Farrell v. Lovett

• Decision Date: 29 June 1878
• Citation: 68 Me. 326
• Parties: JAMES P. FARRELL v. BENJAMIN L. LOVETT et al.
• Court: Maine Supreme Court

68 Me. 326

JAMES P. FARRELL v. BENJAMIN L. LOVETT et al.

Supreme Judicial Court of Maine.

June 29, 1878

ON REPORT.

ASSUMPSIT on this note.

" Chester, March 25th, 1876. Five months after date, I, or we promise to pay James Lawler, or order, one hundred and fifty dollars, for value received, negotiable and payable at Eastern Ex. Company, Lincoln, Me., without defalcation or discount, with 6 per cent interest from date until paid. (Signed) B. L. Lovett. Luther L. Lovett. Witness--G. Stetson Post Office, Lincoln, county Penobscot."

Indorsed James Lawler, James P. Farrell.

On the back of the note was printed this:

" I own____ acres of land in my own name in the town of____ county of____ and state of____ which is worth at a fair valuation $____ It is not encumbered by mortgage or otherwise, except the amount of $____, and the title is perfect in me in all respects. I have stock and personal property to the amount of $____ over and above my debts and liabilities, not exempt, and subject to levy and execution stated and signed at the time the within note was made and for the purpose of procuring the credit now obtained." There was also a stamp showing it had passed through the Schoharie Co. National Bank.

The defense was fraud in the inception of the note. The defendant testified that he gave the note for $150 to Lawler, a peddler, for goods worth $50; that the package contained two shawls, five dresses and five pieces broadcloth, which he called woolen goods, cut into suits; that he said they were English goods manufactured from the best material; that there was a great failure in England; that these goods were brought from there and purchased in New York by Mr. Farrell; that he was Farrell's agent; that the best shawl was Paisley and was worth $75; the other $18; he refused to give a bill of the prices; said that he was ordered not to sell less than $150 in one sale. The plaintiff judged the Paisley shawl worth about $8; had two suits made up for self and son; they were worn out in six weeks.

George M. Granger, the plaintiff's book-keeper, testified that the plaintiff was an importer of cloths, shawls and silks, etc., in New York; that he had dealings with some fifteen peddlers all over the United States; some of the notes he had printed for and charged to them; he had sold goods to Lawler and taken $20,000 of these notes; his sales were a million dollars annually; that the peddlers bought goods in pieces and had them cut up into suits in the store; that Paisley shawls cost all the way from $3.50 to $500; that parties sometimes found fault with the measure or quality of the goods, but never set up any case of fraud before.

F. A. Wilson & C. F. Woodard with C. P. Brown & A. L. Simpson, for the plaintiff.

D. F. Davis, with whom were G. P. Sewall & J. F. Robinson, for the defendants.

APPLETON C. J.

This is an action upon a promissory note of the defendants, payable to James Lawler or order in five months from date, and indorsed to the plaintiff before maturity, for value.

The defense is that Lawler, to whom it was payable, obtained it through fraud. The note was given for cloths and shawls sold by him to the defendant Lovett. The goods were spread out by the seller for examination, and examined by the purchaser. The alleged fraudulent representations were that the goods " were English goods, manufactured from the best material; that there was a great failure in England, and that these goods were brought from England and purchased in New York by Mr. Farrell, and that he was agent for him," and that the shawls were Paisley shawls.

None of these statements, even if untrue, would form the basis of an action for deceit, or a defense resting on that ground, unless possibly it be the statement that the goods were manufactured from the best materials. Whether there had been a great failure in England, or Farrell had purchased the goods at a great advantage, were not such representations as, if false, would make the seller liable. Bishop v. Small, 63 Me. 12. As to the quality of the goods, whether of the best material or not, the purchaser had ample opportunity to and did examine the goods purchased. Now though the defendant was deceived by the statements of Lawler as to the character and value of the goods sold, " " yet," observes Morton, J., in Brown v. Leach, 107 Mass. 364, " the defendant could not maintain an action of deceit, if the goods were open to his observation, and he could by the use of ordinary diligence and prudence ascertain their quality. He should use reasonable diligence to ascertain their quality. The same principle applies when the purchaser seeks to avail himself of deceit in the defense of a suit for the price of the goods or in reduction of damages." To the same effect is the case of Mooney v. Miller, 102 Mass. 217.

But it is not important to discuss the relations between Lawler and the defendant, inasmuch as the evidence introduced in the defense fully establishes the fact that the plaintiff took the note before its maturity, for a good consideration, in the usual course of business, and ignorant of any fraud on the part of the indorser, if fraud there was.

The proof was, that the plaintiff was a merchant in extensive business in New York; that Lawler was a peddler who made large purchases of him; that his purchases were from one to five thousand dollars; that the terms were " cash less five per cent discount thirty days; " that Lawler was in the habit of indorsing notes taken by him in payment, or part payment, of his indebtedness, at a discount of ten or fifteen dollars, dependent upon the size of the note and its time of payment; that the note in suit was thus received before maturity and passed to Lawler's credit; that the plaintiff had previously taken notes to the amount of twenty thousand dollars from him; that the defense of fraud had never before been interposed; that Lawler was no agent of the plaintiff; that he carried on business on his own account, purchasing his goods of the plaintiff and of other large retail houses in New York; that the plaintiff did not know the consideration of the notes but presumed they were for goods sold, and that he was ignorant of any fraud in such sale.

The plaintiff has been guilty neither of fraud nor gross negligence. The purchaser of a note before maturity has a right to assume that it is given on good consideration. The defendant, by his signature, gives notice to all the world of that fact, and promises when due that he will pay it to the person who may at the time happen to be the legal holder of the same. The purchaser is not bound to inquire. The maker has absolved him from that duty. Where he has paid full consideration for the note before due, fraud only will prevent his recovery, or gross negligence equivalent to fraud. In Goodman v. Harvey, 4 Ad. & E. 870, which was an action on a bill of exchange, Lord Denman says: " We are all of opinion that gross negligence only would not be a sufficient answer, where a party has given consideration for the bill; gross negligence may be evidence of mala fides, but it is not the same thing." In Goodman v. Simonds, 20 How. 343, it was held that a bona fide holder of a negotiable instrument for a valuable consideration, without notice of facts impeaching its validity, if indorsed to him before due, may recover upon it, though, as between antecedent parties, the transaction may be without any validity. In Murray v. Lardner, 2 Wall. 110, it was decided that a purchaser of coupons, in good faith, was unaffected by the want of title of the vendor. Applying the principles applicable to a note indorsed before maturity, Swayne, J., says: " Suspicion of defect of title, or the knowledge of circumstances which would excite such suspicion in the mind of a prudent man, or gross negligence on the part of the taker at the time of the transfer, will not defeat his title. That result can only be produced by bad faith on his part."

The purchaser of negotiable paper not due is under no obligation to make inquiries as to its origin. Nor is he required to be on the alert for circumstances which might excite suspicion. Magee v. Badger, 34 N.Y. 247. Belmont Branch Bank v. Hoge, 35 N.Y. 65. A party taking a bank bill in good faith may recover upon it, although he be guilty of gross negligence in not ascertaining that it had been fraudulently put in circulation. Worcester County Bank v Dorchester & Milton Bank, 10 Cush. 488. A note may be negotiated on the last day of grace within business hours and the purchaser acquires a good title, unless he has notice of a defect in the consideration. Gross negligence in not making inquiry is insufficient per se to defeat his title, though it may constitute evidence of fraud. Crosby v. Grant, 36 N.H....