§ 35

MASSACHUSETTS NATIONAL BANK v. SNOW.

187 MASSACHUSETTS, 159.-1905.

ACTION by the Massachusetts National Bank against one Snow. Verdict for defendant, and plaintiff brings exceptions.

KNOWLTON, C. J. This is an action of contract on three promissory notes, signed, "H. G. & H. W. Stevens," payable to the order of the defendant, indorsed by him in blank, and discounted by the plaintiff. They severally bear date December 9, 1897, and the rights of the parties are accordingly governed by St. 1898, p. 492, c. 533, sometimes called the "Negotiable Instruments Act," which is now embodied in Rev. Laws, c. 73, §§ 18-212, inclusive. In referring to different provisions of this statute, it may be convenient to cite the sections of the Revised Laws, rather than the original act.

The maker of the notes, H. W. Stevens, who did business under the name of H. G. & H. W. Stevens, has deceased; and the defendant introduced evidence tending to show that, after the defendant had indorsed the notes, they were taken from his possession by the maker, without his knowledge or consent, and discounted at the plaintiff bank, and that they were altered by the insertion of the words seven

part of the maker against his will where none existed before? There is no principle of the law of contracts upon which this can be done, unless the facts of the case are such that in justice and fairness, as between the maker and the innocent holder, the maker ought to be estopped to deny the making and delivery of the note.' . That there must be delivery of the paper, either actually or constructively, is clear. Until then it has no existence as a contract. Bank v. Strang, 72 Ill. 559."

The court further held that the case did not fall "within the principle that, when one of two innocent persons must suffer by the act of a third, he who has enabled such third person to occasion the loss must sustain it. The order was drawn at the table of Hurd, and momentarily left there with other papers of his, to which no one had right of access, and from which it could only be abstracted by a criminal act, which he could not reasonably anticipate." See also the note in 19 L. N. S. 107, entitled "Rights of owner of negotiable paper payable to bearer, or indorsed in blank, as against bona fide purchaser from one unlawfully in possession thereof," where the authorities, pro and con, on the question whether a delivery is necessary to the existence of the instrument as an enforcible contract are exhaustively considered (see particularly, pages 109-111).

The conflict of authority in the decisions represented by the Salley and the Kinyon cases was resolved in favor of the doctrine of the latter cases by section 35 of the Negotiable Instruments Law. "The primary purpose of the Negotiable Instruments Law was to make the law relating to commercial paper uniform throughout the United States. Specifically, it was the purpose of the act to exclude non-delivery by the maker as a defense to a suit on a note complete in form and execution by a holder in due course.' 8 Mich. Law Rev. 41. "This change, like some others made by the act, is in the direction of facilitating the circulation of commercial paper." Crawford's Neg. Inst. Law, 3d ed., p. 28.-C.

per cent." after the words "with interest." The defense is founded on this evidence. The defendant's counsel stated that he made no contention that the bank had actual knowledge of any infirmity in the instruments, or defect in the title to them, or that it took them in bad faith. Nor was it contended by the defendant that in discounting the notes the bank acted otherwise than in the regular and usual course of business. But upon the defendant's testimony it might be found that the notes were given to him by the maker in payment of indebtedness; that, after he had indorsed them in blank, and put them in his desk for collection or discount, he was called out of his office, leaving the maker, Stevens, there; and that Stevens then took them without right, and three days later carried them to the plaintiff bank, and caused them to be discounted for his own benefit. The plaintiff made many requests for rulings, which were refused, subject to its exception, among which were the following:

"Fifth. That, when an instrument is in the hands of a holder in due course, a valid delivery thereof by all parties prior to him, so as to make them liable to him, is conclusively presumed."

* * *

Ninth. That a holder of a note is deemed prima facie to be a holder in due course.

* *

"Nineteenth. That when an instrument has been materially altered, and is in the hands of a holder in due course, not a party to the alteration, he may enforce payment thereof according to its original tenor."

The plaintiff also excepted to the following instructions given at the request of the defendant:

"Fourth. That if the jury find that the notes were taken from the defendant wrongfully, and that the same were never delivered by the defendant to Stevens, the plaintiff gained no title to the notes by the negotiation of the same by Stevens, and the plaintiff cannot recover. Fifth. The burden is upon the plaintiff to show that the notes were delivered by the defendant to Stevens, or some other person authorized to negotiate them at the plaintiff bank."

Seventh. Or, in the alternative, if the jury find that the notes in question were altered by the addition of the words 'seven per cent.' thereto after the same were indorsed by the defendant, such an alteration is a material and wrongful one, destroying the validity of the notes, and upon the notes, or any one of them, thus altered, the plaintiff cannot recover."

The notes, being indorsed in blank, were payable to bearer, within the meaning of the statute. Rev. Laws, c. 73, § 26 (5). When the notes were taken to the plaintiff for discount, Stevens was the bearer Rev. Laws, c. 73, § 207. The presentation of such notes for discount

N. Y., § 28, subd. 5. — C.

1 N. Y., § 2. -C,

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raised a presumption of fact that the bearer was the owner of them. Pettee v. Prout, 3 Gray, 502. Upon the undisputed evidence, and upon the defendant's admission that the plaintiff took them in good faith, and discounted them without knowledge of any infirmity in them or defect of title in Stevens, the plaintiff became a holder in due course, within the definition of the statute. Rev. Laws, c. 73, §§ 69-76; Boston Steel & Iron Company v. Steuer, 183 Mass. 140. The defendant's contention that, after the notes had been delivered to the defendant and indorsed by him, they were stolen by Stevens, brings us to the question whether, under the Negotiable Instruments Act, a holder in due course of a note payable to bearer, that has been stolen, can acquire a good title from the thief. Even before the enactment of the statute, while the decisions were not uniform, the weight of authority was in favor of an affirmative answer to the question. Wheeler v. Guild, 20 Pick. 545, 550, 553; Worcester, etc., Bank v. Dorchester, etc., Bank, 10 Cush. 488; Wyer v. Same, 11 Cush. 51, 53; Spooner v. Holmes, 102 Mass. 503; London Joint Stock Bank v. Simmons, (1892) App. Cas. 201, and cases cited; Smith v. Bank, 1 Q. B. D. 31; Goodman v. Simonds, 20 Howard 343-365; Murray v. Lardner, 2 Wall. 110; Hotchkiss v. National Shoe & Leather Bank, 21 Wall. 354; Kinyon v. Wohlford, 17 Minn. 239 (Gil. 215); Clarke v. Johnson, 54 Ill. 296; Seybel v. National Currency Bank, 54 N. Y. 288; Evertson v. National Bank of Newport, 66 N. Y. 14; Kuhns v. Gettysburg National Bank, 68 Pa. 445.

The following specific language of the statute touching this question, as well as its provisions in other sections, was intended to establish the law in favor of holders in due course: But where the instrument is in the hands of a holder in due course, a valid delivery thereof by all parties prior to him, so as to make them liable to him, is conclusively presumed." Rev. Laws, c. 73, § 33.3 This conclusive presumption exists as well when the note is taken from a thief as in any other case. Of course, this rule does not apply to an instrument which is incomplete. But in reference to a complete, negotiable promissory note, payable to bearer, it is a wholesome and salutary provision. See Greeser v. Sugarman, 37 Misc. (N. Y.) 799. Upon the defendant's statement and the counsel's theory of the case, the rule is applicable. The note was not only complete in form and in execution, but, upon his testimony, it had been delivered to him by the maker as a binding instrument, and had afterwards been indorsed by him. Therefore the first sentence of Rev. Laws, c. 73, § 33, "Every contract on a negotiable instrument is incomplete and revocable until delivery of the instrument for the purpose of giving effect thereto," was inapplicable. The instrument had taken effect, and was subsequently

2 N. Y., §§ 91-98. — C.

N. Y., § 35. — C.

negotiated by the bearer to the plaintiff as a holder in due course. That the bearer was also the maker was immaterial after the instrument had been so indorsed as to become payable to bearer. Upon the plaintiff's theory of the facts, there was no theft, but an ordinary accommodation indorsement by the defendant for the benefit of the maker, and none of these questions arise. We are of opinion that the judge erred in giving the fourth and fifth instructions requested by the defendant, and in refusing other instructions requested by the plaintiff, founded upon a different view of the statute.

There was also error in the instructions given as to the alleged alteration of the notes. By Rev. Laws, c. 73, § 141, it is provided that "when an instrument has been materially altered, and is in the hands of a holder in due course, not a party to the alteration, he may enforce payment thereof according to its original tenor." This language is directly applicable to the present case. See Scholfield v. Earl of Londesborough, (1894) 2 Q. B. 660, (1895) 1 Q. B. 536, (1896) A. C. 514; Schwartz v. Wilmer, 90 Md. 136-143.

We understand that the instructions were given independently of any question of pleading, and we therefore do not deem it necessary to determine at this stage of the case whether the plaintiff should amend its declaration by inserting counts upon the notes as they were before the alleged alteration, if it wishes to recover upon them as notes bearing interest at only 6 per cent. See Mutual Loan Ass'n v. Lesser, 76 App. Div. (N. Y.) 614. Nor do we consider other questions which are not likely to arise upon a second trial.

Exceptions sustained.

201 MASSACHUSETTS, 1.- 1909.

CONTRACT, by one alleged to be the holder in due course of a check signed by the defendant, to recover the amount of the check.

At the trial there was evidence tending to show that the defendant had agreed to purchase two horses of one Leonard, that Leonard brought the horses to the defendant's place of business, the defendant previously having made out and signed and left on his desk a check payable to Leonard's order for the purchase price of the horses; that the defendant unexpectedly was called upon to leave his office for a short time, and that, in his absence, at Leonard's request, the defendant's bookkeeper delivered the check to him: that very shortly thereafter the defendant stopped payment of the check, but that, in the meantime, Leonard had negotiated the check for value to the plaintiff, who had no notice of the transaction between Leonard and the

N. Y., § 205.- C.

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defendant. The defendant's evidence tended to show that the bookkeeper had no authority to deliver the check to Leonard, and that the reason why he stopped payment on the check was that he discovered that the horses were unsound.

At the close of the evidence, the defendant requested the presiding judge to rule that the plaintiff could not recover. The request was refused and the jury returned a verdict for the plaintiff. The defendant alleged exceptions.

BRALEY, J. If the consideration of the check as between the defendant and the payee was the price of a pair of horses, which might have been found to have been unsound at the time of sale, yet the plaintiff as indorsee having taken it for value, and in good faith before it was overdue, and without notice of any infirmity, or that payment had been stopped at the bank, became a holder in due course, with all the rights appertaining to such a title. Rev. Laws, c. 73, § 69;' Wheeler v. Guild, 20 Pick. 545, 552, 553, 32 Am. Dec. 231; Shawmut National Bank v. Manson, 168 Mass. 425; Massachusetts National Bank v. Snow, 187 Mass. 159. The defendant, while not expressly conceding this, rests his defense solely on the ground that, because his clerk had no express authority to deliver the check to the payee, it was unlawfully put in circulation, and the contract being incomplete, no title passed to the plaintiff by its subsequent negotiation. Fearing v. Clark, 16 Gray, 74; Hill v. Hall, 191 Mass. 253, 265. But the check was in the hands of the plaintiff as a holder in due course, and as to him a valid delivery by the defendant was conclusively presumed, even if this defense would have been open as between the original parties. Rev. Laws, c. 73, § 33; Massachusetts National Bank v. Snow, 187 Mass. 159, 163. We are, therefore, not called upon to decide whether there was other evidence upon which, under suitable instructions, the jury could have found either actual or constructive delivery. It accordingly follows that the ruling requested could not properly have been given, and the case was rightly submitted to the jury.

6

Exceptions overruled.

VII. Non-essentials.

§ 25

MEHLBERG v. TISHER.

24 WISCONSIN, 607.1869.

ACTION on the following instrument:

TO HOXIE and RICH: Please pay to Chas. Mehlberg the sum of $69.20, and charge to me.

CHAS. TISHER. TOWNSHIP OF MANCHESTER, Feb'y 23, 1881.

N. Y., § 91. — C.

N, Y., § 35. — C,