Story Case

Adolph Rush, a stock and bond salesman, sold to Clarence Wainwright ten shares of stock in the Great Falls Hydro-Electric Company. Rush represented these shares to be worth $125 each. Wainwright paid in cash $500 and gave his note for the balance of the purchase price, amounting to $750. Rush sold this note, which was due in sixty days from date, to John Warner for $650. About the time the note became due, Wainwright learned that he had been duped by Rush and that the stock was worth only $25 a share. When Wainwright refused to pay the note, Warner brought suit for $750, alleging at the same time that he had no knowledge of any wrong doing by Rush. Can Warner collect the $750 from Wainwright?

Ruling Court Case. Everston Vs. National Bank Of Newport, Volume 66 New York Reports, Page 14

The Indianapolis, Bloomington, and Western Railway Company issued bonds with interest coupons attached. The coupons were in this form: "$35.

The Indianapolis, Bloomington, and Western Railway Company will pay the bearer, at its agency in the city of Newport, thirty-five dollars, in good coin, for semi-annual interest on bond No.......

A. P. Lewis, Secretary." The National Bank of Newport was the owner of the bonds with these coupons attached. The coupons were detached and sent by express to New York for collection. They were stolen in New York, and sold to Everston, who knew nothing concerning the theft. Everston first sued the railway company, and the bank was permitted to enter and defend the action, since it was owner of the coupons. It contended that no valid title to these coupons ever passed to Everston, since they were stolen.

Decision: These coupons were negotiable instruments, because they contained a promise to pay the face value to the bearer. Title to them will pass by delivery. Although the thief might have been compelled to give them up to the owner, one who purchases from him for value, without notice of the irregularity, gets good title and may enforce them against the maker for full face value. The rule of Caveat Emptor - that is, "Let the buyer beware" - does not apply to negotiable instruments payable in money and to the bearer; and a purchaser in good faith from one who has stolen them acquires a valid title. Judgment was given for Everston.

Ruling Law. Story Case Answer

It has been stated that an assignee of a chose-in-action which is not negotiable takes the paper, subject to all defenses which might have been set up against his assignor. He takes title through the assignor, and it follows that he gets no better title than his assignor had. But an indorsee of a negotiable instrument takes title by virtue of the original promise made by the person primarily liable, and his title does not depend upon the title of the one who indorses the instrument to him. Thus, defenses which might be maintained as between prior parties, or defenses which might be maintained against the person primarily liable, cannot be set up against a person who purchases a negotiable instrument for value, before maturity, without any notice of any defects or defenses. It is evident, then, that a thief who steals an instrument payable to the bearer may pass good title for value to a purchaser who has no knowledge of the theft. That was the point which was decided by the Ruling Court Case of Everston vs. National Bank of Newport.

In the Story Case, "Warner takes the claim free of defenses which Wainright could hold against Rush; since Warner was a bona fide purchaser of the note, he could collect its face value.