Fifth Ward Sav. Bank of Jersey City v. First Nat. Bank of Jersey City

• Citation: 48 N.J.L. 513,7 A. 318
• Parties: FIFTH WARD SAV. BANK OF JERSEY CITY v. FIRST NAT. BANK OF JERSEY CITY.
• Decision Date: 30 June 1886
• Court: United States State Supreme Court (New Jersey)

7 A. 318

48 N.J.L. 513

FIFTH WARD SAV. BANK OF JERSEY CITY

v. FIRST NAT. BANK OF JERSEY CITY.

Court of Errors and Appeals of New Jersey.

June Term, 1886.

[Copyrighted material omitted.]

(Syllabus by the Court.)

On error to Hudson circuit.

The Fifth Ward Savings Bank brought an action against the First National Bank of Jersey City, in trover, for the conversion of 25 bonds, as follows:

10 Jersey City improvement 7 per cennt. bonds, $1,000 each

, - 810,000

13 Bayonne city 5 per cent. bond,$ 1.000 each

13 000

1"7 per cent. bond. & 1.000 each

1.000

1 " 6 per cent. "$500

500

These bonus were issueu uy the municipalities named, in virtue or legislative authority. They matured in the years 1891, 1894, and 1911, with coupons attached for the payment of interest semi-annually. Prior to the transactions hereinafter detailed, the bonds were the property of the savings bank. The First National Bank claimed title to them under a pledge of them as collateral securities for discounts, loans, and advancements. At the trial both parties took exceptions to the charge of the trial judge, and each party sued out a writ of error, and assigned errors upon exceptions taken. The assignments of error by both parties were argued at the same time.

T. N. McCarter, for Fifth Ward Savings Bank.

J. D. Bedle, for First National Bank.

DEPUE, J. The bonds in controversy were coupon bonds, payable to bearer, and issued under competent legislative authority. They were negotiable securities, capable of being transferred by delivery, and the title of a bona fide holder of such securities is valid, notwithstanding the person from whom he received them obtained possession of them from the real owner by fraud or felony. Boyd v. Kennedy, 38 N. J. Law, 146; Copper v. Jersey City, 44 N. J. Law, 634. Commercial securities of this character are an exception to the rule that one cannot give a better title to personal property than he has himself; and, as between the holder who has taken them before maturity for value, and the real owner from whom they were obtained by fraud or felony, the title of the former will prevail, unless he took his title mala fide. Proof that such a holder took the securities under suspicious circumstances is not sufficient to defeat his title. That result can be produced only where he has taken title in bad faith. Murray v. Lardner, 2 Wall. 110; Hotchkiss v. National Banks, 21 Wall. 354; Hamilton v. Vought, 34 N. J. Law, 190; Bank of Republic of New York v. Young, 41 N.J. Eq. 531.

With respect to some of the bonds, the trial judge directed a verdict for the defendant. This judicial action is made a ground of exception by the plaintiff; the contention being that the validity of the defendant's title should have been submitted to the jury. Under the rule that at one time prevailed, that the title of the holder of negotiable paper was defeated by proof of circumstances of a suspicion, such as would have put a person of ordinary prudence upon inquiry, there being no judicial standard by which the force of suspicious circumstances upon a person of ordinary prudence could be measured, if there were any circumstances of an unusual character, the question was necessarily a matter to be submitted to the jury. This doctrine was established by Gill v. Cubitt, 3 Barn. & C. 466. But that case has been overruled, and the law established in this state that the title to a note fraudulent in its inception cannot be invalidated in the hands of a party taking it for value, before maturity, unless actual fraud can be shown in such party in taking it. Hamilton v. Vought, 34 N. J. Law, 187; National Bank of Republic v. Young, 41 N. J. Eq. 531. With the change in the legal rule by which the rights of the holder of such paper are governed, a change was effected in the forum by which the validity of the holder's title was to be considered. That which under the former rule was necessarily a jury question, under the modern rule became, to a great extent, a question of law.

In Hamilton v. Vought, Chief Justice Beasley, in speaking of the rule adopted in Gill v. Cubitt, said: "Its defect was that it provided nothing like a criterion on which a verdict was to be based, * * * and it was precisely this want which the modern rule supplies. When mala fides is the point of inquiry, suspicious circumstances must be of a substantial character, and, if such circumstances do not appear, the court can arrest the inquiry. Under the former practice, circumstances of slight suspicion would take the case to the jury; under the present rule, the circumstances must be strong, so that bad faith can be reasonably inferred. Thus the subject has passed from the indefinite to the comparatively definite; from the intangible to the comparatively tangible. From mere matter of fact, the question, to some extent has become one of law "

Substantially the same views were expressed by Mr. Justice Clifford. In discussing an instruction by the trial judge for a verdict in favor of the holder of a negotiable bond illegally issued, without submitting the question to the jury, that learned judge said that "the modern decisions have established the more reasonable rule that, before the evidence is left to the jury, there is or may be, in every case, a preliminary question for the judge, not whether there is literally no evidence, but whether there is any upon which a jury can properly proceed to find a verdict for the party producing it, upon whom the burden of proof is imposed." Commissioners Marion Co. v. Clark, 94 U. S. 278-284.

It is undoubtedly true that where the maker or indorser of negotiable paper proves that it was obtained from him by fraud, or that it was fraudulently put in circulation, the burden of proof is shifted. The mere possession of negotiable paper obtained or issued under such circumstances is not enough. The plaintiff, in order to recover on such paper, must prove that he took it, before maturity, bona fide, and for value. Duncan v. Gilbert, 29 N. J. Law, 524; Holcomb v. Wyckoff, 35 N. J. Law, 35; Stewart v. Lansing, 104 U. S. 505. But when, in such a case, the plaintiff has shown that he became the holder of the paper before maturity, and for value, in the due course of business, he has established all the facts that are necessary to fulfill the burden of proof laid upon him. From these facts the law will imply that he is a bona fide holder, and unless there be circumstances disclosed in the case, or produced by the defendant by way of rejoinder, from which bad faith on his part may be inferred, the court should withdraw the case from the jury, and direct a verdict in favor of the holder of the paper.

All of the bonds in controversy were the property of the savings bank. They were received by the First National Bank from Garret S. Boice as security for loans and advances. The savings bank derived no benefit from these transactions. Boice was secretary and treasurer of the savings bank, and president of the City Bank, which was a bank of discount and deposit. The savings bank kept an account in the City Bank, and the City Bank kept an account with the First National Bank. Boice, as treasurer of the savings bank, was the lawful custodian of the bonds, but he had no authority from the savings bank to make this use of them. Boice being the lawful custodian of the bonds, his unlawful appropriation of them will not defeat the title of the First National Bank as a holder for value, unless it appears that the latter bank took them from Boice with knowledge that he was misappropriating these securities, or under circumstances from which bad faith in the officers of the bank in taking them may be inferred.

The transactions of the First National Bank with Boice were of two kinds,—the one by way of loans, advances, and discounts to the credit of the City Bank, on the application of Boice as president of the bank; the other, discounts to the credit of the savings bank, on the application of Boice as treasurer of the savings bank.

On the eleventh of October, 1882, the cashier of the City Bank sent to the First National Bank for collection a note purporting to be made by one William H. Jasper, for $4,000, dated July 5, 1882, payable to his own order at the City Bank, on demand, with interest: it being recited in the body of the note that four city of Bayonne funded tax bonds, Nos. 11, 12, 13, and 14, $1,000 each, were deposited as collateral security, with power to sell, etc. On the first of December, 1882, Boice, as president of the City Bank, applied to the First National Bank to have the Jasper note discounted, and it was discounted, and the proceeds were placed to the credit of the City Bank.

On the second of December, 1882, the cashier of the City Bank inclosed to the First National Bank nine notes for collection, among which was a note purporting to be the note of the savings bank, dated December 2, 1882, signed and indorsed by Boice, as treasurer, for the sum of $5,000, and payable on demand at the City Bank; it being stated therein that six Bayonne city bonds, of $1,000 each, Nos. 2, 3, 4, 5, 6, and 7, were deposited as collateral security, with authority to sell, etc. On the twenty-ninth of December, 1882, the City Bank transmitted to the First National Bank a note for $4,000, purporting to be made by Thomas B. Penrose, dated December 27, 1882, payable to G. S. Boice, president, or order, at the City Bank, one month after date, and indorsed by Boice, in which it was stated that three Jersey City bonds, $1,000 each, Nos. 3,201, 503, and 313, and one city of Bayonne bond, $1,000, No. 76, and one city of Bayonne bond, $500, No. 209, were deposited with Boice as collateral security, with authority to sell, etc. The collaterals mentioned in these notes were transmitted to the First National Bank at the same time that the notes were sent.

The City Bank was a large borrower from the First National Bank, and was generally a debtor in considerable sums for...