Mfrs. & Traders Trust Co. v. Sapowitch

• Decision Date: 27 February 1947
• Citation: 72 N.E.2d 166,296 N.Y. 226
• Court: New York Court of Appeals Court of Appeals
• Parties: MANUFACTURERS & TRADERS TRUST CO. v. SAPOWITCH et al.

296 N.Y. 226

72 N.E.2d 166

MANUFACTURERS & TRADERS TRUST CO.

v.SAPOWITCH et al.

Court of Appeals of New York.

Feb. 27, 1947.

Appeal from Supreme Court, Trial Term, Erie County.

Action to foreclose an equitable lien by Manufacturers & Traders Trust Company against Samuel Sapowitch, as administrator of the estate of George Simon, deceased, also known as George Shuman and others, wherein Fidelity & Casualty Company of New York and others intervened. From a judgment in favor of intervening defendants, 270 App.Div. 795, 59 N.Y.S.2d 601, entered upon an order of the Appellate Division which reversed, on the law and facts, a judgment of the Supreme Court in favor of plaintiff, entered upon an order of the court at Trial Term, Piper, J., presiding, granting a motion by plaintiff to set aside a jury verdict rendered in favor of intervening defendants upon framed issues and directing judgment for plaintiff, which directed a dismissal of portions of complaint seeking an adjudication that plaintiff had a lien upon bonds and coupons in suit and that such bonds be sold to satisfy such lien, which reversed on the law the trial court's order setting aside such verdict and directed that such verdict be reinstated, and which granted judgment in favor of intervening defendants, specified findings of fact and conclusions of law contained in decision of trial court being reversed and disapproved and a new finding of fact made by Appellate Division, and other specified conclusions of law of trial court modified, plaintiff appeals.

Judgment of Appellate Division reversed and judgment of Trial Term affirmed. Hugh McM. Russ, Laurence R. Goodyear and Francis J. Maloney, all of Buffalo, for appellant.

Mark N. Turner and Cleveland Pond, both of Buffalo, for respondents.

THACHER, Judge.

This action was brought by Manufacturers and Traders Trust Company of Buffalo to foreclose a lien on six $1,000 negotiable bonds of the Narragansett Electric Company and 20 negotiable bonds of the same denomination of the City of Havre de Grace, Maryland, received by the trust company from George Shuman as collateral security for loans aggregating $22,600. Shuman was not a holder in due course of the Narragansett bonds, which were in fact stolen from the firm of Drysdale & Company, nor of the Havre de Grace bonds, which were stolen from the firm of Dominick & Dominick.

Pursuant to stipulation, issues were framed and tried by a jury, whose findings it was agreed should have the same effect as a general verdict. The questions framed and submitted to the jury were all answered in the negative. They read as follows:‘1. Did the Plaintiff act in good faith in accepting from George Shuman the six Narragansett Bonds as collateral security for a loan of $4400.00 on June 6, 1941?

‘2. Did the Plaintiff act in good faith in making a further loan in the sum of $1600.00 on July 30, 1941, on the Narragansett Bonds pledged by Shuman on June 6, 1941?

‘3. Did the Plaintiff act in good faith in accepting ten Havre de Grace Bonds as collateral security for an additional loan to George Shuman of $7000.00 on September 10, 1941?

‘4. Did the Plaintiff act in good faith in accepting ten additional Havre de Grace Bonds as collateral security for an additional loan of $7000.00 to George Shuman on September 20, 1941?’

This verdict was set aside. The jury was directed to answer each of the questions in the affirmative and the verdict was recorded accordingly. Judgment followed foreclosing plaintiff's lien upon the bonds. The Appellate Division reversed this judgment, reinstated the verdict and directed judgment for the intervening defendants, who had insured the two firms against theft of the bonds. Defendants' only claim is that plaintiff did not take the bonds in good faith and had notice of the defect in Shuman's title. There is no suggestion that the plaintiff had knowledge that the bonds were stolen, and the controlling question is whether facts of such a character were known to its officers that a jury might find that they accepted the bonds in bad faith, although without actual knowledge that they had been stolen from the rightful owners. Negotiable Instruments Law, Consol.Laws, c. 38, s 95.

The requirement of the statute is good faith, and bad faith is not mere carelessness. It is nothing less than guilty knowledge or willful ignorance. Kittredge v. Grannis, 244 N.Y. 168, 178, 179, 155 N.E. 88, 91, 92;Cheever v. Pittsburgh, S. & L. E. R. R Co., 150 N.Y. 59, 65, 66,44 N.E. 701, 702, 703, 34 L.R.A. 69, 55 Am.St.Rep. 646; Chapman v. Rose, 56 N.Y. 137, 140,15 Am.Rep. 401. There is no claim of guilty knowledge in this case; at most it is argued that the knowledge of two of the officers that Shuman in 1930 and 1931 was the proprietor of a sumptuous night club where, during the period of national prohibition, patrons were furnished with fine food, wines and liquors and high-class entertainment and were in addition given access to a gambling establishment on an upper floor, was a fact which in the absence of further inquiry made the acceptance from him of negotiable bonds as collateral for loans in 1941 an act of bad faith.

The case most heavily relied upon by respondents is Canajoharie Nat. Bank v. Diefendorf (123 N.Y. 191, 25 N.E. 402,10 L.R.A. 676) where, as this court declared in American Exchange Nat. Bank v. New York Belting & Packing Co. (148 N.Y. 698, 706,43 N.E. 168, 170, 171) the circumstances attending the transaction of the purchase were deemed to be so strange and unusual, that it could not be said, as matter of law, that the note had been acquired in good faith. These circumstances indicated...