Berenson v. Conant , 214 Mass. 127 ( 1913 )

Braley, J.

The defendant’s promissory note having been obtained and negotiated through the fraud and deceit of the payee, the plaintiff had the burden of satisfying the master that he was a holder for value without notice of any infirmity. Fillebrown v. Hayward, 190 Mass. 472, 481, 482. The history of the note after it left the possession of the defendant shows, that upon indorsement by the payee and one Genaske it was discounted by the Boylston National Bank, and the payee’s account credited with the proceeds. At maturity, the maker having refused payment, Genaske upon notice entered into negotiations with the bank which resulted in a transfer to the plaintiff. The master’s findings, that the plaintiff has no financial interest, but is in the service of Genaske, at whose solicitation he became connected with the transaction to enable his employer, by whom the present suit is instituted and controlled, more effectually to enforce payment, subjects the plaintiff to all defenses which are available against Genaske himself. Jump v. Leon, 192 Mass. 511,514. Weld v. Clarke, 209 Mass. 9, 12. .

By the R. L. c. 73, § 75, “In the hands of any holder other than a holder in due course a negotiable instrument is subject to the same defenses as if it were non-negotiable. But a holder who derives his title through a holder in due course, and who is not himself a party to any fraud or illegality affecting the instrument, has all the rights of such former holder in respect of all parties prior to the latter.” The bank, by the terms of the instrument, derived title through Genaske, who was the last indorser. Mulcare v. Welch, 160 Mass. 58, 61. Moore v. Cushing, 162 Mass. 594. If as between himself and the bank the payment operated only to discharge his own liability arising from the contract of indorsement, he did not thereby become a purchaser of the bank’s title within the meaning of this section, but remained an indorser with all the rights he previously had as against prior parties. Guild v. Eager, 17 Mass. 615. Shaw v. Knox, 98 Mass. 214. Symonds v. Riley, 188 Mass. 470. De Reiset v. Loughery, 205 Mass. 86. R. L. c. 73, § 138. It is however unnecessary to decide whether the right of recovery should be held to be grounded on a purchase of the bank’s title under § 73, or on the rights of an indorser who has taken up dishonored commercial paper to pursue his remedy against the maker under § 138.^*

The payee expressly agreed in writing as one of the conditions of delivery that the note should not be put in circulation until the defendant had an opportunity to investigate the truth of the representations as to the value of the shares of stock which constituted the consideration, and if the representations were found to be false the stock was to be returned and the note surrendered. In violation of the agreement the note was discounted on the day of its date. A fraudulent intent and purpose from the beginning on the part of the payee having been undisputed, if Genáske participated, he is a party to the fraud under § 73, and the same defenses which would have been open against the payee are available as to him under § 138. Ellsworth v. Brewer, 11 Pick. 315, 320. Fisher v. Leland, 4 Cush. 456. Quinn v. Fuller, 7 Cush. 224. National Revere Bank v. Morse, 163 Mass. 383, 385. Fillebrown v. Hayward, 190 Mass. 472. Allen v. Puritan Trust Co. 211 Mass. 409. The question is one of fact. The evidence on which the master found participation is fully reported.

It is difficult to prove fraud by declarations of the party whom it is sought to implicate. The evidence necessarily must be to a great extent, if not wholly, circumstantial. The mere payment to the bank when the note fell due did not call for elaborate precautions. Ordinarily, upon the bank’s refusal at his request to bring suit against the maker, Genaske as an indorser would have taken it up, and in his own name enforced whatever remedy he had. The perfected arrangement of a transfer to the plaintiff, after the refusal, was devised with the assistance of counsel, retained and paid by him. What he disclosed as a client is not before us. The conclusion is almost irresistible, however, that after obtaining legal advice he understood that unless the plaintiff in some way could be placed in the bank’s position there was grave doubt whether the note could be collected. It is a fair assumption, that his course of action was taken because of actual knowledge of the terms under which the note had been obtained by the payee, with whom at the time he was associated in business and for whom, before the bank would discount the paper, he was obliged to give the security of his indorsement.

Nor did the master err in holding, that the failure of Genaske to testify at the hearings, although afforded the opportunity,^* furnished evidence against him. It is his suit, as previously said, in all but the name, and he alone is materially interested in the result. His motives had been impugned, and his conduct assailed. A failure to give evidence, where if the measures taken had been nothing more than the conduct of a person unduly overcautious it was within his power to have said so, raised a reasonable presumption of unclean hands. Howe v. Howe, 199 Mass. 598, 603.

It appears that, the payee having absconded, the defendant, although making reasonable efforts, had been unable to tender to him the substantially worthless stock. But, as he agreed not to negotiate the note and upon demand by the defendant to return it and take back the stock, the defendant, having left the certificates with the master for the plaintiff’s use, has done under the circumstances all that is possible by way of rescission. It moreover is reasonably certain, that the offer to rescind, if the payee could have been found, would have been a useless formality. Foternick v. Watson, 184 Mass. 187. Perry v. Fancy, 179 Mass. 183, 186.

The master’s findings not having been plainly wrong should not be set aside, and, for reasons sufficiently stated, the plaintiff’s exceptions to the report must be overruled and the decree dismissing the bill affirmed with costs.

Ordered accordingly.

* This section reads as follows: “Where the instrument is paid by a party secondarily liable thereon it is not discharged; but the party so paying it is remitted to his former rights as regards all prior parties, and he may strike out his own and all subsequent indorsements, and again negotiate the instrument, except:

“1. Where it is payable to the order of a third person, and has been paid by the drawer; and

“2. Where it was made or accepted for accommodation, and has been paid by the party accommodated.”

* Genaske was present at the hearing when the defendants rested, and the plaintiff could have called him to testify.