[trover - promissory note]

Lyons v. Sea

Supreme Court of New South Wales

Dowling C.J. and Stephen J., 16 November 1840

Source: Sydney Herald, 19 November 1840

A. & S. Lyons v. James Sea – This was an action of trover, for a promissory note, drawn by one S. Lewis in plaintiff’s favour, for £1200.  Pleas 1st. not guilty.  2nd that plaintiff endorsed and delivered the said note to defendant, for the purpose of getting it discounted at the Union Bank of Australia, and placing the proceeds to plaintiff’s credit in the same bank, at plaintiff’s request, and averring that defendant did so, which is the conversion alleged.  Replication, 1st issue on not guilty.  2nd.  That the note in question was endorsed to the defendant, with the express condition that he should at the same time procure to be delivered to the plaintiff, a Bill of Exchange, for £1061, 16s. 6d. dated 13th May, 1840, No. 3927, drawn by plaintiff, on and accepted by one J. Walker, in favour of L. Samuel, which defendant on request refused to deliver to plaintiff.  Demurrer to replication, and causes assigned – 1st.  That it does not confess and avoid the second plea, or traverse any material allegation therein; 2nd.  That it admits that the defendant did not convert the promissory note as in the declaration alleged; 3rd.  That it raises an immaterial issue; and 4th.  That it is a departure from the declaration.  Joinder in Demurrer.  This case was argued on a former day by Mr. Manning for the defendant, and by Mr. Windeyer for the plaintiff, and the Court took time to advise on the case.

            Stripping the case of the technicalities of the pleadings, we must take the facts admitted on the record to be these:- The defendant received from the plaintiff the promissory note for which the action is brought, for discount with the Union Bank of Australia, the proceeds after discount, to be carried to the plaintiff’s credit at that Bank, on the express condition that the defendant would at the same time cause a Bill of Exchange (not saying in whose possession it is) to be delivered up to the plaintiff.  The defendant accordingly got the note discounted at the Bank, and the proceeds were placed to the plaintiff’s credit at the Bank, but he did not deliver up the Bill of Exchange at the same time as agreed.  The conversion complained of is the discounting of the note, without performing the condition of [LINE OMITTED] discounting of the note, and that the plaintiff having expressly authorised the defendant to discount the note, and place it to his credit, which was done, the property in the note became absolutely vested in the bankers, who being strangers to the agreement between plaintiff and defendant, and ignorant of the condition for delivering up the Bill of Exchange, the plaintiffs had no right of property, or possession in the note, and therefore had mistaken their remedy in bringing trover.  If we are to take the condition on which the plaintiff endorsed the note to the defendant, namely, that he should at the same time deliver up Walker’s acceptance, to be part of the agreement, and the consideration for giving up the note to the defendant, which the demurrer must now be taken to have admitted, the true question is, whether on failure of that condition, the right of property in the note was completely divested out of the plaintiff, even admitting that the defendant and the bankers are different persons.  If the property or right of possession was never divested, then trover is well brought; if divested, then the plaintiffs have mistaken their remedy.  I am of opinion, that the plaintiffs have misconceived their remedy, and I regret that the state of the record, and the imperfect manner in which the circumstances are disclosed, compels us to come to this decision.  We are now bound to disregard any supposed privity or connexion between the defendant and the Union Bank, and treat the bankers as utter strangers to the terms on which the defendant was authorised to discount the note in question.  By the law-merchant, the property in a promissory note on bill of exchange passes by mere delivery or indorsement.  The defendant was in fact authorised to discount this note as a banker’s, and place the proceeds to the plaintiffs’ credit.  This was done without anything to shew that the bankers were aware of any infirmity of title in the defendant to discount absolutely.  At the time of discounting, the property and right of possession in the note completely changed, and consequently the plaintiffs could not maintain trover.  Had it been made manifest that the defendant and the bankers are the same parties, we might have come to a different decision; but this important link in the chain of circumstances being wanting, we are bound to adhere to the general rule of law applicable to a negociable security like a promissory note.  This decision will not trench on the authority of the case of Bishop v. Shillito, reported in a note to Hornblower v. Proud, 2 B & A 329; and other cases of that class.  That was trover for iron which remained in specie and unconverted, and nothing had been done by the plaintiff to authorize the defendant to part with it until the condition of retiring certain outstanding bills of the plaintiff was performed; the rights of innocent third parties did not there intervene, and the plaintiff had done nothing to divest his property absolutely in the iron.  Here the plaintiffs arm the defendant with the power of doing an act which by law divests them of their property in a negotiable money security.  By doing so, they put it in the power of the defendant to determine his right of property and possession, which are essential ingredients to support trover.  The defendant may have abused the trust reposed in him, by not doing another act which, as between him and the plaintiff, he was bound to do, but the remedy against him is different from trover.  This decision may be in opposition to the justice of the case, and only in conformity with technicalities, but we are constrained to deal with the record as it is presented for judgment.  The delivery of the bill of exchange here was not a condition precedent, which, if that were the fact, it was conceded in argument if I recollect rightly, would have made the difference in the case; but as the promissory note must necessarily be first discounted, and the proceeds placed to the plaintiffs’ credit with the bank, before the bill of exchange was to be delivered up, the right of property and possession in the promissory note was gone, for the purpose of maintaining trover, the very moment it was discounted.  It appears to me, therefore, that the plaintiffs have mistaken their remedy, or have at least so imperfectly brought the case before the court that the demurrer to the replication must be allowed.

            Mr. Justice Stephen delivered judgment as follows:- We must, of course, deal with this case as it is presented on the record.  And by this, the arrangement between the parties, the plaintiff and the defendant, appears to have been as follows:-  The promissory note in dispute was indorsed to defendant, that he might get it discounted by a certain banking company: the proceeds to be placed to plaintiff’s credit.  The defendant does get it discounted, and the proceeds are placed to plaintiff’s credit with the Bank.  There was, however, a condition that, if defendant procured the note to be so discounted, he should at the same time procure to be delivered to the plaintiff a certain bill.  This condition has been broken, for the bill stipulated for has not been delivered.  These are the only facts which the pleadings disclose.  Where the bill was, or how the defendant in this action could procure it to be so delivered, or whether there was or is any connexion between him and the bank in question, or whether that bank had any notice of the condition on which the note was indorsed, does not appear.  And the point is, taking only the facts as we find them stated, whether a case is shown entitling the plaintiff to maintain Trover.  That, in these facts, there has been a serious breach of contract, and (if there be any connexion between the defendant and the discounting bank) a gross breach of trust, is not to our present purpose.  For any such act, the defendant may be liable in another form of action; and so also may the bank.  But the question is, whether the defendant is liable to this action?  It was submitted by the defendant’s counsel that the defendant would be so liable if the condition had been to procure delivery of the bills before he got the bank to discount.  Whether this admission was made, as a tribute to the case of Brandt and Bowlby, cited for the plaintiff, or whether any other case, not cited, led to it, (Buchanon v. Findlay, is the strongest that I have met with,) it is not necessary to inquire.  The condition relied upon is, that the defendant should procure delivery of the bill at the same time with the discounting.  The act of discounting is, therefore, the conversion complained of; and, at that moment, the plaintiff must have had in him the property in the bill, and the right to possession, as against the defendant, or the action of Trover is not maintainable, whatever other form of action may be.  It seems to me impossible to hold that he had such a property, when we consider the admitted facts; and especially that the thing converted is a promissory note, an instrument which, unlike goods, passes (in general) to any bona fide and innocent assignee by delivery only.  The plaintiff indorses this note, and in that state delivers it to the defendant, to be by him discounted, and with the intent that the proceeds shall be carried to his (the plaintiff’s credit).  There is no condition precedent to this discounting.  It is true that a condition is imposed; but that has reference to an act to be done contemporaneously.  The very instant, however, that this discounting took place, the property, by the plaintiff’s own act and authority, of necessity, passed at once from him, and vested absolutely in the bank.  It does not occur to me to be necessary to enter into the cases that have been cited.  A simple statement of the facts is sufficient to show that they are distinguishable from the present.  Palmer v. Jarman, however, in principle, seems (cited for the defendant,) to me to approach it the most closely.  In that case the plaintiff endorsed a bill, that it might be discounted, and the proceeds (as he alleged) be appropriated to his own use.  The court held, that, as he had thus made the bill the property of another, his remedy for the misapplication of the proceeds was by action of assumpsit only.  Surely the decision would have been the same, had the plaintiff insisted that the bill was indorsed, on condition that the proceeds should be so appropriated.  There can be no such magic in a case of this kind, in a mere word.  Brandt v. Bowlby may be taken as deciding, that, where there is a condition attached to an arrangement for the sale of goods, on the previous performance of which condition the sale itself is made to depend, there that condition must be performed, or no property passes in those goods.  Buchannan v. Findlay, in 9 B and C. is a still stronger authority.  In that case Lord Tenterden says, that if goods or bills are deposited with a specific object, the property of the bailor is not diverted till that object be performed.  But in both these cases, the authority, it would seem clear, must be taken with this qualification, that the passing of the property be not essential – as it was here – to effectuate that object.  So, Cranch v. White, in 1 Bing. N. C. 414, stands on different grounds.  The plaintiff entrusted a third party to discount a bill.  That third party, instead of getting it discounted, fraudulently indorses it to the defendant, in payment of his own private debt.  The defendant afterwards has notice of these facts, but refuses, nevertheless, to restore the bill.  The Court held that such refusal was a conversion, and this, although the defendant was a mere agent, acting alone in that capacity.  But in this case, the plaintiff passed no property except for a specific purpose; and no one step towards that purpose was even taken.  The cases of Cox v. Harden, 4 East, of Bloxam v. Saunders, 4. B and C.  and of Stiernheld v. Holden, ibid, may be mentioned as marking strongly the distinction which I have already dwelt on, between cases where a plaintiff can only bring a special action on the case, and cases in which, on the contrary, he may maintain trover.  On this distinction my present judgment is wholly founded.  But, if the counsel for the plaintiff shall be of my opinion, that, by introducing averments connecting the defendant with the bank, and showing that the bank, when it discounted the note in question, knew the condition on which he here insists, he can make out a new case, sufficient to support this action, I think that he ought to have leave to amend for that purpose.  I should hope, however, after what has passed, that the parties interested will see that this case is scarcely a safe or a proper one to be litigated farther.

Source: Source:  Dowling, Select Cases, Vol. 6, State Records of New South Wales, 2/3464, p. 169

In Banco

                                                                      Coram

                                                              Sir James Dowling

                                                                    Stephen J.

                                                    (Willis J. was sitting at nisi. pri.)

                                                          Monday 16 Nov. 1840

                                                       A. & S. Lyons v James Sea

            This was an action of Trover of a promissory note drawn by one S. Lewis in Plf's favour for 1200£.  Pleas 1st. Not Guilty.  2nd. That Plf's endorsed & delivered the said note to Deft for the purpose of getting it discounted at the union Bank of Australia, and placing proceeds to Plf's credit in the same Bank, at Plf's request, and averring that Deft did so, which is the conversion alleged.  Replication. 1st. Issue on Not Guilty.  2d. That the note in question was endorsed to the Deft with the express condition that he should at the same time procure to be delivered to the Plf a Bill of Exchange for £1061:16:6. dated 13 May 1840. No.3927 drawn by Plfs on an accepted by one J. Walker in favour of L. Samuel, which Deft on request refused to deliver to Plfs.  Demurrer to Replication, & causes assigned 1. That it does not confess and avoid the second plea, or traverse any material allegation therein.  2. That it admits that the deft did not convert the promissory note as in the declaration alleged.  3. That it raises an immaterial issue & 4. That it is a departure from the declaration.  Joinder in demurrer.

            This case was argued on a former day by Manning for the deft & by Windeyer for the Plf & the Court took time to advise on the case.

            [p.170]            Stripping the case of the technicalities of the pleadings, we must take the facts admitted on the record to be these: - The defendant received from the Plf the promissory note for which the action is brought for discount with the union Bank of Australia, the proceeds after discount, to be carried to the Plf's credit at that Bank, on the express condition that the Deft would "at the same time", cause a Bill of exchange (not saying in whose possession it is) to be delivered up to the Plfs.  The Deft, accordingly got the note discounted at the Bank, & the proceeds were placed to the Plf's credit at the Bank, but he did not deliver up the Bill of Exchange at the same time, as agreed.  The conversion complained of if the discounting of the note, without performing the condition of delivering up the Bill of exchange at the same time.  The question then is, whether at the time of the conversion, the Plf had the property in the promissory note, & also a right of possession, the Plf having authorized the Deft to discount it with the Bankers, who for the purpose of this case must be taken to be strangers, & having caused the proceeds to be placed to the credit of the Plf's, at the Bankers in pursuance of his agreement.  The plf contended, that as the Deft did not perform the condition on which he received the note for discount, namely that he should at the same time deliver up the Bill of Exchange, the property in the note revested in him, or rather that it was never divested out of him & consequently that trover will lie.

            [p.171]  On the part of the deft it was contended that the agreement was not to deliver up the Bill of Exchange prior to the discounting of the note, & that the Plf having expressly authorized the Deft to discount the note & place it to his credit, which was done, the property in the note became absolutely vested in the Bankers, who being strangers to the agreement between Plf & Deft & ignorant of the condition for delivering up the Bill of Exchange, the Plfs had no right of property or of possession in the note & therefore had mistaken their remedy in bringing trover.

            If we are to take the condition on which the Plf's endorsed the note to the Defts, namely that he should at the same time deliver up Walker's acceptance to be part of the agreement & the consideration for giving up the note to the Deft, which the demurrer must now be taken to have admitted, the true question is whether on failure of that condition, the right of property in the note was completely divested out of the Plf's, even admitting that the Deft & the Bankers are different persons.  If the property or right of possession was never divested then the Plfs have mistaken their remedy.

            [p.173]            I am of opinion that the Plf's have misconceived their remedy, & I regret that the state of the record, & the imperfect manner in which the circumstances are disclosed compel us to come to this decision.  We are now bound to disregard any supposed privity or connexion [sic] between the Deft, and the Union Bank, & treat the Bankers as utter strangers to the terms on which the Deft was authorized to discount the note in question.  By the law merchant the property in a promissory note or Bill of Exchange passes by mere delivery or indorsement.  The Deft was in fact authorized to discount this note as a Bankers, & place the proceeds to the Plf's credit.  This was done, without anything to shew that the Bankers were aware of any infirmity of title in the Deft to discount absolutely.  At the time of discounting, the property & right of possession in the note completely changed, and consequently the Plf's could not maintain trover.  Had it been made manifest that the Deft & the Bankers are the same parties we might have come to a different decision.  But this important link in the chain of circumstances being wanting, we are bound to adhere to the general rule of law applicable to a negociable [sic] security like a promissory note.  This decision will not trench on the authority of the case of Bishop v Shillito reported in a note to Hornblower v Proud. 2 B & A. 379. & other cases of that class.  That was trover for iron which remained in specie & unconverted, and nothing had been done by the plf to authorize the Deft to part with it until the condition of retiring certain outstanding bills of the Plf had been taken out of circulation was performed; the rights of innocent third partied did not there intervene, & the Plf had done nothing to divest his property absolutely in the iron.  Here the Plf's arm the Deft with the power of doing an ct, which by law divests them of their property in [p.174] a negociable money security.  By doing so they put in the power of the deft to determine his right of property and possession, which are essential ingredients to support trover.  The deft may have abused the trust reposed in him, by not doing another act which, as between him and the plaintiff, he was bound to do, but the remedy against him is different from trover.  The decision may be in opposition to the justice of the case, and only in conformity with technicalities, but we are constrained to deal with the record as it is presented for judgment.  The delivery of the bill of exchange here was not a condition precedent, which, if that were the fact, it was conceded in argument if I recollect rightly, would have made the difference in the case; but as the promissory note must necessarily be first discounted, and the proceeds placed to the plaintiff's credit with the bank, before the bill of exchange was to be delivered up, the right of property and possession in the promissory note was gone, for the purpose of maintaining trover, the very moment it was discounted,  It appears to me, therefore, that the Plf's have mistaken their remedy, or have at least so imperfectly brought the case before the Court that the demurrer to the replication must be allowed.

            Judgment for Deft

            With liberty to amend on

            payment of Costs.