Smedberg v. Whittlesey

The Assistant Vice-Chancellor.

The first ground of defence which I will notice, is that the notes which were given up by the intestate in January, 1844, were usurious, and the note of $3000, for which the stock was a security, is therefore void; the complainant having omitted to prove that the intestate paid value for the former, and that Be received them without notice of the usury.

It appears that the intestate was the holder of the notes said to be usurious, in December, 1843, at which time thejr were past due ; and there is no proof how he came by them, or what he *323paid for them. They were in his possession, indorsed by the defendant Whittlesey.

The possession by an indorsee of a negotiable promissory note, is presumptive evidence that it was transferred to him on a good consideration and before its maturity. (Pratt v. Adams, 7 Paige, 615, 629; Morton v. Rogers, 14 Wend. 580, per Chancellor.) The latter part of the proposition is familiar law. In Nelson v. Corning, (6 Hill, 336,) Judge Bronson says, where the action is brought by an indorsee, the maker cannot set up any equities between himself and the payee, until he has shown that the holder received it, either without consideration, or after it became due, or with notice of the facts set up as a defence. No such proof is given by the defendants in this case, and in intendment of law, the intestate was a bona fide holder of the notes without notice of the alleged usury.

On those notes he issued an attachment against Whittlesey, under the statute relative to Absent and Non-Resident Debtors, and seized the stock in question. The consideration for the note of $3000, was the discharge of the attachment proceedings and the original notes. It was made without insisting upon the alleged usury, or indeed averring its existence.

Can Whittlesey now avail himself of that defence 1

It is well settled that where the maker of an usurious note or bill, gives a new security for it, to one to whom it has been transferred for a valuable consideration without notice of the usury, the new security is valid, although the indorsee could not have recovered on the note or bill. (Ellis v. Warnes, Moor 752, s. c. Cro. Jac. 33 ; Cuthbart v. Haley, 8 T. R. 390 ; Kent v. Walton, 7 Wend. 256.)

It is urged, however, that in order to sustain the new security, the holder must prove that he paid a valuable consideration for the usurious note or bill, and that he .is not permitted to rely upon the legal presumption arising from his possession of such note or bill.

The authorities relied upon, were either cases in which the holder of an usurious note or bill, sought to recover notwithstanding the usury, under the exception in the former statute of usury ; or those in which it was shown that the true owner of the *324note or bill, had been deprived of it by fraud, larceny, or the like. In the former class, the defendant by proving the usury, had brought himself within the provisions of the statute, and shown the security to be void, and the plaintiff was thereupon put to bring himself within the exception. But he was not required to go a step beyond the language of the exception, because after proving payment of value, he might avail himself of the legal presumption that the note was transferred to him before it became due. In the other class of cases, a better title being shown in the original holder, the plaintiff rests solely upon the exception made by the law, in favor of commercial paper, and must prove the existence of the exception. In several of the cases, where the new security has been enforced in favor of an indorsee, who received it on relinquishing the usurious note, it appeared that he had taken the latter upon a valuable consideration paid. But I find no decision which requires such proof to be made. On the contrary, in the first reported case where the new security imthe hands of a third person was upheld, Ellis v. Warnes, there was nothing shown beyond the existence of a debt in favor of the plaintiff, against the usurer, and it did not appear that any obligation was given up or debt cancelled, on receiving the usurious security. In Cuthbart v. Haley, the plaintiffs on receiving the usurious notes from the payee, for whom they were bankers, credited the amount to him in account, it did not appear that he had drawn out any part of it, but the stress was laid upon the fact that the plaintiffs received them without fraud, and without notice of the usury. And see Powell v. Waters, (8 Cowen, 696, per Golden Senator.)

I have stated the presumption which the law derives, from the possession of a bill or note, that the holder received it in good faith, and before it became due. I think that when a debtor on an usurious note, which fias been transferred to a stranger, gives a new note to such stranger, without raising any objection to the validity of the former, it is of itself an admission that he is a bona fide holder of the same, without notice of the usury. And in my opinion a plaintiff may rely upon the legal presumption, arising from the possession of the usurious note, and upon such admission derived from the giving of a new security, to recover upon *325the latter, notwithstanding the usury in the former. And if there be any circumstance of notice, or of the want of a good consideration, in respect of such first note, it is incumbent on the party relying upon the defence of usury in such a case, to establish it by proof.

In this suit there is the further consideration of withdrawing the attachment, which of itself forms an important point for sustaining the new note. (Stewart v. Eden, 2 Caines R. 150.)

On both grounds combined, I am clear that the defence of usury cannot be set up to the note of $3000, and it is unnecessary for me to look into the testimony bearing upon that point.

The next question is upon the alteration of the note, after Whittlesey indorsed it, so as to make it payable at the Fulton Bank.

It is sufficient to say of this, that it is not set up in the'answers. Moreover the bill states expressly, that the note was payable at the Fulton Bank, and a copy of it is-attached to the bill, by which it appears to be payable there. Whittlesey admits in his answer, that he indorsed the note, and his silence as to its terms, is an admission that it was payable as stated in the bill.

Next it is objected that the protest of the note, and notice of its non-payment, are not proved as they are alleged in the bill.

The complainants statement is, that the note fell due on the 14th day of May, 1844, when it was not paid, and it was duly and legally protested for non-payment, and notice of such nonpayment duly and legally given to Whittlesey, the indorser. The bill then refers as evidence of this, to the notarial certificate of Mr. Franklin, which is set forth at large, and which states the presentment of the note at the Fulton Bank on the 14th of May, that payment was refused, the note was thereupon protested, and on the 15 th of May, notice of its protest was mailed to Whittlesey, directed to his place of residence.

It turns out in proof, that Mr. Franklin had nothing to do with the demand, protest or notice, and knew nothing of either; but the same were performed by Foley, a clerk of a former notary, who used Mr. Franklin’s name and seal furnished to him in blank. Foley proves a regular demand of the note, its non-payment, and the mailing of the notice to Whittlesey. The point turns on *326the reference in the bilí to Franklin’s certificate, and it is said the complainant can prove no demand, protest or notice, except those stated, in the certificate.

It is evident that the defendants have stumbled upon this variance, if any it be, because there is no issue upon it in the answer; and a distinct ground is there set up, viz. that the note ought to have been demanded at the maker’s residence or place of business, and therefore the defendant denies, that it was legally protested, and notice duly and legally given so as to charge him. The only effect of the variance, under such circumstances, would be to have the cause stand over for an amendment of. the bill.

I do not however, deem it a material variance. The substantial allegation is, that the note was presented for payment at the proper time and place, and notice of its non-payment given in proper form, and season to Whittlesey. It was quite immaterial, whether this were done by Franklin or by Foley. If the whole allegation, commencing with-the reference to the notarial certificate, were stricken out, the charge in the bill would still be sufficient, and the proof would sustain the charge. That allegation may therefore be rejected as surplusage, especially as no issue is made upon it, and it has in no respect misled the defendants.

The complainant has proved, that Whittlesey became legally liable to pay the note of $3000, and he is entitled to have the stock transferred to him by Hr. Yan Nostrand, with costs of the suit.

Whittlesey was a proper party to the suit, and his objection on that score is not well founded.

Decree accordingly.