Cover v. Myers

Alvey, C. J., delivered the opinion of the Court. This is an action brought by the appellant against the appellee to recover the amount of a promissory note, dated the 11th of July, 1887, for $150. The note was made payable on the first day of August, 1888, to P. Huddle, or hearer, at the First National Bank of Westminster. The note bears the indorsement on its hack, in blank, of William B. Thomas; though the date of the indorsement does not appear; nor is it shown under what circumstances or for what consideration the note was passed or transferred from Huddle to Thomas.

It appears that the note was given for the price of fifteen bushels of seed wheat, which the defendant was induced to agree to purchase of “The Carroll County Industrial, Grain and Seed Company,” of which P. Huddle was president. At the time of taking the note, the agent acting for the company, represented to the defendant that if he, the defendant, would buy fifteen bushels of. Barnhouse’s wheat, he, the agent, would sell for the defendant double the quantity the latter bought, at $10 a bushel, with $2.50 a bushel off, as commission, in time to pay off the note; and at the time of such agreement and the making of the note, the agent delivered to the defendant the following bond: “No. 3. Pleasant Valley, July 11th, 1887. “The Carroll County Industrial, Grain and Seed Co., incorporated under the laws of Maryland, P. Huddle, president, C. J. Stewart, secretary, Wm.

A. Wampler, treasurer, doth hereby agree to sell 30 bushels of Seneca Chief Wheat for Mr. William Mj’-ers, of Jno., of Union-town Dis., Carroll County, State of Md., at ten dollars per bushel in good notes, less $2.50 per bushel commission, on or before the first day of July, 1888. We make no monetary statements, and the person accepting this ⁴¹⁶ bond acknowledges to have purchased the grain at a speculative value. í{í tfc i{c ¡fc. ^ JsealJ :£ ;}< jJ< ;}i P. Huddle, President. The defendant was assured by the agent that the note would not have to be paid until the bond was redeemed. That some time afterwards the defendant received fifteen bushels of wheat, but which was of an ordinary kind; that the defendant never afterwards saw the agent or the parties he represented; and there was no offer or attempt whatever to sell any portion of the product of the wheat for which the note was given, as was obligated to be done by the bond.

It further appears in evidence that William B. Thomas, the indorser on the note sued on, was, at the time of such indorsement, a broker and dealer in notes and other paper, in the town of Westminster, in Carroll County, and that he was a man of reputed wealth. That on the 19th of June, 1888, he left home, taking with him fifty-six promissory notes of various makers, including the note sued on in this case; but whether all the notes were made to the same payee the record does not disclose, except by implication or inference; and which notes in the aggregate amounted to $8,400, including interest to the 21st of June, 1888; and with said notes he went to the house of the plaintiff, near Front Royal, in the State of Virginia, a distance of about 140 miles from Westminster; and then and there, upon agreement, he indorsesd and transferred all^the fifty-six notes to the plaintiff, for the sum of $7,907.98, at a discount of five and a half per cent, on the $8,400. All the notes were near maturity, but none were in fact overdue; and a day or two after this transfer of the notes, the plaintiff transmitted them to the Union ⁴¹⁷ National Bank of Westminster for collection; and upon default of payment being made when due, he directed that the notes should be placed in the hands of an attorney at Westminster for suit, including the note sued on in this case. In this Bank, Thomas, the indorser, kept his account, and to the credit of which were deposited the money and checks which he received of the plaintiff on the transfer of the notes.

The plaintiff’s principal business is that of conducting or carrying on a tannery at his home in Virginia, and running a grocery store in connection therewith; and he says he occasionally buys notes and speculates in Virginia lands. The notes indorsed to him by Thomas were all made hy Maryland people, and only some of such makers were known to the plaintiff; and it may he inferred from the fact that all the notes were sent to a Westminster hank for collection, that the makers were mostly, if not all, residents of that vicinity. The principal testimony in the case, as disclosed hy the record, was given hy the plaintiff himself. He testified to what may seem somewhat remarkable, that Thomas did not state anything about the consideration of the notes, or how they were obtained, and that he, the plaintiff, had no knowledge on the subject, and made no inquiry as to the consideration upon which they were founded, or how they were obtained; that he had no knowledge at that time of any fraud in obtaining the notes, and had never before heard of P. Huddle, or of any business that he was engaged in; but he bought the notes solely because he had the money to spare from his business of tanning, and wished to invest the same, and thought that the interest to accrue on the notes and the discount of 5-|- per cent, would be a good profit on his money.

He paid Thomas for the notes by a check on the Bank of Warren, in Virginia, and which check was duly paid in money and checks or drafts. ⁴¹⁸ At the time of the transfer of these notes by Thomas to the plaintiff, and as part of the same transaction, Thomas, on request of the plaintiff, executed and delivered to the latter the following agreement or guarantee: “ Brown to tvn, Va., June 19th, 1888. “I agree that, provided there be any costs in collecting any of the foregoing fifty-six notes, I will refund any and all amount of costs to the said E. P. Cover; also agree that provided any of said notes should fail to be paid-to said E. P. Cover, or order, when due, that I will refund him said amt. of money which may be due him on any such notes, with all costs which may be upon same, after he having made an effort to collect same from the makers and fails. Wm. B. Thomas.” The record does not show that either Huddle, the payee of the note, or his agent who obtained it from the defendant, or Thomas, who indorsed the note to the plaintiff, appeared as witnesses; but the case of the plaintiff was mainly rested upon the ordinary presumptions that obtain in favor of the rights of innocent holders of negotiable paper acquired before maturity. But in this case there is an element introduced by the proof that modifies, to a certain extent, those ordinary presumptions.

That the note had a fraudulent inception is cléar beyond doubt; and upon this being shown, it was incumbent upon the plaintiff to show under what circumstances he acquired title to the note. That the note would have been fully embraced by the Act of 1888, ch. 415, passed for the purpose of preventing, and also for punishing such frauds, but for the fact that the note antedates the statute, is clear. The case falls fully within the principles .of the case of Griffith vs. Shipley, 74 Md., 591 . It is a well settled doctrine, applicable to these cases, that where a negotiable instrument is originally infected with fraud, invalidity, or illegality, the title of the original holder ⁴¹⁹ "being destroyed, the title of every subsequent holder which reposes on that foundation, and no other, falls with it.

But if any subsequent holder takes the instrument in good faith and for value, before maturity, he is ■entitled to recover on it, and so any person taking title under him may recover, notwithstanding such latter holder may have knowledge of the infirmities of the instrument; and all that is required of the holder in such -case is, that it be proved that he, or some preceding holder or indorsee under whom he claims, acquired title to the paper before maturity, tona fide and for value. Commissioners, &c. vs. Clark, 94 U. S., 278, 285 ; Collins vs. Gilbert, Id., 753. Therefore, if Thomas, under whom th e plaintiff asserts title to the note, was in fact a bona fide purchaser or holder of the note for value, then the plaintiff, notwithstanding any knowledge that he may have had at the time of the endorsement to him, of the fraudulent origin ■of the note, would be entitled to recover by virtue of the right acquired from Thomas. In such case the plaintiff would succeed to all the rights of Thomas, and would be ■entitled to enforce them.

For the rule is now well settled, as laid down by the Supreme Court of the United States in Cromwell vs. County of Sac, 96 U. S., 51, 59 , “that whenever negotiable paper has passed into the hands of a party, unaffected by previous infirmities, its ■character as an available security is established, and its holder can transfer it to others witli the like immunity His own title and right would be impaired if any restrictions were placed upon his power of disposition. This ■doctrine, as well as the one which protects the purchaser without notice, says Judge Story, fis indispensable to the security and- circulation of negotiable instruments, and it is founded on the most comprehensive and liberal principles of public policy.’ Sto. Prom. Notes, sec. 191.

The