Davis S.M. Co. v. Best

• Decision Date: 15 March 1887
• Citation: 105 N.Y. 59,11 N.E. 146
• Parties: DAVIS S. M. CO. v. BEST, Receiver, etc.
• Court: New York Court of Appeals Court of Appeals

105 N.Y. 59

11 N.E. 146

DAVIS S. M. CO.

v.BEST, Receiver, etc.¹

Court of Appeals of New York.

March 15, 1887.

Appeal by the defendant from the judgment of the general term, Fourth department, affirming a judgment against him entered upon a verdict directed by the court, in an action to recover the possession of 10 coupon notes belonging to the plaintiff, alleged to be wrongfully detained by the defendant.

Delos McCurdy, for appellant.

Francis Kernan, for respondent.

RUGER, C. J.

The facts in this case were practically undisputed, and upon the trial a verdict was ordered by the court for the plaintiff for seven of the 10 notes claimed by it. The general term affirmed the judgment, and the defendant appeals from such affirmance to this court.

The questions presented by the appeal are substantially embraced in two propositions, viz.: (1) Whether the notes in suit were negotiable paper entitling a bona fide purchaser thereof to hold them as against the true owner; and (2) whether, in case of a recovery by the plaintiff, the jury was authorized to assess their value at the amount appearing to be due upon their face, or at a nominal sum only.

The plaintiff sought to recover what purported to be nine promissory notes of the Davis Sewing-machine Company of Watertown, for $1,000 each, with collateral guaranty and interest coupons attached, payable November 1, 1876, and one similar note, payable February 1, 1880, each of which was made upon a printed blank of similar form. Three of these instruments appeared to be complete in form, with all the blanks properly filled, except the payee's name, and were duly signed by the president and treasurer of the plaintiff company. The remaining seven notes were in the same form, except that they were not signed by the president, although a blank space with a diagonally ruled line, with the title of his office printed thereunder, was apparently left at the foot of each instrument for such signature. The National Trust Company was a banking institution located in the city of New York, and had been previous to this transaction largely engaged in the business of buying, selling, and negotiating similar obligations for the plaintiff and its agents, and which had theretofore been uniformly signed by both the plaintiff's treasurer and president.

In September, 1875, a contract was made between the plaintiff and one Winslow whereby the latter agreed, if the plaintiff would make 10 bonds of $1,000 each, payable in short time, with coupons for interest attached, properly guarantied, he would negotiate them in the market at par for the plaintiff at a compensation of 1 per cent. upon the amount received. Accordingly the following resolution was adopted on September 14, 1875, by the plaintiff's directors, and the notes in suit were issued thereunder: ‘Resolved, that the treasurer be instructed to have signed and negotiate ten thousand dollars of bonds, due November 1, 1876, at ninety-nine cents, with Mr. N. Winslow, * * * have such bonds signed as may be necessary to make up the amount required.’ According to the directions contained in the resolution, the treasurer filled up the notes above described, and procured them to be signed by all of the parties whose signatures were required to be affixed thereto, except that of Winslow as president and guarantor, and delivered them to Winslow to be signed and disposed of as agreed. Instead of selling the notes, Winslow placed them, with other notes of the plaintiff, amounting to $10,000, then belonging to the Security Bank of Watertown, and hypothecated them with the National Turst Companyof New York for a loan of $10,000, for the benefit of the Security Bank. Subsequently the Security Bank repaid the trust company $5,000 of such loan, and required the notes belonging to it to be returned, leaving the notes in suit in the possession of the trust company as security for the unpaid balance of the loan. Upon the discovery of the conversion by Winslow of its notes, the plaintiff demanded them from the defendant who had then been appointed receiver of the trust company, and had possession of all its assets, and upon his refusal to surrender them brought replevin for their recovery, demanding the usual relief.

It is not seriously questioned that the notes were unlawfully converted by Winslow, and that the plaintiff was entitled to recover their possession, unless the trust company became the bona fide holder thereof by virtue of their purchase from the Security Bank. Winslow could not, as against the plaintiff, have retained possession of the notes except for the purpose of executing the authority conferred upon him in accordance with its terms; neither could his transferee acquire any better title than he, except by a purchase for value, without notice of the facts invalidating the title or right to their possession. Decker v. Mathews, 12 N. Y. 313;Comstock v. Hier, 73 N. Y. 273;Fairbanks v. Sargent, 104 N. Y.-, 9 N. E. Rep. 870.

It therefore becomes necessary to inquire whether the trust company reserved them charged with knowledge of their invalidity, or Winslow's want of authority to pledge them for a loan of money. The burden of proving a purchase in good faith and for value devolved upon the defendant after it was established that the notes had been surreptitiously put in circulation, and diverted from the purpose for which they had been delivered to Winslow. It then became incumbent upon the defendant to show that the notes...