On December 16, 1957 defendant executed a six-month promissory note to the order of John Wade, Jr. The instrument was payable at the Glen National Bank, Watkins Glen, N. Y., in the amount of $400, with interest. Apparently defendant was unable to read or write English. It was found below that the payee, Wade, prepared the note and induced defendant to sign it upon the misrepresentation that it was a statement of wages earned by Wade while working for defendant, and that it was necessary for income tax purposes. Defendant was not in debt to Wade, and there was no consideration given for the note. The note was signed at the home of defendant in Watkins Glen. At the time, his wife and daughter were present in the house, and his wife, who was able to read, was in an adjoining room. Defendant did not request his wife to read the instrument.
Subsequently defendant learned that the instrument he had signed might have been a note. He consulted his attorney who advised him to notify all of the banks in Schuyler County, and to advise them not to accept the note. In January of 1958, defendant orally informed the cashier of the plaintiff bank in Odessa that he “ had been tricked ” and that he did not intend to sign a note. He instructed the cashier not to ‘ ‘ cash a note ’ ’ for John Wade, and “ not to give him any money under my name ’ ’. The cashier told him ‘ ‘ not to worry ’ ’ and defendant departed. The cashier, Gilbert, recalled the incident, and testified that defendant told him not to give any money to anyone under FazzarVs name. Gilbert acknowledged that he probably
We thus have an element presented in this case not present in any of the “ forgotten notice ” cases so far as we have been able to discover. Not only was notice given to the very cashier who subsequently discounted the note, but the defendant was assured that he had no cause to be concerned about the bank’s discounting the note. The phrase “not to worry” would present no other realistic meaning to the average person.
On April 10,1958 the note was presented to the First National Bank of Odessa by Wellington R. Doane, a customer of the bank and an indorsee of the payee, Wade. Doane indorsed the instrument in blank, and the plaintiff bank, by its cashier, Gilbert, accepted it for value, paying $400 by cashier’s check. It was found by the trial court that the cashier, at the time of the negotiation of the note to the bank, had forgotten defendant’s prior visit to the bank and the oral notice he had given.
After nonpayment and protest, the plaintiff bank brought this action against defendant. At the close of the evidence the trial court awarded judgment to the plaintiff, holding that the bank was a holder in due course under section 91 of the Negotiable Instruments Law, since its agent had forgotten the prior notice and had acted in good faith in accepting the note. The Appellate Division reversed, holding that the notice, once given, was binding on the bank (Negotiable Instruments Law, § 91, subd. 4); that the bank was not a holder in due course; and that the maker’s defense, therefore, was valid.
Thus the status of the bank is determinative here. The courts below found fraud in the factum; that is, defendant was induced to sign something entirely different than what he thought he was signing. In the absence of negligence on the part of the maker, such fraud constitutes a real defense and is sufficient against a holder in due course (Chapman v. Rose,
The facts as determined by the trial court have been affirmed. The sole question presented is this: Did the bank, the purchaser of a negotiable promissory note, qualify as a holder in due course, and defeat the effect of a prior oral notice of infirmity in the note, by showing that it had forgotten the notice at the time of purchase?
Section 91 of the Negotiable Instruments Law provides:
“ A holder in due course is a holder who has taken the instrument under the following conditions:
“ 1. That it is complete and regular upon it face;
6 ‘ 2. That he became the holder of it before it was overdue, and without notice that it had been previously dishonored, if such was the fact;
“ 3. That he took it in good faith and for value;
“4. That at the time it was negotiated to him he had no notice of any infirmity in the instrument or defect in the title of the person negotiating it.”
Section 95 provides: “To constitute notice of an infirmity in the instrument or defect in the title of the person negotiating the same, the person to whom it is negotiated must have had actual knowledge of the infirmity or defect, or knowledge of such facts that his action in taldng the instrument amounted to bad faith ”.
The bank contends that the cashier did not have notice of the infirmity at the time of the negotiation, and thus the bank met each of the conditions of sections 91 and 95, and we are asked to apply the doctrine of forgotten notice. This doctrine was first enunciated in Raphael v. Bank of England (17 C. B. 161, 84 Eng. Com. Law 160) cited with approval by this court in Magee v. Badger (
The rule was followed in Merchants Nat. Bank v. Detroit Trust Co. (
Perhaps the doctrine is in accord with the general rule in New York, that “ The rights of the holder [of a negotiable instrument] are to be determined by the simple test of honesty and good faith, and not by speculations in regard to the purchaser’s diligence or negligence ” (Manufacturers & Traders
The Appellate Division was of the opinion that since the doctrine was adopted prior to the enactment of the Negotiable Instruments Law (Lord v. Wilkinson, supra) its rationale should be rejected. We are not prepared to reject the doctrine summarily and to hold that once notice is given it is fixed and immutable for all time as to negotiable instruments, particularly in the case where a blanket notice is broadcast with relation to stolen bonds and other securities (Kentucky Rock Asphalt Co. v. Mazza’s Adm’r,
The judgment should be affirmed.
Chief Judge Desmond and Judges Dye, Fuld, Froessel, Van Voorhis and Burke concur.
Judgment affirmed.