Gilbert v. Duncan, Sherman & Co.

The opinion of the court was delivered by Whelpley, C. J. The action in the court below was upon two promissory notes, made by Gilbert, payable to David Rowland, and by him endorsed to the plaintiffs — the first, dated December 1st, 1856, for $918; the second, for $1464.28, dated 9th March, 1857. They were dated at New York, and there transferred to the plaintiffs below. Both notes were made by Gilbert, for the accommodation of Rowland : such was the evidence at the trial, and that Was not controverted. There was no evidence that Duncan, Sherman & Co, — 139 — knew, at the time of their transfer to them, that the notes were not business paper. At the trial, the defendant, Gilbert, set up, among other defences, that, at the time the last note was transferred to Duncan, Sherman & Co., they agreed to give up to Rowland the first note. On this point the evidence was conflicting, and the court charged the jury that, if such was the agreement, the plaintiffs could not recover upon the first note. The verdict was for the amount of both notes. For the purposes of this case, we must assume, such having been the finding of the jury, that no such agreement was made, unless that finding may have been produced by some erroneous ruling of the court bearing upon that issue. The evidence on the part of Gilbert tended to prove that, at the time the second note was transferred, Duncan, Sherman & Co. agreed to give up the first note. The evidence on the part of the plaintiffs, upon which the jury must have rested their verdict as to this point was, that they never agreed to give up the note for $918; that the note for $1464.28 was not passed to them to take up the note for $918, but another note of Gilbert’s passed by Rowland to them for $1140.20. To the admission of parol evidence of the existence and amount of this note the defendant’s counsel objected, unless proof of its loss or destruction was first made, assigning as the ground of the objection, that it contravened the rule excluding parol evidence of the contents of written instruments. This is one of the errors assigned. The note was not an agreement between the parties. The plaintiffs in no wise rested their claim upon it; it was entirely collateral to the issue; indeed, the evidence was immaterial to the issue, in this sense, that the plaintiff’s proof was complete, for all the purposes of the ease, without proof of the existence or the amount of the note. The defendant had proved by one witness an agreement with the plaintiff’s clerk to give up the note for $918; — 140 — the plaintiffs’ clerk denied the agreement to give up that note; and further said, the note which he did agree to give up, was for a different amount, for $1140.20. It is difficult to lay down any rule which will accurately define in what cases it is not necessary to produce a writing as the best evidence. There is much conflict in the cases upon this subject, arising more, perhaps, out of the application of the rule to differing cases than as to the rule itself. All the cases recognize the principle that, where the contents of the instrument are required, it must be produced, or its absence excused. Savage, C. J., in McFadden v. Kingsbury, 11 Wend. 667, said: “ I have always understood the rule to be, that parol evidence of the contents of papers may be given when they do not form -the foundation of the cause, but merely relate to some collateral fact.” The judgment of Parker, C. J., in Tucker v. Welsh, 17 Mass. 175, proceeds also on the ground that the contents of a paper collateral to the issue may be proved by parol. Mr. Greenleaf, also, in his work upon Evidence, paragraph 89, adopts the rule as enunciated by Chief Justices Savage and Parsons, citing as authority the cases just referred to. The author of the note in Phillips’ Ev., Cow. & Hill’s Notes, 2 vol. 398, after an elaborate examination of these cases, and others cited by him as maintaining the opposite doctrine, says: “We know of no ground, either upon principle or authority, upon which the doctrine can be maintained. Where, however, the contents are immaterial, and the question is one of mere identity, as in the present case, no reason is perceived why the production of the instrument should be required before the witness is permitted to allege its existence.” » To enforce such a rule in every case would only serve to embarrass the administration of justice. If the statement of plaintiff’s clerk was true, how could the plaintiff be aware that the production of the note for $1140.20 would be of any avail ? — 141 — In general, the principle adopted seems to be, that the existence of the paper may be shown by parol evidence for many purposes, when the existence of the paper is not shown for the purpose of maintaining or destroying any right involved in the action, but as a fact or circumstance collateral to the questions at issue. Lambe v. Moberly, 3 Monroe 179; Boone v. Dyker, Ibid. 331 ; United States v. Parker, 3 Day’s Rep. 284. The rule of evidence, the infringement of which is assigned for error, is that requiring the best evidence to he given the nature of the ease admits. It is said the existence of such a note can be best proved by its production. That may be the case — it would so seem. But the cases already cited show that it is impossible to adhere to this rule. For instance, a party proceeds, upon a trial, to' give parol evidence of an agreement; the adversary objects that this cannot be done, and by cross-examination shows that the agreement was reduced to writing, that there was such an agreement in writing; it was never doubted that this may be done, and yet, if this rule is of universal application, this could be done only by the writing itself. The rule must therefore have some limitation. .No other rule can be adopted in practice than to permit the existence of a paper to be proved by parol as a fact in all eases where its contents are not material to the rights of the parties in the action, or the party proving it does not seek to avail himself of its contents as proof of any fact stated in it, or of any obligation created or discharged by it. A fact stated in a writing may be proved aliunde, if it had existence independent of the paper as a payment of money, although a receipt of release has been given. I entirely agree with the doctrine stated in the notes to Phillips’ Evidence, that where the statements of a writing are desired as evidence that such statements were made in writing, the writing, as the best evidence, must be produced, even if these statements are not pertinent to the main issue between the parties. — 142 — The evidence was properly received by the judge. That the notes were accommodation paper was competent to be proved by parol. In the further consideration of the case, it may be assumed that both notes stand on the same footing; if the plaintiffs were entitled to recover upon one, they might upon both. On the 20th of May, 1856, Rowland, then in business in the city of New York, desired a credit with George Peabody & Co., of England, for £2000, and applied to Duncan, Sherman & Co. for it. They gave it to him. The credit was issued on the personal liability of Rowland and the deposit of securities, of which the notes in suit were a part, or had been substituted for those withdrawn by Rowland. The letter of credit bound Duncan, Sherman & Co. that George Peabody & Co. should accept drafts drawn by Rowland, or his written order, at three months, for any sums not exceeding in all two thousand pounds sterling at any one time uncovered by remittances in the hands of the drawees, and that the bills drawn under it should be duly honored at Peabody & Co.’s counting-house. The credit was to remain in force until revoked. Rowland agreed to provide funds with Duncan, Sherman & Co., New York, one month before the maturity of the drafts drawn under the letter of credit, and to accept and pay the drafts of Duncan, Sherman & Co., or George Peabody & Co. in their favor, payable three mouths after the date of their acceptance, as security for the same. The defendants insisted, at the trial, that the notes were accommodation paper, loaned by Gilbert to Rowland, on his promise to take care of them; that the agreement between Gilbert and Rowland was, that Rowland should raise money upon them, by having them discounted at the Artisans’ Bank, in New York; and that the larger note had been lent for the express purpose of taking up the smaller; that the transfer of — 143 — them to plaintiff was a misappropriation of them, which, if they had notice of the agreement between Gilbert and Rowland, barred their recovery. The plaintiffs could not recover upon them at all, unless they were bona fide holders of them for a valuable consideration passing at the time of their transfer, something more than a precedent debt, without notice of the fraud ; that the recovery of the plaintiffs upon them must be limited to the amount of the balance due from Rowland to Duncan, Sherman & Co.; that the burthen of proof was upon the plaintiffs to show how much that balance was. These are the main points made by the bills of exceptions, and for convenience I propose to consider them, without regard to the form in which the assignments of error present them, only noticing such as are necessarily involved in the decision of the case. A party loaning his note to another without consideration has a right to prescribe the use which shall be made of it, and to limit its negotiability to certain persons, if he sees fit, and any departure from the mode and manner of transfer prescribed, or any transfer of it not in accordance with the agreement between the lender and borrower, is a misappropriation of the note, which renders it invalid in the hands of one who takes it with notice of the agreement as to the use to be made of the note, or if without notice, is not a bona fide holder for a valuable consideration. Edwards on Promissory Notes 316. The mere fact that the note was lent by the maker to the endorser, even if known to the endorser at the time of transfer, furnishes no defence if the transfer was for a valuable consideration against a recovery upon the note, although it may affect the amount to be recovered. If the endorser has pledged the borrowed note as collateral security for a smaller loan or for future advances, and the transaction does not amount to a sale of the note for a full consideration, the pledgee can only recover the amount loaned, the debt for which the note was pledged as collateral, unless there be some person other than the defend — 144 — ant entitled to receive the surplus. Allaire v. Hartshorne, 1 Zab. 671. The title of the holder, in such a case, is unaffected by the question whether the note is held as a security for a precedent debt, or for advances made at time of transfer, or to be made afterwards. Any valuable consideration sufficient to support-an agreement, to prevent its being nudum pactum, will be sufficient to uphold the title of the endorsee either to a partial or total recovery of the amount named in it. And this-is held by the Court of Errors, in Allaire v. Hartshorne, to be the law of this state, even when the defence is' something beyond mere want of original consideration, and amounts to a misappropriation, provided, of course, the holders took it without notice of the misappropriation. But the courts of New York have not adopted this doctrine as to the nature of the consideration required to support the bona fide transfer of a misappropriated note. They have adopted the rule of a court of equity as to what constitutes a bona fide purchaser for value, and hold that the true owner of a.misappropriated note may reclaim his property in it, unless the actual holder has parted with something of value on its transfer to him. Stalker v. McDonald, 6 Hill 93 ; Manhattan Co. v. Reynolds, 2 Hill 140; Furness v. Gilchrist & Co., 1 Sand. Sup. C. Rep. 53; White v. Springfield Bank, 1 Barb. 225 ; Spear v. Myers, 6 Barb. 445; Stewart v. Small, 2 Barb. 559 ; Edwards on Prom. Notes 316, 320. This, according to the treatise just cited, is the law of New York, and in this the lex loci contractus, not the lex fori, must control. But if the notes were transferred upon an agreement to advance money for Gilbert’s use, and the money was advanced, or what is equivalent, if Duncan, Sherman & Co. become bound to their correspondent for advances made in London, or if they become responsible upon commercial paper for the benefit of Rowland, that would-be a sufficient consideration, even under the rule prevail — 145 — ing in Yew York. So if these notes were, at the request of Rowland, substituted for other notes released at the time, that would be a sufficient consideration to support the plaintiff'’ title to them, if at the time of the substitution the plaintiffs were liable for money advanced under the letter of credit, or which the plaintiffs were by it bound to advance. I cannot agree to the position of defendant’s counsel, in his request to the judge to charge the jury that it was important whether Rowland was indebted to plaintiffs at the precise moment when these notes were transferred or not. To that part of the charge of the court below I agree, in which it is said that one promise is a good consideration for another, and that if the notes were transferred in consideration of the letter of credit, which I presume means the issue of it, that was a valuable consideration; but to the residue of that part of the charge I cannot agree, that it was incumbent upon the defendant to show that Rowland had not used the letter of credit, or that the plaintiffs had failed to procure or meet the credit — in effect, that it was for defendant to show that Rowland was not indebted to Duuean, Sherman & Co. upon that letter of credit. This presents the question, who held the affirmative on this issue? It must be borne in mind that, in determining this, we must assume that the notes had been transferred, without right to do so, by Rowland to the plaintiffs, because this part of the charge was upon that hypothesis ; if they were not misappropriated, it was not incumbent on the plaintiffs to show themselves bona, fide purchasers, or how much they gave for them j if they were misappropriated they can only hold them so far as they are bona fide purchasers for a valuable consideration — they are such pro tanto only. The production of the notes upon the trial was prima facie evidence of their title; hut when evidence was given — 146 — to show that they had been misappropriated, and, as to Gilbert. were without consideration, then it became necessary to prove their title as bona fide purchasers for a valuable consideration without notice of the misappropriation. Monroe v. Cooper, 5 Pick. 413; Woodhull v. Holmes, 10 Johns. 231; Heath v. Sansom and Evans, 2 Barn. & Ad. 291 ; Conroy v. Warren, 3 Johns. Ca. 259. As soon as the notes were shown to have been lent to Rowland without consideration and misappropriated, it destroyed them as such, until a consideration was shown to have been given for them. It was incumbent upon the plaintiffs to show what they gave for them, how far they were bona fide purchasers for a valuable consideration. They could hold the notes only.so far as they gave or relinquished value at the time of their transfer. If the extent of their recovery depended upon the extent of the moneys paid, that being the affirmative of the issue, they were to prove the amount. The letter of credit and the accompanying paper show that it was issued on Rowland’s credit and that the notes pledged were collateral to the amount of acceptances as security for the same. The letter of credit was not for this purpose considered as creating any debt; that was-done by the acceptances. Whether the whole money would be advanced was, when the letter issued, uncertain. The plaintiffs, in a suit against Rowland, could have claimed only the advances made under the letter of credit, commissions and expenses, not the whole ¿62000. By their own agreement, these notes were mere securities for Rowland’s debt. Allaire v. Hartshorne, and cases there cited. They were bound to make the same proof against Gilbert, who, as maker of the misappropriated note, stood in no worse position- than a mere surety. Without examining the other errors assigned, I am of opinion that for this the judgment should be reversed.