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not intend to decide them. Be this as it may, they appear to have so held, and upon the authorities cited we can not say erroneously, and we submit to the authority of the cases decided, and hold that there was no error in the action of the circuit judge refusing the amendment. It is insisted by plaintiff's counsel that if the judgment of the circuit court is correct, redress will be practically denied to parties injured upon railroads operated by receivers without conceding more than that the assertion of their rights will be considerably embarrassed, we say in answer that if the position assumed be correct, the remedy is not with us. We only enforce the law as we find it.
NEGOTIABLE PAPER FOREIGN BANK.
PHELPS v. BORLAND,
Supreme Court of New York, August 7, 1883.
In an action against defendant as the drawer of a bili of exchange, which was accepted by the drawees, payable in London, the defense was that after the bill had been drawn and accepted, the acceptors had been discharged by the creditors, under authority of the English bankrupt laws, in which proceedings the plaintiffs proved this indebtedness and received their proportionate part of the composition paid by the acceptors. Held, that while the proceedings under the English Bankrupt Act in and of themselves constitute no defense, not being binding upon plaintiffs as cred. itors, they being at the time residents and citizens of this State, and the insolvent laws having no extraterritorial operation; yet having voluntarily made themselves parties to the bankruptcy proceedings, by proving the debt now in suit and accepting the composition offered by the bankrupt,the plaintiffs thereby released and discharged the acceptors of this bill, and deprived themselves of the right to proceed against the drawer.
seven hundred and fifty pounds sterling, for value received, and charge to account as advised.
R. B. BORLAND. To Messrs. Samuel Johnston & Co., Liverpool. No. 393 payable in London.
Three stamps amounting to twenty-eight shillings, canceled by mark of Union Bank of London, June 6, 1870. No. 1666 Liverpool, Sep., 1879. Accepted: due June 10, 1879, payable at Messrs. William Deacons & Co. London, Samuel Johnston & Co. Eadorsed: R. B. Borland.
Pay to the order of the Union Bank of London.
Recd. pt. pro. of the Union Bank of London, J. Warren, Manager.
When it became due the acceptors failed to pay it, and the defendant was in form charged by the ordinary protest and notice. He relied upon the fact as one of his defenses that he drew the bill as agent of the drawees, and that his relation to it was known to the plaintiffs when they received it. But the defense has been disposed of adversely to him in an action by the same plaintiffs upon another billi drawn by him in a similar form and upon the same drawees.
A further defense consisted in the fact that af. ter the bill had been drawn and accepted, the acceptors had been discharged by the creditors, un. der the authority of the English bankrupt laws, in which plaintiff proved his indebtedness, and received their proportionate part of the composition paid by the acceptors. These facts were proved upon the trial, and were held by the court to create a legal defense in the defendant's favor, and accordingly a verdict for him was declared in the action. Whether this direction can be sustained upon these facts is the controlling point to be determined in the disposition of this motion.
The bankrupt proceedings were commenced and carried on under the English Bankrupt Act of 1869, which was given in evidence upon the trial. By that act the creditors of the bankrupt have been empowered to discharge him from his debts upon a compromise or composition accepted by them from him iu satisfaction of their demands. And the proceeding provided for has been de. clared to be binding upon all the creditors whose names and addresses and the amount of the debt due to whom are shown in the statement of the debtor produced to the meeting of the creditors, at which their resolution shall be adopted for the adjustment of their demands and the debtor's discharge. And by a concession made upon the trial the fact was established that the statement required by the act was made by the debtor and presented at the meeting of his creditors, containing the names and addresses of the creditors to whom the debis were due, ineluding the names of the plaintiffs and this particular debt in question. The creditors who were present, but among whom the plaintiff was not included, accepted the composition offered by the acceptors of the bill, and in consideration thereof granted them a discharge from their debts.
Under the English rule as it was stated in Ellis
Motion by the plaintiff for a new trial upon exceptions ordered to be first heard at the general term.
Thos. H. Hubbard, for plaintiffs; Frank D. Sturges, for defendant.
DANIELS, J., delivered the opinion of the court:
The action was against the defendant as the drawer of a bill of exchange. The bill was dated March 28, 1879, and was drawn on Samuel Johnston & Co., of Liverpool, for the sum of £2,750 sterling. It was accepted by the drawees, payable in London. The bill and the acceptance were in the following form: Exchange for £2,750. First. Stamp P. S. & Co., No. 356.
NEW YORK, March 28, 1872. Sixty days after sight of this first exchange, second and third of same tenor and date being unpaid, pay to my order, the sum of twenty
v. McHenry, (L. R. 6 C. P. 228) this discharge would operate as a complete and effectual extinment of the debt, not only in England, but elsewhere. And a like view was either incidentally or directly taken of the law in Murry v. De Rottenham, 6 John. Chy. 52; Peck v. Hubbard, 26 Vermont 698; Henry v. McHenry, 29 Maine 206; Le Roy v. Crowinushield, 2 Mason 151; Green v. Sarmients, 1 Peters C. C. 74; 2 Kent, 7th ed. 476-7; Story on Conflict of Laws, 5th ed., sec. 335. This principle was deduced from the well established rule that the force and effect, as well as the validity of a contract, are to be determined by the laws of a country whore by its terms it is to be performed. It has been often considered by the courts, and this rule has been deemed to be well established both by reason and authority (Smith v. Smith, 2 John. 235; Mather v. Bush, 18 Id. 233; Sherill v. Hopkins, 1 Cow. 103-8) where it was stated "that the law of the place where the contract was made is to control it, unless it appear on the face of the contract that it was to be performed at some other place or was made with reference to the laws of some other place.” Hibernia National Bank v. Sacombe, 64 N. Y. 367, 378.
But neither the Federal Courts nor the courts of this State in their more recent adjudications have sanctioned this broad principle giving general effect to discharges obtained by a debtor under the provisions of the English Bankruptcy laws. Ihas been considered more particularly with reference to the effect of discharges obtained under the Insolvent laws of the States, and an effort has been made for that reason to distinguish these adjudications from the general principle already mentioned, because of the restraint imposed upon State legislation by the Federal Constitution. But this restraint is applicable only to contracts entered into before the enactment of the insolvent law of the State relied upon as affecting them. Where the contract is entered into before the enactment of the State Insolvent Law, there the State has no authority to discharge it in that manner, for it can pass no law impairing to the obligation of a contract. But where the contract is entered into subsequent to the passage of the insolvent law, then the Constitution of the United States in no way interferes with the act, but its effect is to be otherwise determined by the courts, and it has already been so considered in cases which must be accepted as controlling authority over this subject.
In the consideration of the effect of such laws it has been determined that the discharge of the debtor under their provisions will include only debts and contracts existing against the debtor in favor of another citizen or inhabitant of the same State, and that the act will not include a debt or contract entered into in the State of the debtor's residence owing to or with a resident or citizen of another State. As to the latter class, the discharge under it will be ineffectual; while as to the former, the demands will be discharged and
extinguished. Scribner v. Frisbie, 2 Gray 43; Fisk v. Foster, 10 Met. 597; Iale v. Baldwin, 1 Cliff 511, 517; aff'd. 1 Wallace 223.
The principle upon the effect of which the State insolvent laws have been so far restrained in their operation as to exclude debts owing to and contracts in favor of citizens of other States is that insolvent laws have no extra territorial operation upon the contracts of other States; that the principle is applicable as well to the discharges given under the laws of the State as of foreign countries, and that the anterior or posterior character of the law under which the dis. charge is given with reference to the date of the contract makes no discrimination in the application of the principle.” Ogden v. Saunders, 12 Wheat 213, 272. And if this principle can properly be made applicable to the insolvent laws of the States, the reason upon which it has been founded, will render it equally applicable to the discharge of a debtor under the bankrupt laws of a foreign country, and it was so considered in the case just referred to.
The English rule was regarded as having grown up under the policy of Great Britain as a commercial nation, but it was declared in the prevailing opinion of the court to be perfectly clear that in the United States a different doctrine has been established.” Id. 360. And for that reason creditor in the United States may proceed to seize and appropriate the property of the debtor to the payment of his debts, when they may be found within the jurisdiction of any of the tribunals of this country, although he may have been discharged a bankrupt by proceedings instituted and carried on elsewhere. Saunders v. William, 5 N. H. 213.
If the discharge of the bankrupt obtained in the country of wbich he may be a resident at the time of the making of the contract, and where the proceedings themselves may be carried on, could operate as a discharge of the debt, such an attachment or seizure of the debtor's property within the jurisdiction of the courts of this or any other State would not be premitted. It is only because the discharge is entitled to no extra territorial effect that the creditor is at liberty to collect his debt in this manner out of the property of the bankrupt which may be found within the jurisdiction of the tribunals of the creditor's domicil, when that may be different from the residence and domicil of the debtor. The view that the English rule concerning the effect of a bankrupt discharge has not been adop ed in this country has been regarded as the law by Parsons in in his work on Bills and Notes, for he considered that “the tribunals of England differ in this respect from that of the continent of Europe, and from the rules laid down in the American cases." 2 Parsons on Bills, etc. 360.
While, therefore, the law of the place of the contract is in general terms to have the effect at. tributed to it, as that has been already stated, still it is not entitled to be extended so far as to
maintain the legality and effect of a foreign bankrupt discharge against creditors to whom the bankrupt may be indebted, who were at the time citizens and residents of this State. The English rule has been so far abridged as to render the discharge itself inoperative against such creditors, and consequently the proceedings which have been relied on, although they conformed to the English Bankrupt Act, in and of themselves consitute no defense, for the reason that they were not binding upon the plaintiffs as creditors.
The plaintiffs not being bound by the bankrupt proceedings, were under no obligation either to prove their debt or to accept the composition proposed to be paid by the acceptors of this bill. They did, however, voluntarily make themselves parties to the bankrupt proceedings by proving the debt now in suit and accepting the composition offered by the bankrupt, and in that manner without being obliged so to do they released and discharged the acceptors of this bill. In taking these proceedings they brought themselves within the authority of the case of Gardner v. Oliver, Lees Bank, 11 Barb. 559. There the creditors in a similar manner made themselves parties to and received a portion of the debtor's estate under insolvent proceedings carried on in the State of Massachusetts; and as the creditor at the time resided in this State, and within the rule already mentioned, was in no manner affected by the insolvent proceedings under the statute of Massachusetts, it was held to have deprived itself of its rights to proceed against the drawer of the paper by having voluntarily made itself a party to these proceedings and receiving the dividend which was paid under them. No reason can be perceived for distinguishing this case from the one now before the court. If the creditor deprived itself there by voluntarily becoming a party to the proceeding and accepting the distributive portion of the estate of the insolvent under it, the plaintiffs have done the same in this instance. This authority, in view of the facts as they have been made to appear, must be regarded as decisive of their rights, and the result is that their application for a new trial must be denied and judgment ordered for the defendant on the verdict.
DAVIS, P. J., and BRADY, J,, concur.
purchaser a title protected against infirmities in the paper.
2. While the mere discounting of paper by a bank and placing the amount thereof to the credit of the depositor, having already a balance to his credit, will not constitute the bank a purchaser for value, so as to cut off equities, yet as by the discount and credit it becomes a debtor to the depositor, if before receiving notice of any infirmity in the paper it pays out on the checks of the depositor the full amount due him, including the discount, it thereby becomes a purchaser for value, so as to be entitled to full protection.
3. This rule obtains, although the depositor by subsequent deposits and discounts, preserves a constant balance to his credit, for in the absence of special facts demanding a different rule, payments are applied to the oldest debts.
4. The fact that the depositor is itself a bank, and the regular correspondent of the discounting bank, does not change the rule as above stated.
5. Mere suspicion of an infirmity in negotiable paper, does not prevent a party from purchasing it freed from such infirmity. The purchaser loses protection against an infirmity only when he is guilty of bad faith or buys with actual notice.
6. While after due paper is transferred subject to any defenses, yet if the paper is purchased before maturity the purchaser will be safe in making payment after maturity; and after protest for non-payment, if he have no other notice of the infirmity of the paper, he may not repudiate his own obligation upon the mere suspicion created by the failure of the maker of the paper to meet his obligation.
7. A, holding a note against B, commenced an action thereon, and attached a stock of goods belonging to B. The stock was already under another attachment, and was also subject to a chattel mortgage. C thereupon executed a note to A as additional security, and upon an agreement that A should prosecute the attachment suit to effect, and that any amount received as the proceeds of such attachment should be applied in reduction of C's note. At the time of the levy of A's attachment A had promised the sheriff that he would give him an indemnity bond against the claim of the chattel mortgagee. After the execution of this note A refused to give such indemnity bond, and the sheriff released the goods from the levy of attachment, and nothing was realized by A thereon. What the amount of the chattel mortgage was does not appear. Held, in an action against C on his note that A's agreement simply required him to pursue all the ordinary legal means for realizing in his attachment suit, and did not compel him to incur extraordinary and unusual risks by giving an indemnity bond, and also that as the amount of the chattel mortgage is not disclosed and may have been largely in excess of the value of the goods, and no suggestion of any invalidity in the mortgage is made, it can not be presumed that the goods would have paid more than the chattel mortgage debt, and therefore no loss is shown by the failure to give the indemnity bond.
Error from Lyon County.
Sterry & Sedgwick, for plaintiff in error; Cun. ningham & McCarty, and Scott & Lynn, for defendants in error.
BREWER, J., delivered the opinion of the
This was an action brought by defendant in error, plaintiff below, upon a promissory note, which with its indorsement reads as follows:
EMPORIA, KAN., Jan. 7, 1881. facts are, that the note was transferred hy Severy, February 14, 1881, for value received, I promise the payee, to the First National Bank of Emporia, to pay to the order of L. Severy, three hundred and by it indorsed to the plaintiff. The plaintiff and forty-six and no-hundreds dollars at the First was the correspondent of the Emporia Bank, and National Bank of Emporia, with interest at the the latter had a general account with it. No rate of twelve per cent. per annum after maturity. | money was forwarded to the Emporia Bank at the until paid; also, cost of collection, including rea- time the note was discounted; but the amount of sonable attorney's fees, if suit be inetituted on this the discount was simply credited to its account. note.
I. D. Fox. Now it is claimed by counsel for plaintiff, that No. 9,812. Due Feb. 17.
the action of a bank in crediting a party's account Indorsed as follows: L. Severy, without re- is in effect a payment, or at least creates the bank course. Pay to the order of Joseph S. Chick, a purchaser for value. We have had occasion in President of Bank of Kansas City, Mo.
the case recently decided, of Mann v. Bank, 17 H. C. Cross, Pres't. Cent. L. J. 274, to consider this question, The action was commenced Feb. 22, 1881. The and have nothing more to add to the opindefendant answered, setting up that the consid- ion therein expressed. The mere crediting eration of the note was an executory contract,
account by a bank to its depositor, through the breach of which on the part of the where the effect of the credit is only to increaes actual payee the consideration of the note had the balance due the depositor, is not a payfailed. Of the nature and effect of this contract, ment and does not make the bank a purchaser and its alleged breach, we may have occasion to for value. Nor is the rule changed by the say more hereafter. The defendant, in addition fact that the depositor is itself a bank, and the to the failure of the consideration by the alleged discounting bank its regular correspondent. But breach claimed by the plaintiff, was not a bona it is claimed by counsel for plaintiff that if the fide purchaser for value before maturity. Upon mere fact of passing the amount to the credit of the trial the court instructed the jury perempto- the Emporia Bank was not of itself a payment, rily to find for the plaintiff, and the defendant al- the amount of the credit was in fact drawn out leges error. We shall first inquire whetner the by the Emporia bank before the plaintiff had noplaintiff was a lona fide holder for value and be- tice of any infirmity in the paper. From the fore maturity. The note, as will be perceived by monthly account rendered by the plaintiff to the its terms, was payable February 14. It was in- Emporia Bank, which was offered in evidence dorsed and transferred to plaintiff on February and which was the only evidence bearing upon 15, two days before the time at which the note, the question, it appears that the note was discounting days of grace, was payable. If the ordi- counted and the amount credited to the Emporia nary rule of the law merchant obtains, it will not Bank on February 15; that at the cluse of that day be doubted that one who purchases before the ex- the amount on the credit side of the account from piration of the days of grace, is entitled to the the first of February was $52,802.36. The amount ordinary protection of the bona fide holder. Crosby on the debit side was $32,179.58 leaving a balance v. Grant, 36 N. II. 273; 1 Daniel on Negotiable due Emporia Bank of $20,322.78; that during the Instruments, sec. 787. The claim is that our stat- subsequent flve days ending February 21, the ute creates a departure from that rule. Sec. 2 of Emporia Bank drew out $26,774.67, which, but the statute concerning bills and notes, authorizes for subsequent deposits by the Emporia Bank, in terms a full defense to a bill or note which is would have overdrawn the account and left the indorsed or delivered “after the day on which it Emporia Bank in debt to the plaintiff. In other is made payable." The statute also provides, sec. words within five days after this discount, every4, that negotiable bills and notes shall be entitled thing then due the Emporia Bank was paid to it; to three days grace. We think putting these two and it is claimed by plaintiff that at the time, if sections together, no (leparture was intended from not before the plaintiff had fully paid the note, the ordinary rule of the law merchant. In 1 Dan- and was entitled to the full protection of a puriel on Negotiable Instruments, sec. 514, the author chaser for value. This claim we think is correct. says: “By custom, however, they became uni- The general rule, as to the application of payversally recognized; and although still termed ments, there being no special facts to interfere, is days of grace, they are now considered, wherever that the first payments go to the oldest debts, so the law merchant prevails, as entering into the all the money drawn out by the Emporia Bank in constitution of every bill of exchange and nego- the absence of some special facts was a payment tiable note, both in England and the United by the plaintiff of the oldest deposits and disStates, and form so completely a part of it that counts; and when at the close of February 21, the the instrument is not due in fact or in law until balance due February 15 had been fully checked the last day of grace." We think all that is out, the plaintiff had paid for every deposit and meant by the language of the sections above cited, discount made by the Emporia Bank prior to Febis an ailirmation of the general rule of the law ruary
15. Shellabarger v. Binns, 18 Kas. 315. merchant.
The question then is, if the plaintiff had fully paid Again, it is claimed that the plaintiff was not a at the close of February 21, had it before that purchaser for value, that it paid nothing. The time any notice of infirmity in the paper. There
are only three matters that can be considered as giving any knowledge or affording any intimation to the plaintiff of any claimed infirmity in the paper prior to the close of February 21. These are that the Emporia Bank when it forwarded the note to the plaintiff for discount wrote this letter:
“EMPORIA KANSAS, Feb. 12th 1881. Jos. S. CHICK, Esq., Kansas City, Dear Sir:Herein find note of I. D. Fox, for discount and credit. I charge your account $345.50, discount 50 c.; 2-15. Please attend to this immediately on receipt. I attach a waiver of protest fearing note might not be returned in time for protest owing to storms. The maker of this note is good.
Respectfully, H. C. Cross, President.'' Secondly that when after protest it returned the note, it sent this letter:
fore, although it does give the indorsee notice of any specific matter of defense, such as set-off, payment, or fraudulent aquisition, yet it puts him on inquiry; he takes only such title as the indorser himself has, and subject to any defense which might be made if the suit were brought by the indorser."
So that if the plaintiff had purchased this paper after it became due, defendant would have been entitled to present any defense he had as against the payee. But it bought before maturity; by its purchase it assumed an obligation directly to the Emporia Bank; and the question here is whether it would be justified in refusing payment of such obligation upon the ground that the maker of the paper it had bought, failed to pay upon presentation. It will be manifest on a moment's consideration that there is a vast difference between the two cases as to the proper effect of non-payment. The presumption, of course, in reference to negotiable paper is that it will be paid at maturity. If not then paid, it may be because the maker is unable to pay, or unwilling at the present time to pay, or that it has not been presented for payment, or because he has a good defense thereto. When such paper is offered for sale, the purchaser must know that one of these reasons exist for its non-payment, and it is simply fair to all parties. that he should advise himself as to which is the true reason, and failing to do so must meet the consequences of the existence of any of those rea
He is not justified in assuming the existence of one reason and incurring an obligation to the prejudice of the maker when the other may in truth be the reason. But when he has in fact purchased and given his own obligation, then there should be something more than a mere possibility to justify him in repudiating such obligation. Before he buys it is a purely voluntary matter whether he shall purchase; he exposes himself to commercial dishonor in declining to purchase; nothing can be said against his credit if he fails to purchase. But after purchase his refusal to pay exposes him to discredit, and if unnecessarily done, affects his commercial standing. Before he is authorized or justitied in so doing, he should be informed, not merely that there may be, but in fact that there is a good reason for his refusal. The non-payment by the maker may be solely on account of inability to pay, or a present unwillingness, without any question or possibility, or even thought of legal defense, which, of course, would excuse in no manner the repudiation of his own obligation. It would seem simply fair to him that having purchased before maturity, having then contracted to pay, he should, after maturity, be permitted to perform his own obligation and make payment, unless he has some actual knowledge of an infirmity, or is acting in bad faith. In this way, and in this way only, can he preserve fully his own commercial standing; and in this there is no injustice done to the maker of he paper. When it is protested for non-paymes
Emporia Kansas, July 18, 1881. Jos. S. CHICK, ESQ., Kansas City, Dear Sir :I return your coil. on Fox protested. You will please froward this to Cunningham & McCarty, attorneys at this point, with instruction to collect at once saying to them to consult with me as to particulars. This will draw you 12 per cent. until paid. We of course have a point in this which we will explain when I see you.
Respectfully, H. C. Cross, President." And Thirdly, the note was protested for nonpayment.
The first two of these matters may be considered together; and in reference to them it may be stated geuerally that they contain no information that a party might not act upon without any imputation of bad faith, and that the most that can be said in referenee to them is that they create a suspicion, that they suggest that possibly there may be something wrong in the paper. But it is finally settled by the large preponderance of the best authority that no mere suspicion will destroy the protection accorded to one dealing in negotible paper. It is true there has been some conflict in authority in times past, but there is to-day a remarkable concurrence in the views of the ablest courts and the best jurists on the proposition that a purchaser of negotiable paper loses protection against an infirmity only when he is guilty of bad faith or buys with actual notice. 1 Daniel Neg. Inst., sec. 775, p. 630; Hamilton v. Marks, 63 Mo. 167; Houry v. Eppinger, 34 Mich. 29; Murray v. Beckwith, $i III. 43; Pnelan v. Moss, 67 Penn. St. 62; Farrell v. Lovett, 68 Me. 326; Spooner v. Holmes, 102 Mass. 507; Murray v. Lardner, 2 Wallace, 110; Swift v. Smith, 102 U. S. 442; Morehead v. Gilmore, 77 Penn. St. 113.
In reference to the third fact it is unquestionably true that one who purchases overdue paper takes it subject to any defenses. The reason for this rule is fully stated by Chief Justice Shaw in Fisher v. Leland, 4 Cush. 456 : “Where a negotible note is found in circulation after it is due, it carries suspicion on the face of it. The question instantly arises why is it in circulation? Why is it not paid? Here is something wrong. There