Opinion
September, 1904.
Porter M. French, for the appellant.
Eugene Van Voorhis and Herbert Leary, for the respondent.
Upon the trial the plaintiff produced the two promissory notes described in the complaint, proved their indorsement by Mary E. Cunningham, the payee, and the signature of the defendant, the maker, having been admitted, introduced them in evidence and rested. Thus the plaintiff established prima facie that it became the owner of the notes before they were overdue, in good faith and for value and without notice of any infirmity in the instruments or defect in the title of the person negotiating the same. (Neg. Inst. Law, §§ 75, 91.)
Thereupon the presumption arose that the plaintiff held said notes "free from any defect of title of prior parties and free from defenses available to prior parties among themselves," and that it was entitled to enforce payment of the instruments for the full amount thereof against all parties liable thereon. (Neg. Inst. Law, § 96.)
These, however, are only presumptions and may be rebutted.
"The burden of making out good faith is always upon the party asserting his title as a bona fide holder in a case where the proof shows that the paper has been fraudulently, feloniously or illegally obtained from its maker or owner. Such a party makes out his title by presumptions until it is impeached by evidence showing that the paper had a fraudulent inception, and when this is done the plaintiff can no longer rest upon the presumptions but must show affirmatively his good faith." ( Canajoharie Nat. Bank v. Diefendorf, 123 N.Y. 206.)
The law as thus laid down by the Court of Appeals is substantially embodied in the Negotiable Instruments Law. Section 98 provides: "Every holder is deemed prima facie to be a holder in due course, but when it is shown that the title of any person who has negotiated the instrument was defective, the burden is on the holder to prove that he or some person under whom he claims acquired the title as a holder in due course." Section 94 provides: "The title of a person who negotiates an instrument is defective within the meaning of this act when he obtained the instrument * * * by fraud * * * or when he negotiates it in breach of faith or under such circumstances as amount to fraud."
It is well settled that if a note has been diverted or negotiated in violation of an agreement under which it was given, such negotiation constitutes a breach of faith, amounts to a fraud upon the maker, and when that fact appears the holder cannot recover upon it against the maker without showing that he received it in the ordinary course of trade for a valuable consideration and without knowledge of such agreement. ( American Exchange Nat. Bank v. New York Belting Packing Company, 148 N.Y. 698.)
The evidence shows that the defendant, the maker of the notes, and Mary E. Cunningham, the payee, were husband and wife, and at all the times in question resided together in the city of Rochester, N.Y., where the plaintiff bank is located. The relations between them were not harmonious, resulting principally on account of money matters and the alleged inadequate provision made by the husband for the support and maintenance of his wife and children. He, however, claims that he had made abundant provision for that purpose, even to such extent as to cause him serious financial embarrassment. At all events, early in January, 1898, the defendant applied to the plaintiff for a loan of $5,500 and offered to assign to it as security a fifteen-year tontine life insurance policy which had been issued upon his life by the Northwestern Life Insurance Company for $10,000, having only about fourteen months of the tontine period to run, and which was payable to his wife in case of his death before the expiration of such period, but in case he survived the expiration of such period it was payable to him or to his assigns. The defendant had paid all the premiums falling due upon the policy, and its estimated value at the time was between $6,500 and $6,600. The plaintiff agreed to loan to the defendant the money asked for, but only upon condition that he would procure his wife to join with him as maker of a note for the amount and also in the execution of an assignment to it of the insurance policy as collateral security to the payment of such note. Thereupon the defendant had an interview with his wife, at which concededly no officer of the plaintiff was present, and requested her to join with him in executing such note and assignment. According to his version she at first refused, but finally agreed to do so, provided he would cause to be placed to her credit in the plaintiff bank $3,500 of the proceeds of the note; that at the time his financial condition was such that he was obliged to accede to her demand, which he did; whereupon she executed the note and assignment, which he delivered to the plaintiff and caused to be placed to her credit the said sum of $3,500. Thereafter, and on or about the 4th day of February, 1898, the defendant being in great need of more money, persuaded his wife to let him have $1,300 of the $3,500 deposited to her credit.
In March or April following the two notes in suit were given and were antedated to the dates they bear; the 4th of February, 1898, being the time when the defendant received the $1,300, and January 12, 1898, the date when he obtained the $5,500 from the bank, being $2,000 in excess of what he deposited to his wife's credit. He testifies in substance that some time after the loan had been made his wife insisted that she ought to receive or be secured for the full amount which was obtained upon the assignment of the policy for the reason that if he should die before its maturity she could not recover the amount advanced; that he at first refused to comply with her demand, but that she "pestered" him so that he finally acceded and gave her the notes in suit; that it was understood between them they were given solely to protect his wife in case of his death before the expiration of the tontine period. He testified that after such time elapsed and subsequently he demanded the notes from his wife, but she at all times refused to surrender the same. It does not appear when the notes came into the possession of the plaintiff or whether or not they were in the possession of the payee at the expiration of the tontine period of the policy and when the demands for their return were made. Defendant's wife, who was called as a witness on behalf of the plaintiff, testified in substance that she signed the $5,500 note and executed the assignment of the insurance policy upon the express agreement that she was to have all the proceeds; that the notes in suit were given to her in pursuance of that agreement which was voluntarily entered into by the defendant and without any fraud or duress on her part, and in effect that upon their delivery to her she became the absolute and unconditional owner of the same for full value.
The evidence interpreted most favorably to the defendant wholly fails to establish that the notes in suit were obtained by duress, and the undisputed facts show that there was ample consideration for their execution and delivery by the defendant to his wife. By the terms of the policy of insurance which Mary E. Cunningham joined in assigning to the plaintiff, she was named as sole beneficiary. In case the defendant had died within fourteen months, the time between the date of the assignment and the expiration of the tontine period, she would have been entitled to receive the full amount of such insurance. The value of the policy at the time of the assignment was in excess of $6,500, and her interest in it to the extent of $5,500, which was, of course, contingent, she parted with; the defendant says solely in consideration of there being placed to her credit $3,500 of the proceeds of the loan, which was done. Such transaction, if not the result of duress or fraud, was clearly legal, and the suggestion, even if true, that $3,500 was in excess of the then actual value of the wife's contingent interest, is unimportant. She had a right to sell such interest for the highest price obtainable. According to the defendant's own version, after such agreement had been consummated, he sought to obtain from his wife $1,300 of the amount deposited to her credit; that she then insisted she ought to have had the full amount realized upon the policy, viz., $2,000, in addition to what had already been paid to her, and that she refused to advance the $1,300 which he asked for unless he made provision for the payment to her of the said $2,000 in addition to the $1,300; that he acceded to her demand, executed and delivered to her the notes in question, and received from her the $1,300 which he desired. An adequate consideration for the notes was thus proven. The wife had a perfect right to refuse to let the defendant have the $1,300 asked for, or only upon condition that he secure to her what she claimed she was justly entitled to because of the prior transaction; so there is no basis for the suggestion, even upon the defendant's own showing, that the notes were given without consideration.
We have seen the proof was conflicting, and raises an issue of fact as to whether or not the notes in question were "diverted." In case such issue had been determined adversely to the plaintiff it could not have relied upon the presumption that it was a "holder in due course," but in order to recover would have been compelled to establish it by affirmative evidence. It made no such proof and in no manner eliminated such issue. The defendant's counsel asked to have the question as to the diversion of the notes submitted to the jury. The court denied the request, evidently for the reason that he had moved for the direction of a verdict. If, by making such motion, the court was authorized to decide all questions of fact, notwithstanding the request that they be determined by the jury, the direction of the verdict does not present reversible error, for there is ample evidence to support the conclusion that the notes were not diverted, were not given conditionally, and that Mary E. Cunningham, upon delivery to her, became the absolute owner of the same for full value. The defendant, by moving for the direction of a verdict in his favor, having asked to go to the jury upon specified questions of fact immediately upon the making of a like motion made by the plaintiff, did not thereby authorize the court to decide such questions of fact and thereby lose his right to have the same passed upon by the jury. Undoubtedly the general rule is that a request by both parties for the direction of a verdict amounts to a submission of the whole case to a trial judge, and his decision upon the facts has the same effect as the verdict of a jury. ( Adams v. Roscoe Lumber Co., 159 N.Y. 180; Trimble v. N.Y.C. H.R.R.R. Co., 162 id. 84; Persons v. Hawkins, 41 App. Div. 171.)
Such rule, however, does not obtain where the party whose request is denied asks to go to the jury upon questions of fact which he specifies. ( Koehler v. Adler, 78 N.Y. 287.)
In that case the rule is stated in the head note as follows: "It seems that where at the close of the evidence upon a jury trial both parties ask the court to direct a verdict in their favor respectively it will be assumed that they intend to waive the right of submission to the jury and consent that the court shall decide the questions of law and fact involved. But this presumption is repelled where the party whose request is denied thereupon asks to go to the jury upon the questions of fact."
In Bernheimer v. Adams ( 70 App. Div. 114) both parties moved for the direction of a verdict. The court announced its decision granting the plaintiff's motion. The defendant then moved to go to the jury upon questions of fact which he specified and it was held the request was timely made. (See, also, Hogan v. O'Brien, 29 App. Div. 59.)
In the case at bar not only did the learned counsel for the defendant insist that all questions of fact should be submitted to the jury in case his motion for the direction of a verdict was denied, but it is apparent from the recital in the order appealed from that the learned trial judge did not intend to pass upon or decide any questions of fact. It is evident that when the court directed the verdict he did not consider that any issue of fact was presented by the evidence which, even if determined in defendant's favor, would be available to him as a defense. In this we think the court was in error and, therefore, that the order setting aside the verdict and granting a new trial was properly made. It is unnecessary to discuss the evidence relating to the alleged counterclaims of the defendant. If upon a new trial it shall appear that the notes were not diverted, as testified to by the payee, or that the plaintiff is in fact a holder in due course of the same, such counterclaims will not be available as against the plaintiff. If, upon the other hand, it shall appear that the plaintiff is not a holder in due course, then any defense or counterclaim will be available to the defendant precisely as if the action had been brought against him by his wife.
It follows that the order appealed from should be affirmed, with costs
All concurred.
Order affirmed, with costs.