Goshen Nat. Bank v. Bingham

• Decision Date: 14 January 1890
• Citation: 118 N.Y. 349,23 N.E. 180
• Parties: GOSHEN NAT. BANK v. BINGHAM et al. BINGHAM et al. v. GOSHEN NAT. BANK.
• Court: New York Court of Appeals Court of Appeals

118 N.Y. 349

23 N.E. 180

GOSHEN NAT. BANK

v.BINGHAM et al.¹

BINGHAM et al.

v.GOSHEN NAT. BANK.¹

Court of Appeals of New York, Second Division.

Jan. 14, 1890.

Appeals from judgments rendered by the general term of the supreme court of the first department, affirming judgments entered upon the reports of a referee.

On November 27, 1884, Benjamin D. Brown applied to the cashier of the Goshen National Bank, at Goshen, N. Y., to cash a sight-draft for $17,000, drawn by him upon the firm of William Bingham & Co., of New York, accompanied by a quantity of the bonds of the West Point Manufacturing Company, of the face value of $17,000. Brown represented that he had negotiated a sale of these bonds at their face value with William Bingham & Co.; that they had directed him to draw upon them at sight for $17,000, the draft to be accompanied by the bonds, and that the draft would be paid upon presentation. Such representations were absolutely false. The bonds had no market value. Brown was a bankrupt, and had no funds in the bank, except such as resulted from the credit given him upon the faith of the draft on Bingham & Co., accompanied by the bonds. The cashier of the Goshen National Bank, relying upon such representations, cashed the draft of $17,000, and placed the proceeds to the credit of Brown, upon the books of the bank. He gave Brown sight-drafts on New York for $12,000, and certified a check drawn by Brown to his own order, dated November 26, 1884, for $5,000. On the morning of November 28th, Brown called at the office of William Bingham & Co., and stated that he wanted to get some currency. Mr. Bingham passed the check to the firm's cashier, directing him to give Brown currency for the amount. The cashier gave him a check drawn on the Corn Exchange Bank for $5,000. Brown had the check cashed at the Corn Exchange Bank. He also had the New York drafts cashed, amounting to $12,000, which he had obtained from the Goshen National Bank. After procuring the checks and drafts to be cashed, he fled to Canada, where he remained at the time of the trial of these actions. When Bingham & Co. took from Brown the check certified by the Goshen National Bank, it was not indorsed. The referee found that, ‘at the time of the transfer of the said certified check by Brown to the plaintiffs, it was intended both by Brown and the plaintiffs that said certified check should be indorsed by Brown, and it was supposed by both parties that he had so indorsed it; and, if the plaintiffs had known that it was not indorsed, they would not have paid the consideration therefor.’ He further found ‘that Brown made no statement to the defendants, or either of them, at the time of the transfer of the check, * * * that such check was indorsed;’ and, ‘prior to the commencement of the action of replevin, the defendants never requested Brown to indorse said check.’ While Bingham & Co. held the check in question unindorsed, a demand for its return to the bank, accompanied by a full explanation of the circumstances under which the certification was obtained, was made upon Bingham & Co. in behalf of the bank; and, upon their refusal to return it, an action to recover its possession was commenced by the bank against Bingham & Co. That action is firstly above entitled. Subsequently, and on December 16th, Bingham & Co. obtained from Brown a power of attorney to indorse the check. Pursuant thereto, the check was indorsed, and payment thereafter demanded of the bank. This was refused, and thereupon the action secondly above entitled was commenced by Bingham & Co. to recover the amount of the check.

Henry Bacon, for appellant.

Joseph F. Mosher, for respondents.

PARKER, J., ( after stating the facts as above.)

As against Brown, to whose order the check was payable, the bank had a good defense. But it could not defeat a recovery by a bona fide holder, to whom the check had been indorsed for value. By an oversight on the part of both Brown and Bingham & Co., the check was accepted and cashed without the indorsement of the payee. Before the authority to indorse the name of the payee upon the check was procured, and its subsequent indorsement thereon, Bingham & Co. had notice of the fraud, which constituted a defense for the bank as against Brown. Can the recovery had be sustained? It is too well settled by authority, both in England and in this country, to permit of questioning, that the purchaser of a draft or check who obtains title without an indorsement by the payee holds it subject to all equities and defenses existing between the original parties, even though he has paid full consideration, without notice of the existence of such equities and defenses. Harrop v. Fisher, 30 Law J. C. P. 283; Whistler v. Forster, 14 C. B. (N. S.) 248; Savage v. King, 17 Me. 301; Clark v. Callison, 7 Ill. App. 263; Haskell v. Mitchell, 53 Me. 468; Clark v. Whitaker, 50 N. H. 474; Calder v. Billington, 15 Me. 398; Bank v. Taylor, 100 Mass. 18; Gilbert v. Sharp, 2 Lans. 412; Hedges v. Sealy, 9 Barb. 214-218;Bank v. Raymond, 3 Wend. 69; Raynor v. Hoagland, 39 N. Y. Super. Ct. 11; Muller v. Pondir, 55 N. Y. 325;Freund v. Bank, 76 N. Y. 352;Trust Co. v. Bank, 101 U. S. 68; Osgood v. Artt, 17 Fed. Rep. 575. The reasoning on which this doctrine is founded may be briefly stated as follows: The general rule is that no one can transfer a better title than he possesses. An exception arises out of the rule of the law-merchant as to negotiable instruments. It is founded on the commercial policy of sustaining the credit of commercial paper. Being treated as currency in commercial transactions, such instruments are subject to the same rule as money. If transferred by indorsement, for value, in good faith and before maturity, they become available in the hands of the holder, notwithstanding the existence of equities and defenses which would have rendered them unavailable in the hands of a prior holder. This rule is only applicable to negotiable instruments which are negotiable according to the law-merchant. When, as in this case, such an instrument is transferred, but without an indorsement, it is treated as a chose in action assigned to the purchaser. The assignee acquires all the title of the assignor, and may maintain an action thereon in his own name; and, like other choses in action, it is subject to all the equities and defenses existing in favor or the maker or acceptor against the previous holder. Prior to the indorsement of this check, therefore, Bingham & Co. were subject to the defense existing in favor of the bank as against Brown and the payee. Evidence...