Gardner v. Beacon Trust Co.

• Decision Date: 02 January 1906
• Citation: 190 Mass. 27,76 N.E. 455
• Parties: GARDNER v. BEACON TRUST CO. et al.
• Court: United States State Supreme Judicial Court of Massachusetts Supreme Court

190 Mass. 27

76 N.E. 455

GARDNER v. BEACON TRUST CO. et al.

Supreme Judicial Court of Massachusetts, Suffolk.

January 2, 1906

COUNSEL

Dolan & Dolan and Frank Gaylord Cook, for appellant.

Robt. G. McClung and Geo. F. Wales, for appellee.

OPINION

MORTON, J.

This is a bill in equity brought by the plaintiff, a minor, by her next friend and guardian, to compel the defendant the Beacon Trust Company to assign and deliver to her a mortgage and the note thereby secured, alleged to have been fraudulently obtained from the plaintiff's guardian by one Edwin M Thayer, since deceased, and fraudulently assigned by him to the trust company. As to certain of the defendants the bill was dismissed, and a decree was entered in favor of the plaintiff against the trust company and other defendants. The case is here on appeal by the trust company. All of the evidence is reported.

Briefly stated the facts are as follows: In January, 1903, the plaintiff was the owner of a mortgage and the note thereby secured for $1,500, on land in Quincy, given by the defendant Brown to one Hattie E. Carr and transferred by successive assignments to the plaintiff. Her mother, Mary E. Gardner now Mary E, Wales, was her guardian. The note and mortgage had been long overdue. By means of fraudulent misrepresentations that the owner of the equity wished to pay off the mortgage, Thayer obtained from the plaintiff's guardian an assignment of the note and mortgage to himself, and subsequently assigned them to the trust company as security for a note of $2,000 for money borrowed by him of the company. The trust company took the assignment in good faith, for value and without any notice of Thayer's fraud, or of any defect in his title, unless the fact that it took them when overdue constituted such notice.

We assume, in favor of the plaintiff, that the fact that the note was secured by mortgage does not affect its character as an overdue negotiable instrument when taken by the trust company, although it is said in Murphy v. Barnard, 162 Mass. 72, 75, 38 N.E. 29, 44 Am. St. Rep. 340, that there is a distinction between the purchase of ordinary commercial paper and that of notes known to be secured by a mortgage of real estate, though bought as negotiable paper. See Fish v. French, 15 Gray, 520; Vinton v. King, 4 Allen, 562; Willcox v. Foster, 132 Mass. 320; Bacon v. Abbott, 137 Mass. 397. But the note did not cease to be property or to be negotiable because overdue. Baxter v. Little, 6 Metc. (Mass.) 7, 39 Am. Dec 707; Fisher v. Leland, 4 Cush. 456, 458, 50 Am. Dec. 805; Leavitt v. Putnam, 3 N. Y. 494, 53 Am. Dec. 322. And the question is whether, assuming for the moment the validity of the transfer by the plaintiff's guardian to Thayer, which will be considered later, the fact that the note and mortgage were overdue when the trust company took them so affected their title as to postpone their right to that of the defrauded owner. The general rule is thus stated by Lord Herschel in London Joint Stock Bank v. Simmons [1892] A. C. 201, 215: 'The general rule of law is, that where a person has obtained the property of another from one who is dealing with it without the authority of the true owner, no title is acquired as against that owner, even though full value be given, and the property be taken in the belief that an unquestionable title is being obtained, unless the person taking it can show that the true owner has so acted as to mislead him into the belief that the person dealing with the property had authority to do so. If this can be shown, a good title is acquired by personal estoppel against the true owner.' He then goes on to say that there is an exception in the case of negotiable instruments, manifestly meaning those not yet due, and that as to them any person in possession of them can convey a good title, even if acting in fraud of the true owner. This is the only exception mentioned by him to the general rule which he lays down, and which would seem, therefore, to have been regarded by him as applying to overdue negotiable notes as well as to other property when circumstances brought them within it. Applying the rule thus laid down, or the rule that, where one of two innocent persons must suffer in consequence of the fraud of another, the loss must fall upon the one who, by his trust and confidence, has enabled the perpetrator of the fraud to commit it (Eastor et al. v. Allen, 8 Allen, 7; McNeil v. Tenth Nat. Bank, 46 N.Y. 325, 7 Am. Rep. 341), it would seem plain that the loss in this case should fall upon the plaintiff, unless the fact that the note and mortgage were overdue makes a difference. She had assigned the note and mortgage to Thayer by an instrument valid upon its face, and had delivered possession of them to him. As a consequence of her conduct, he had possession of them as apparent owner, with full dominion over the property which they represented. This apparent ownership was obtained from the guardian by Thayer's fraud, it is true; but, although that would have enabled her to avoid the transaction as between her and him so long as the note and mortgage remained in his hands, his apparent ownership was not affected thereby. Does, then, the fact that the note and mortgage were overdue when the trust company took them, make a difference? The purchaser of an overdue negotiable note takes it subject to all the equities, if any, that are attached to it at the time of the transfer in favor of the maker, the owner, or of third parties. Vinton v. King, 4 Allen, 562; Vermilye & Co. v. Adams Express Co., 21 Wall. 138, 22 L.Ed. 609; In re European Bank, Ex parte Oriental Commercial Bank (1870) 5 Ch. App. 358; In re Overend, Gurney & Co., Ex parte Swan (1868) 6 Eq. 344. If there are no equities attached to the note the purchaser gets as good a title after as before maturity. In re Overend, Gurney & Co., Ex parte Swan, supra. And it makes no difference that the note is dishonored. If there are equities attached to it, he takes it subject to them. This is what is meant when it is said that the purchaser has no better title, legal or equitable, than his transferror had, and that the note is subject in his hands to the same infirmities of title as against the true owner, and to the same defenses as against the maker, that it was subject to in the hands of his transferror. 1 Daniel on Negotiable Instruments (3d Ed.) §§ 72-74, [190 Mass. 30] et seq. If, for instance, an overdue note is stolen from the owner, a subsequent purchaser acquires no title as against the true owner (Vermilye & Co. v. Adams Express Co., supra), or if an overdue note has been paid by the maker, and is fraudulently put in circulation by the payee, a purchaser, though for value and in good faith, takes it subject to the defense of payment by the maker. In such a case the very fact that the note is dishonored is sufficient to put the purchaser upon inquiry as against the maker. Gold v. Eddy, 1 Mass. 1; Brown v. Davis, 3 T. R. 80; Losee v. Dunkin, 7 Johns. 70, 5 Am. Dec. 245. But the case is very different where the owner of an overdue note transfers it, under circumstances which enable his transferee to deal with it, though obtained by fraud, as if he were the true owner, and when an innocent purchaser for value takes it from such transferee before the transfer has been avoided. In such a case no equity attaches to the note in favor of the true owner as against the innocent purchaser for value, since it was by his own act that the perpetrator of the fraud was enabled to commit it. The true owner of an overdue note may deal with it as with any other property, and the mere fact that the note is overdue does not, in such a case, in the absence of...