Merriam v. President of the Granite Bank

Shaw, C. J.*

This being an action of replevin for a promissory note, the specific paper writing, with the valuable contract upon it, as a visible and tangible object, in the nature of a chattel, capable of manual possession and delivery, the single question is, which of these parties has the property in this note, with the right of present possession. The plaintiffs, having taken the burden of proof, have proved both good title and actual possession of the note; and they have shown, beyond all doubt, that, having made no transfer of title, they lost it out of their possession, by means as purely accidental as if they had dropped it in the street, where it had been picked up by a stranger.

Then the question is, whether the defendants, a bank constituted for the purposes of dealing in money and money securities, have taken this note under such circumstances that the true owners cannot question their title. The ground relied on toy the defendants is, that this had all the appearance of a business note given for value by Brett & Company, payable to their own order, and by them indorsed in blank, so as to pass by delivery, and actually in the custody of Willis & Company, and by them produced and delivered to the bank for a valuable consideration.

The rule of law, designed to afford ample protection to the free currency and circulation to negotiable securities, transferable by indorsement or by delivery, during the time they have to run, having no indication of want of title on the face is, and we think ought to be, maintained with great strictness, in favor of persons taking them bona fide, in the due course of business, without notice actual or constructive of any want of good title on the part of the party negotiating them. Wheeler v. Guild, 20 Pick. 545.

But this rule is to be taken with a strict observance of the qualification, that the negotiable security be taken in the due course of business, without notice, or reasonable cause to suspect, that the party from whom it is taken has not the full title, which the possession of the security and the names borne upon it naturally import.

Had this note, with or without the indorsement of Willis & Company, been discounted by the bank, making it their own upon the credit of the parties to it, simply deducting the discount, it would have presented a very different question.

It is not easy to prescribe a general rule, as to what shall be the common course of business. It must depend much upon the circumstances of each particular case. In the present case, upon a review of the evidence, of which there was no conflict, the court are of opinion that the directions which the judge, at the trial, proposed to give to the jury, as stated to the counsel, were correct, and that the jury would have been well warranted in finding that the bank did not take the note in the ordinary course, under such circumstances, as to place themselves on the high ground of holders for value, without notice, and without anything to put them on inquiry.

It is true they had possession of the note so indorsed by the maker, that, like a note payable to bearer, the legal title would pass by delivery. But it was not discounted, or purchased, or received for the full amount on the single credit of the promisor. If never paid, it would not have been the loss of the bank, unless their principal debtor, to whom the loan was made, also failed. It was not indorsed by the borrower, or otherwise warranted by him that he had a good and unimpeachable title, and was therefore in this respect like a note indorsed “ without recourse,” which is not the usual course of transferring a security indorsed in blank.

We do not mean to say that the mere circumstance of taking such a note as collateral security would of itself be sufficient, when a new credit is given to a borrower merely on the credit of such security, and under such circumstances as would war rant a belief that such credit would not have been given the borrower without security. But the evidence in the present case does not show that the bank held the note in question as security for any particular debt, which they could identify. The evidence respecting their course of dealing leads to the conclusion, that where a temporary loan, or loan to be repaid on demand, was made, Willis & Company usually brought in notes to an equal or larger amount and deposited them as secu rity. But as the notes had time to run, the loan might be repaid forthwith, being on demand, the notes were rather security to the bank for all such 'loans or any balance thereupon than for the particular loan then made. But the bank cannot now show any note or check in particular, for the security of which the note in question was given ; nor is it shown, except from such general course of dealing, that any advance was made when this note was deposited.

But further, it appears from the testimony of the president, who conducted these negotiations, as agent for the bank, that, according to the above mentioned course of dealing, the bank did not take these notes under a belief or understanding that Willis & Company had a perfect and beneficial title in full to the notes, which they were accustomed to take as collateral; but that, as Willis & Company had the possession, which is prima facie a legal title, to securities payable to bearer, or to indorsee with his blank indorsement, they could, by their delivery, pass them as security. We think the fair result of this evidence is, that if, according to the usual course of dealing, this note was handed to the bank at the same time that a demand loan was made, the note was taken not solely or principally on its own credit, but on the credit of Willis & Company to this extent, that they had a legal title to the note, and a right to pass it to them as such security. They might well believe — the possession of the note and its condition, as apparently transferable by delivery, warranted them in believing—that Willis & Company had a good title; and they were chargeable with no want of good faith in taking it on that belief. Still the taking was under such circumstances as to put them upon their guard, to inquire into the title of Willis & Company, and take only such title as Willis & Company could give, as in ease of assignment. When, therefore, it appears that, although this note was in such form that it was transferable by delivery by the true owner, yet that in point of fact it never had been delivered by the plaintiffs, the true owners, to Willis & Company, or any other person, the prima facie evidence, arising from the possession of Willis & Company, is effectually rebutted, they had no title, and when they passed it to the bank, by mistake or otherwise, no title passed to them; and taking into consideration all the circumstances under- which the defendants came into possession of the note, they are not such indorsers for value and without notice, that they can hold it against the well established title of the plain» tiffs. Judgment on the verdict for the plaintiff.

* Dewey, J. did not sit in this case.