July Term. Adler V. ment was therefore in the nature of a general letter of 1880. credit addressed to any person who would give credit to the drawer for any amount. In legal effect, it was a proposition of the endorser to become bound as secu- Frank & rity for the payment of whatever sum should be advanced or credited to the drawer by any person feld & als. whatsoever. When, therefore, the complainants gave the credit, the proposition was thereby accepted, and the contract between them and the endorser was complete. It may be, and, if Mrs. Lilienfeld's statement is accepted as true, it is proved, that in this transaction her husband basely deceived and defrauded her. But if the complainants are innocent, who should bear the consequences of the fraud? The answer is furnished by the familiar maxim, of general application, and as sound in morals as it is in law, that wherever one of two innocent persons must suffer by the acts of a third, he who has enabled such third person to occasion the loss must sustain it. Ashhurst, J. in Lickbarrow & another v. Mason & others, 2 T. R. 63, 70. Mrs. Lilienfeld trusted her husband and put it in his power to defraud her, and to mislead the complainants. She entrusted him with a paper, bearing her engagement, for his own use and accommodation, which had the force and effect of a general letter of credit, and when acted on as such by the complainants, it can avail her nothing to say, that the authority implied by her endorsement was limited by the agreement between herself and her husband, unless the complainants had notice or knowledge of such agreement at the time the paper was transferred to them. In other words, she cannot be relieved of the consequences of her husband's fraud, unless it is shown that the complainants partici Lilien 1880. pated in that fraud; and it is insisted, that they did so July Term. participate. Adler V. Lilien It has been shown, that the answer of Lilienfeld (the Frank & husband) cannot be read as evidence in the cause. But if it could be so used, it is entitled, in my judgment, feld & als, to but little weight. He shamelessly avows his own. fraud in the transaction, but seeks to palliate it by the pretence that he was induced to negotiate the note to the complainants by their solicitations after they had been apprised by him of its origin and his lack of authority to make a valid transfer of it to them. This is a very improbable story. Its credibility is not strengthened by the history he gives of the note in question. The impression is sought to be made, that after he had failed in the use of the note with Bloomberg he thought it had been destroyed; for he says, "it was intended to be destroyed and, he has no doubt his wife thought it was destroyed." According to his account, after he had purchased the goods of the complainants at their store in Baltimore, they desired him to give a note with an endorser, to which he replied he could not give any. They then stated, that they understood he had real estate in Richmond; to which he answered he had none, but that his wife owned some held by her trustee. "While this interview was going on" (in the language of the answer), "this respondent had occasion, in the counting-room of the complainants, to examine some papers which he had with him in his wallet, and among them, he found the note endorsed by his said wife in blank, above referred to, though he was not aware that he had said note at the time he went to the store of said complainants." It was this sudden but seasonable discovery in the "wallet" of the note theretofore "intended to be destroyed," that enabled him, by the persuasion of the complainants, to perpetrate upon his wife a fraud never before July contemplated! Such an answer might serve to cast 1880. discredit on the respondent, but could not be safely Term. relied on for any other purpose. Adler V. Lilien On the other hand, the complainant Alder, who sold Frank & the goods, in his testimony details the negotiation and explains the whole transaction, so far as the complain- feld & als. ants were concerned, in which it does not appear that he or they had any notice or knowledge of the alleged special purpose for which the endorsement was made, or that there was any want of good faith on their part. Lilienfeld was introduced to the complainants by his brother-in-law and by him recommended for credit, which was refused. He then offered the note with his wife's endorsement as security, representing that fearing he could not buy goods on credit without giving security, he had procured his wife to endorse the blank note, so that he might buy goods and fill up the note with the amount of the purchase. Upon inquiries made of others likely to know, the complainants were informed that Mrs. Lilienfeld had a separate estate, was wealthy, and her endorsement would be sufficient security for any amount of goods sold to her husband. Upon the information thus obtained and the representations aforesaid, the goods were sold and the note was taken as security for payment. The possession by the husband of a note partly blank with his wife's endorsement in blank was no indication to the complainants of a fraudulent purpose on his part. Such a circumstance was not unusual in mercantile transactions; and besides, his statement was plausible and had the semblance of truth. After some fluctuation in judicial decisions, English and American, the law seems now to be quite well settled, that to invalidate the title of the holder of a negotiable instrument (not absolutely void by statute law), endorsed in blank, and acquired for value, in due course of trade, and before maturity, 1880. Term. it is not sufficient to show circumstances in the acquiJuly sition of the note affecting such holder with suspicion merely, or that he was guilty of ordinary negligence, Frank & or even gross negligence (the omission of that care Adler V. Lilien which even the most inattentive and thoughtless men feld & als, never fail to take of their own concerns), but it is necessary to show that he was guilty of mala fides-in plain language, of fraud. The cases are referred to in the latest works on commercial law. 1 Parsons' Notes and Bills 258 et seq.; 2 do. 269–279; 1 Daniel on Neg. Inst., ch. 24. See especially Goodman v. Harvey, 4 Ad. & El. 870; Collins v. Gilbert, 94 U. S. (4 Otto) 753 and numerous cases cited in the opinion of the court by Mr. Justice Clifford. The evidence falls very far short of establishing mala fides or fraud, that is, on the part of the complainants, however gross may have been the fraud of Lilienfeld (the husband), in which they did not participate, and of whose fraudulent purpose they had no notice at the time they acquired the note from him. 2. It is further contended, that if the complainants acquired a good title to the note by the transfer, yet, by inserting their names as payees, they placed Mrs. Lilienfeld in the relation of second endorser to them, and thus rendered her endorsement previously made unavailing as a security, so far as they are concerned. It seems to me, that this contention goes rather to the form than to the substance of the transaction, and is founded on a misconception of the true relation to each other of the parties to the note. As has been seen, the endorsement in blank by Mrs. Lilienfeld of the incompleted note, entrusted to her husband for his use and accommodation, was, in legal effect, a proposition on her part to bind herself or her estate as security for the payment of whatever sum should be advanced or credited to her husband by any July Adler V. Lilien person whomsoever, and when the complainants, on 1880. faith of the endorsement, gave the credit and took the Term. note, the proposition was accepted, and the contract. between the parties complete, with authority in the Frank & complainants to give effect to it by filling the blanks. Her undertaking was that of surety, either absolutely feld & als. bound as joint maker, or conditionally as guarantor or endorser in a commercial sense. If the paper, when it was delivered to the complainants, had been entirely blank, except as to the signatures, the complainants, according to the decision in Orrick v. Colston, supra, would have been authorized to write over the signature of Lilienfeld (the husband) a promissory note for the price of the goods sold to him, payable to themselves and either negotiable or non-negotiable, at their option. If made non-negotiable, they would have had the right, according to the case referred to, to treat Mrs. Lilienfeld either as a joint maker of the note or as a guarantor. If made negotiable (with themselves as payees), upon the principles of the same case, it is not clear that the rights and liabilities of the parties inter se would not have been the same as if the note had been non-negotiable. But in the case before us, the paper, at the time it was endorsed, was not wholly blank (except as to signatures), as in the case of Orrick v. Collston, but it was an incomplete note. There is no doubt that when Mrs. Lilienfeld wrote her name across the back of it she intended her signature to represent an endorser in a commercial sense. She says she "endorsed a negotiable note." And I incline to think that the paper, before it was perfected as a note, had enough upon it to apprise the complainants of the character of the endorsement. The signature was in the place appropriate for the endorser of a negotiable instrument, and the paper itself was the printed formula in common |