Dresser v. Missouri and Iowa Railway Construction Company

• Decision Date: 01 October 1876
• Citation: 23 L.Ed. 815,93 U.S. 92
• Parties: DRESSER v. MISSOURI AND IOWA RAILWAY CONSTRUCTION COMPANY
• Court: U.S. Supreme Court

93 U.S. 92

23 L.Ed. 815

DRESSER v. MISSOURI AND IOWA RAILWAY CONSTRUCTION COMPANY.

October Term, 1876

ERROR to the Circuit Court of the United States for the District of Iowa.

Submitted on printed arguments by Mr. James Grant for the plaintiff in error, and by Mr. George G. Wright, contra.

MR. JUSTICE HUNT delivered the opinion of the court.

This action is brought upon three several promissory notes made by the Missouri and Iowa Railway Construction Company, dated Nov. 1, 1872, payable at two, three, and four months, to the order of William Irwin, for the aggregate amount of $10,000.

The defence is made that they were obtained by his fraudulent representations.

But a single point requires discussion. Conceding that the present plaintiff received the notes before maturity, and that his holding is bona fide, the question is as to the amount of his recovery.

Under the ruling of the court he recovered $500. His contestation is, that he is entitled to recover the face of the note, with interest.

After the evidence was concluded, the plaintiff asked the court to charge the jury, that if they believed, from the evidence, that the plaintiff purchased the notes in controversy of William Irwin for a valuable consideration, on the 1st of November, 1872, and paid $500, part of the consideration, on 21st of January, 1873, before any notice of any fraud in the contract, he was entitled to recover the whole amount of the notes; and the court refused this instruction. But the court charged the jury,——

'That, in the first place, the jury must find that there was fraud in the inception of the notes as alleged; and that if the defendants failed to satisfy the jury of that fact, the whole defence fails.

'That if the fact of fraud be established, and the jury find from the evidence that the plaintiff paid $500 upon the notes without notice of the fraud, and that after receiving notice of the fraud the plaintiff paid the balance due upon the notes, he is protected only pro tanto; that is, to the amount paid before he received notice.'

It does not appear that, upon the purchase of the notes in suit, the plaintiff gave his note or other obligation which might by its transfer subject him to liability. His agreement seems to have been an oral one merely,—to pay the amount agreed upon, as should be required; and he had paid $500, and no more, when notice of the fraud was brought home to him.

The argument of the plaintiff in error is that negotiable paper may be sold for such sum as the parties may agree upon, and that, whether such sum is large or small, the title to the entire paper passes to the purchaser. This is true; and if the plaintiff had bought the notes in suit for $500, before maturity and without notice of any defence, and paid that sum, or given his negotiable note therefor, the authorities cited show that the whole interest in the notes would have passed to him, and he could have recovered the full amount due upon them. Fowler v. Strickland, 107 Mass. 552; Park Bank v. Watson, 42 N. Y. 490; Bank of Michigan v. Green, 33 Iowa, 140. The present case differs from the cases referred to in this respect. The notes in question were purchased upon an unexecuted contract, upon which $500 only had been paid when notice of the fraud and a prohibition to pay was received by the purchaser. The residue of the contract on the part of the purchaser is unperformed, and honesty and fair dealing require that he should not perform it; certainly, that he should not be permitted, by performing it, to obtain from the defendants money which they ought not to pay. As to what he pays after notice, he is not a purchaser in good faith. He then pays with knowledge of the fraud, to which he becomes a consenting party. One who pays with knowledge of a fraud is in no better position than if he had not paid at all. He has no greater equity, and receives no greater protection. Such is the rule as to contracts generally. In the case of the sale of real estate for a sum payable in instalments, and circumstances occur showing the existence of fraud, or that it would be inequitable to take the title, the purchaser can recover back the sum paid before notice of the fraud, but not that paid afterwards. Barnard v. Campbell, 53 N. Y. 73; Lewis v. Bradford, 10 Watts, 82; Juvenal v. Jackson, 2 Harris, 529; id. 430; Youst v. Martin, 3 S. & R. 423, 430.

In Weaver v. Barden, 49 N. Y. 291, the court use this language: 'To entitle a purchaser to the protection of a court of equity, as against a legal title or a prior equity, he must not only be a purchaser without notice, but he must be a purchaser for a valuable consideration; that is, for value paid. Where a man purchases an estate, pays part and gives bonds for the residue, notice of an equitable incumbrance before payment of the money, though after giving the bond, is sufficient. Touville v. Naish, 3 P. Wms. 306; Story v. Lord Windsor, 2 Atk. 630. Mere...