
    JAMES LALLY, Plaintiff and Respondent, v. JAMES B. COLGATE and ROBERT COLBY, Defendants and Appellants.
    I. Check, payable in gold, made "without consideration.
    1. BONA-FIDE HOLDER FOR VALUE.
    (a) PATEE, WHEN HE 18, SO A8 TO ENTITLE HIM TO SEO OVER FROM THE MAKES.
    
    1. Where the maker drew his check for the purpose of making a gold loan, and without receiving at the time any consideration therefor, but relying on the promise of a third person to return its equivalent in currency, at the market rate of gold, on that day, by means of a currency check of the payee, and afterwards to adjust any fluctuation in the market value of gold occurring pending the loan in the mode usual in the case of loans of gold, delivered it to such third person for the purpose of being used by Mm to settle a rate of gold between Mm and the payee on a sale of coffee—(Such settlement is termed a conversion of the price of goods sold on credit from a gold to a currency price. One of the modes of effecting a conversion, and the one adopted in this case, is : A gold account is opened, then a note is taken for the approximate amount of the sale in currency. When the conversion is made the purchaser sends gold for the amount of the invoice, and receives from the seller an equivalent amount in currency at a fixed premium mutually agreed on, being ordinarily the ruling rate of gold at the time the conversion is effected; the gold account is then balanced by cash; a currency account is then opened wherein the purchaser is debited with the currency received by him. for the gold, and credited with the approximate notes; upon payment of the notes and whatever balance there may be on the currency account in favor of the seller, that account is balanced and the merchandize paid for). Such third person used the defendant’s check for settling the raté of gold between him and the payee, and received the payee’s two currency checks, drawn to his order, for an equivalent amount in currency, at the premium which was the ruling rate of gold at that time. One of these currency checks he indorsed and delivered to the drawer of the gold check, the other one he did not. The drawer of the gold check received and deposited the currency check delivered to him, and stopped payment of his gold check. The payee of the gold check had no notice or knowledge of the arrangement made between its drawer and the third person as to the manner in which it was to be paid for.
    Held,
    the payee of the gold check was a dona fide holder for value without notice and entitled to recover from the drawer.
    H. Notice.
    CHECK PAYABLE TO A PAYEE WHO HAD NO DEALINGS WITH DRAWEE, EFFECT OF AS NOTICE.
    In the above put case the fact that the check was drawn to the payee’s order when he had no dealings with the drawer, was not such notice to him that the gold check had not been paid for as to put him upon inquiry and make the check valueless to him until he had sent his curreñey check to the drawer of the gold check.
    IH. MAXIM.
    1. The maxim that “ When one of two innocent persons must suffer by the wrong of another, the one who enables such other to commit the wrong must suffer the consequences,” applied.
    
    IV. GOLD LOANS.
    1. Mode of effecting and repaying stated.
    V. GOLD SALES ON CREDIT.
    1. Oomersion of gold price into currency price, one of the modes of stated.
    
      Before Curtis, Ch. J., Sanford & Freedman, JJ.
    
      Decided May 8, 1877.
    The appeal was taken from a judgment entered in favor of plaintiff against defendants, upon the report of a referee.
    The case was tried before Henry E. Howland, as referee.
    The facts of the case, as well as the law bearing on them, appear in the referee’s opinion, which is as follows :
    “ This is an action on a gold check drawn by defendants to plaintiff’s order on the Bank of New York, dated April 8, 1873, for $5,123.50, payable in gold, and amounting in currency to $6,045.73.
    “ The check was made and received under the following circumstances:
    “ The defendants, who are bankers and extensive dealers in gold in New York city, on April 8, 1873, made what is called a ‘ loan of gold of the amount of $5,123.50 to the mercantile firm, of B. M. Bishop & Co., of Cincinnati, Ohio, through their agent, James A. Bobinson, a merchandize broker residing in New York city. Bobinson received the gold from the defendants for account of B. M. Bishop & Co., in the form of the check in suit to the order of the plaintiff, promising them to return its equivalent in currency at the market rate of gold on that day by means of a currency check of the plaintiff, stating that he wanted the gold to settle a rate of gold between the plaintiff and said B. M. Bishop & Co., any fluctuation in the market value, occurring pending the loan, to be afterwards adjusted in the mode usual in the case of loans of gold, which are effected as follows : The borrower receives the gold and gives an equivalent in currency, either in bank notes or a currency check, according to the value of gold at the time. When the loan is returned the borrower returns the same amount of gold that he borrowed, and the lender gives back the same amount of currency which was paid by the borrower. If gold is actually returned, there is no adjustment except to receive back the currency ; but if the borrower subsequently buys the gold of the lender, there is an adjustment, in case the price at the time of the purchase is different from the price at which the loan was made ; if gold is lower at that time, the borrower receives a difference in currency ; if higher, he pays a difference in currency.
    “The check was delivered to Robinson in the defendants’ office in Wall street.
    “ Subsequently, and on the same day, Robinson, as a broker acting for said R. M. Bishop & Co., delivered the said gold check to the plaintiff, who was a merchant in coffees and other merchandize in New York, for the purpose of effecting a ‘ conversion of the price of coffees previously sold by the plaintiff to said R. M. Bishop & Co.,’ on credit, from a gold price to a currency price.
    “ One of the usual modes for effecting a conversion in the trade, and the mode adopted in this case, is as follows: The goods having been sold for gold on credit, and notes taken for the approximate amount in currency, the purchaser sends the gold for the amount of the invoice, and receives from the seller an equivalent amount in currency at a fixed premium mutually agreed upon, that being ordinarily the ruling rate of gold at the time the conversion is effected. There is then a transfer of the account from a gold to a currency account on the books of the seller, and from that time the chargé stands in the currency account alone, and is balanced off in the gold account, and the credit continues until the notes become due.
    “ The delivery of the gold check was made at the plaintiff’s office, and the plaintiff, for the purpose of such conversion, gave to said Robinson his two currency checks on the Fourth Rational Bank of the city of Rew York of that date, for the equivalent of said gold in currency, one for $3,045.73, and one for $3,000, both drawn to the order of Benjamin P. Davis, the plaintiff’s bookkeeper, and by him indorsed to the order of said J. A. Robinson at his request. On the same day the plaintiff deposited the said gold check in the Fourth Rational Bank for collection. The plaintiff .had no dealing or negotiation with the defendants, and no knowledge of said Robinson’s promise to them to deliver his currency check to them on account of their loan to Bishop & Co., but he credited the amount of the gold check to Bishop & Co., upon the price of his said sale to them.
    “ The following morning, April 9, the defendants received from Robinson one of the plaintiff’s said currency checks for $3,045.73, indorsed by him to their order, inclosed in a letter written by him to their gold clerk, admitting his default in not returning the residue. They indorsed and deposited the said check in their bank for collection, and stopped payment of their gold check then held by the plaintiff. Robinson had drawn the money on the currency check for $3,000, received by Mm from the plaintiff on the afternoon of April 8. The plaintiff first learned that payment of the gold check had been stopped on the afternoon of April 9.
    “ On April 29, 1873, after the commencement of this action, the defendants returned to the plaintiff $3,045.73 in currency, under a stipulation that the same should not affect the rights of either party in this action, which is now prosecuted for the balance of the currency value of said gold with interest.
    “There is no doubt that the two transactions of April 8, viz. : the loan of the gold by Colgate & Co. to Bishop & Co., and the conversion of the price of the coffees bought by Bishop & Co. from a gold price into a currency price, though effected by the same broker were separate and distinct transactions, and that as between the plaintiff and the defendants, there was no privity.
    “It is in proof that the broker, Robinson, stated when he effected the loan from defendants, that he wanted it to settle the price of coffee for Bishop & Co. with the plaintiff, and promised to bring back the plaintiff’s currency checks at a future time. The plaintiff, however, was no party to this agreement between Robinson and the defendants, and could not be supposed to know anything about it.
    “Was the fact that the check was drawn to the plaintiff’s order such a notice to him that the gold had not been paid for, as to put him upon inquiry, and make the check valueless to him, until he had sent his currency check to the defendants %
    
    “The plan tiff was entitled to this amount of gold from R. M. Bishop &'Co., and it was brought to him by Bishop’s broker, in order to effect the conversion from gold into currency in the manner usual and customary in the trade. It was proved by all the experts called upon the trial, that deliveries of gold in blew York city were effected either by delivery of gold coin, gold certificates, gold coupons or gold checks.
    “The plaintiff, therefore, received this gold in one of the usual forms of delivery, and although it was in the form of a check drawn by a third person with whom he had no dealings, still it was the check of a well known dealer in gold, a firm as prominent in Wall-street, as dealers in gold, as any bank ; perhaps more so. And there was no evidence of notice brought home to the plaintiff, that the check had not been paid for at the time it was brought to him. And it was delivered to him as so much gold. The plaintiff had a right to presume that it had been paid for, or that the check had been drawn to. his order to simplify the transaction, as it was intended for him. Such a course is not unusual, according to the testimony in this case.
    “The testimony of experts to prove a custom has failed to establish an universal and well recognized custom.
    “It depends, according to the witnesses, xipon the circumstances of each case, and they nearly all agree that it is customary to draw checks to the orders of parties other than .those who pay for them. A similar transaction to this case was proved to have been effected with Bowie, Dash & Co. ; and the taking of Daily’s check in this transaction, and depositing it on Robinson’s indorsements, tends to affirm the transaction.
    “To establish usage, it must be well known and recognized, and so clear as to leave no doubt as to the existence, extent and meaning of the usage (Dawson ?>. Kittle, 4 Hill, 107).
    “Most of the expert testimony related to cases where there were direct dealings between the parties, as in the case of deliveries of stocks, sterling exchange, &c. Here there were no direct dealings betwéen the plaintiff and the defendants ; they owed no duties to each other; they were each dealing with another party through the same broker, and their duties were between themselves respectively and that third party. The fluctuations in gold, on the gold loan, were to be settled by Colgate & Co. and Bishop & Co., and the questions' of Robinson’s agency and right to receive the currency checks of Dally were to be settled between Dally and Bishop & Co.
    “If Colgate’s check had been paid at the bank to Dally, no action could have been maintained for the recovery of its amount; for Dally would have been a bona fide holder for value ; even if there were negligence on Ms part, he was entitled to hold it (Welch v. Sage, 47 XT. Y. 143).
    ‘‘ Both the parties to this action having acted in good faith, it may be difficult to say which should suffer the loss ; but the defendants having so far clothed the defaulting broker with the indicium of ownership of the check, by giving him possession of it without any sufficient notice to the plaintiff that it had not been paid .for, or that Robinson or his principals, Bishop & Co., had no funds in their hands against which the check had been drawn, must be held liable to the plaintiff for the amount with interest (Barnard v. Campbell, 55 JY. Y. 456; Cartwright v. Wilmerding, 24 Id. 521; Weaver v. Barden, 49 Id. 286 ; Moore ». Met. Nat. Bk., 45 Id. 41; McNeil v. Tenth Nat. Bk., 46 Id. 325).
    “Henby E. Howland, Referee.”
    
      F. F. Marbury, Jr., attorney, and F. F. Marbury, of counsel for appellants, urged:
    I. The check of the defendants was given to Robinson at his request, to be used in the conversion of gold into currency, in a transaction between the plaintiff and R. M. Bishop & Co., of Cincinnati. It was to be paid for in its equivalent in currency, by the check of the plaintiff to the order of the defendants. Defendants’ check was drawn to the order of the plaintiff, and the plaintiff, in paying for it, should have drawn his check or checks to the order of the defendants. The checks were negligently drawn to the order of Robinson.
    II. If the defendants had intended to trust Robinson, or his firm, the gold check would have been drawn to his or their order, but this was intentionally avoided. The delivery to Robinson of certificates or of gold, was expressly refused, and to prevent any loss, the precaution was adopted of drawing the check to plaintiff’s order.
    III. The defendants did not owe plaintiff anything, and when the check was delivered to him, payable to his order, it was notice to him, that the check back should be drawn to defendants’ order. ,The slightest caution or consideration on the part of Davis would have prevented any loss.
    IV. If, instead of drawing two checks to the order of Robinson, one of the members of the firm of Robinson & Rockwell, to accommodate him, as Mr. Davis states, he had drawn the check to defendants’ order, or even taken the trouble to send or go up to their office, and inquire whether he was doing right, all this trouble would have been avoided. But he made the mistake of yielding to Robinson, who was just getting ready to abscond. It was an additional impropriety to draw a check to the individual order of Robinson, one of the members of a firm.
    V. Mr. Davis had no right to draw these checks to the order of Robinson. When Robinson went to plaintiff’s office, he did not bring a check payable to the order of himself or his firm, but to the order of the plaintiff. Plaintiff knew defendants owed him no gold, and the first idea which would occur to any prudent person would be, “I must pay defendants Sor this gold, or get their consent to the paying for it to any one else.”
    VI. Where one of two innocent persons mast suffer from the fraud and misconduct of a third, he who enabled the wrong-doer to perpetrate the wrong must bear the loss. Plaintiff, through Davis, was the approximate cause of loss.
    VII. Robinson did not have some, or the usual evidence of title. The check was not payable to his order, but to plaintiff’s, and that for a reason and to exclude the idea that it was Robinson’s property,
    VIII. The title to the check was not in Robinson’ s, but another payee’s name—the plaintiff’s was expressly inserted. Robinson had no control over, nor could he use the gold check. It was drawn to the order of the plaintiff, and by him only could be used.
    IX. Mere possession of a check, drawn to the order of a third person, does not clothe the person having possession, with the indicium of ownership.
    X. The rule in regard to the discount or sale of negotiable paper cannot control this case. It rests upon its OAvn peculiar facts and circumstances. If Robinson had taken a check payable to his own order, and negotiated it to a bona fide holder for value, the rule Avould apply.
    XI. As to the relations between defendants and R. M. Bishop & Co., there was no credit given or expected, except to the extent of the fluctuations in the premium of gold. On all these conversions of gold accounts into currency ones, the giving of the gold and the taking back of the currency were to be simultaneous. The inode of conversion is referred to in Davis' testimony. Robinson & Rockwell or Robinson were only to arrange for the conversions.
    XII. The preponderance of evidence as to usage is decidedly in favor of defendants, and this must be so from the nature of the case. The usage as testified to by defendants’ witnesses is, that where gold is delivered to a party in the form of a check, payable to his order, the currency check in payment for it is returned payable to the order of the party who drew the gold check. It would add frightfully to the risks of business if checks could be drawn to the order of any one who delivers gold or stock, instead of to the order of the parties from whom the stocks or gold in point of fact came. In this case there was express and distinct notice that gold came from defendants, Avho alone Avere the parties entitled to receive payment therefor.
    
      Joseph A. Welch, attorney, and of counsel for respondent, urged:
    I. The defendants wholly failed to prove a commercial usage in New York, requiring the plaintiff to communicate with them before receiving the gold check. All the witnesses on this subject agree that it is usual to issue gold checks drawn to the order of third persons, and collect for them from the immediate purchaser or borrower ; and to receive gold checks drawn payable to the party receiving them, for the account of the party immediately delivering them, and pay that party for them, and not the drawer.
    II. Had the procurement of the gold check from the defendants been effected by a fraud on the part of Robinson, even that fact would not constitute an equity in their favor against the plaintiff, who is a bona fide holder for value (Clothier v. Adriance, 51 N. Y. 322 ; Paddon v. Taylor, 44 Id. 371; Barnard v. Campbell, 58 Id. 73). (a) The title of the plaintiff to this check could only be impeached by proof of bad faith in him in taking it (Welch v. Sage, 47 Id. 143; Belmont Bk. v. Hoge, 35 Id. 65 ; Hoge v. Lansing, Id. 136 ; Magee v. Badger, 34 Id. 247).
    III. But, the defendants are estopped by their own act from asserting against the title of the plaintiff any supposed equity that they njay have had against their immediate purchaser. The check intrusted to Robinson was used by him, exactly in accordance with the defendants’ instructions. The present is not merely the ordinary case of apparent ownership, or apparent jus disponendi ; it is one of actual jus disponendi, if not of actual ownership. To employ the ordinary formula of the decisions, the defendants have so acted, that the natural consequence of their act has been to influence the plaintiff to change his conduct to his damage ; and they are chargeable with an intent, and even a willful design, to induce him to believe them and to act on that belief (Preston v. Mann, 25 Conn. 118 ; McNeil v. The Tenth Nat. Bank, 46 N. Y. 325; McWilliams v. Mason, 31 Id. 302 ; Van Dugen v. Howe, 21 Id. 531 ; Clothier v. Adriance, 51 Id. 322; Crocker v. Crocker, 31 Id. 507; Driscoll v. W. B. &c. M. Co., 59 Id. 97; Porter v. Parks, 49 Id. 565; Weaver v. Barden, Id. 286 ; Moore v. Met. Nat. Bk., 55 Id. 41; McNeil v. Tenth Nat. Bk., 46 Id. 325; Seybel v. Nat. Cy. Bk., 54 Id. 288; Ledwich v. McKim, 53 Id. 307; Turnbull v. Bowyer, 40. Id. 456 ; N. Y. & N. H. R. R. Co. v. Schuyler, 34 Id. 59, 60 ; Preston v. Mann, 25 Conn. 118).
   By the Court.—Freedman, J.

After a full and critical examination of the whole evidence, I am unable to see how the judgment can be disturbed. The cause has been fully and fairly tried. The findings of fact made by the learned referee, are supported by an overwhelming preponderance of the evidence ; his conclusions of law are a correct determination of the rights of the parties arising from the facts as found, and the opinion delivered with his report is such a complete and correct exposition of the law of the case, that in my judgment, it is unnecessary to add anything to it.

The exceptions to the referee’s findings and his refusals to find are clearly untenable, and the exceptions to his rulings, on questions of evidence,, appear to be equally so.

The judgment should be affirmed, with costs.

Curtis, Ch. J., and Sandford, J., concurred.  