Greenwell v. Haydon

• Citation: 78 Ky. 332
• Parties: Greenwell v. Haydon.
• Decision Date: 27 February 1880
• Court: Court of Appeals of Kentucky

78 Ky. 332

Greenwell v. Haydon.

Court of Appeals of Kentucky.

February 27, 1880

1. The general rule is, that the owner of property cannot be divested of his title, except by his consent, either express or implied. To that rule there are some exceptions, one of which applies to negotiable securities.

2. If such paper, payable to bearer, or indorsed in blank, be lost or stolen, and be passed in the ordinary course of business before maturity, into the hands of an innocent holder for value and without notice, such holder obtains title to it with the right to enforce payment as though he had received it from the person who lost it, or from whom it was stolen.

3. But if the negotiable paper be taken after maturity, it is taken subject to all the equities and defenses that might have been made against it in the hands of the person from whom the taker received it, and the real owner from whom it is taken, without his consent, may recover it.

APPEAL FROM NELSON CIRCUIT COURT.

WM JOHNSON FOR APPELLANT.

1. It is clearly shown that the bond in controversy was taken from appellant without his consent. The allegations of appellee's petition are fatal to his demand.

2. The bond had been past due for several years, and was not passed to appellee in discharge of a pre-existing debt. (May v Quimbey, 3 Bush, 96; Lee v. Smead, 1 Met., 634; Alexander v. Springfield Bank, 2 Met., 535.)

MUIR &amp WICKLIFFE FOR APPELLEE.

1. The fact that the paper was overdue does not affect appellee's right to enforce his lien upon it.

2. A bona fide purchaser for value of a negotiable bond may hold it against the true owner. Any person in possession may fill up the blank and sue upon it. (Session Acts 1855-'6, 12; 7 Wallace, 700; 10 Ibid, 127; 10 Ibid, 68; Ibid, 90; 16 Ibid, 402; 20 Ibid, 72; Gen. Stat., chap. 22, sec. 6; 1 Dow., 50; 2 Johnson's Chy., 443; 3 B. Mon., 446; 5 Litt., 33; 9 Dana, 416; 16 B. Mon., 575; 5 Ibid, 400; 2 Wash. 233; 2 Met., 537; 2 Howard, 371; 21 Wendell, 551; 6 Wheaton, 220; 3 Saund., 222; 4 Duer, 362; Daniel on Negotiable Instruments, vol. 2, 459; Ibid, 1, 627; 2 Wallace, 110; 4 Dolphus & E., 870; 22 How., 96; 38 N. J., 146; 20 Am. Rep., 379; 47 N.Y. 143; 7 Am. R., 423; J. John., 264; 1 Term Rep., 16; 10 Cushing, 373; 22 Eng. Law and Eq., 516; 10 John. Rep., 104; 5 Ibid, 239; 5 John. Chy. Rep., 54; 6 Ohio 448; 1 Am. Law Reg., 75.)

OPINION

COFER JUDGE:

Pursuant to proper legislative authority, the county court of Nelson county, on the 31st of August, 1856, issued coupon bonds to the amount of one hundred thousand dollars, for and on behalf of the first, fifth, and ninth election precincts in said county, payable January 1, 1872, to the order of the president of the Bardstown and Louisville Railroad Company.

The appellant was the owner of one of these bonds (numbered 13) for one thousand dollars, indorsed in blank by the president of the railroad company, which he deposited with E. B. Smith for safe-keeping. J. L. Spalding borrowed one thousand dollars from the appellee in 1871, and pledged another bond of the same series and for like amount as collateral security. The appellee deposited Spalding's note and the bond pledged to secure it with a firm of private bankers for safe-keeping. Spalding having obtained possession of appellant's bond, without the knowledge of Smith or the appellant, took it to the bank where his note and bond were on deposit, and procured the bankers to receive appellant's bond in exchange for the bond pledged at the time of executing the note. This was in July or August, 1877, more than five years after the maturity of the bonds.

On account of a deficiency of funds provided by law for paying the bonds, the county was unable to pay them all at maturity; but the interest was regularly paid, and the bonds were passed from hand to hand with the blank indorsement of the president of the railroad company upon them.

The sole question in this case is, whether the appellee has a lien on bond number 13 superior to the title of the appellant.

Bonds similar to this have generally, if not universally, been recognized and treated by the courts of this country as commercial paper, and the rights of holders thereof are regulated and protected by the law-merchant.. (White v. Verm. and Mass. R. Co., 21 How., 575; Merarlo v. Hackett, 1 Wall., 83; Gilpike v. City of Dubuque, Ib., 175; Myer v. City of Muscatine, Ib., 384; Murray v. Lardner, 2 Wall., 110; Thompson v. Lee County, 3 Wall., 327; Supervisors v. Schenk, 5 Wall., 772; Arents v. Commonwealth, 18 Gratt., 750; Beaver County v. Armstrong, 44 Penn., 63.)

The propriety of this rule is not questioned in this case, and we shall proceed as if the bonds of which this is one were expressly declared by statute to be negotiable.

It is contended by the appellant that, having received the bond as collateral security for a pre-existing debt, the appellee is not a holder for value.

The holder of commercial paper, who receives it only as collateral security for an antecedent debt, and who comes under no legal obligation to forego the pursuit of any existing remedy, and who has not in any form given a new or additional consideration for the collateral, is not a holder for value, and the title thus acquired is subordinate to that of the true owner. (Lee v. Smead, 1 Met., 634.)

But the holder of such paper, who receives it in discharge of an antecedent debt, and thereby suspends his right of action against his debtor upon the original demand, without notice of a defect in the title of the person from whom he receives it, has a right to hold it against the real owner, though the person from whom he received it had no title. (Alexander v. Springfield Bank, 2 Met., 534.)

The appellee held as collateral security a bond owned by Spalding, and surrendered that bond in exchange for the bond here in contest. This was a legal consideration for the pledging of this bond, and the appellee must therefore be held to be a holder for value.

It is next contended, that although he may be a holder for value, yet, as Spalding had no title, and the bond, when pledged, was long past due, he is not a bona fide holder within the meaning of the law-merchant, and has no better title than Spalding had.

It is so well settled as to have become one of the fundamentals of commercial law, that commercial paper in the hands of one who receives it after maturity is subject to all the equities between the parties to which it would have been subject in the hands of the person from whom the holder received it, whether he had notice of such equities or not.

Whether this includes all equities and demands between the parties, or is restricted to such as attach to the paper itself, such as illegality or want of consideration, payment, fraud, or the like, it is not necessary now to inquire.

It is equally well settled that the holder of such paper who takes it under due for a valuable consideration, and without notice of equities or defenses against it in the hands of the person from whom he receives it, takes it freed from such equities and defenses, and may enforce payment, although the person from whom he receives it could not.

These rules relate to the right of the holder growing out of his ownership of the paper, and not to his title to the paper itself. In either case he acquires a valid title to the obligation, and is entitled to recover on it in the one case whatever is justly due from the parties to the paper, and in the other whatever the paper calls for, whether it is justly due from the parties or not.

In cases belonging to either of these classes no question arises as to the title of the holder. He is conceded to be the owner of the obligation. The question is, what is the extent of his right of recovery? If he took it overdue, he cannot recover, unless the person from whom he received it could have recovered, and if that person could only have recovered a part, he can recover no more; if that person could have recovered all, he may recover all, for he stands in that person's place.

There is another class of cases in which the title to the obligation was involved. The case at bar belongs to that class. There is no question here between the holder and the maker. It is a question as to the right to receive whatever sum the maker may owe, and not as to whether the maker shall pay his obligation in whole or in part.

This distinction seems not to have been always kept in view, and, as a natural result, the authorities are in some confusion, decisions in one class of cases being often quoted in the discussion of cases belonging to another class.

With this distinction in mind, we proceed to the consideration of the question involved in this case--the conflicting claims of the parties to ownership of the bond.

Down v. Halling (10 E. C. L., 347) was a contest between the owner of a lost check and one who, five days after it should have been presented for payment, received it from the finder for value, and without notice of any defect in the title.

The holder presented the check and received payment, and the owner sued him to recover the amount as money had and received to the use of the plaintiff.

The case was tried before Lord Chief Justice Abbott, who directed the jury to find for the plaintiff if they thought that the defendant had taken the check under circumstances which ought to have excited the suspicions of a prudent man.

The jury found for the plaintiff, and, on a rule to show cause, a new trial was denied.

Bayley J., said: " I think the case was left to the jury very favorably for the defendant. There is no question whatever in the case, if the distinction between bills overdue and not due be adverted to. If a bill, note, or check be taken after it is due, ...