American Exch. Nat. Bank v. New York Belting & Packing Co.

Decision Date10 March 1896
PartiesAMERICAN EXCH. NAT. BANK v. NEW YORK BELTING & PACKING CO.
CourtNew York Court of Appeals Court of Appeals
OPINION TEXT STARTS HERE

Appeal from supreme court, general term, First department.

Action by the American Exchange National Bank against the New York Belting & Packing Company on a promissory note. From a judgment in favor of plaintiff (26 N. Y. Supp. 822), defendant appeals. Affirmed.

This action was brought to recover the sum of $5,000 and interest upon a promissory note dated July 18, 1890, and made by the defendant to its own order. The defendant admitted the making of the note, but denied that the plaintiff was a holder for value and in good faith, and alleged that the plaintiff took the same with full notice and knowledge of the fact that it had been diverted from the purpose for which made and delivered. It was shown that the plaintiff received the note from a corporation called the Potter-Lovell Company, doing a brokerage business in commercial paper and other securities. The company was represented in New York City by a person named Corey, as its agent. The defendant had delivered the note to the Potter-Lovell Company to be sold or to be discounted for it, under an arrangement with that company which had existed for some time between them. Corey had effected a loan from the plaintiff to the Potter-Lovell Company, in May, 1890, of $100,000, on that company's note at four months, and pledged for its payment, among other securities, two of defendant's notes for $5,000 each, dated in the previous February and March, due in nine months from date, and of like negotiable character with the one in suit. He received from plaintiff the full amount of the note, less the legal interest from the time of its running. When the note in suit was handed to Corey by the defendant, it was accompanied by another for a similar amount. These two notes were thereafter substituted with the plaintiff by Corey, as a part of the collateral security for the loan mentioned, in the place of the defendant's two other notes of February and March, which were then withdrawn.

Upon the trial, after the plaintiff had rested its case upon proof of the note and of the amount due upon it, the defendant gave evidence, by its treasurer, to show that the arrangement with the Potter-Lovell Company only allowed of the discount or sale of defendant's notes, and then called Corey as a witness to prove that he was the New York agent of the Potter-Lovell Company, that it carried on the general business of note brokerage, and that the note had been pledged as collateral to the plaintiff's loan to that company. The plaintiff thereupon cross-examined Corey, and showed by him the facts as to the Potter-Lovell Company's transaction with it. The date precisely when the loan to the Potter-Lovell Company was made, prior to May, 1890, for which the defendant's prior notes had been originally pledged, is said to be in doubt; but the witness Corey testified very positively that the defendant's two earlier notes had been deposited by him as security for that loan. He gave the date, in May, 1890, when that prior loan was paid off and the new loan for $100,000 was negotiated, and testified that those notes formed part of the collateral security, and were withdrawn by him, upon substituting the defendant's two July notes, of which the note in suit is one. When the defendant rested, upon plaintiff's motion the court directed a verdict for the amount of plaintiff's claim, to which direction the defendant excepted. The judgment entered upon this verdict was affirmed at the general term, and the defendant has appealed to this court.

Austen G. Fox, for appellant.

Michael H. Cardozo, for respondent.

GRAY, J. (after stating the facts).

The learned counsel for the defendant has with much ability and with considerable force insisted that it was error to direct a verdict for the plaintiff, inasmuch as it had not relieved itself of the burden of proving that it was a holder of the note for value and in good faith. He argues, in substance, that the evidence of the witness Corey, disclosing the circumstances under which the plaintiff had received, as security for its loan to the Potter-Lovell Company, the prior notes of the defendant (for one of which the note in suit was substituted), was insufficient to warrant the direction of a verdict. It is suggested by him that the plaintiff in such a case was bound to show by a preponderance of evidence that it took without notice, and, as it relied upon the testimony of the witness Corey, who committed the fraud, that the question still remained one for the determination of the jury. It is to be observed that the defendant does not, apparently, dispute, if the plaintiff received the two prior notes of the defendant for value, before maturity, and without notice of any fact affecting their validity, that then it is entitled to recover upon the note in suit. In that position he is undoubtedly right, inasmuch as the surrender of the prior collateral note when it received the note in suit made it a holder for value of the latter. Bank. v. Watson, 42 N. Y. 490. As we read the evidence relating to the transactions in which the defendant's earlier notes had been pledged to the plaintiff to secure the payment of the Potter-Lovell Company's note for $100,000, we do not think it is open to any doubt. Corey's evidence upon the subject clearly shows that the earlier notes were deposited with the plaintiff in May, 1890, as a part of the collateral security upon the strength of which the loan was made to the Potter-Lovell Company, and it is quite immaterial that they may have been in the possession of the bank as security for another loan prior to that time. When the plaintiff received them as collateral security for the repayment of the loan of money upon the Potter-Lovell Company's note, it became a holder for value, and the only question for us to consider is whether the plaintiff was successful in showing that it had no notice of the diversion of the defendant's notes from the purpose for which delivered to the Potter-Lovell Company, and that there was nothing in the circumstances attending its receipt of the notes to charge it with such notice; or whether, at the close of the case, there was such reasonable doubt upon the matter, or such room for a possible inference adversely to the plaintiff's bona fides, as that it should have been left to the jury to pass upon the question. When the defendant had shown the wrongful diversion of its notes by the Potter-Lovell Company, it was incumbent upon plaintiff to assume the burden of restoring its position of being a bona fide holder of the note for value, which had been assailed by the defendant's evidence. The rule, in cases where the maker of a note shows that it was obtained from him by some fraudulent practice, requires the holder, who sues upon it, to show under what circumstances and for what value he became such. Bank v. Green, 43 N. Y. 298. It seems to us that the plaintiff...

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