1. Where, at the time of making and endorsing a promissory note,
a written contract in relation thereto is entered into by the
parties, parol testimony varying or contradicting its terms is not
admissible.
2. The Court reaffirms the doctrine that a
bona fide
purchaser for value before maturity of a negotiable instrument is
not, unless they are brought to his notice, affected by any
equities between the original parties.
3. A party who seeks to avail himself of the conditions of a
compromise binding him to the performance of certain acts in order
to discharge the original demand must first show performance on his
part.
4. The Court condemns as irregular proceedings whereby the
defendant in two separate suits, in the former of which judgment
had been rendered before the latter had gone to trial, was
permitted to file bills of exception purporting to be applicable to
each case, and, without consolidating them, remove them to this
Court by one writ of error.
This action was brought by Spofford & Clark, against Samuel
P. Brown and Austin P. Brown on five promissory notes, for
$2,267.33 each, made by the defendants Jan. 8, 1872, by their firm
name of S. P. Brown & Son, and payable to the order of Austin
P. Brown in one, two, three, four, and five months after date. The
declaration alleged that the notes were, on the date thereof,
severally endorsed by the said Austin P. Brown, and came before
maturity, in due and regular course of commercial dealing, and for
a full, fair, and valuable consideration, into the possession and
ownership of the plaintiffs, but were protested for nonpayment,
whereof due notice was given the endorser.
Page 95 U. S. 475
The defendants, in addition to the general issue, pleaded two
special pleas, but as the matters therein set forth could have been
offered under the general issue, they are omitted here.
On Aug. 2, 1872, the plaintiffs sued the defendants on another
note of the same series as the preceding five, but which was
payable in six months after date.
The same defense was made as in the former suit.
At the trial, the plaintiffs having proved the signatures and
endorsements on the notes, and that the defendants composed the
firm of S. P. Brown & Son, rested.
The defendants then introduced evidence tending to show that for
several years before the making of the notes, they had had large
dealings with the Philadelphia Coal Company, and that a controversy
arose as to the amount of their indebtedness to the company; that
on the said 8th of January, 1872, the notes in suit were executed
by them and delivered to Henry L. Cake, president of said company,
who thereupon delivered to them a paper, of which the following is
a copy:
"WASHINGTON, D. C., Jan. 8, 1872"
"Received from S. P. Brown & Son the following notes, in
full settlement of their indebtedness to the Philadelphia Coal
Company:"
One note dated Jan. 8, 1872, at one month . . . $ 2,267.33
One note dated Jan. 8, 1872, at two " . . . 2,267.33
One note dated Jan. 8, 1872, at three " . . . 2,267.33
One note dated Jan. 8, 1872, at four " . . . 2,267.33
One note dated Jan. 8, 1872, at five " . . . 2,267.33
One note dated Jan. 8, 1872, at six " . . . 2,267.33
----------
Amounting to . . . . . . . . . . . . . . . $13,603.98
"And in settlement of these notes I have agreed, upon behalf of
the Philadelphia Coal Company, to receive an order on Edwin
Stewart, Paymaster of the United States Navy, and accepted by him,
for five thousand five hundred dollars ($5,500), with interest from
date, said order to be liquidated as follows: $2,000 at three
months from Dec. 20, 1871; $2,000 at four months from Dec. 20,
1871; and $1,500 at five months from Dec. 20, 1871 -- the whole
amount, with interest, from Dec. 20, 1871; also, Z. Jones'
endorsement on four notes, as follows: S. P. Brown & Son's
notes to order
Page 95 U. S. 476
of Z. Jones, dated Jan. 8, 872, for $1,250, respectively at six,
eight, ten, and twelve months, amounting to $5,000, this sum of ten
thousand five hundred dollars ($10,500) being in effect a
compromise of the said indebtedness of $13,603.96, to be conclusive
upon the payments being made at the times stated."
"And I further stipulate on behalf of the Philadelphia Coal
Company that, upon payment of the $5,500, with interest, by the
paymaster within the time stated, the first, second, and third
notes given by S. P. Brown & Son for the sum of $2,267.33,
amounting to $6,801.99, shall be returned to S. P. Brown & Son
as settled, and upon payment of the four notes at maturity endorsed
by Z. Jones, the remaining three notes of S. P. Brown & Son,
amounting to $6,801.99, shall be handed back to S. P. Brown &
Son, being settled in full by the payment of said four notes
endorsed by Z. Jones."
"H. L. CAKE"
"
President Philadelphia Coal Co."
"Witness: A. B. WOLFE"
The defendants then offered testimony tending to prove that the
company, when it transferred the notes sued on to the plaintiffs,
who acted as its agents in selling coal on commission and who also
occasionally bought and sold on their own account, received as the
sole consideration therefor the promissory notes of the latter for
the same amount; that at the time of said transfer, Cake assured
the plaintiffs that they should incur no loss in respect to said
transaction, but that he would indemnify and protect them; that at
the time of the execution of said agreement between the defendants
and Cake, it was agreed that as the notes in suit should
respectively mature, they should be paid and taken up by the
company. The court excluded this testimony, and the defendants
excepted. They thereupon asked the court to charge that if the jury
believed that the plaintiffs came into possession of the notes sued
on without paying an actual valuable consideration, or by paying
only a nominal one, or under circumstances which would have put a
prudent man on inquiry concerning any agreement between the
defendants and the Philadelphia Coal Company with respect to said
notes, then the jury must consider the plaintiffs to be bound by
such agreement. That under the agreement of Jan. 8, 1872, the
Philadelphia Coal Company was bound, among other things, to take up
and hold the two notes sued on
Page 95 U. S. 477
which first became due, and that if the jury found from the
evidence that the company did not do so, but allowed them to go to
protest, then the verdict should be for the defendants.
The court refused so to charge, but charged that if the jury
found from the evidence that the notes in suit were made by the
defendants in liquidation of an antecedent indebtedness due to the
Philadelphia Coal Company and were, before maturity, endorsed for a
valuable consideration by it to the plaintiffs, then the plaintiffs
are entitled to recover from the defendants the full amount of said
notes, and that any agreement between the company and the
defendants in relation to said notes would not affect the rights of
the plaintiffs unless they, before the purchase of said notes, had
actual notice of said agreement; that if the plaintiffs had actual
notice before said purchase that the company had made the agreement
of compromise, and that said agreement was not carried out by the
defendants in the manner agreed upon, then the plaintiffs might
recover on the original notes, and that so far as that question was
involved, the plaintiffs were entitled to a verdict; that the
agreement to receive $10,500 as a compromise in discharge of the
notes could be made available to the defendants only by proving
that the sums were paid as therein stipulated, or tendered by the
defendants, or by one of them; that if the defendants had failed to
show that the compromise was accepted by them by payment of the
stipulated sums, their original indebtedness on the notes remained,
and the plaintiffs were entitled to recover; that if the notes were
endorsed and delivered to plaintiffs before maturity, and in the
course of business, they ere entitled to recover, and were not
affected by any transactions between the original parties of which
they had no notice when they received the paper.
The defendants excepted to the refusal of the court to charge as
requested, and also to the charge as given.
There was a verdict in each case in favor of the plaintiffs, and
the judgments thereon having been affirmed in general term, the
defendants sued out this writ.
The assignment of errors is set forth in the opinion of the
Court.
Page 95 U. S. 478
MR. JUSTICE CLIFFORD delivered the opinion of the Court.
Promissory notes payable to order may be transferred by
endorsement, or when endorsed in blank or made payable to bearer
they are transferable by mere delivery, and the possession of such
an instrument endorsed in blank or made payable to bearer is
prima facie evidence that the holder is the proper owner
and lawful possessor of the same, and nothing short of fraud, not
even gross negligence, if unattended with
mala fides, is
sufficient to overcome the effect of that evidence or to invalidate
the title of the holder supported by that evidence.
Goodman v.
Harvey, 4 Ad. & E. 70;
Goodman v.
Simonds, 20 How. 343;
Collins v. Gilbert,
94 U. S. 753;
Noxon v. Dewolf, 10 Gray (Mass.) 346;
Magee v.
Badger, 34 N.Y. 247.
Sufficient appears to show that the plaintiffs claim to recover
of the defendants the amount of five promissory notes, set forth in
the record, each dated Jan. 8, 1872, payable to the order of Austin
P. Brown in one, two, three, four, and five months from date,
amounting in the aggregate to the sum of $11,336.64. Due
endorsement of the notes was made by the payee, and the plaintiffs
also claim to recover the costs and fees of protest and notice to
the makers for nonpayment.
Service was made, and the defendants appeared and pleaded the
general issue and two special pleas, which are fully set forth in
the record.
Issue was joined by the plaintiffs upon the first plea of the
defendants, and to the second plea the plaintiffs replied, and
denied the same in fact and in substance and all and singular the
matters therein set forth, and alleged in further reply that they
became the holders of the notes in the regular course of mercantile
dealings, for a full, fair, and valuable consideration, before the
maturity of the notes and without any notice or knowledge of the
matters set forth and alleged in the defendants' second plea. They
also deny and traverse all the allegations and averments contained
in the defendants' third plea.
Special pleas in such a case are unnecessary, as every such
defense, where the action is assumpsit upon promissory notes, is
admissible under the general issue.
Delay ensued, and at a subsequent term the parties went to
trial, and the verdict and judgment were in favor of the
Page 95 U. S. 479
plaintiffs in the sum of $11,300.47, with costs and interest.
Exceptions were taken by the defendants, as appears by the
record.
Six notes, it seems, were given by the defendants, all of the
same date, one of which was not due when the suit was instituted to
recover the amount of the first five. On the 2d of August, 1872,
the plaintiffs sued the other note, which was signed and endorsed
like the other five, and was for the sum of $2,267.32 for value
received. Service was made, and the defendants appeared and filed
three pleas, of the same legal effect as those filed in the
preceding case. Replications were also filed by the plaintiffs, of
the same legal import as those which they filed in the suit to
enforce payment of the first five notes. Proper issues being
joined, the parties went to trial, and the verdict and judgment
were for the plaintiffs in the sum of $2,269.85, with costs and
interest, as therein provided.
Separate judgments were rendered in the two cases, but the
defendants were allowed to file eight bills of exceptions to the
rulings of the court in each of the cases, which were subsequently
signed and sealed by the presiding judge, each of the bills of
exceptions having respect to the trial in the respective suits as
if the same had been previously consolidated and the verdicts had
been rendered at the same time by the same jury. Both judgments
were removed into this Court by one writ of error.
Certain errors are assigned here as applicable to the judgment
in each of the respective cases, in substance and effect as
follows:
1. Evidence was offered by the defendants to prove the alleged
agreement between them and the company, which was excluded by the
court, and they assign for error that the court erred in excluding
that evidence.
2. That the court erred in holding that the agreement between
the company and the defendants offered in evidence would not affect
the right of the plaintiffs to recover in the suits.
3. That the court erred in holding that if the plaintiffs
received the notes before maturity, without notice of the alleged
agreement, the defendants were liable in the action, even though
the plaintiffs paid their own notes with money borrowed from the
company, whose agents they were in the transaction.
4. That the court erred
Page 95 U. S. 480
in instructing the jury that if they find from the evidence that
the plaintiffs did have notice of the alleged agreement between the
company and the defendants, still they may recover in the actions
if the jury further find that the defendants neglected and failed
to comply with the terms of the agreement.
5. That the court erred in instructing the jury that the
agreement to receive as a compromise in discharge of the notes a
sum less than the amount of the same could only be made available
as a defense, by proving that the sum agreed was paid or tendered
by the defendants as therein stipulated.
Exceptions not assigned for error will not be separately
examined. Two of the errors assigned, to-wit the first and the
second, are so nearly alike that they may be examined together.
Negotiable notes are written instruments, and as such they
cannot be contradicted, nor can their terms be varied by parol
evidence; and that proposition is universally true where the
promissory note is in the hands of an innocent holder. Where a bill
of exchange was drawn in the usual form, and was protested for
nonpayment, the Court held twenty years ago that parol evidence of
an understanding between the drawer and the party in whose favor
the bill was drawn was inadmissible to vary the terms of the
instrument.
Brown v.
Wiley, 20 How. 442.
In that case, the defendant offered to prove to the jury,
pursuant to the defense set up in a special plea, a parol agreement
between him and the plaintiffs, that the bill should not be
presented for acceptance until funds were furnished and placed in
the hands of the drawees, to provide for a certain other draft, who
had agreed to accept the second bill when funds were received to
meet their liability for accepting the first bill; but the court
below excluded the evidence, and the defendant excepted, and this
Court decided that the ruling was correct and affirmed the
judgment, holding that the evidence offered, that the bill should
not be presented until a distant, uncertain, or undefined period,
tended in a very material degree to alter and vary the operation
and effect of the instrument.
Shankland v.
Washington, 5 Pet. 394; 1 Greenl.Evid. (12th ed.)
318;
Stackpole v. Arnold, 11 Mass. 27;
Hunt v.
Adams, 7
id. 518;
Myrick v. Dame, 9 Cush.
(Mass.) 248;
Thompson v. Ketchum, 8 Johns. 192.
Page 95 U. S. 481
Certain fixed principles govern the liability of parties to a
bill of exchange or promissory note which are essential to the
credit and circulation of such paper, of which the most important
is that whatever may have occurred between other parties to the
instrument, if not fraudulent in its inception, the holder of the
same, if he acquired it for value in the usual course of business
before maturity, cannot be affected by any such transactions unless
it be first shown that he had knowledge of such transactions at the
time the transfer was made. Nothing less than knowledge of such
transactions can meet the exigencies of such a defense, the rule
being that the
bona fide holder of a negotiable instrument
for value, if acquired before maturity and without notice of any
facts which impeach its validity between the antecedent parties,
has a good title to the instrument, unaffected by any such prior
transaction, and may recover the amount, even though the
instrument, as between the antecedent parties, is without any legal
validity.
Goodman v.
Simonds, 20 How. 343;
Swift v.
Tyson, 16 Pet. 1.
Attempt was made in a leading case to prove that the payee
agreed with the endorser that if he would endorse the note he
should incur no responsibility, as the payment was secured by
collaterals, and when offered in the circuit court the evidence was
admitted; but the court, when the case was brought here on writ of
error, reversed the judgment, holding that the evidence should have
been excluded.
Banks v. Dunn,
6 Pet. 51.
Decided cases of the most authoritative character have
determined that parol evidence of an oral agreement, alleged to
have been made at the time of the drawing, making, or endorsement
of a bill or note, cannot be admitted to vary, qualify, contradict,
add to, or subtract from the absolute terms of a written contract.
Specht v.
Howard, 16 Wall. 564.
In the absence of fraud, accident, or mistake, the rule is the
same in equity as at law, that parol evidence of an oral agreement
alleged to have been made at the time of drawing, making, or
endorsing a bill or note cannot be permitted to vary, qualify, or
contradict, or to add to or subtract from, the absolute terms of
the written contract.
Forsyth v. Kimball, 91 U. S.
291.
Page 95 U. S. 482
Parol evidence of an agreement, made contemporaneously with a
promissory note which contains an absolute promise to pay at a
specified time, is not admissible in order to extend the time for
payment, or to provide for the payment out of any particular fund,
or in any other way than that specified in the instrument, or to
make the payment depend upon condition. Chitty, Contr. (10th ed.)
99;
Abrey v. Crux, Law Rep. 5 C.P. 41;
Allan v.
Furbish, 4 Gray 514; 2 Pars. Bills and Notes 501.
Apply these rules to the case before the Court and it is clear
that the first and second assignments of error must be overruled,
as it is clear that the evidence offered was inadmissible and that
the ruling of the court was correct.
Due execution of the notes is admitted, nor is it questioned
that they were endorsed in blank, as set up by the plaintiffs.
Beyond all doubt, the plaintiffs became the holders of the notes
before maturity and for value; but the defendants insist that the
plaintiffs did not become the holders of the same in good faith nor
in the regular course of business, and they requested the court to
instruct the jury that if they believed that the plaintiffs came
into the possession of the notes without paying value, or under
circumstances which would have put a prudent man upon inquiry
concerning the alleged agreement, then the jury must consider the
plaintiffs bound by the agreement and that their verdict should be
for the defendants.
Three objections arise to that prayer for instruction, any one
of which is sufficient to show that it was properly rejected:
1. Because the uncontradicted evidence showed that the
plaintiffs did pay value for the notes.
2. Because the settled rule of law is that the plaintiffs, as
the holders of the notes for value, and having acquired the same
before maturity and in the usual course of business, or without
notice of any prior equities, have a good title to the same
irrespective of what may have transpired between the defendants and
prior holders of the notes.
3. Because there is no evidence in the case that the plaintiffs
had knowledge of any equities between the defendants and such prior
parties, the settled commercial rule being that nothing less than
prior knowledge of such facts and circumstances as impeach the
title can meet the exigencies of
Page 95 U. S. 483
such a defense unless it be shown that the instrument or
instruments were fraudulent in their inception.
Where the supposed defect or infirmity in the title of the
instrument appears on the face at the time of the transfer, the
question whether the party who took it had notice or not is in
general a question of construction, and must be determined by the
court as matter of law, as has been held by this Court in several
cases.
Andrews v.
Pond, 13 Pet. 65;
Fowler v.
Brantly, 14 Pet. 318. But it is a very different
thing when it is proposed to impeach the title of a holder for
value by proof of any facts and circumstances outside of the
instrument itself. He is then to be affected, if at all, by what
has occurred between other parties, and he may well claim an
exemption from any consequences flowing from their acts unless it
be first shown that he had knowledge of such facts and
circumstances at the time the transfer was made.
Goodman v.
Simonds, 20 How. 343;
Collins v. Gilbert,
94 U. S. 753.
Tested by these authorities, it follows that the third
assignment of error must be overruled.
Both the fourth and the fifth assignments of error have respect
to the supposed compromise which it is alleged was proposed and
adopted, and inasmuch as they relate to the same state of facts,
they will be examined together.
Parties may doubtless adjust their controversies, and, where
they do so in good faith and understandingly, courts of justice
will uphold the adjustment unless it violates the rules of law
applicable to the transaction. Suppose that is so, still it is
clear the alleged compromise was never carried into effect. What
was proposed is that the notes were to be delivered up upon the
payment of a prescribed amount at the time and in the manner set
forth in the agreement; but nothing was ever paid or tendered, nor
was anything ever done in fulfillment of the agreement. Instead of
that, the evidence shows that the defendants never made any attempt
to make the payments, and the court instructed the jury that if
they found that the agreement of compromise was never carried out
by the defendants, it constitutes no defense to the action; that
such a compromise can only be made available to the defendants as a
defense by proving that the sums agreed to be paid in discharge
Page 95 U. S. 484
were paid or tendered as stipulated. Formal exceptions were
taken to those instructions, and they are the basis of the errors
alleged in the fourth and fifth assignments.
Sufficient appears to show that the indebtedness of the
defendants amounted to the sum of $13,603.96, and that the
plaintiffs agreed to accept $10,000 as a compromise, "upon the
payments being made at the times stated," from which it is evident
that nothing short of the fulfillment of that agreement would
discharge the original demand, and that such a compromise to be
available must be performed. 2 Pars. Contr. (6th ed.) 685; 2 Story,
Contr. (5th ed.) 537; Chitty, Contr. (10th ed.) 693.
Agreements unperformed cannot be pleaded as accord and
satisfaction.
United States v. Clark, Hempst. 317.
Where a creditor agreed to satisfy a judgment for a less sum
than the amount recovered, if paid by a day certain, and the debtor
failed to make the payment, it was held that the creditor might
enforce the judgment for the full amount.
Early v.
Rogers, 16 How. 599.
Performance of the agreement by the judgment debtor, it was held
in that case, was a condition precedent to the proposed reduction
of the judgment, and the Court said we think the district judge
interpreted the agreement of the parties and the judgment
correctly, as the parties made the reduction dependent on a
condition which has not been fulfilled.
Where an arrangement was made for the discharge of certain
notes, but the arrangement failed because one of the debtors
disagreed to the terms of the composition, the Court decided that
the debt stood revived, and that judgment was properly rendered for
the whole amount.
Clark v.
Brown, 22 How. 270; Addison, Contr. (6th ed.)
996.
Two other exceptions were taken at the trial, in respect to
which it is only necessary to say that they have not been assigned
for error, and, if they had been, it would not have benefited the
defendant, as the questions presented fall within the rules already
sufficiently explained.
Nothing remains for remark except to advert very briefly to
certain irregularities which appear in the proceedings. Judgment
was rendered in the first suit before the parties went to
Page 95 U. S. 485
trial in the second, and yet the defendants were allowed to file
eight bills of exceptions, which purport to be applicable to each
of the two cases, and the judgment in each case is removed here by
one writ of error, though the transcript does not show that the two
cases were ever consolidated. Such proceedings are palpably
irregular, but inasmuch as they are not the subject of objection by
either party, the Court has decided to exercise jurisdiction and
dispose of the controversy. Separate judgments having been entered
in the court of original jurisdiction, the judgment rendered here
must be separately applied in the court below.
Judgment affirmed.
