Polhemus v. Prudential Realty Corp.

The opinion of the court (the foregoing statement having been made) was delivered by Ghees', J.

By way of introduction, it should be remarked that the counsel of the defendant in error objects to both of the assignments; that they lack definiteness in pointing out the grounds of error. It may be that if the arguments of the plaintiff in error seemed to us of compelling force, we would be obliged to inquire whether he had, as a matter of practice, secured a firm foundation whereon his arguments might rest, *575 "but as our consideration of the case leads us to deny any such force to the arguments, the preliminary inquiry -is needless.

The questions now to be solved are two, to wit, Had the plaintiff below, when he rested, shown in himself a right of action which entitled him to go to the jury ? and, "Wien the defendant below abstained from offering any evidence in support of his plea, had the plaintiff already proved such facts as warranted the direction of a verdict in his favor ?

I. Firstly. Had the plaintiff below, when he rested, shown in himself a right of action which entitled him to go to the jury? In answering this question several legal principles must have their proper application.

(1) A promissory note has no legal inception or valid existence until it has been delivered. So long as it remains in the hands of the maker or his agent it is inoperative. See Norton Bills & N. (3d ed.) 67, 136; Rand. Com. Pap. (2d ed.), §§ 216, 222, 689; Dan. Neg. Inst. (5th ed.), § 63; Brind v. Hampshire (1836), 1 Mees. & W. 365; Marvin v. McCullum (1822), 20 Johns. (N. Y.) 288, 289; Gale v. Miller (1874), 54 N. Y. 536, 538 ; Crowell v. Osborne (1881), 14 Vroom 335 , 337; Messmore v. Meyer (1893), 27 Id. 31, 33. When, however, the note passes into the hands of a bona fide holder for value before maturity, it becomes a chose in action, and the reciprocal rights and duties of the parties to it are fixed. See Norton Bills & N. 136; Rand. Com. Pap., § 224; Chapman v. Cottrell (1865), 13 W. R. 843; McCutchen v. Kennedy (1858), 3 Dutcher 230, 236, 238, arguendo; Duncan, Sherman & Co. v. Gilbert (1862), 5 Id. 521, 523; Foley v. Emerald Brewing Co. (1898), 32 Vroom 428, 429 . u It is to be observed that, for the protection of persons liable, delivery is, normally, to be in accordance with the purpose and intent of the parties to a note. Nevertheless, such a rule is subject to exceptions for the protection of bona fide holders for value. One of such exceptions was lately admitted in this court in the case of Mechanics Bank v. Chardavoyne (1903), 40 Id. 256, 258. Another exception obtains where the departure from the intent of the parties is one of mode only and affects no substantial right. In Jackson v. First National Bank (1880), *576 13 Id. 177, 179, following Duncan, Sherman & Co. v. Gilbert, supra, this court held that “when a note was made for the general purpose of accommodating the paj^ee, the particular mode in which it was made to subserve that end was of no account to the maker. Whether the payee raised the money upon it — which was the use indicated at the time — and with the money paid off an old debt, or, without the circuity of a new loan, applied the note directly to the satisfaction or securing of the old debt, would be of no consequence to the defendant. lie lost no right by such diversion of the paper; nor was he subjected to any additional risk.”

(2) A promissory note maybe the subject of valid transfer and delivery by way of pledge or collateral security. See Rand. Com. Pap. (2d ed.), § 794; Jones Pledg. (2d ed.), §§ 80, 89; Coleb. Coll. Sec. (2d ed.), §§ 2, 3; Rogers et al. v. Sipley et al. (1871), 6 Vroom 86 . In Duncan, Sherman & Co. v. Gilbert (1862), 5 Dutcher [133], 521, 526, 529, 530, two promissory notes had been given without consideration by Gilbert to Rowland with the understanding that they were to be discounted at a certain bank for the latter’s benefit, Gilbert having no personal concern in the manner in which the money obtained by the discount should be used. Rowland, however, deposited the notes with Duncan, Sherman & Co. as collateral security for the issue to himself of a foreign letter of credit. On an action brought by the bankers against Gilbert, the maker, it was held in this court that the liability incurred in issuing the letter of credit was a sufficient consideration for the note in their hands, and that, under the evidence and the instruction of the judge at the trial, there was no error in a recovery of the face of the notes.

(3) A party to a note who has received no value himself inajq nevertheless, become liable to a holder for value. See 2 Pars. Bills & N. 27; Rand. Com. Pap., §§ 472, 692; Dan. Neg. Inst. (5th ed.), § 790. This principle is applicable alike to the maker and endorser of a note by way of accommodation. So, also, an agent may by his express undertaking become liable, as well as the principal, to third persons. See 1 Am. Lead. Cas. (H. & W.) *635; Story Ag. (8th ed.), §§ 155, 157, *577 269. In Chaddock v. Vanness (1871), 6 Vroom 517 , 519, 528, Chaddock, by Jiis irregular endorsement was, under the proofs, held liable as a joint and several maker, although no value had been received by him. In like manner, in Foley v. Emerald Brewing Co. (1898), 32 Id. 428, 429 , Foley would have been held liable as an endorser had it not been for lack of demand and notice. In legal theory, the holder of the note, in such cases; has parted with property or rights on the faith and credit of the party’s name, and therefore the latter is answerable. See Hayden v. Weldon (1881), 14 Id. 128, 130. When there are several parties to a bill or note who have become such for the benefit of another, their status, not only as to the holder for value but inter sese, is, in the absence of relevant proof to the contrary, that which is shown by the paper upon which they have placed their names. See Rand. Com. Pap., § 473; Dan. Neg. Inst., § 703 (8) ; Hill v. Buchanan (1904), 42 Vroom 301 , 302; Coolidge v. Wiggin (1873), 62 Me. 568, 572 ; McGurk v. Huggett (1885), 56 Mich. 187, 189 ; also, Laubach v. Pursell (1872), 6 Vroom 434 , 435; McDonald v. Magruder (1830), 28 U. S. 470, 474, 477 . Of two cases to-the contrary, MacDonald v. Whitfield (1883), L. R., 8 App. Cas. 733, 744, 746, turned upon a prior mutual agreement among the endorsers, and Atwater v. Farthing (1896), 118 N. C. 388 , has confessedly no extraterritorial importance.

(4) A creditor, holding a pledge or collateral security, majr, upon default, pursue any or all of his remedies at pleasure, whether by bringing an action on the principal contract or by proceeding to realize the value of the pledge or security. See Jones Pledg. (2d ed.), §§ 589, 663, 720; Coleb. Coll. Sec, (2d ed.), § 113. If the pledge or collateral security be commercial paper, the holder may bring either an action to enforce the principal debt or one to collect the pledged paper. See Jones Pledg., §§ 664, 681; Rand. Com. Pap., § 796; Brick ads. Freehold National Banking Co. (1875), 8 Vroom 307 , 308; Paine v. Furnas (1875), 117 Mass. 308 .

(5) A person other than the real debtor, but in somewise liable for the debt, may pay such debt to the creditor, and is thereupon entitled to subrogation to the rights of the creditor- *578 in any pledge or collateral security held by the latter for the payment of the debt. See Sheld. Subr. (2d ed.), § 11; Harr. Subr., §§ 1, 3; Wilson v. Brown (1861), 2 Beas. 277, 278; Irick v. Black (1864), 2 C. E. Gr. 189, 195; Philadelphia and Pleading Railroad Co. v. Little (1886), 14 Stew. Eq. 519, 529. AVhen two or more persons are thus liable for the debt of another, in succession, they will enjoy the right .of subrogation successively, according to their contractual relations. See Harr. Subr., §§ 381, 387; Thompson, Administrator, v. Taylor (1878), 12 R. I. 109, 110, 112. When tire very right of subrogation is in question, it may be that the remedy is in equity, but when the right of subrogation itself is practically conceded, and there remains to be enforced only the right of realizing the value of the subject-matter, such right majq on proper occasion, be within the cognizance of a court of law. See Sheld. Subr. (2d ed.), § 1; Sussex County Insurance Co. v. Woodruff (1857), 2 Dutcher 541, 555, 559; Paulin v. Kaighn (1861), 5 Id. 480.

(6) When a person who has endorsed a note and parted with it again comes into possession of it in a bona fide manner, he maji- strike out his own endorsement and all subsecpient thereto, and sue the prior parties upon the note. See Middleton v. Griffith (1894) , 28 Vroom 442, 445 .

Applying the principles of the foregoing cases and authorities to the facts of the case in hand, we perceive this:

While the promissory note of the Prudential Realty Corporation upon which the action was brought was in the possession of the corporation which made it, or in the hands of Deutz, a defendant below, or Polhemus, the plaintiff below, it had no valid existence, and was unenforceable. They were cither the agents of the corporation or endorsers-to-be, by way of accommodation, for the procuring of money for corporation purposes. When, however, the paper passed into the possession of the Trenton Trust and Safe Deposit Company, as holders for value, before maturity, it had legal inception as a note, and became a chose in action, with all the qualities ordinarily incident thereto. Although it may have been the expectation, when this note was signed by Deutz, as president, *579 and Clickner, as treasurer, that the money for the purposes of the corporation would be obtained in the way of ordinary discount, nevertheless the change in the mode of use, by delivering the note as a pledge or collateral security, did not invalidate it, inasmuch as the intended object of the use was effectuated and there was no misappropriation. Furthermore, under the circumstances of this case, no question could arise as to the sum recoverable, such as was considered by this court in Allaire v. Hartshorne (1847), 1 Zab. 665.

Upon the taking by the trust company of the joint and several note of Deutz and Polhemus, and of the corporation note delivered and pledged therewith, and the loan and advancement of the money in reliance thereon, Deutz and Polhemus became at once liable to the trust company upon both notes, whether the avails went into their own pockets or not, because the trust, company parted with value upon the faith and credit of their names. Even if they were accommodation endorsers of the pledged note, their status as endorsers was presumptively fixed, not only as to the holder, but inter sese, by the paper upon which they had successively placed their names. The creditor trust company, holding, as they did, both a principal contract and a pledge or security, were allowed in law to sue upon the former or to realize at maturity upon the latter, and they chose the former alternative.

When the money borrowed from the trust company by Deutz and Polhemus was paid over by them to the realty corporation, or applied to the uses of the corporation, as it was their duty to do, they became, in effect, sureties- for the corporation, notwithstanding the unusual form of the transaction, and on the corporation note became, in due order, secondarily liable for the debt of the corporation. Therefore, when the money borrowed became due to the trust company, it was lawful for Polhemus to repay it and to take into hi3 possession not only the joint and several note, but the pledged note as well, and thereupon he was.fully subrogated to the rights of the trust company in the pledged note, excepting, of course, the right to sue himself and parties subsequent to himself, if there had been any. When the 'note thus came *580 lawfully into Polhemus’ possession by the joint act of himself and the trust company, he had a right to sue any or all parties prior to himself. This right the realty corporation conceded by their default in pleading. Deutz alone disputes it.

The plaintiff below having made out this case, the question recurs, Did he show himself entitled to go to the jury, or should the motion for a nonsuit have prevailed ?

A nonsuit, when ordered by the judge at trial, is a judicial declaration that the plaintiff has failed to adduce evidence sufficient in law to maintain his case. See 1 Chit. Arch. Pr. (12th Eng. ed.) 444. In our courts it has been said that if the facts, clearly settled, or the indubious inferences to be drawn from them, show that the plaintiff is not entitled to recover, the court should nonsuit him. See Aycrigg’s Executors v. New York and Erie Railroad Co. (1864), 1 Vroom 460 , 461; Furniture Company v. Board of Education (1896), 29 Id. 646, 648. Again, it has been said that when a plaintiff has made out his case by prima facie proof, the court-should put the defendant on his defence. See Plotts v. Rosebury (1859), 4 Dutcher 146, 147. The latter .form of the rule has been further explained by the declaration that even though the evidence, either in the facts or in the conclusions, is open to fair debate, and leaves the mind in some doubt, the question is one for the jury. See Delaware, Lackawanna and Western Railroad Co. v. Toffey (1875), 9 Vroom 525 , 528, 529; Consolidated Traction Co. v. Reeves (1896), 29 Id. 573, 576, 577; also, Synear v. Wharton (1886), 19 Id. 97.

We think that the plaintiff, when he rested, had made out a prima facie case. That is to say, he had offered proofs sufficient to satisfy thd judge, on the preliminary question of law, that there was evidence which the jury should be allowed to consider — evidence upon which, as the case then stood, the jury might properly find a verdict for him, upon whom the burden of proof lay. See Wigm. Ev., §§ 2487, 2494 (2); Baldwin v. Shannon (1881), 14 Vroom 596 , 602, 603; Ryder v. Wombwell (1868), L. R., 4 Exch. 32, 38. The plaintiff below was entitled to go to the jury (State v. Hardelein *581 (1902), 169 Mo. 579, 585 ), and the motion for a nonsuit" was rightly refused.

II. We now come to the second inquiry: Whether, when the defendant below abstained from offering' any evidence in support of his plea, the plaintiff had already proved such facts as warranted the direction of a verdict in his favor.

In considering this question we are not to ask what would have been propér had the defendant done anything in the way of rebutting the plaintiff’s case, or setting up an affirmative defence, either under general principles of law or under any provision of the Negotiable Instrument act of 1902. We are merely to inquire,whether a direction was proper and lawful under the existing circumstances.

The defendant below put in his plea denying the truth of the declaration, and thus, so far as pleading goes, made his defence. He wholly failed, however, to support his plea by evidence going to the point in isstie. He virtually rested his case on the evidence of the plaintiff.

We have already determined that the plaintiff, on hispnma facie evidence, was entitled to go to the jury. That is to say, we agreed with Lord Chelmsford, in Giblin v. McMullin (1869), L. R., 2 P. C. App. 331, 335, that when evidence is left to the jury, it is after this preliminary question is answered affirmatively by the presiding judge: “Is there any evidence upon which a jury may propei’ly proceed to find a verdict for the party producing it, upon whom the onus of proof is imposed ?”

When, however, the defendant failed to meet the plaintiff’s case, a further determination was and is proper, to the effect that the prima facie evidence became decisive of the issue. In Kelly v. Jackson (1832), 31 U. S. 622, 632 , the Supremo Court of the United States, speaking by Mr. Justice Story, dealt with prima facie evidence, not rebutted, in these words:

“Is it not plain, then * * * that the plaintiff is entitled to recover. What is prima facie evidence of a fact? It is such as, in judgment o'f law', is sufficient to establish'the fact, and, if not rebutted, remains sufficient for the purpose. The jury are bound to consider it in that light, unless they are *582 invested with authority to disregard the rules of evidence by which the liberty and estate of every citizen are guarded and supported. Ho judge would hesitate to set aside their verdict and grant a new trial if, under such circumstances, without any rebutting evidence, they disregard it. It would be error on their part, which would require the remedial interposition of the court. In a legal sense, then, such prima facie evidence, in the absence of all controlling evidence or discrediting circumstances, becomes conclusive of the fact. That is, it should operate upon the minds of the jury .as decisive to found their verdict as to the fact. Such we understand to be the clear principles of law on this subject.”

And we may be permitted to add to the queries of Justice Story that if prima facie proofs, unrebutted, should operate upon the minds of the jurors as decisive, why should not the judge at a trial so instruct them?

In Stark. Ev. (9th Am. ed., 4zth Eng. ed.) *819, the rule is thus stated: “Prima facie evidence is that which, not being inconsistent with the falsity of the hypothesis [that is, it might be proved to be untrue by the opponent], nevertheless raises such a degree of probability in its favor that it must prevail, if it be accredited by the jury, unless it be rebutted, or the contrary be proved.”

In our own state it may be gathered, from Delaware, Lackawanna and Western Railroad Co. v. Toffey (1875), 9 Vroom 525 , 529; Fifth Ward Savings Bank v. First National Bank (1886), 19 Id. 513, 518; Baumann v. Hamburg-American Packet Co. (1901), 38 Id. 250, 252, 253, that when a plaintiff has fulfilled the burden of proof laid upon him, and no facts in evidence show that the plaintiff’s testimony cannot be true, the court is warranted in directing a verdict in his favor. This may be'simply putting in another form the rule that when no other verdict would be supported by the evidence, a direction is hot erroneous. See Anderson v. Central Railroad Co. (1902), 39 Id. 269, 272.

The foregoing view might be strengthened by invoking the principle of natural presumptions in evidence, but it seems unnecessary to do this.

*583 We find no legal error in the direction of a verdict for the plaintiff. The judgment of the Supreme Court must therefore be affirmed, and it is so ordered.

For affirmance — The Chancellor, Ci-iiee Justice, Garrison, Eort, Hendrickson, Pitney, Swayze, Eeed, Trenci-iard, Bogert, Yredenburgi-i, Green, Gray, Dill, J.J. 14.

For reversal — None.