
    Pelly v. Onderdonk et al.
    
    
      (Supreme Court, General Term, First Department.
    
    October 16, 1891.)
    1. Negotiable Instruments—Actions—Fraud—Bona Fide Purchasers.
    In an action on a note to which the defense is that the note was procured by fraud, the burden is on plaintiff to show that he is a bona fide purchaser before maturity, and, where his own statement that he is such a holder is the only evidence of his right, the question is for the jury.
    ■3. Same—Evidence.
    As defendant is entitled, in such case, to have the question submitted to the jury, it is error to exclude his evidence of the fraud by which the note was procured from him by, the original holder.
    Appeal from circuit court, New York county.
    Action by Herbert Cecil Pelly against William■ M. Onderdonk, impleaded with others, on a promissory note. Prom a judgment recovered by plaintiff •on the verdict of a jury by the direction of the court defendant appeals.
    Argued before Van Brunt, P. J., and Daniels, J.
    
      Edward S. Clinch, for appellant. Birdseye, Cloyd & Bayliss, (Lucien Birdseye, of counsel,) for respondent.
   Daniels, J.

The verdict was recovered for the amount of a promissory note made by the defendant on the 23d day of August, 1889, for the sum of $3,553, and payable to the order of the defendant, who indorsed it to the order of Thomas Griffiths, and by him it was indorsed to the plaintiff. The making and delivery of the note were not denied by the defendant, but it was alleged by way of defense that Griffiths claimed to be the owner and inventor • of processes for the manufacture of different articles of paint, and also for the manufacture of a liquid called “Pyrodene.” These articles of paint and this liquid are stated in the answer to have been falsely represented to the defendant as to their quality, utility, and the profit that could be derived from their manufacture and sale; and it is alleged thát these representations were fraudulently made for the purpose of inducing the defendant and others to associate together and form a corporation, which was to become the purchaser of these inventions or processes, and to issue its stock to Griffiths for the right to manufacture and sell the articles; and that the defendant, with his associates, were to purchase from Griffiths 315 shares of the capital stock of the corporation, and execute and deliver notes to him with a cash payment for the par value of the shares. It was further alleged that the corporation was formed in this manner on the.27th of July, 1889, and the stock issued to Griffiths; and that the defendant received from him 84 shares of the stock, and -delivered the note in suit, together with two others, and a cash payment for the price of such shares; that machinery had been obtained and a manufactory established to manufacture these different articles, which had proved to be useless by reason of the articles not being of the kind or quality represented by Griffiths, and that the stock had become worthless, and. the answer contained an offer to surrender the 84 shares sold by Griffiths to the defendant, and demanded a surrender of this note, the other two having previously been paid, and before the discovery of the fact that these representations were false.

Upon the trial the note was produced and read in evidence, and also the deposition of the plaintiff, in which he testified that he had purchased this note from Griffiths on the 20th day of March, 1890, “for. value given by me on the said date in good faith.” And he repeated again that he gave value for the promissory note. And this is all the evidence that was given upon the trial to establish the fact that the plaintiff had acquired the title to the note in suit in good faith and for value parted with by him. The case on the part of the .plaintiff was then rested, and the defendant, by his own evidence and that of William Onderdonk, proposed to prove that these representations had been made by Griffiths before the note was made and delivered. This proof was objected to by the plaintiff, and the objection was sustained, and exceptions were taken to the exclusion of the evidence. The objections were general, and the decision of the court apparently proceeded upon the ground that the plaintiff had been proved to be a bona fide holder of the note for value, in the exclusion of the offered evidence. The decision, accordingly, was to the effect that the statement of the plaintiff in his deposition that he had given value for the note was conclusive against the defendant, and precluded him from giving evidence to prove that he had been induced to make and deliver the note to Griffiths by means of false and fraudulent representations. It is no doubt the law, as the counsel for the plaintiff insisted upon the argument and in his brief, that, if there had been a failure of consideration, the burden would not have been upon the plaintiff to prove that he had become the holder of the note in good faith and for value. This general, principle was affirmed by the court in Evertson v. Bank. 66 N. Y. 14, and Insurance Co. v. Hachfield, ,73 N. Y. 226. But the defense in this case did not depend upon a failure of consideration, but it was placed upon the ground that Griffiths had fraudulently obtained the note from the defendant; and, where that is the defense relied upon, there the burden is placed upon the plaintiff to establish the fact that he became a holder of the note in good faith and for value before its maturity, in order to deprive the defendant of the benefit of this defense. Vosburgh v. Diefendorf, 119 N. Y. 357, 23 N. E. Rep. 801; Bank v. Diefendorf, 123 N. Y. 191, 25 N. E. Rep. 402; Bank v. Creen, 43 N. Y. 298; Hale v. Shannon, (Sup.) 11 N. Y. Supp. 129; Harger v. Worrall, 69 N. Y. 370; Stewart v. Lansing, 104 U. S. 505.

The testimony of the plaintiff in his deposition that he obtained the note for value, general as it was in its terms, was not conclusive evidence against the defendant of the existence of that fact. He still had the right to submit the question of the plaintiff’s credibility to the jury, and to insist upon it that this evidence did not establish the truth of the statement made. That is the rule in all cases where a vital fact may depend upon the testimony either of a party or an interested witness. Elwood v. Telegraph, Co., 45 N. Y. 549; Kavanagh v. Wilson, 70 N. Y. 177; Railroad Co. v. Strong, 75 N. Y.591; Printing Co. v. Loomis, 45 Hun, 94; Honegger v. Wettstein, 94 N. Y. 252, 261. And as the evidence of the plaintiff upon this subject was not conclusive in his favor, but, at most, presented a question of fact to be' considered and decided by the jury, the defendant, notwithstanding that evidence, still had the right to prove that the note had been obtained from him by means of fraudulent representations on the part of the indorsee Griffiths; and, after that evidence had been given, then the jury would beat liberty to give full effect and forcé to it, notwithstanding this statement of the plaintiff that he had paid value for the note; for they would be at liberty to discredit his statement on the ground that he was a party, and interested in the result of the litigation. The evidence which was offered to prove that the note had been obtained by false and fraudulent representations from the defendant should therefore have been received by the court. It was error to exclude it, and the exceptions to the rulings resulting in that exclusion were well taken. The judgment should therefore be reversed, and a new trial ordered, with costs to th„e defendant to abide the result.  