, or from whom it had been stolen (Gill agt. Cubitt, 3 Barn, Cress. 466). Quite a number of cases were decided'in the same way upon the authority of that case, applying the same rule. In late cases the English judges modify the rule by holding that circumstances calculated to excite suspicion of a prudent man by a purchaser of a bill or note before due, was not sufficient to destroy the title of the purchaser, but to have that effect such purchaser must have been grossly negligent (Crooks agt. Jadis, 5 Barn. § Adolp. 909). Finally, in still later cases, the rule was still further modified by holding that such purchaser must purchase in bad faith, and that gross negligence was not sufficient to destroy his title. (Goodman agt. Harvey, 4 Adolp. & Ellis, 870; TJther agt. Rich, 10 Adolp. & Ellis, 748.) These cases relate to the title of a purchaser before due, of a lost or stolen paper. I think the rule should be the same in case of payment by the party liable, though made after due, as in the case of a purchaser before due.

We have seen that notes are not paid until or after-due usually, and there is surely as much reason that the party liable should be unembarrassed in making payment, and that he should be protected in paying to one in possession, and prima facie entitled to receive it, as that a purchaser in the usual course of business, for value, should be protected in his title. Indeed, if any distinction should be made, I think the rule should be more favorable to the party making the payment. He must act at once, not only to preserve his credit but to protect himself from the trouble and expense of a suit, while the purchaser would merely lose a bargain.

The doctrine of the charge is fully sustained by Story on Motes, section 382; and Id. on Bills, section 438 ; and by Edwards on Bills, 538. The same doctrine is recognized in Hall agt. Wilson (16 Barb. 548), and in Magee agt. Badger (30 Barb. 247). The weight of authority is decidedly in favor of the doctrine held by the judge in. his charge. Upon principle, I think that doctrine correct. There would be no safety in paying paper to anybody but the payee, if in determining the validity of such payment an inquiry must be gone into whether the party making it has been negligent, or whether the circumstances would have excited the suspicions of a prudent man. If such Avas the law, parties liable on commercial paper Avould often be greatly embarrassed. But adopting the text of the charge, that the payment should be held valid unless the party making it did so fraudulently; in other words, made it in bad faith, or presuming that the person to whom it Avas made Avas not the owner, Ave have a fixed determinate rule that can never leave the party liable to pay in doubt as to Avhat course to adopt. He will not be compelled to run the hazard of an uncertain Iuav suit. Indeed, I think that if the court should adopt the rule that a party should not tie protected in paying his paper to the possessor, when the circumstances Avere such as to excite suspicion as to his OAvnersliip, or put him on inquiry, they ought to hold that .such facts constitute a defence to an action .brought by such possessor, although the real owner, until a reasonable time had elapsed for making the inquiry, otherwise the law would cast upon the party liable the burden of either losing his money if he paid, and it turned out that the possessor was not the owner, or if he refused, to pay the costs of a law suit if it turned out he was the owner. Yet no one will contend that such circumstances will sustain a defence for a moment. A holder of a negotiable note is not required to present any evidence of ownership other than the possession, to authorize him to demand and receive payment. Hence, I think, it follows that the charge is correct.

The plaintiff’s motion for a new trial must be denied.

* Note.—This is a very important and interesting question, and this decision is probably the only reported case of the kind.—Rep.

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Dissenting Opinion

Daniels, J., dissenting.

The plaintiff brought this action to recover the amount due upon a promissory note made by the defendant on the 15th of July, 1862, payable in twenty days to the plaintiff or bearer, with semi-annual interest. It remained in his possession and in the possession of his mother for him, until after January 12th, 1863, and between that time and the 16th of February, was feloniously stolen, and on that day was paid by the defendant to a stranger, who derived title under the person committing the theft.

The evidence tends to show that the defendant knew the note continued to be owned by the plaintiff after it became due. There would probably be no impropriety in assuming such to be the fact, since in addition to the other evidence on that subject, she substantially concedes it in her letter written under date of the 11th of August. But that assumption is not necessary, for she has been exonerated from the plaintiff’s claim by payment to the person who held the note. It is true as a general proposition, that not even gross negligence, if unattended with mala fides on the part of the maker or other party paying the note, will invalidate the payment so as to take away the rights founded thereon. (Story on Promissory Notes, § 381; 2 Parsons on Bills and Notes, 272, 273.) But in order to bring the present case within the protection of this rule, the payment should appear to have been made at the maturity of the note, or so near that - time as to show that the holder acquired it before it became due. The rule declared by Chitty in his work on Bills, at page 394, is as follows: “ In general, when the holder of a bill or note indorsed in blank or payable to bearer, loses or is robbed of'it, and the person finding or stealing it presents it to the drawer at the time it is due, and he pays it bona fide, in the course of business, without knowing of the loss or robbery, such payment-will discharge him.” (See also pp. 255, 256.) The rule is stated in the same manner by Parsons, Bills and Notes (vol. 2, 212, 213). He says : “ Payment to a wrong party of a note or bill long dishonored, or of a check long after it was drawn, does not discharge the payer.” If payment be made either before the paper matures or long after it has become due, it is made out of the usual course of business, and will not discharge the party paying, unless to a person actually entitled to receive the money. (Byles on Bills, 271; Story on Promissory notes, 384; 2 Parsons on Bills and Notes, 214,’215.) This is implied by Chitty, in his statement of the rule.

When a person presents the bill or note for payment at its maturity, his apparent right to payment indicated by the production of the paper, is suificient to entitle the maker or acceptor to rely upon his title in making payment. Any other rule would be inconvenient in the transaction of the affairs of business where negotiable paper is made to perform many of the offices of currency. If the maker or acceptor were bound to ascertain at the peril of making payment again, the actual rights of the person who demands it at maturity, intolerable delays and embarrassments would intervene, leading to multitudes of controversies, and the frequent dishonor of obligations that the necessities of the public require to be met promptly at maturity. Much of the real business value of this paper would be thus destrojmd. It is not only convenient, but necessary to the utility of negotiable paper, that the law should protect the party paying at maturity, where the person receiving payment appears from the posssession of the paper to be entitled to it. But where the paper has been long due, the necessities of the rule cease. For its utility as currency in business affairs is at an end. It is essential to that use of it, that the holder for value, in good faith, should be protected, notwithstanding the person transferring the paper to him was without title.

The same rule applies which protects the payment to one without title, when made at maturity. The production of the paper by the holder, without anything indicating his want of title, is sufficient to confer a complete title upon the purchaser. Where the paper, however, has become due, the attribute is lost which will enable the seller to confer a better title than his own upon the buyer. And the law affecting the rights of parties to other personal property then becomes applicable. Hie only difference being that negotiable paper still retains its negotiability, so that the holder having title can negotiate that title to another. But the indorser is presumed to be acquainted with the circumstances affecting its validity in the hands of the person who was h.older when it became due, and consequently must stand in his character. (Williams agt. Matthews, 3 Cow. R. 260 ; Andrews .agt. Pond, 13 Curtis’ U. S. Decisions, 49, 50 ; Goodman agt. Simonds, 20 How. V. S. R. 365, 366.) The rule as stated by Parsons on Bills and Notes (vol. 2, 219), is, “ that where the defective title appears on the face of the lost or stolen instrument at the time of transfer, or where it is transferred after it is due or after dishonor, the party obviously has constructive notice of his assignor’s infirmity, and can have no better title than lie.” This places him precisely where the law applicable tó sales of other kinds of personal property would, if the article sold is not negotiable. Possession alone, in that case, is not sufficient to protect the pei’son who mistakenly acts upon the faith of it. Those who buy, .and those who pay upon the assurance arising from that circumstance, do so at their peril. While possession is presumptive evidence of title, it is liable to be overthrown by any one maintaining a paramount right. The presumption is alike which applies to the possession of a stolen horse and to the possession of an over-due note. As to personal property generally, the rule is well settled that the actual owner cannot be concluded, or his title affected by the disposition made of it by a wrong-doer, or any one acquiring it through him (Wooster agt. Sherwood, 25 N. F. R. 286, 287). It follows that the person who received the payment from the defendant did it without authority. • He had no title to the note, because it was acquired under the felonious taker, and long after it became due. No action could have been maintained upon it by him against the defendant. That infirmity distinguishes this case from all those relied upon to sustain the defence. The paper in them was received before its maturity and for value, which was sufficient to entitle the holder to enforce collection by action, and of course would justify a voluntary payment. Unless the paper properly falls within that class, or is presented for payment when it matures, the maker is not protected in paying, if it appears that the holder was not actually authorized to receive it. Production of the paper by the person demanding payment, will only be sufficient where it is done in the usual course of business, which, in judgment of law, is at the time of its maturity. Where the payment is made long after the paper becomes due, the party relying upon it to make the defence successful, must satisfy the jury that it was made to one actualty authorized to receive it. By the ruling at the circuit, that was excluded from the consideration of the jury.

The verdict should be set aside and a new trial granted.

Marvin, J.,

also delivered an opinion mainly devoted to an analysis of the authorities cited by Judges Grover and Daniels, as follows :

Cases cited by Grover, J., Gill agt. Cubitt (3 Barn. S¡ Cress. 446). Brother Grover speaks of this case as a case where payment was made under suspicious circumstances, &c.,to one possessing the paper, &c., not being valid against the real owner who had lost it, and from whom it had been stolen. The stolen bill was not paid by the acceptor, but' it was discounted by a broker, and he as indorser brought the action against the acceptor, who defended, and had a verdict. The question for the jury was whether the plaintiff took the bill under circumstances which ought to have excited the suspicion of a prudent and careful man. (It was this position which the subsequent cases overruled.) The question whether a payment by the acceptor at maturity or afterwards, without notice, was not in the case. In that case notice of the loss or theft was given, and the acceptor defended.

Brother Daniels quotes from 2 Parsons on Bills and Notes, 212, 213, thus : “ Payment to a wrong party of a note or bill long dishonored, or of a check long after it was drawn, does not discharge the payee.” Parsons cites only Scoby agt. Ramsbottom (2 Camp. 485), and his chapter on checks. This case is stated in a note on page 80. “ A check had been torn in pieces by the drawer and thrown aside; these pieces were pasted together on another slip of paper, the rents, however, being quite visible, and the face of the check soiled and dirty. This check was presented by a stranger and paid without inquiry, and the bank was held liable to the drawer, the position of the instrument being sufficient notice of cancellation.” The text in Parsons, pages 79,80, is : “ If a bank pays a check which was cancelled and the cancelling remains, or a check which had been torn 'to pieces and then pasted together, or one which is so long over due as to be staled or otherwise justifying suspicion and inquiry, he pays it at his own peril.” He cites only Scoby agt. Ramsbottom.. Parsons on page 212, speaks of paying a note to a thief or finder, not discharging the payer unless made in good faith, without knowledge or direct means of knowledge, and in the usual course of business. He cites Miller agt. Race (1 Burrows, 452), where a bona fide holder of a stolen note was allowed to recover, though the banker had notice of the theft. He cites Pearson agt. Hutchinson (2 Camp. 211; 6 Esp. 126 ; see these cases').

Brother Daniels cites Chitty on Bills, 394, to the same effect as Parsons, and Chitty cites the same cases and Bevan agt. Hill (2 Camp. 381). 'Let us see what these cases are. The case of Pearson agt. Hutchinson (3 Camp, and 6 Espinasse), was an action at law against the acceptor of a bill lost after it was indorsed, and it not appearing to have been destroyed; it was held that the action would not lie, 'though a bond of indemnity was tendered. Brown agt. Hill (2 Camp. 381). The buyer of stock had given his check, the vendor lost it, and the vendee refused to pay without an indemnity. The bankers failed four months after, with funds of the drawer of the check in their hands to answer it. It was held that the vendor of the stock could not maintain an action against the vendee for the price of the stock.

These cases do not show that the payment of a note by the maker after it is due, to one who presents it for payment, will be invalid in case the party to whom it was paid was not a bona fide holder. There must be some notice or circumstances beyond the mere fact that the note was past due. Indeed, the modern authorities as to the title of a holder of a bill or note, go to the extent of the charge, that nothing short of fraud will defeat his title. And these cases are cited by Story by way of analog), in cases of payment and discharge of the note. It is true that this rule requiring fraud to defeat the title of the holder, applies only to those cases where the note or bill was transferred before maturity, for if transferred after maturity, the holder always takes it subject to the equities between the parties to the note. The maker of the note must pay it to some one. The possession of the note is prima facie evidence of title, whether the note is due or not, and I concur in the opinion that the maker, in the absence of fraud on his part, may safely pay it to any one who presents it for payment. If the evidence is clear, as in the case of the can-celled check, that the presenter for payment had no title, the payment of it would be a fraud upon the true owner. It would be a payment in bad faith. This was a question for the jury, and it was fairly submitted. I think there was no error in the charge, and I concur with brother Grover, that a new trial should be denied.

Davis, P. J., although he heard the argument took no part in the decision.

Motion for new trial denied.

Case Details

Case Name: Cothran v. Collins

Court Name: New York Supreme Court

Date Published: Sep 15, 1864

Citation: 29 How. Pr. 113

Court Abbreviation: N.Y. Sup. Ct.