ARTICLE V. RIGHTS OF HOLDER. I. To sue and to receive payment. $ 90 HAYS v. HATHORN. 74 NEW YORK, 486. - 1878. maker ACTION on a promissory note alleged to have been made by defendants (Hathorn & Southgate), payable to the order of one of them (Frank H. Hathorn), and by him indorsed in blank and transferred to plaintiff. Judgment for plaintiff. HAND, J. In their answer, the defendants denied that the note on which the action was brought was ever transferred to the plaintiff or that he was the legal owner or holder thereof. They further denied that the plaintiff was the real party in interest; alleged that the Saratoga County Bank was the real party in interest and the owner and holder and should be the plaintiff, and that the note was duly transferred to it instead of to the plaintiff.1 Upon the trial, the plaintiff having produced the note which was payable to the order of F. H. Hathorn and indorsed in blank by him, rested. The defendants then offered to prove that the note was not the property of the plaintiff, that the same was never transferred to him, that he was not the real party in interest, that the note was the property of the Savings Bank who is the real party in interest." The evidence was objected to by the plaintiff as immaterial and was excluded. This ruling I think was erroneous and renders necessary a reversal of the judgment. Under the answer and this offer, the defendants unquestionably proposed to show substantially that the plaintiff had no title legal or equitable to the note, and no right as owner to its possession. This might have been done by proving that he was the mere finder or the unlawful possessor, or that the right to its possession and ownership was in the bank to whom they were liable thereon, or in some other way. This they had a right to show. It may be that, had their offer been admitted, they would have pro 1 "Every action must be prosecuted in the name of the real party in interest." N. Y. Code Civ. Proc., § 449.- H. [See Am. Soda Fountain Co. v. Hogue, 17 N. Dak. 375, reported in 17 L. N. S. 1113, with note entitled "Holder of unindorsed note as real party in interest within meaning of statutes defining the parties by whom the action must be brought," continuing note on the same subject in 64 L. R. A. 581. — C.] duced in fact no evidence to sustain it or prevent a recovery, but in considering the validity of their exception to the exclusion, we must assume that the evidence would have fully covered the propositions contained in the offer. And, as remarked in the dissenting opinion in the court below, "unless the defendants are to be precluded altogether from giving any evidence of a matter confessedly issuable, I do not see how this offer could be rejected." The cases relied upon as justifying the exclusion of the evidence do not go that length. In Cummings v. Morris (25 N. Y. 625), it was held that the maker of a note could not defeat the plaintiff, not a payee, by proof that the consideration of the transfer to him was contingent upon his collecting the note. Such plaintiff was declared to be the real party in interest on the express ground that the transfer was complete and irrevocably vested in him the title to the note. In City Bank v. Perkins (29 N. Y. 554), there was no question of exclusion of evidence, but all the circumstances being proved, it was held that where the cashier of a bank holding commercial paper, pledged it "duly indorsed" to the plaintiff as security for a loan by the plaintiff to his bank, and it had been actually transmitted under his direction to the plaintiff so indorsed, it was no defense to one admitting his liability upon such paper to show lack of authority in the cashier alone to contract a loan for the bank; or the fraudulent diversion by him of the funds received from the plaintiff on such loan. Some remarks in the opinion in that case, not necessary to the decision, are perhaps too broad to be entirely approved, but it is fully conceded in it that proof that the plaintiff had no right whatever to the possession but was a mere finder or had obtained it by some "positive breach of law "would be a defense. Brown v. Penfield (36 N. Y. 473), holds merely that proof, by the party liable on a bill, of gross inadequacy of the consideration for the transfer of such bill to the plaintiff does not impeach the validity of such transfer as to the party so liable. In Allen v. Brown (44 N. Y. 228), it was decided that, as against the plaintiff holding legal title to the claim by written assignment valid upon its face, the debtor cannot raise the question as to the consideration for such assignment or the equities between the assignor and assignee. In Eaton v. Alger (47 N. Y. 345), the note being payable to bearer and produced by the plaintiff upon the trial, it was proved that the payee had delivered it to the plaintiff upon his undertaking to collect it at his own expense and pay to such payee upon its collection a certain sum of money. This was held to show sufficiently that the plaintiff, and not the payee, was the real party in interest under the Code. Sheridan v. The Mayor (68 N. Y. 30), reiterates the doctrine that, as against the debtor, the plaintiff holding a written assignment of the claim to himself valid on its face, obtained the legal title and was the real party in interest notwithstanding the fact that the assignment was without consideration and merely colorable as between him and the original claimant. Such assignment is expressly declared to protect the debtor paying the assignee against a subsequent suit by the assignor. In Gage v. Kendall (15 Wend. 640), the fact that the prosecution of the note was by its owner and holder in the name of the plaintiff, a stranger to it, without his consent or knowledge, was sought to be set up as a defense, but it was ruled out on the ground that the nominal plaintiff need have no title to or interest in the paper sued upon. We apprehend the Code has changed this and that such facts would now be fatal to an action. Such a plaintiff could not in any view be the real party in interest. Indeed, he would not even have manual possession of the paper. From this glance at the cases, it appears that it is ordinarily no defense to the party sued upon commercial paper, to show that the transfer under which the plaintiff holds it is without consideration or subject to equities between him and his assignor, or colorable and merely for the purpose of collection, or to secure a debt contracted by an agent without sufficient authority. It is sufficient to make the plaintiff the real party in interest, if he have the legal title either by written transfer or delivery, whatever may be the equities between him and his assignor. But to be entitled to sue, he must now have the right of possession and ordinarily be the legal owner. Such ownership may be as equitable trustee, it may have been acquired without adequate consideration, but must be sufficient to protect the defendant upon a recovery against him from a subsequent action by the assignor. As we understand the scope of the offer in the present case, it went to entirely disprove any ownership or interest whatever or even right to possession as owner in the plaintiff. It should therefore have been admitted. It may be true that the plaintiff, if this note had been delivered to him with the intent to transfer title, might have lawfully overwritten the blank indorsement with a transfer to himself; it is also true that the production of the paper by him was prima facie evidence that it had been delivered to him by the payee and that he had title to it, but the defendants' offer was precisely to 2 A transfer merely to enable the transferee to sue upon the instrument is valid. Law v. Parnell, 7 C. B. N. S. 282; Wheeler v. Johnson, 97 Mass. 39; Boyd v. Corbitt, 37 Mich. 52; Beattie v. Lett, 28 Mo. 596; Bank v. Senior, 11 R. I. 376; Walker v. Wait, 50 Vt. 668. If acting by authority of the beneficiary, such transferee is the real party in interest. The authority may be revoked. Comstock v. Hoag, 5 Wend, (N. Y.) 600; Best v. Nokomis Bank, 76 Ill. 608.- H. rebut this very presumption, and for aught that we can know the evidence under it would have done so. The judgment must be reversed, and a new trial ordered, costs to abide the event. All concur, except MILLER and EARL, JJ., absent. .3 In jurisdictions where, as in Kansas (Manley v. Park, 68 Kan. 400;3 Graham v. Troth, 69 Kan. 861), the holder of the naked legal title to a promissory note may sue upon it, even although he may be under obligation to account to some third person for the entire proceeds, it is often said that in such an action the defendant cannot challenge the plaintiff's right to maintain it, except by a showing of bad faith in the transaction (Dyer v. Sebrell, 135 Cal. 597, and cases cited; City Bank of New Haven v. Perkins, 29 N. Y. 554). But in the decisions there is a somewhat singular lack of explanation or illustration as to just what might be considered bad faith, in this connection. Doubtless the phrase is sometimes used with reference to a merely colorable transfer of title by the real owner to a stranger, had for the purpose of embarrassing the maker of the note in his defense. Marvin v. Ellis, (C. C.) 9 Fed. 367. But this example hardly meets the requirements of the situation, for it is also said that upon a showing that the plaintiff is only a nominal party, acting for the benefit of the real owner of the note sued upon, the defendant may avail himself of any defense that he could have interposed if he had been sued by the latter, and that his rights are protected, not by allowing him to question the plaintiff's capacity to sue, or by requiring the person finally interested to be made a party, but by permitting him to make his defense on the merits against the formal plaintiff. Cottle v. Call, 20 Iowa, 481; Salem v. School District, (C. C.) 125 Fed. 235; Village of Kent v. Dana, 100 Fed. 56; Dickinson v. Bull, 72 Ill. App. 75. One instance of a transfer in bad faith is presented in Sheldon v. Pruesser, 52 Kan. 579, where its purpose was to defeat the taxation of the note involved. Another is suggested in Sheridan v. Mayor, 68 N. Y. 30, where it is said: "It is not a case of mala fide possession This case is reported in 1 A. & E. Ann. Cas. 832, with note entitled "Right of action thereon of nominal holder of promissory note." See also the exhaustive note to Stewart v. Price, 64 Kan. 191 (overruled by Manley v. Park, supra), in 64 L. R. A. 581, entitled "Who is the real party in interest within the meaning of statutes defining the parties by whom an action must be brought."-C. which the defendant can avail itself of, as if a thief should bring an action upon a promissory note which he had stolen." In Daniel on Negotiable Instruments (vol. 2, § 1191), it is said: "If it were shown that the plaintiff, upon suing upon a note payable to bearer or indorsed in blank, has no interest in it, and, in addition, that he is suing against the will of the party beneficially interested, he could not recover, as his conduct would be in bad faith." In support of this statement the author cites Towne v. Wason, 128 Mass. 517, the syllabus to which reads: "It is a good defense to a promissory note that the plaintiff, although in the possession of the note, has no interest in it, and is prosecuting the action, not for the benefit of the person beneficially interested, but against his objection." But in that case the defense made was that the plaintiff had wrongfully, and without the consent of the owner, obtained possession of the note sued on, which was indorsed in blank; that he had no title to it, and never had had any; and that he was not authorized to sue in behalf of the owner in effect, that he had stolen the note. And the ground of the decision was that under the facts stated the plaintiff had no authority to receive payment of the note, and a payment to him would not have released the maker. And this suggests what we conceive to be the true rule, of general if not of universal application that, so far as affects the question of the right of the plaintiff to maintain the action, the only inquiry open to the defendant is whether the plaintiff had such title to the note that a payment made to hir would be a complete protection to defendant from any further liability. Sturgis v. Baker, 43 Or. 236; Brown v. Powers, 53 App. Div. (N. Y.) 251; Hays v. Hathorn, 74 N. Y. 486. Any investigation which goes further than this merely involves questions between the plaintiff and other claimants of the note or its proceeds, and with these the defendant has no concern. It was said in City Bank of New Haven v. Perkins, 29 N. Y. 554: "The defendant claims no title to the paper, and does not pretend to have any interest in it, except as a promisor, liable to pay to any proper holder. There is no party before the court who has any legitimate interest in questioning the plaintiffs' title, or who has, as it seems to me, under the circumstances of this case, any right to be heard on that question. The defendant stands here, therefore, as a mere volunteer, in behalf of others not before the court, and who make no claim on their own account. It will be time enough to determine whether any other person has a better title, when such person shall come before the court to claim the bills in question, or their proceeds, from the plaintiffs." * * 4"It is the settled law of this commonwealth that a holder of a negotiable promissory note payable to bearer or payable to order and indorsed in blank can sue on it in his own name. Little v. O'Brien, 9 Mass. 423; Beekman v. Wilson, 9 Metc. 434; Peaslee v. McLoon, 16 Gray, 488; Whitton v. Hayden, 9 |