HARRIS and another v. HANOVER NAT. BANK.
(Circuit Court, S. D. New York.
BILLS AND NOTES OF INSOJ,VENTS,-}Iu'ruAL lIIrsTAKE-ATTACHMENT.
When bills of an insolvent bank, the notes of a party who has previously failed, are transferred in payment of a debt or sold as'solvent Paper, both parties being ignorant of the failure and innocent of fraud, the cJ;'editor or buyer may repudiate the payment or sale, upon a tender or return of the dishonored note, and recover the amount due.
2. SAME-CASE STATED.
The plaintUfs were the owners of a promissory note made by atlrm in New Orleans. The note was sold by note brokers of New York to the defendant. On the same, day, an hour before the sale of the note, an $ttachment, upon which their estabtishment was seized, was issued against the makers of the note by local creditors. The money received by the note brokers for the note being paid mto court, the question remained whether the plaintiffs or the de· fendant, both parties being ignorant of the attachment and acting in good faith, should bear the loss. Held, that the defendant might rescind the con· tract for the purchase of the note'and recover back what it paid therefor, on the same principle that the plaintllIs would have been allowed to rescind had the nota been the dayfollowing in bills of an insolvent bank.
When a firm is unable to meet it,s obligations and allows its property to be taken under an attachment on the charge of fraud, which it docs not deny, it is legally if not' actually insolvent.
James S. Stearns, for plaintiffs. 'l'homas S. Moore, for defendant. COXE, J. Prior to November 29, 1881, the plaintiffs were the owners -of; a 'Promissory note for $1,508.28, made, by Levi & Co.· of New Orleans. On that day, and after 11 o'clock A.M., the note was sold by Hess Brothers, note brokers of New York, to the defendant. On the same day, and at about half past 10, New York time. an attachment was issued against -Levi & Co., in a suit oommenced by local creditors, .upona demand for $5,035,-$2,500 becoming due November 26, and the balance December 13, 1881. The ment of Levi & Co. was seized and closed by the sheriff. T.4e firm. however, considered themselves in business, and did, in fact, can.. tinue to draw checks and collect bills-outside of the store-until December 2d, when their first note went to protest. Hess Bros. having paid the money into court, the question to be determined is whether the plaintiffs or the defendant-all parties being ignorant of the attachment and acting in good faitll-shonld bear the loss. A somewhat careful examin:ttion has failed to discover an adjud:ca-
BARRIS V. HANOVER NAT. BANK.
tion clea.rly a.nd .unequivocally sustaining· the .position contended fOr by the plaintiffs, the facts being similar to those developed here. The almost unbroken line of authority seems to establish the doctrine thatif bills of a broken or the notes of a. party who has pre\'iously failed, are transferred in payment of a debt, both parties being ignorllnt of the failure and innocent of fl'aud,the creditor may upon ll.:tender orreturnof the dishonored note, and recovert.he amount due. It is a mutual mistake of fact. Lightbody v: Ontario Bank, 11 Bank. y. Lightbody, 13 Wend. 101; Young v. Adams; 6 ,Mass, 182;, Thom,a8v. Todd, 6 Hill, 340; Harley v. Thornton, 2 Hill, (S. C.) 509; Fogg.y.Sawyer, 9- N. H. 365; We8tfall v. Braley,lO Ohio :St. 188; ..f?,obert8 v. Fisher, 43 N. Y. 159; Baldwin v. VanDeusen, 37 N. Y. 4;87 j Houghton v. Adams, 18 Barb. 545; Townscnd8v. Bank of Racine, 7 Wis. 185; Leger .v. BOlmaffe,2 Barb. 475; Stewart v. Orvis, 47 How. PI'. 518. It is true that in many of thes...e. cases the debased o;r wOrlhless paper was given in payment of a preexisting debt,while in Case at bar the delivery the result of a ba.:rgain sale. In the foqper circmn,stances, an obligation existed to pay the debt in money-in coin; in the latter, the vendor was Bimply reqtlired to note of a live and not of copartnertransfer the respect the cases differ, ,and t4iselement of strength ship.' In upon an analysis is wanting in the defendant's t;trgument. And oftperea,sqnupon which these decisions areb,ased-viz., mutual mistake-it is not easy to discover any ,in pli,nciple. . The plaintiffs supposed that they were selling solvent paper; the defend. ant supposed that it was purchasing such paper, and payment was made on this supposition. Both parties were mistaken. While the note was yet in the possession of the plaintiffs, and owned by them, it became worthless, or greatly impaired in value. Both parties being honestly in error, ,why, upon principle,should not the defendant have the same right to rescind that the plaintiffs would have, hlld the note for the day following, in the bills of an insolvent bank? But in some of the authorities cited-the last three, for instanoethe 'distinction referred to does not exist, and the facts closely approximate those existing here. The plaintiffs contend further that the levying of the attachment did not, in contemplation of the law, amount toa.faiLure on tbepart of the makers of the note, neitller was it insolvency. It ,tha,tthis pJsition not tenable. was grfl-ptt1d in. a c,mlrl.lcllt, lIPon the ground
that Levi & Co. were disposing of their propedy with 'ntent to defraud their creditors. The sheriff took possesl:lion of establishment, seized their entire stock, and turned them into the street. Four days afterwards their notes went to protest, and there is no evidence that they resumed business thereafter. If the firm was not legally extinct, it certainly was stricken with a commercial paralysis. It was unable to meet its obligations as they fell due; it suffered its property to be taken on a charge of fraud which was not denied; it was legally if not actually insolvent. Webb v. Sachs, 15 N. B. R. 168; In re Hauck, 17 N. B. R. 158; H,trrison v. McLaren, 10 N. B. R. 244:; In re Rya,n, 2 Sawy. 411. The case of Otis v. Oullom, 92 U. S. 44:1, relied on by the plaintiffs, can hardly be regarded as controlling. There was in that case no mistake of fact. If a mistake existed it was one of law. After the purchase of the bonds the courts decided that the law did not authorize their issue. There was no guaranty, express or implied, that the law was eonstitutional. The plaintiff knew the facts and chose to take the risk of the bonds being subsequently declared invalid. In precisely the same manner the defendant here took the risk of aU subsequent infirmities. The questions in' this action are by no means free from pe,rplexities and doubt. The weight of authority, however, seems to sustain the positions taken by the defendant. It follows that judgment should be entered awarding the money in court to the defeudant.
«(Jireuit (Jourt, 8. D. New
M, §2504, .· CONSTHUED. . ' The words "'the whole qulintity'" (schedUle M, § 2504, Rcl>. St.) refel',td mel'chandise shipped by ohe consignol' ,from one' place and, to thepsrticular kind of fruit damaged, and not to, the whole invoice aggregating sevllral, varieties fruit,
Memorandrltn'bf Decision. ", . Mr. Jones and Mr. He'ath, for plaintiff,' , Mr.:'Jamea, Atty;, for defendant· . COXE, J., I thinlt the plaintiff is entitled to recover;' :;The fair' and i'eason-able interpretation of the 13ta:tutE1is the one recently adopted