Lawrence v. . Clark

It must be conceded that the note in suit was invalid in the hands of Wood Grant, who received it for the balance of their claim, beyond the amount secured to all the creditors of Clark, Watson Co. by the composition deed. The secret agreement made with Wood Grant was illegal, and the note given in pursuance of it was void in their hands. (Brick v. Cole, 4 Sandf., 79;Russell v. Rogers, 10 Wend., 473-479; 4 E.D. Smith, 466;Hall v. Dyson, 10 Eng. L. and E., 424; Leicester v. Rose, 4 East., 372; 12 Price's Exch., 183; 13 Vesey, 581; 15 id., 52;9 N H., 488.) Nor can the plaintiff enforce it if not a bona fide holder. According to the evidence, he received it from Wood Grant, and applied it on a pre-existing debt which he held against that firm. Mr. Clark, one of the firm, testified: "He (plaintiff) had demands against us of about $5,000. The money was due at the time he took this note for a debt. He gave us credit for the note. He has no claim against us on account of the note. He took it in payment of so much of his debt." The question now is, was he a bona fide holder of the paper? A bona fide holder of negotiable paper is one who receives it before maturity, for value, and without notice of any existing equity against it. In this case the plaintiff received it before maturity and without notice. But did he give value for it — did he part with anything of value, or relinquish any right upon the faith of it?

It was held in the leading case in this State of Coddington v. Bay (5 Johns. Ch., 54; 20 Johns., 637) that the holder, to be protected against latent equities, must have parted with something of value at the time the note was received, in money or property, or must have incurred some responsibility or relinquished some right on the faith of it. The numerous decisions bearing on this question were all carefully considered in Farrington v. The Frankfort Bank (24 Barb., 554); and it was there determined that the rule laid down in Rosa v.Brotherson (10 Wend., 85) and in Payne v. Cutler (13 id., 605), to the effect that when a creditor receives the transfer of a negotiable note in payment of a precedent debt without giving up any security, takes it subject to all equities existing between the original parties, was the settled law of this State. I am not aware of any more recent case holding in hostility to this rule. In Brown v. Leavitt (31 N.Y., 113) a security was surrendered on receiving the new note. In Boyd v. Cummings (17 N.Y., 101) a right was relinquished. In Ayrault v.McQueen (32 Barb., 305) security was surrendered. InStettheim v. Myer (33 Barb., 215) a note was surrendered and money paid. In Cardwell v. Hicks (37 Barb., 458) the note was taken for a precedent debt and for cash paid. It was held that the party could recover only for the amount of cash advanced. InChesbrough v. Wright (41 Barb., 28) it was held that the receiving a note in part payment of a precedent debt did not constitute a parting with value which would render the holder abona fide holder for value. In Webster v. Van Steinburgh (46 Barb., 212) it was held that to constitute a person a bonafide purchaser he must have received the instrument upon some new consideration advanced at the time, or must have relinquished some security for a pre-existing debt due him. (32 N.Y., 553,557; 34 id., 247.) It seems, therefore, perfectly well settled that the receiving a note on a precedent debt without surrendering or relinquishing any security or right in regard to it, will not constitute a person a bona fide holder, so as to shut out equities which might be insisted on against the prior owner.

In this case the plaintiff received the note to apply, so far as it would go, in reduction of the indebtedness of Wood Grant to him. He relinquished no security or right on the faith of it, nor did he part with anything or incur any risk in obtaining it. As regards the indebtedness of Wood Grant to him, his position was the same after as before he accepted the note. So far as appears from the evidence, his right to prosecute that firm for his claim was not at all impaired. The imposition upon him of an illegal, hence valueless, note deprived him of no right which he otherwise would have had.

The judge therefore ruled correctly on the trial in holding that the plaintiff was not a bona fide holder of the note for value, but occupied the position of Wood Grant in regard to the defense urged.

The order of the General Term should be reversed and judgment absolute rendered for the defendants, pursuant to the stipulation. The same result will be attained by reversing the order appealed from, and affirming the judgment of the Special Term.

WRIGHT, PORTER, HUNT, PARKER and SCRUGHAM, JJ., concurred in the above opinion.

DAVIES, Ch. J., and GROVER, J., dissented.

Affirmed.