Towne v. Rice

Devens, J. The note in suit was made and delivered in New York, although there was evidence that it was dated at Boston with the intent that it should be a Massachusetts contract. The consideration for it was three similar notes payable in the city of New York which had become due, and upon which a rate of interest usurious under the laws of New York had been reserved. There was no further consideration, and upon it also a usurious rate of interest was reserved. By the statutes of New York all contracts by which a greater rate of interest than that allowed by law is taken, reserved or agreed to be taken, are void. 1 N. Y. Sts. at Large, 725, tit. 3, § 5. If we treat this, between the original parties, as a New York transaction in all its parts, and deem that, as between them, the validity of the contract, as affected by the legality of the transaction upon which it is founded and in which it took its inception as a contract, must be determined by the law of the state where the transaction took place, there still remains the question whether the plaintiff, who offered evidence that he had purchased this note in Boston in good faith and for full value before maturity, is so affected by those circumstances that he cannot recover. If notes are void because tainted with usury, they are ordinarily so in the hands of an innocent indorsee, the law operating upon and attainting the contract itself, attaching thereto the consequences of the illegal act. Bowyer v. Bampton, 2 Stra. 1155. Lowe v. Waller, 2 Doug. 736. Bridge v. Hubbard, 15 Mass. 96. Kendall v. Robertson, 12 Cush. 156. The defendant seeks, as against an innocent purchaser in Massachusetts before maturity and without notice, to falsify and contradict the note signed by him, by proving that, although dated at Boston, where it would be valid notwithstanding the amount of interest reserved, it was actually made in New York, for the purpose of then proving, by the statutes of New York, that it is void. Unless he can be admitted to show that it was thus made, he cannot avail himself of the defence which he desires to maintain. No case to which we have been referred, or which we have been able to find, goes so far as to permit such proof. It is contended on his behalf that Bayley v. Taber, 5 Mass. 286, is precisely in point and decisive of this question. We do not so consider it. It was there held, where a statute of this [72] state had enacted that promissory notes of a particular descrip» tian made or issued after a certain day should he utterly void, that it was competent for the makers, in an action brought against them upon notes bearing date before such day, to prove that they were in fact made and issued subsequently. The ground upon which that decision rests is, that, as the Legislature had declared notes so made or issued to be void, any other result would operate to practically annul the statute, the policy of which had been determined. The case goes so far as to hold that if, by the law of Massachusetts, such a contract as that in suit was void if made here, it might be shown by proof that, although apparently made in another state, where such a contract would be valid, it was actually made here. This is quite a different proposition from holding that it may be shown that a contract, apparently made here, and valid if so made, may be shown to have been made elsewhere, for the purpose of then proving that it would be void by the laws there existing. In the first case, the defendant is not estopped, because the lex loci is to be. enforced, and, for reasons of public policy, he may urge his own illegality, even against those innocent of any; in the latter, he is estopped, because no reasons of public policy require a tribunal to permit a party to contradict the instrument he has signed, in order thus to sustain foreign laws, of which it has no judicial knowledge until they are proved to it as facts, where by so doing injustice would be done to an innocent party. Jordaine v. Lashbrooke, 7 T. R. 601, is the leading case upon the subject of the right of a party to a bill of exchange to show that it was made in violation of law. The bill purported to be dated at Hamburg, but was actually made in London, and, when so made, required a stamp, for want of which it was void. It was there held that the fact that the bill was made in London might be proved, in order that so ready a means of evading the English revenue laws might not exist. To the same effect are Steadman v. Duhamel, 1 C. B. 888, and Abraham v. Du Bois, 4 Camp. 269. Had the bill been sued in Hamburg, the courts of that city, under no obligation to enforce the English revenue laws, might properly have held that the defendant was estopped by the date he had affixed to the bill from showing that it was made at another place, where by a local statute it was void. [73] There is evidence that this note was intended to be a Massachusetts note, and bore date of Boston, in this state; that it is signed and indorsed by the defendant, a resident of this city; and that the plaintiff here purchased it for value and in good faith. If such prove to be the facts, the defendant should not be permitted to show, for the purpose of avoiding the note, that he made it in New York. If it is what it purports to be, it is good against any defence of usury. In order to aid in enforcing a different system from our own, the defendant should not be allowed to show, to the injury of an innocent party, that it is not what it purports to be. We have not deemed it necessary to inquire whether, under the St. of 1863, c. 242, the defence of usury can properly here be made, as we are of opinion, upon the ground above stated, that the learned judge was in error in ruling, under the statutes of New York in evidence, that this note was absolutely void on the ground of usury, as against an innocent holder for value who had here purchased it before maturity, and that there could be no recovery by him. We have discussed this question, assuming the instrument in suit to be a negotiable promissory note. It was ruled at the trial that it was so. While no exception to this ruling is brought before us, the question has been discussed, and must necessarily be now considered, as it would be superfluous to send the case back for a new trial if it is to be disposed of upon the principles which would govern it if the original parties were the parties to this suit. The instrument sued on is a promise to pay a definite sum of money at a specified time, and, as it is payable to order and indorsed by the payee, must be considered a negotiable promissory note, unless this character is altered by that which follows the promise. An additional rate of interest is provided for if the note shall not be met at maturity; but, as the sum to be paid is still definite and payable absolutely, this cannot affect the negotiability. The note contains also an addition, which is a recital of the fact that certain certificates have been deposited as collateral security for the payment of the note, of the terms upon which they have been deposited, and upon which they may be disposed [74] of by the holder, who has received them. A statement that collateral security has been deposited for the performance of the promise contained in a promissory note is a recital only which does not affect its negotiability. Wise v. Charlton, 4 A. & E. 786. Fancourt v. Thorne, 9 Q. B. 312. Nor, when the statement annexed contains also a recital of the terms upon which the deposit was made, should it have that effect. It affords evidence by which the contract might be shown, but the right to dispose of the collateral security is not derived therefrom, but from the contract which was made with the depositary of such security. Such a recital does not render the amount to be paid, the time when, or the person to whom payable, uncertain. If it did, undoubtedly the instrument would not be a negotiable promissory note. Bolton v. Dugdale, 4 B. & Ad. 619. Stults v. Silva, 119 Mass. 137. The only contract as to collateral security, recited in this note, relates to what shall be done after the note becomes due, if it is unpaid. If, as between the maker and the original holder who received the collateral security, there has been any payment before the note became due, by the receipt of sums collected upon the security, that cannot affect one to whom the note has been transferred before maturity, without notice. It will have been done in pursuance of some agreement which does not appear on the face of the note, and of which therefore he had no notice. He is entitled to occupy the same position that he would if the holder of a negotiable note in the ordinary form had received a sum which, as between himself and the maker, should be applied to the note, and had afterwards transferred it to him, without notice and before maturity. Nor does the fact, if this note is unpaid, that the amount due after maturity will depend upon the action of the holder of the collateral seccurities, by reason of his option to sell and realize such securities, and will thus be uncertain, destroy its negotiable character before maturity. After a negotiable note has become due, it is still transferable, although it has lost the great characteristic which gives value to it as commercial paper. The pur chaser, although he may sue upon it in his own name, then receives it with full notice of all defects, and subject to every equitable defence which the promisor may make against the [75] promisee. If the note embodies a promise to pay money, definite as to time, person and amount, it is not the less negotiable, because, if unperformed at maturity, certain collateral securities, the proceeds of which will then be applicable to the note, may be realized, and, when realized, will affect the amount which will thereafter be due on it. The case of Arnold v. Rock River Valley Railroad, 5 Duer, 207, goes much further than we are required to do, in holding the instrument sued on to be a negotiable promissory note. The instrument, there held to be such, contained not merely a recital of the fact that collateral security had been given, and of the terms upon which it had been given, but itself furnished the authority by which the holder (who was not the promisee) could dispose of it, prescribed the mode in which he should convert it into money, and defined the extent of the maker’s liability, after the security should have been availed of. Whether, if the contract as to the collateral security and the sale of it had been made by the instrument sued on, it could still be treated as a promissory note, need not now be decided. The only contract made by it is a contract to pay the money promised, and it is not altered or modified by that which is recited, but continues to be an absolute promise to pay to the person named, or his indorsee, a definite sum at a fixed time. It was therefore correctly ruled at the trial, that the promise contained in the instrument was to be treated as a negotiable promissory note. It was also correctly ruled that the fact that the defendant was the receiver of a corporation, and so described himself, would not prevent his being sued individually. The contract was his own, and the word “ receiver ” annexed to his name was a descriptio persanes merely. Fiske v. Eldridge, 12 Gray, 474. Upon the ground heretofore considered, as to the defence of usury, the Exceptions are sustained.