Bank v. Diefendorf

• Decision Date: 07 October 1890
• Citation: 123 N.Y. 191,25 N.E. 402
• Parties: CANAJOHARIE NAT. BANK v. DIEFENDORF.
• Court: New York Court of Appeals Court of Appeals

123 N.Y. 191

25 N.E. 402

CANAJOHARIE NAT. BANK

v.DIEFENDORF.

Court of Appeals of New York.

Oct. 7, 1890.

Appeal from supreme court, general term, third department.

Z. S. Westbrook, for appellant.

Matthew Hale, for respondent.

RUGER, C. J.

The evidence tended to prove that Henderson and Van Valkenburgh procured from the defendant at Rochester on December 7, 1886, eight promissory notes of $1,000 each, payable to Henderson or bearer at various times, from 3 to 12 months from date, by fraud and misrepresentation, and under an agreement that they should be retained in the possession of the payee to be paid from the receipts of a business to be carried on as partners by the said parties, and under such circumstances as would not have authorized their payee to enforce them against the maker. Two of these notes were purchased by the plaintiff of Henderson at its banking office in the village of Canajoharie, nearly 200 miles from the place where the notes were executed, on the 9th and 10th days of December, 1886, respectively, and these notes are the subject of this action. The purchase of the notes by the plaintiff was conducted by its cashier, and the circumstances attending their transfer were not materially different, in respect to the two notes, except in the fact that the transfer of the second note indicated a larger indebtedness of their maker at the time of the last transaction than was inferable from the first sale. The circumstances of the transfer were testified to by the cashier alone, and constituted a part of the plaintiff's affirmative case. It may be assumed in the further consideration of the case that such evidence established the fact that the notes were purchased before maturity, and that the plaintiff paid nearly their face value therefor. The cashier also testified that he had no knowledge or notice of the consideration of the notes, and that he took them for the bank in the usual course of its business. Other circumstances affecting the purchase appear from the uncontradicted evidence, and are, substantially, as follows: The defendant was a resident of the town of Root, and had for many years lived about six miles from Canajoharie, where the plaintiff's banking institution was located. There is no evidence in the case showing his pecuniary condition; but it does appear that he was a farmer, upwards of 60 years of age, and had never been engaged in any business requiring the discount of negotiable paper to any noticeable extent. He was known to the cashier of the plaintiff, by whom the purchase was effected, but Henderson, from whom the notes were bought, was, as he says, a ‘perfect stranger’ to him, and he did not know his place of residence, except that he had said he lived in Colorado. The transaction connected with the purchase of the notes took place in the outer office of the bank, and occupied only about 10 minutes. One Vosburg, a resident of Canajoharie, introduced Henderson to the cashier, stating that his name was Henderson, and that he wanted to get the money on the note. The cashier requested Vosburg to indorse it, which he declined to do. The cashier then stated what he would give for the notes, payment to be made in drafts, and Henderson assented, and the transaction was closed. Henderson indorsed the notes, but it does not appear that he gave any information to the plaintiff as to his residence,-the place where he might receive notice of protest,-or his pecuniary circumstances, and none was required of him. It did not appear that the cashier was acquainted with the handwriting of Diefendorf, or made inquiry of any one who knew it. The amount of the purchase price was paid to Henderson in drafts on plaintiff's correspondents in other cities, for which a percentage was charged by it, and these drafts were cashed on the day after they were respectively received by the plaintiff, upon the statement by Henderson that he wanted the cash, and did not want drafts. There was no haggling about terms in the negotiation. The cashier dictated the price, and the funds in which the payment was to be made, and Henderson accepted the offer without demurrer or hesitation. The notes bore interest, and the plaintiff paid Henderson a sum amounting to their face value less a discount, which insured the bank from 15 to 18 per cent. profit upon the transaction. As might naturally have been expected, after the lapse of a short time, Henderson disappeared, and has not since been heard from. The notes were, apparently, for unusual amounts for a farmer in ordinary circumstances to give, and would naturally have excited curiosity in those who knew him, as to the circumstances under which such an indebtedness was incurred. The plaintiff's cashier, however, studiously refrained from acquiring any information in regard thereto, even such as might be, under many circumstances, desirable for the bank to have. He made no inquiry as to the consideration of these large notes; the influences which had taken this farmer so far from home; or the circumstances attending their execution. He asked no questions as to the responsibility, employment, or associations of his vendor; but apparently bought the notes upon the security of a single name, evidenced by a signature unfamiliar to him, and indifferent to the manner in which they were obtained, or the responsibility of the person with whom he was contracting. For aught that he knew, his vendor was utterly irresponsible, and might have been a man of infamous character, capable of any crime, and able to place himself beyond the reach of criminal process, if circumstances rendered such a precaution necessary or prudent. Even Vosberg refused to approve the responsibility of the parties, although he went to the bank professedly to enable Henderson to get the money on the notes. The notes might have been given for a gambling transaction, or for a usurious consideration, and have been uncollectible by their holder, or impaired in value; but the plaintiff took no heed of these circumstances, and embarked the funds of the bank in the purchase of questionable obligations from a perfect stranger, in violation of the customary rules which prevail in financial institutions. The notes were transferred at a prohibited rate of interest, and would have been void for usury, within the doctrine of Hall v. Wilson, 16 Barb. 550, in the hands of any other transferee than a national bank. This fact limits the forfeiture to the interest, but does not make the taking of usury by such banks lawful. The history of the negotiation is best described by negatives, and is more significant from what was omitted than what was avowed. Stewart v. Lansing, 104 U. S. 510. Greater caution in avoiding the most natural information could not have been exhibited by the plaintiff if the cashier had known the notes were obtained by fraud or crime, and desired to remain in ignorance of those facts. His conduct indicated something more than negligence. He exhibited a studious desire to avoid any information which might throw light upon the origin of the notes, or the existence of equities in favor of their maker. Henderson, a ‘perfect stranger’ to the plaintiff, coming redhanded from the perpetration of his fraud, and desiring to realize its fruits, while his confederate kept Diefendorf employed at a distance from his residence, could not have discovered a less scrupulous or more accommodating instrument than this national bank, if he had sought the customary agencies for the negotiation of feloniously acquired securities. Henderson displayed a cautious reticence in recommending the paper he had to dispose of; and the cashier, with a delicacy as novel as it was considerate, appreciated his situation, and refrained from putting any questions which might embarrass his vendor in negotiating a successful sale. Without being called upon to make the explanation usually required by banking institutions, in respect to the most ordinary transactions of every-day customers, this stranger, it is claimed, walked into a national bank and converted his feloniously acquired property into money without difficulty or delay. Common prudence, and a decent regard for the rights of those who might be injured by his conduct, required more than this from the least scrupulous of men, and much more, it would seem, from the managers of a chartered financial institution. Such institutions have no right to advertise the purchase by them of unlawfully acquired notes, bonds, or negotiable paper, without inquiry or question, neither have they the right to deal in such securities in defiance of the salutary rules regulating the acquisition of title to personal property. It cannot be seriously contended that a business carried on in such a manner is conducted according to the usual and ordinary course of such institutions, within the meaning of those words as used in relation to transfers of personal property. Promissory notes purchased at a usurious and illegal rate of interest before inception, and being void in the hands of their transferrer,under circumstances so strange and unusual as accompanied this transaction, cannot be said, as matter of law, to have been acquired in good faith, in the usual course of business.

No material question arises in this case as to which party had the burden of proof, as the plaintiff voluntarily assumed that burden in the outset of the trial, and no contradictory proof as to the circumstances attending the transfer of the notes was given by the defendant. The burden of proof to establish this fact, as we shall hereafter see, rested upon the plaintiff; and, upon all the evidence, the question, we think, was for the jury to determine. The claim that the plaintiff's cashier was a disinterested witness, whose testimony must be regarded as controlling if not contradicted, cannot be sustained. Aside from the alleged improbability of his statements, he was the financial agent of the plaintiff,...