It is a well settled principle that no man who is a party to a
negotiable instrument shall be permitted by his own testimony to
invalidate it. Having given it the sanction of his name and thereby
added to the value of the instrument by giving it currency, he
shall not be permitted to testify that the note was given for a
gambling consideration, which would destroy its validity.
The case of
Renner v. Bank of
Columbia, 9 Wheat. 587, cited and affirmed.
Parol evidence maybe admitted to explain a written agreement
where there is a latent ambiguity, or a want of consideration may
be shown in a simple contract, or to defeat the plaintiff's action,
the defendant may prove that the note was assigned to the plaintiff
in trust for the payee.
It is competent to prove by parol that the guarantor signed his
name in blank on the back of a promissory note and authorized
another to write a sufficient guarantee over it.
In Pennsylvania there is no court of chancery, and it is known
that the courts in that state admit parol proof to affect written
contracts to a greater extent than is sanctioned in the states
where a chancery jurisdiction is exercised.
The liability of parties to a bill of exchange or promissory
note has been fixed on certain principles which are essential to
the credit and circulation of such paper. These principles
originated in the convenience of commercial transactions, and
cannot now be departed from.
An agreement by the president and cashier of the Bank of the
United States that the endorser of a promissory note shall not be
liable on his endorsement does not bind the bank. It is not the
duty of the cashier and president to make such contracts, nor have
they the power to bind the bank except in the discharge of their
ordinary duties. All discounts are made under the authority of the
directors, and it is for them to fix any conditions which may be
proper in loaning money.
In the circuit court, the Bank of the United States instituted
an action of assumpsit against John O. Dunn, as endorser of a
promissory note drawn by John Scott, in the following words:
"$1,000 -- Sixty days after date I promise to pay John O. Dunn
or order one thousand dollars for value received, negotiable and
payable at the United States Branch Bank in Washington."
"JOHN SCOTT"
"Endorsed J. O. Dunn -- Overton Carr"
The signatures of the parties to the note were admitted, and
notice of a demand of payment of the same at the bank
Page 31 U. S. 52
and of the nonpayment were proved to have been regularly made
and given.
The defendant offered as a witness Overton Carr, the endorser of
said note, who testified that before he endorsed the same, he had a
conversation with John Scott, the maker, and was informed by him,
that certain bank stock had been pledged, or was to be pledged, by
Roger C. Weightman, as security for the ultimate payment of the
said note, and that there would be no risk in endorsing it. That
the witness then went into the room of the cashier of the
plaintiffs' office of discount and deposit at Washington, and found
there the cashier and Mr. Thomas Swann, the president of the said
office, to whom he communicated the conversation with Mr. Scott and
from whom he understood upon his inquiry that the names of two
endorsers, residing in Washington, were required upon the said note
as a matter of form, and that he would incur no responsibility (or
no risk) by endorsing the said note. He did not recollect the
conversation in terms, but such was the impression he received from
it. That he went immediately to the defendant and persuaded him to
endorse the note by representing to him that he would incur no
responsibility or no risk in endorsing it, as the payment was
secured by a pledge of stock, and to whom he repeated the
conversation with Mr. Scott and the president and cashier. That no
other person was present at the conversation, the terms of which he
does not recollect, but that the impression he received from his
conversation with the president and cashier and with Scott, and
which impression he conveyed to the defendant, was that the
endorsers of the said note would not be looked to for payment of it
until the security pledged had been first resorted to, but that the
said endorsers would be liable, in case of any deficiency of the
said security, to supply the same. That neither this witness nor
Mr. Dunn was at the time able to pay such a sum, and that both
endorsed the note as volunteers, and without any consideration, but
under the belief that they incurred no responsibility (or no risk)
and were only to put their names upon the instrument for form's
sake. To which evidence the plaintiffs by their counsel objected,
but the court permitted it to go to the jury.
The plaintiffs then offered as a witness, Richard Smith, the
Page 31 U. S. 53
cashier of their office of discount and deposit aforesaid, who
was summoned on the part of the defendant and who testified that he
has no recollection of the conversation mentioned by the said Carr,
but that no stock was ever pledged for the payment of the said
note. That Roger C. Weightman had give to the said office a
guarantee that he would pay the said note in case the parties to
the same should fail to do so, after all legal and proper measures
had been taken to procure the payment of it by them. That he is
certain that nothing was said either by him or by Mr. Thomas Swann
in his presence as to the endorsers' not being held liable for the
payment of the said note. That it was contrary to the practice of
the said office to take endorsers on notes who were not to be held
liable. That the president and himself conjointly nor either of
them were authorized to give any such exemption to endorsers or to
determine who should be taken as endorsers on notes. That this was
the province of the board of directors alone unless when they
appointed a committee of the board for that purpose. That the
guarantee aforesaid was given by the said Weightman after the note
had been made and endorsed.
Mr. Smith, upon cross-examination, having stated that he was a
stockholder in the bank, the court rejected his testimony, and
instructed the jury that it was not evidence.
The plaintiffs' counsel then offered to swear Mr. Swann, who had
been summoned as a witness on the part of the defendant, but the
defendant's counsel objected to his competency for the same reason,
which objection the court sustained, to which the said plaintiffs
by their counsel excepted, and also to the admission of the
testimony of Mr. Carr and the rejection of Mr. Smith's
testimony.
The jury found a verdict for the defendant, and judgment in his
favor was entered thereon.
The plaintiffs prosecuted this writ of error.
Page 31 U. S. 55
MR. JUSTICE MCLEAN delivered the opinion of the Court.
In the Circuit Court for the District of Columbia, from which
this cause is brought by writ of error, the plaintiffs commenced
their action on the case against the defendant as endorser of a
promissory note. The general issue was pleaded, and at the trial
the plaintiffs read in evidence the following note:
"$1,000 -- Sixty days after date, I promise to pay John O. Dunn
or order one thousand dollars for value received, negotiable and
payable at the United States Branch Bank in Washington."
"JOHN SCOTT"
On the back of which was endorsed,
"J. O. DUNN"
"OVERTON CARR"
The signatures of the parties were admitted, and proof was given
of demand of the bank and notice to the endorsers.
The defendant then offered as a witness Overton Carr, an
endorser of said note, who testified that before he endorsed the
same, he had a conversation with John Scott, the maker, and was
informed by him that certain bank stock had been pledged or was to
be pledged by Roger C. Weightman as security for the ultimate
payment of the said note, and that there would be no risk in
endorsing it. That the witness then
Page 31 U. S. 56
went into the room of the cashier of the plaintiffs' office of
discount and deposit at Washington and found there the said
cashier, and Thomas Swann the president of the said office, to whom
he communicated the conversation with Mr. Scott, and from whom he
understood upon inquiry that the names of two endorsers, residing
in Washington, were required upon the said note as a matter of
form, and that he would incur no responsibility (or no risk) by
endorsing the said note. He does not recollect the conversation in
terms, but such was the impression he received from it.
That he went immediately to the defendant and persuaded him to
endorse the note by representing to him that he would incur no
responsibility or no risk in endorsing it, as the payment was
secured by a pledge of stock, and to whom he repeated the
conversation with Mr. Scott, and said president and cashier. That
no person was present at the conversation, the terms of which he
does not recollect, but that the impression he received from this
conversation with the aforesaid president and cashier and with the
said Scott, and which impression he conveyed to the defendant, was
that the endorsers of said note would not be looked to for payment
until the security pledged had been first resorted to, but that the
said endorsers would be liable in case of any deficiency of the
said security to supply the same. That neither this witness nor Mr.
Dunn was at the time able to pay such sum, and that both endorsed
the note as volunteers and without any consideration, but under the
belief that they incurred no responsibility (or no risk) and were
only to put their names to the paper for form sake.
To which evidence the plaintiffs, by their counsel, objected,
but the court permitted it to go to the jury.
The plaintiffs examined as a witness Richard Smith, the cashier,
whose testimony was overruled, and then Thomas Swann, the president
of the bank, was offered as a witness and rejected, it appearing
that they were both stockholders in the bank. To this decision of
the court a bill of exceptions was taken by the plaintiffs, and
exception was also taken to the evidence of Overton Carr.
On this last exception, the plaintiffs rely for a reversal
of
Page 31 U. S. 57
the judgment of the circuit court. And first the question as to
the competency of this witness is raised.
He is not incompetent merely from the fact of his name's being
endorsed on the bill. To exclude his testimony on this ground, he
must have an interest in the result of the cause. Such interest is
not apparent in this case, and any objection which can arise from
his being a party to the bill goes rather to his credibility than
his competency.
But it is a well settled principle that no man who is a party to
a negotiable note shall be permitted by his own testimony to
invalidate it. Having given it the sanction of his name and thereby
added to the value of the instrument by giving it currency, he
shall not be permitted to testify that the note was given for a
gambling consideration or under any other circumstances which would
destroy its validity. This doctrine is clearly laid down in the
case of
Walton v. Shelley, reported in 1 Term 296, and is
still held to be law, although in 7 Term 56 it is decided that in
an action for usury, the borrower of the money is a competent
witness to prove the whole case.
Several authorities are cited by the plaintiff's counsel to show
that parol evidence is not admissible to vary a written
agreement.
In the case of
Hoare v. Graham, 3 Camp. 56, the court
laid down the principle that
"in an action on a promissory note or bill of exchange, the
defendant cannot give in evidence a parol agreement entered into
when it was drawn that it should be renewed and payment should not
be demanded when it became due."
This Court, in the case of
Renner v. Bank of
Columbia, 9 Wheat. 587, in answer to the argument
that the admission of proof of the custom or usage of the bank
would go to alter the written contract of the parties, said
"If this is the light in which it is to be considered, there can
be no doubt that it ought to be laid entirely out of view, for
there is no rule of law better settled or more salutary in its
application to contracts than that which precludes the admission of
parol evidence to contradict or substantially vary the legal import
of a written agreement."
Parol evidence may be admitted to explain a written
Page 31 U. S. 58
agreement where there is a latent ambiguity or a want of
consideration may be shown in a simple contract, or, to defeat the
plaintiff's action, the defendant may prove that the note was
assigned to the plaintiff in trust for the payer. 6 Mass. 432.
It is competent to prove by parol that a guarantor signed his
name in blank on the back of a promissory note and authorized
another to write a sufficient guarantee over it. 7 Mass. 233.
To show in what cases parol evidence may be received to explain
a written agreement and where it is not admissible, the following
authorities have been referred to. 8 Taun. 92. 1 Chit. 661. Peake's
Cases 40. Gilbert's 154.
On the part of the defendant's counsel it is contended that
between parties and privies to an instrument not under seal, a want
of consideration in whole or in part may be shown; that the
endorsement in question was made in blank; and that it is competent
for the defendant to prove under what circumstances it was made;
hat if an assurance were given at the time of the endorsement, that
the names of the defendant and Carr were only required as a matter
of form, and that a guarantee had been given for the payment of the
note, so as to save the endorsers from responsibility; it may be
proved, under the rule which permits the promisor to go into the
consideration of a note or bill between the original parties.
In support of this position, authorities are read from 5 Serg.
& R. 363 and 4 Wash.C.C. 480. In the latter case, Mr. Justice
Washington says
"The reasons which forbid the admission of parol evidence to
alter or explain written agreements and other instruments do not
apply to those contracts implied by operation of law, such as that
which the law implies in respect to the endorser of a note of hand.
The evidence of the agreement made between the plaintiffs and
defendants, whereby the latter were to be discharged on the
happening of a particular event, was therefore properly
admitted."
The decision in 5 Serg. & R. was on a question somewhat
analogous to the one under consideration, except in the present
case there is no allegation of fraud, and the decision in that case
was made to turn in part, at least, on that ground.
In Pennsylvania there is no court of chancery, and it is known
that the courts in that state admit parol proof to affect
Page 31 U. S. 59
written contracts, to a greater extent than is sanctioned in the
states where a chancery jurisdiction is exercised. The rule has
been differently settled in this Court.
The note in question was first endorsed by the defendant to
Carr, and by him negotiated with the bank. It was discounted on the
credit of the names endorsed upon the note. This is the legal
presumption that arises from the transaction, and if the first
endorser were permitted to prove that there was a secret
understanding between himself and his assignees that he should not
be held responsible for the payment of the note, would it not
seriously affect the credit of this description of paper? Might it
not in may cases operate as a fraud upon subsequent endorsers?
The liability of parties to a bill of exchange or promissory
note has been fixed on certain principles which are essential to
the credit and circulation of such paper. These principles
originated in the convenience of commercial transactions, and
cannot now be departed from.
The facts stated by the witness Carr are in direct contradiction
to the obligations implied from the endorsement of the defendant.
By his endorsement, he promised to pay the note at maturity if the
drawer should fail to pay it. The only condition on which this
promise was made, was that a demand should be made of the drawer
when the note should become due and a notice given to the defendant
of its dishonor. But the facts stated by the witness would tend to
show that no such promise was made. Does not this contradict the
instrument, and would not the precedent tend to shake, if not
destroy, the credit of commercial paper. On this ground alone the
exception would be fatal, but the most decisive objection to the
evidence is that the agreement was not made with those persons who
have power to bind the bank in such cases. It is not the duty of
the cashier and president to make such contracts, nor have they the
power to bind the bank except in the discharge of their ordinary
duties.
All discounts are made under the authority of the directors, and
it is for them to fix any conditions which may be proper in loaning
money. If, therefore, the evidence were clear of other legal
objections, it could not have the effect to release the defendant
from liability. The assurances relied on, if made,
Page 31 U. S. 60
were not made by persons authorized to make them. The bank is
not bound by them, nor would it be bound it the assurances had been
made in so specific and direct a manner as to create a personal
responsibility on the part of the cashier and president.
Upon a full view of the case, the Court is clearly of the
opinion that the evidence of Carr should have been overruled by the
circuit court or it should have instructed the jury that the facts
proved were not in law sufficient to release the defendant from
liability on his endorsement. The judgment of the circuit court
must therefore be
Reversed and a venire de novo awarded.
This cause came on to be heard on the transcript of the record
from the Circuit Court of the United States for the District of
Columbia holden in and for the County of Washington and was argued
by counsel, on consideration whereof it is ordered and adjudged by
this Court that the judgment of the said circuit court in this
cause be and the same is hereby reversed, and that this cause be
and the same is hereby remanded to the said circuit court with
directions to award a
venire facias de novo.
