195 Ky. 8 | Ky. Ct. App. | 1922
Opinion of the Court by
Affirming.
On November 15, 1914, William H. Cooper, Jr., exeecuted Ms note to Alonzo Riley and Oordie B. Riley by which he agreed and promised to pay them jointly $1,-350.00 twelve months thereafter. It was made negotiable and payable at the German Security Bank of Louisville, Kentucky, and was under our present Negotiable Instruments Act ¡as well as our statute prior thereto, and the Law Merchant, such a note as a purchaser in due course and in good faith before maturity would take free from any equities in favor of prior parties if the instrument was regular upon its face. Within three or four weeks after its execution and delivery Alonzo Riley, one of the payees, endorsed it by writing his name on the back thereof and delivered it to A. J. Karsner in payment for an automobile to the extent of $835.00, there having been paid thereon between the time of its execution and its transfer the sum of $515.00. His endorsement was in blank and his transferee immediately negotiated the note
The answer denied the execution of the note with the two affirmative pleas that defendant’s signature thereto was procured by fraud, and that there was no consideration therefor. Appropriate pleadings made the issues and upon trial the jury selected to try the case returned a verdict in favor of plaintiff, which the court set aside on a motion made therefor, and at a subsequent trial by the court (a jury being waived) there was a judgment dismissing the petition. Plaintiff fheimxpon moved to set aside that judgment and to substitute therefor one based upon the verdict of the jury at the first trial, both of which motions were overruled, and plaintiff prosecutes this appeal.
At common law under the Law Merchant ,and independently of any negotiable instruments act, the transferee of a note of the character here involved could not and did not obtain the legal title thereto except by endorsement of the payee andtby that of subsequent holders, if it had been endorsed to their order, and a holder without such endorsements took it “subject to all the equities vested in prior parties. ’ ’ Thus in Ogden on Negotiable Instruments, page 83, section 96, it. is said: ‘ ‘ The legal title to an instrument made payable to order can regularly be transferred only by endorsement. The transferee, of an instrument made payable to order without indorsement is the equitable owner, and takes it subject to all the equities vested in prior parties.” To the same effect are the com
“When an instrument is made payable to Arder’ the endorsement of the payee is necessary to transfer the legal title; and the transferee without endorsement takes it as a mere chose in action and must aver and prove the consideration; and he takes it subject to all equities that attached to it in the hands of his transferrer;” while section 1877 of Randolph on Commercial Paper, referred to, says: “Where the purchaser of a bill or note takes it without endorsement, unless it is transferable by delivery, he will be subject to such defenses as are available against the payee.”
But, independently of the common law rule, our Negotiable Instruments Act, section 49, now section 3720b-49 1922 Carroll’is edition of Kentucky Statutes, says: “Where the holder of an instrument payable to his order transfers it for value without endorsing it, the transfer vests in the transferee such title as the transferrer had therein, and the transferee acquires, in addition, the right to have the endorsement of the transferrer. But for the purpose of deteimining whether the transferee is a holder in due course, the negotiation takes effect as of the time when the endorsement is actually made.” And section 3720b-41 of the same statutes says: “Where an instrument is payable to the order of two or more payees or endorsees who are not partners, all must endorse unless the ■ one endorsing has. authority to endorse for the others.” The note involved here was made payable to the order of two persons and there is no pretense or, at any rate, nothing on the face of the note to show that they were partners; nor is there anything to show, or evidence to prove, that Alonzo Riley had authority to endorse the name of his wife and joint payee on the note, nor did he pretend to do so. When, therefore, plaintiff accepted
It is insisted, however, (a), that Mrs. Riley, according to the record, had no beneficial interest in the note and by reason thereof plaintiff’s rights, as a holder in due course, are not affected because of a non-compliance with section 41, supra, of the Negotiable Instruments Act, and (b), that if it were otherwise her endorsement after the note became due related back to the time of plaintiff’s ac
Answering contention (a), it is sufficient to say that it was not the full purpose of the regulations prescribed by the statute for the transfer of such instruments to provide for only the transmission of title, but their observance was also intended to furnish a clear abstract of title upon which the transferee could confidently rely and by his purchase become a holder in due course. If, therefore, the regulations for such transfer were not observed that fact would impose upon him the duty to make investigations regardless of the fact that the non-endorsing payee or other proper party had no beneficial interest in the note, and the refusal to do so would operate to charge him with knowledge of such facts as the investigation if made would reveal. The foreign cases cited do not support the opposite contention of plaintiff’s counsel, but if they did we would be unwilling to follow them because unsupported by authority and unsound in reason. If such a course had been pursued by plaintiff in this case he would have ascertained the facts to be that defendant was not only fraudulently procured to place his name on the note but also that there was no consideration whatever therefor. He was paid nothing to do so, nor did plaintiff decline to accept it without his signature either as maker, endorser or guarantor, since it is proven without contradiction that plaintiff had no actual knowledge of the note till he bought it nor of any of the facts connected with the placing of the names thereon, or its execution until long after it was presented to and purchased by him.
The court, in the case of Pavey v. Stauffer, supra, in its response to the petition for rehearing, effectually answered contention (b), by saying: “A careful examination of the authorities has saitsfied us that a subsequent indorsement of a piece of commercial paper, after maturity, nr notice of the existence of offsets of the maker against the payee, transfers the equitable, but not the legal title, . . . not effectuating an anterior, imperfect transaction, or excluding equitable defenses that had become available in the meanwhile. To this effect is the great weight of authority, English and American; but we deem it unnecessary to quote from opinions at great length, and will content ourselves by citing a few of the leading cases by title, merely, so as to make them of easy and convenient reference. And first in importance is the
^ Since, therefore, the evidence shows beyond question that the name of defendant to the note was wholly without consideration and was obtained by fraud, and that under the proven circumstances plaintiff was never a holder of it in due course, the court properly rendered judgment dismissing his petition, and it is therefore affirmed.
