Cardwell v. Hicks

Leonard, J.

It must he assumed that the defendant offered evidence sufficient to go to the jury upon the question of fraud in the inception of the note, unless the plaintiff is a bona fide holder of it for value. The note is for $517.50. The plaintiff had a demand against 0. Wirgman for about $250, money collected by him for the plaintiff, which he discharged, and paid to Wirgman the balance of the note in money before maturity, and without any suspicion of the alleged fraud practiced upon the defendant when the note was obtained. To the extent of the money paid by the plaintiff on receiving the note, there is no doubt of his right to recover. The judge at the trial charged the jury that if they believed that the plaintiff paid a part of the note in cash, without knowledge of the fraud alleged by the defendant in the making and issuing of the note, he became thereby a bona fide holder and entitled to recover the whole amount with interest, and that the defendant had no defense to the part taken for a precedent debt.

Twenty years of judicial construction and decision have not • fully terminated the controversy in this state so ably discussed in the conflicting cases of Swift v. Tyson, (16 Peters, 1,) and Stalker v. McDonald, (6 Hill, 93.) The case last mentioned was determined in the late court of errors, and is entirely adverse to the ruling of the judge in the case at bar. That case expressly indorses Ooddington v. Bay and Bosa v. Brotherson as the law of this state, and condemns the case of Swift v. Tyson.

In Rosa v. Brotherson, (10 Wend. 85,) it is decided that where a creditor receives the transfer of a negotiable note in payment of a precedent debt, he takes it subject to all equities existing between the original parties. The case of Youngs v. Lee (2 Kern. 551) does not purport to overrule these cases. Referring to Stalker v. McDonald, Judge Johnson, delivering the opinion of the court of appeals, (p. 555,) says, that case does not decide that a receipt in extinguishment of a precedent debt not at the time over cfee, does not constitute the receiver a holder for value in good faith ; distinguishing the cases, but expressing no disapprobation of the case of Stalker v. McDonald as an authority.

I understand the principle of all the numerous cases on this subject to be, that the holder can claim protection from the defense of a party whose note or other negotiable mercantile obligation has been obtained by fraud, only in case he has parted with some value or suffered some injury upon the faith of it; and where the holder will lose no right of which,hg_was possessed when he obtained the note, and will be fully reinstated if he fails to recover, that he is not in such case a holder for value, and the equities of the party whose note has been obtained by fraud will be preferred.

In the present case the plaintiff will have his remedy against Wirgman, his original debtor. He will sustain no loss if he fails to recover, while the defendant will, on the contrary, lose the amount of the plaintiff's claim against Wirgman.

Unless the principle of “ stare decisis” is to be wholly disregarded, the defense in this case is good to the extent of $250, if the jury shall find that the note was fraudulently obtained.

The case of Youngs v. Lee has not overruled the former decisions. It is another application of the old rule. It is expressly stated that the note surrendered was not then due. It was not then received in payment or satisfaction of a debt, because the paper had not matured. It was still a chose in action—a negotiable note—at the time it was surrendered.

In the case of Stettheimer v. Meyer, (33 Barb. 217,) it is assumed that Youngs y. Lee has overturned the prior current of authority. I think the court of appeals would not have marked so carefully the fact that the note which was surrendered had not become due, and would not have cited with approbation cases which they were in fact overruling, if that court intended that the case of Youngs v. Lee should be understood as the learned judge has supposed who decided the case in 33 Barb, above cited.

I advise that a new trial be ordered, with costs to abide the event.

Clerke, J. concurred.