Blake v. Weiden

• Decision Date: 21 October 1943
• Citation: 291 N.Y. 134,51 N.E.2d 677
• Parties: BLAKE v. WEIDEN.
• Court: New York Court of Appeals Court of Appeals

291 N.Y. 134

51 N.E.2d 677

BLAKE

v.WEIDEN.

Court of Appeals of New York.

Oct. 21. 1943.

Appeal from Supreme Court, Appellate Division, First Department.

Action by John A. Blake, as trustee in bankruptcy of R. Weiden & Sons, Incorporated, against Frank Weiden to recover an overdraft in defendant's salary account, wherein defendant filed couterclaims. From a judgment of the Appellate Division of the Supreme Court, 264 App.Div. 199, 34 N.Y.S.2d 879, entered June 18, 1942, modifying on the law and facts and affirming as modified a judgment in favor of plaintiff entered upon an order of the court at Trial Term, Carew, J., which granted a motion by plaintiff at the close of the entire case for the direction of a verdict in favor of plaintiff and also granted a motion by plaintiff for dismissal of the counterclaims, and denied defendant's motion for a directed verdict, plaintiff appeals to the extent that the judgment of the Appellate Division modifies the judgment below.

Affirmed. Thomas L. J. Corcoran, Keith Lorenz, and John F. X. Finn, all of New York City, for appellant.

Ralph Stout and Harold A. Gates, both of New York City, for respondent.

DESMOND, Judge.

In 1939, R. Weiden & Sons, Inc., became a voluntary bankrupt and plaintiff qualified as its trustee. From the books of the bankrupt corporation it appeared that there was a balance of $8,103.68 owing to it on open account from defendant who was one of its stockholders and had been one of its officers from 1930 to 1938. The trustee sued defendant. The latter's answer contained a number of counterclaims. Five of the counterclaims involved five negotiable promissory notes, each for $5,000 and each given by the corporation in 1930 to Robert Weiden, defendant's father who died in 1937. All of the notes remain unpaid. At some time between the father's death and the bankruptcy, defendant's two brothers, Charles R. Weiden and Hermann J. Weiden, who were the executors of the father's will, put on the back of each of the notes a form of indorsement, signed by the estate, by themselves as executors, and worded thus: ‘Pay to the order of Charles R. Weiden, Hermann J. Weiden and Frank J. Weiden, share and share alike, as tenants in common.’ Defendant is the third named indorsee. The brothers Charles and Hermann Weiden filed in the bankruptcy proceedings proofs of claim on their purported individual shares of the five notes, as indorsees. The record does not show whether those claims in bankruptcy have been allowed, or whether they were contested by the trustee. Defendant attempted in his five counterclaims to use his purported share of the five notes as a set-off against the debt for which the trustee is suing, defendant's share of the notes, including interest, being larger in amount than the debt in suit. Whether defendant has an interest, available for such use, in the five notes, is the only question before us. The facts are undisputed. At the close of plaintiff's case, which developed the facts as above recited, plaintiff moved to dismiss the counterclaims and each side moved for a directed verdict. Plaintiff's motion was granted and the counterclaims dismissed. The Appellate Division modified (in effect it reversed) by denying plaintiff's motion to dismiss the counterclaims and by directing judgment for defendant in amount sufficient to offset plaintiff's claim.

An analysis of section 62 of the Negotiable Instruments Law will, we think, lead us to the answer to the question we have before us. That section, which is identical with section 32 of the ‘Uniform Negotiable Instruments Law’ and is found on the statute books of many of our states and of England, is as follows: ‘The indorsement must be an indorsement of the entire instrument. An indorsement, which purports to transfer to the indorsee a part only of the amount payable, or which purports to transfer the instrument to two or more indorsees severally, does not operate as a negotiation of the instrument. But where the instrument has been paid in part, it may be indorsed as to the residue.’

The indorsement, or attempted indorsement, of the five notes described in the counterclaims, did not, of course, offend against the first sentence of section 62, since the form of indorsement used applies to the whole of each note. The third sentence of the section has no relevancy to this case. The second sentence, however, does deal with indorsements like those here under scrutiny and provides that such a writing on the back of a note ‘does not operate as a negotiation of the instrument.’ The meaning of that phrase has been examined in many opinions and texts. Some of those authorities (see Martin v. Hayes, 44 N.C. 423; Conover v. Earl, 26 Iowa 167; Byles on Bills (20th ed.), p. 161; Brannan Negotiable Instruments (5th ed.), p. 427) say, or seem to say, that such a purported indorsement transfers to the indorsees no title at all, or at least no title on which they can sue at law. Other writers give section 62 a narrower meaning and hold that, while such an indorsement ‘does not operate as a negotiation,’ it does nevertheless convey to the indorsee not the rights of a holder in due course but a title of some kind to his share of the note or, more precisely, to a non-negotiable chose in action, on which he may sue. Flint v. Flint, 6 Allen, Mass., 34, 83 Am.Dec. 615;Edgar v. Haines, 109 Ohio St. 159, 141 N.E. 837, 38 A.L.R. 795. There seem to be no New York cases directly in point. Two decisions in this State (King v. King, 37 Misc. 63, 74 N.Y.S. 751, affirmed 73 App.Div. 547, 77 N.Y.S. 40, appeal dismissed 172 N.Y. 604, 64 N.E. 1122, and Barkley v. Muller, 164 App.Div. 351, 149 N.Y.S. 620; Id., 168 App.Div. 110, 153 N.Y.S. 923) have a bearing. In the King case one of the beneficiaries of an estate took from the executor a written assignment of a one-fifth part of a note belonging to the estate. In the Barkley case there had been an indorsement to plaintiff of one half of a note. In both cases it was held that there could be no recovery, but it is to be noted that in each of those cases the transfer (indorsement or assignment) covered only a part of the note and did not, as in the present case, involve a transfer of the whole instrument in parts.

In our view, the better rule is that when there has been a purported indorsement of the whole instrument, in separate parts to two or more transferees, the purported indorsees take legal title to their several shares and may sue together, or any one or more may sue, provided all the other indorsees are brought in as parties. (In the case before us defendant did bring in the other two indorsees, alleging without contradiction that they had refused to join with him.)

We reject the view that section 62 makes such an indorsement a nullity. The language of that and other sections of the Act compel a narrower meaning. The statement in section 62 that the indorsement does not ‘operate as a negotiation’ suggests that it is not entirely inoperative. ‘An instrument is negotiated’ says section 60, ‘when it is transferred from one person to another in such manner as to constitute the transferee the holder thereof.’ Reading those two sections with the references to the word ‘holder’ in other parts of the Act (see ss 2, 52, 91) make it clear that the intent of section 62, so far as applicable here, is only to deprive the several indorsees of the special rights which the Act gives to ‘holders' of properly negotiated instruments. Section62 does not, we decide, deprive such indorsees of the rights of ordinary assignees and the irregular indorsement may be treated as an assignment. Kenny v. Hinds, 44 How.Pr. 7;Merchants' Nat. Bank of Battle Creek v. Gregg, 107 Mich. 146, 64 N.W. 1052. No reason appears why the misguided use of an indorsement form should put the purported indorsees entirely outside the protection of the courts. Surely there was in this case at least a constructive delivery of the note to the three beneficiaries of the estate and, that being so, the transferees would have taken title to the instrument or to the chose in action without any written words of transfer at all. Negotiable Instruments Law, s 79; Goshen Nat. Bank v. Bingham, 118 N.Y. 349, 355,23 N.E. 180, 7 L.R.A. 595, 16 Am.St.Rep. 765; Hooker v. Eagle Bank of Rochester, 30 N.Y. 83, 86 Am.Dec. 351. The use of an unrecognized form of indorsement should leave them in no worse position.

A study of the history of, and reason for, section 62 leads to the same answer. The common law looked with disfavor upon any indorsement that did not transfer the whole instrument at one time and to one person. Douglass v. Wilkeson, 6 Wend. N.Y., 637. Thus did the law conform to the ‘custom of merchants' which was that a holder of a note could not ‘apportion such personal contract, for he cannot make a man liable to two actions, where by the contract he is liable to but one.’ Hawkins v. Cardy, 1699, 1 Ld.Raym. 360. The last sentence in the quoted excerpt from the Hawkins case gives us a valuable clue to such mystery as there is in section 62. The whole purpose of the...