New York Law Review

Tag: promissory note

  • Young v. Katz, 131 N.Y. 623 (1892): Admissibility of Parol Evidence to Prove Debt Acknowledgment

    Young v. Katz, 131 N.Y. 623 (1892)

    A party’s self-serving endorsement of interest payments on a promissory note is inadmissible as evidence to overcome a statute of limitations defense unless it’s proven the endorsement was made when it was against the party’s pecuniary interest.

    Summary

    This case addresses the admissibility of self-serving endorsements on a promissory note to prove partial payment and thus revive a debt barred by the statute of limitations. The court held that such endorsements, made by the noteholder, are inadmissible unless proven to have been made at a time when they were against the noteholder’s pecuniary interest. The plaintiff’s attempt to introduce his own endorsements of interest payments failed because he did not prove the endorsements were made before the statute of limitations had run, and the testimony of interested parties was deemed inadmissible under the governing statute concerning testimony against deceased persons’ estates. The judgment in favor of the plaintiff was reversed.

    Facts

    Clarissa Darling held a promissory note from Elizabeth Jayne, dated November 17, 1864, payable on demand with interest. Darling died, and Young, as her executor, presented the note as a claim against Jayne’s estate after Jayne’s death in 1884. The note included several endorsements of interest payments, all written by Young. Jayne’s executor disputed the claim based on the statute of limitations.

    Procedural History

    Young, as executor of Darling, presented the note as a claim against the estate of Elizabeth Jayne. The executor doubted the justice of the claim, leading to the appointment of a referee to hear and determine the matter. The referee ruled in favor of Young, the claimant. This decision was appealed, and the lower court’s judgment was reversed by the New York Court of Appeals.

    Issue(s)

    Whether endorsements of interest payments, made by the holder of a promissory note, are admissible as evidence to overcome a statute of limitations defense without proof that such endorsements were made when against the holder’s pecuniary interest.

    Holding

    No, because an endorsement of part payment is only admissible to rebut the presumption of payment arising from the lapse of time if it appears that when made, it was at variance with the endorser’s pecuniary interest.

    Court’s Reasoning

    The Court of Appeals reasoned that the statute of limitations for contract actions is six years. To take a case out of the statute’s operation, there must be a written acknowledgment or promise, or proof of part payment. While part payment can be proven by parole evidence, endorsements of payment are only admissible if they appear to have been made by a creditor at a time when they had no motive to give a false credit, specifically before the statute of limitations had operated. The court emphasized that self-serving declarations made after the statutory period are inherently suspect and cannot revive a stale claim. The court cited Roseboom v. Billington, stating, “An indorsement, therefore, on a bond or note, made by the obligee or promisee, without the privity of the debtor, cannot be admitted as evidence of payment in favor of the party making such indorsement, unless it be shown that it was made at a time when its operation would be against the interest of the party making it.” The court also found that the testimony of the plaintiff and other interested parties was inadmissible under Section 829 of the Code, which prohibits testimony about personal transactions with a deceased person against their estate. Because the plaintiff failed to establish that his endorsements were made before the statute of limitations had run and relied on inadmissible testimony, the court reversed the judgment.

  • Greene v. Bates, 74 N.Y. 333 (1878): Agreement to Suspend Action Discharges Indorser

    Greene v. Bates, 74 N.Y. 333 (1878)

    An agreement to suspend the right of action on a promissory note, made without the consent of an indorser, discharges the indorser from liability.

    Summary

    This case concerns the discharge of an indorser on a promissory note due to an agreement between the holder, the maker, and a third party to suspend the right of action on the note. Hurd, the holder of the note, Greene, the plaintiff, and McIntosh, the maker, agreed that Greene would purchase the note and secure the purchase price with a new note. The original note was to be held in escrow until Greene’s note matured. The court held that this agreement, made without the consent of Bates, the last indorser, effectively suspended Hurd’s right of action against McIntosh, thereby discharging Bates from liability. This is because the agreement altered the original contract’s terms to which Bates was bound as an indorser.

    Facts

    McIntosh made a promissory note, which was subsequently indorsed by Fischer and then Bates. Hurd became the holder of the note, which was past due. At McIntosh’s request, Greene agreed to purchase the note from Hurd, securing the purchase price with his own note payable at a later date. As part of this arrangement, McIntosh assigned a bond and mortgage to Greene as security. The original note, along with the bond and mortgage, were deposited with Shoecraft, an attorney, until Greene’s note matured. Fischer paid the costs of a foreclosure action that McIntosh had commenced on the mortgage, and the foreclosure was abandoned.

    Procedural History

    The case originated in a lower court, where Greene, after taking possession of the original note, sued Bates, the indorser, for payment. The lower court’s decision was not specified in the provided text, but the case eventually reached the New York Court of Appeals.

    Issue(s)

    Whether the agreement between Hurd, Greene, and McIntosh to suspend the right of action on the promissory note until the maturity of Greene’s note, without Bates’s consent, discharged Bates, the indorser, from liability.

    Holding

    Yes, because the agreement to suspend the right of action on the note, made without the consent of Bates, the indorser, discharged him from liability.

    Court’s Reasoning

    The court reasoned that the arrangement between Hurd, Greene, and McIntosh effectively suspended Hurd’s right of action against McIntosh until Greene’s note matured. The court emphasized that all parties, including McIntosh and Fischer, were present when the agreement was made. The court stated, “It was clearly a mutual arrangement between all these parties by which the pressure of Hurd was to be removed; he was to get his pay from Greene, and the receipt and negotiation of Greene’s note payable at a future day clearly bound him to suspend proceedings until the maturity of that note.” The court found consideration for the suspension in the additional security of Greene’s note. Since Bates was not consulted and no measures were taken to preserve his liability as an indorser, the court held that Bates was discharged. Had Bates taken up the note as indorser, he would have been bound by Hurd’s agreement. The court highlighted the importance of protecting the indorser’s rights: “In this arrangement the rights of Bates the appellant do not appear to have been at all considered. He was not consulted and no measures were taken to preserve his liability as’ indorser… Under these circumstances he was discharged.”

  • Chapman v. Rose, 56 N.Y. 137 (1874): Liability on a Promissory Note Signed Under False Pretenses

    56 N.Y. 137 (1874)

    A person who signs a promissory note without reading it, relying on the fraudulent representations of another as to its contents, may still be liable to a bona fide holder for value if the signer was negligent in failing to ascertain the true nature of the instrument.

    Summary

    This case addresses the liability of a party who signs a promissory note under the mistaken belief that it is a different type of document, due to fraudulent misrepresentations. The court held that while a party is not liable on a note they did not intend to sign, this rule is qualified by a consideration of the signer’s negligence. If the signer had the opportunity to ascertain the true nature of the document but failed to do so, they may still be liable to a bona fide holder who took the note for value. This underscores the importance of due diligence when signing legal documents to protect innocent third parties.

    Facts

    The defendant, Rose, signed a paper presented to him by Miller, believing it to be a duplicate order for a hay-fork and pulleys, after having just signed the original order. Miller fraudulently misrepresented the nature of the document, and Rose signed it without reading it. The paper was actually a promissory note. The plaintiff, Chapman, was a good faith purchaser of the note for value.

    Procedural History

    The trial court instructed the jury that the plaintiff could not recover if the note was never delivered as a note, or if the plaintiff neglected to make proper inquiry as to its origin. The defendant prevailed at trial. This appeal followed, challenging the judge’s jury instructions.

    Issue(s)

    1. Whether a person who signs a promissory note, induced by fraudulent misrepresentations and without knowledge of its true nature, is liable to a bona fide holder for value.
    2. Whether the signer’s negligence in failing to ascertain the true nature of the instrument is a relevant consideration in determining liability to a bona fide holder.

    Holding

    1. No, not automatically; the signer’s negligence must also be considered.
    2. Yes, because a person who, by their carelessness or undue confidence, enables another to obtain money from an innocent person must bear the loss.

    Court’s Reasoning

    The court reasoned that while a person should not be held liable on an instrument they did not intend to sign, this principle is tempered by the requirement of due care. The court stated, “…he who by his carelessness or undue confidence, has enabled another to obtain the money of an innocent person shall answer the loss.” It emphasized that individuals have a duty to exercise reasonable care to protect themselves from deception when signing documents, particularly those creating legal obligations. The court cited Foster agt. McKennon (L. R., 4, C. P., 704) and Putnam agt. Sulliman (3 Mass., 45) to illustrate the principle that negligence or misplaced confidence can render a party liable, even when fraud is involved. The court held that the trial judge erred by excluding the consideration of the defendant’s negligence from the jury’s deliberation. The court quoted Douglas agt. Malting (29 Iowa 498), stating “It is better that the defendant and others who so carelessly affix their names to papers, the contents of which are unknown to them, should suffer from the fraud their recklessness invites, than that the character of commercial paper should be impaired, and the business of the country thus interfered with and unsettled.” The core principle is that a party cannot benefit from their own negligence when it causes harm to an innocent third party. The court concluded that the judgment must be reversed and a new trial granted, with costs to abide the event.

  • Howard v. Ives, 1 Hill 263 (N.Y. Sup. Ct. 1841): Proper Notice for Negotiable Instruments

    Howard v. Ives, 1 Hill 263 (N.Y. Sup. Ct. 1841)

    When a negotiable instrument is sent to an agent for collection, the agent may forward notice of dishonor to their principal, and the principal then has a reasonable time to forward notice to the party to be charged, even if this process takes longer than direct notification.

    Summary

    Howard sued Ives on a dishonored promissory note. The note was endorsed to a bank for collection, and the bank notified Howard of the dishonor. Howard then notified Ives. Ives argued that the notice was untimely because it took longer than if the bank had notified him directly. The court held that the notice was sufficient because the bank acted as an agent for collection and Howard forwarded the notice within a reasonable time after receiving it from the bank. This case clarifies the permissible chain of notification for dishonored negotiable instruments when using collection agents.

    Facts

    1. Howard held a promissory note.
    2. Howard endorsed the note to a bank for collection.
    3. The note was dishonored (not paid) at maturity.
    4. The collecting bank notified Howard of the dishonor.
    5. Howard then notified Ives, the endorser of the note.
    6. Ives argued the notice was untimely.

    Procedural History

    The case originated in a lower court. The Supreme Court reviewed the lower court’s judgment concerning the sufficiency of the notice of dishonor provided to the defendant, Ives.

    Issue(s)

    Whether the notice of dishonor to the endorser (Ives) was timely, considering that the note was sent to a bank for collection and the notice was relayed through the bank to the holder (Howard) before being sent to the endorser.

    Holding

    Yes, the notice was timely because the bank served as an agent for collection, and Howard forwarded the notice within a reasonable time after receiving it from the bank.

    Court’s Reasoning

    The court reasoned that when a note is forwarded to an agent (like a bank) for collection, the agent can notify their principal (the holder), who then has a reasonable time to notify the party to be charged (the endorser). The court distinguished the present case from a prior one (Howard v. Ives) by stating: “Whether the note was forwarded under the indorsement of the plaintiff or that of the defendant, the transaction, when explained, amounts only to the creation of an agency for the purpose of collecting the note.” The court emphasized the agency relationship, holding that sending the notice through the agent (collecting bank) was acceptable as long as each party in the chain acted diligently in forwarding the notice. The court referenced prior case law, including its holding that “where the note matures on Saturday the notice need not be mailed until Monday; and, thirdly, that, in the case of a circuitous notice, it will be in time if the intermediate party forwards it the next day after he receives it.” Ultimately, the court concluded the defendant had been duly charged.

  • Bank of Commerce v. Clark, 1852 N.Y. LEXIS 397 (1852): Sufficiency of Notice of Dishonor to Charge Indorser

    1852 N.Y. LEXIS 397

    A notice of dishonor to an indorser of a promissory note must reasonably apprise the party of the particular paper upon which he is sought to be charged to be considered sufficient.

    Summary

    This case addresses the sufficiency of a notice of dishonor given to the indorser of a promissory note. The Bank of Commerce sought to hold Clark, an indorser, liable on a dishonored note. Clark argued that the notice of dishonor was inadequate. The Court of Appeals reversed the lower court’s judgment, holding that the notice provided was insufficient because it did not adequately identify the specific note, potentially causing confusion for an indorser who handles numerous notes. The decision underscores the requirement for a notice of dishonor to contain enough identifying information to reasonably inform the indorser of the specific instrument at issue.

    Facts

    The Bank of Commerce was the holder of a promissory note on which Clark was an indorser. When the note was not paid at maturity, the bank sent Clark a notice of dishonor. The notice informed Clark that a note on which he was an indorser had been protested for non-payment. Clark argued that the notice was insufficient to charge him as an indorser because it lacked specific details, such as the maker’s name, date, and amount, necessary to identify the particular note among potentially many notes he might have indorsed.

    Procedural History

    The Bank of Commerce brought suit against Clark to recover on the dishonored note. The lower court ruled in favor of the Bank of Commerce, finding the notice of dishonor to be sufficient. Clark appealed to the New York Court of Appeals.

    Issue(s)

    Whether a notice of dishonor to an indorser is sufficient if it fails to specify key details of the promissory note, such as the maker’s name, date, and amount, potentially leading to confusion if the indorser has endorsed multiple notes?

    Holding

    No, because the notice must reasonably apprise the indorser of the specific note in question; a vague notice lacking key details is insufficient to hold the indorser liable.

    Court’s Reasoning

    The Court of Appeals reasoned that the notice of dishonor was deficient because it lacked sufficient identifying information to allow Clark to reasonably identify the specific note at issue. The court emphasized that while no precise form is required for such notices, they must adequately inform the indorser of the particular paper upon which they are being held liable. The court acknowledged prior cases where imperfect notices were deemed sufficient, but distinguished those cases by noting that in those instances, additional facts clarified the notice’s intent and left no room for ambiguity. Here, the court found that without details like the maker’s name, date, or amount, Clark, who likely indorsed multiple notes, would not reasonably be able to connect the notice to a specific instrument. The court stated: “If so much is not required, the giving of any notice is a useless formality.” The court concluded that the notice failed to meet the minimum requirement of reasonably apprising the party of the specific paper involved, thus the judgment was reversed.

  • Cayuga County Bank v. Warden & Griswold, 1 N.Y. 413 (1848): Sufficiency of Notice of Protest Based on Surrounding Circumstances

    Cayuga County Bank v. Warden & Griswold, 1 N.Y. 413 (1848)

    When determining the sufficiency of a notice of protest, courts should consider the surrounding facts and circumstances to ascertain whether the notice effectively communicated dishonor to the endorser.

    Summary

    This case addresses the sufficiency of a notice of protest to endorsers of a promissory note. The court held that the notice, when considered in light of the surrounding circumstances (“accessory facts”), was sufficient to inform the endorsers that the specific note had been dishonored. The ruling underscores that courts must construe written instruments, such as notices of protest, in the context of accompanying facts to determine their true meaning and whether they adequately fulfill their legal purpose of informing parties of their obligations and potential liabilities. The dissent argued the notice was insufficient and that the action of assumpsit was improper.

    Facts

    The Cayuga County Bank sought to hold Warden & Griswold liable as endorsers on a promissory note. After the note was not paid, the bank sent a notice of protest to Warden & Griswold. The specific contents of the notice and the “accessory facts” surrounding its delivery and receipt were central to the court’s determination.

    Procedural History

    The case initially went through lower courts, presumably with a judgment in favor of the Cayuga County Bank. The defendants, Warden & Griswold, appealed to the New York Court of Appeals. The Court of Appeals affirmed a prior judgment in favor of the bank. This brief reflects Justice Foot’s dissenting opinion on a subsequent review of the case.

    Issue(s)

    Whether the notice of protest was sufficient to inform the endorsers, Warden & Griswold, that the specific promissory note had been dishonored, considering the contents of the notice and the surrounding circumstances.

    Holding

    Yes, because when a written instrument is to be construed, the court must consider the accompanying facts and circumstances to ascertain the true meaning. In this case, considering the “accessory facts,” the notice conveyed the necessary information.

    Court’s Reasoning

    The court reasoned that determining the sufficiency of a notice of protest is a question of law for the court when the facts are undisputed. The court emphasized that the purpose of the notice is to inform the endorser of the dishonor so they can take steps to protect their interests. The court stated that when construing a written instrument like a notice of protest, it must consider “the accompanying facts and circumstances.” The court asks, “Who can doubt but that this notice conveyed to the minds of the defendants (appellants) the information that this identical note had been dishonored?” The court considered those surrounding circumstances, or “accessory facts,” to conclude that the notice was indeed sufficient in communicating that the note had been dishonored. Justice Foot dissented, arguing that the evidence did not support the claim that Warden & Griswold received money from the respondents, and the action of assumpsit was therefore improper.