1. Declarations made by the holder of a promissory note or of a
chattel, while he held it, are not admissible in evidence in a suit
upon or in relation to it by a subsequent owner.
2. The declarations of a party when in possession of land are,
as against those claiming under him, competent evidence to show the
character of his possession and the title by which he held it, but
not to sustain or destroy the record title.
3. In law, a person with whom a note is deposited for collection
is the agent of the holder, and not of the maker. The maker has no
interest in it except to pay the note. Failing to do this, he
leaves it to be dealt with as others interested may choose.
4. Where a note, deposited in bank for collection by its owner,
was paid by a person not a party thereto with the intention of
having it remain as an existing security, and the money so paid was
received by the owner of the note,
held that such person
thereby became the purchaser of the note, the negotiability of
which remains after as before maturity, subject to the equities
between the parties.
The Freedman's Savings and Trust Company, on the seventeenth day
of May, 1873, exhibited its bill of complaint in the Supreme Court
of the District of Columbia alleging that it owned and held certain
unpaid and overdue promissory notes made by the defendant Dodge and
that certain real estate in the City of Georgetown, which had been
conveyed in trust to the defendants Jones and Darneille, to secure
the payment of said notes, had been unlawfully and fraudulently
released from the operation of the deed of trust and had been
conveyed by defendant Dodge to the defendant Darneille, who had
conveyed it to the defendant Dunlop in trust for the benefit of the
wife of the defendant Darneille.
The bill prays for the cancellation of the release and also of
the other conveyances, for a sale of all the property covered
Page 93 U. S. 380
by the original trust deed, for the application of the proceeds
to the payment of the notes, for damages, if any should be found,
against Jones and Darneille, for judgment against Dodge for any
balance of said notes remaining unpaid, and for general relief.
The defendant Dodge answered admitting the making of the notes
and of the deed of trust to secure them, but insisted that the
notes had been paid and extinguished through an arrangement between
him and William S. Huntington for the purchase of one of the pieces
of property included in the trust, and that the complainant
obtained the notes after they were due and had been paid.
The other defendants made no defense, and a decree
pro
confesso was taken against all of them.
The case was heard upon the pleadings and evidence, and the
court at special term dismissed the bill. This decree was, on an
appeal to the general term, reversed and a decree entered according
to the prayer of the bill. The case is here on appeal by the
defendants from that decree.
The defense rests entirely upon the allegation that the notes
made by Dodge, in January, 1869, were paid in January, 1870.
Page 93 U. S. 382
MR. JUSTICE HUNT delivered the opinion of the Court.
It is conceded in the pleadings that Dodge made the notes in
question; that the property described in the trust deed was
conveyed to Jones and Darneille to secure their payment; that the
notes were just debts and the trust deed a valid security for their
payment. Why then should not the security of the trust deed remain
to the holder of the notes? The answer is that the notes have been
paid; therefore, the trust deed has discharged its office and the
security by law reverts to or is held for the benefit of its
original owner. The principle of law involved in this proposition
is too plain to justify discussion, and hence it is that the
defense, which seeks to cancel this security, rests upon the sole
ground that the notes have been paid.
A portion of the evidence contained in the bill of exceptions
consists of the declarations made by William S. Huntington.
Evidence of this character was given by each party, and admitted,
notwithstanding the objection of the other. No principle can be
found to justify the admission of this evidence. It has long been
settled that the declarations made by the holder of a chattel or
promissory note while he held it are not competent evidence in a
suit upon it or in relation to it by a subsequent owner. This was
settled in the State of New York in the case of
Paige v.
Cagwin, 7 Hill 361, and is now admitted to be sound doctrine,
and that the party is since deceased makes no difference (Beach v.
Wise, 1 Hill, 612); or that the transfer is made after maturity,
Paige v. Cagwin, supra. The same is
Page 93 U. S. 383
true of the declarations of a mortgagee,
Earl v. Clute,
2 Abb.Ct.App.Dec. 1, or of the assignor of a judgment, 16 N.Y. 497,
or of an endorser, Anthon's N.P. 141, or of a judgment debtor, 1
Denio, 202. Assuming that Huntington was the owner or holder of
these notes, his declarations are not thereby made competent
evidence.
Nor can these declarations be admitted in evidence on the theory
that Huntington was the owner of the real estate described in the
trust deed and in its actual possession. He never had a legal
title, but occupied one of the houses described in the trust deed a
portion of the time as a tenant, paying rent, and during a
subsequent period, as it is claimed, under a verbal agreement to
purchase it from Dodge by paying the notes in question, paying
interest on the notes instead of rent.
The declarations of a party in possession of land are competent
evidence 1st as against those claiming the land under him.
Warring v. Warren, 1 Johns. 340;
Jackson v. Cale,
10
id. 377. The Freedman's Bank claim nothing under
Huntington. They insist that they are the legal holders of the
notes, and as such are entitled to avail themselves of the security
given for their payment. 2d, such declarations are competent only
to show the character of the possession of the person making them
and by what title he holds, but not to sustain or to destroy the
record title.
Pitts v. Wilder, 1 N.Y. 525;
Gibney v.
Marchay, 34
id. 301;
Jackson v. Miller, 6
Cowen 751;
Jackson v. McVey, 15 J.R. 234. To show that the
party went into possession under the lessors is a common instance
of the admissibility of such declarations.
Jackson v.
Dobbin, 3 Johns. 223.
Conceding, therefore, that Huntington was in possession of the
premises, his declarations are competent only to show the character
in which he claimed as that of tenant under a lease or tenant by
virtue of an executory contract to purchase. His declarations as to
the ownership or payment of the notes are incompetent upon every
principle, and must be laid out of view in determining the
case.
Upon the remaining evidence, the question stands in this wise:
the Freedman's Bank establishes its title to the notes
Page 93 U. S. 384
by the production of the notes, by proof that it purchased them
by giving its check for $13,786.50, the full amount of principal
and interest due on the notes, dated Jan. 24, 1870, and that it has
held them from that time to the present. That the bank took the
notes upon an intended purchase; that it received interest upon
them in January, 1871, and again in January, 1872, is clearly
proved. Eaton, the actuary of the bank, by whom the check was
drawn, is dead. Huntington, with whom it is alleged an arrangement
was made, is also dead. We are thus deprived of the evidence of the
chief actors.
We think the truth is here. Huntington made a verbal agreement
with Dodge to buy the house he had rented of him and to pay these
notes in satisfaction of the price. The evidence on this point is
not free from doubt, and Huntington was certainly at liberty to
repudiate the agreement as being within the statute of frauds. But
there is no evidence that he wished to do so. When the notes
matured, he was not in a condition, or did not wish, to pay them.
One note ($2,000) was held by the Chatham Bank, of New York, and
sent for collection to the First National Bank of Washington, of
which Huntington was the cashier. Huntington's bank forwarded the
note to the Farmers' & Mechanics' Bank of Georgetown, and
received credit for the amount, $2,121. This note was entered on
the bank books of Washington as due Jan. 24 and as being paid on
that day. This was an error; it was in fact payable on the 22d.
The note of $4,000 was held by Mr. Robinson, who deposited it in
the Farmers' and Mechanics' Bank of Georgetown, for collection, and
on the 22d of January, 1870, he was there credited on his account
with the amount, to-wit, $4,242.
The $7,000 note was held by Mr. Todd, and was by him deposited
in the National Metropolitan Bank of Washington for collection, and
his account was in like manner credited with the amount. The record
contains no further evidence in relation to the payment of this
note.
The evidence is complete and certain that Huntington did not pay
the notes or advance the money by which they were taken up. The
evidence is quite satisfactory that the Freedman's Bank did advance
the money and take up the notes
Page 93 U. S. 385
by its check for $13,786.50, bearing date Jan. 24, and that it
has held them since that time. There is no evidence that this check
was actually drawn on that day, and it would reconcile some of the
discrepancies if we were to suppose that it bore date of the 24th
but was actually drawn on the 22d, and on that day used in the
purchase of the notes. We do not see that it is very material which
way this shall be held to be. The title of the Freedman's Bank is
the same in either case. There is no evidence that it had knowledge
of any obligation of Huntington to take up the notes, if any such
existed, and there is no evidence that Huntington did anything
about procuring an arrangement for their being taken up. It dealt
with the bank or banks holding the notes in the ordinary way. By
law, a collecting bank is the agent of the holder of the note, and
in no sense the agent of the maker.
Montgomery Bank v. Albany
City Bank, 7 N.Y. 459, 22 Barb. 627. What the holder was
entitled to was his money, or the proper diligence to obtain it. If
the maker had anything to say or do in the premises, it was to
present himself with the money when the notes matured, pay them,
and secure his obligations. Failing in this, he leaves the
securities to be dealt with as others interested may choose. There
would appear, therefore, in the nature and propriety of the
subject, to be no objection to a transfer to a third person paying
the money instead of a technical payment and discharge of the
notes. It is to be observed also that payment technically can only
be made by a party to a bill, or by a stranger,
supra
protest. Chitty on Bills, 392. Such parties may either pay in
satisfaction of the note or pay and hold it as by a transfer,
leaving it an existing security. Byles on Bills 166;
Green v.
Key, 3 B. & Ad. 313. It can therefore make no difference
to the holder whether, when taken by a stranger, it is taken and
held as upon a transfer or in satisfaction of the instrument. The
negotiability of a bill or note remains after maturity as before,
Byles, 160-162, subject to the equities between the parties.
The books are full of cases to the effect that an agent to whom
a bill is sent for collection cannot lawfully transfer or pledge
the same in payment of his own debt, and that the
Page 93 U. S. 386
transferee with knowledge or after maturity gets no title as
against the true owner. 1 Pars. on Bills and Notes 119.
In cases like that before us, where the intention to continue
the existence of the note and not to cancel it by payment is made
evident, when the money is paid to the collecting agent appointed
to receive it, and the owner of the note receives the amount due to
him, the authorities sustain the transaction as a purchase.
In
Deacon v. Stodhardt, 2 Man. & G. 317, it was
held that where, to a count by the executors of A., an endorser,
against D., the acceptor of a bill, the defendants pleaded payment
and the evidence was that A. had placed the bill in the hands of E.
to be presented, who improperly had it discounted, and to regain
possession of it paid the amount to the bankers of the acceptor,
thus obtained the bill and returned it to A., it was held that
there was no payment. Bosanquet, J., said,
"It is clear that the payment of the bill by Jones was a payment
not on account of the defendants (the acceptors), but that in order
that Jones might regain the possession of it."
Erskine, J., said,
"It appears that Jones, having raised money on the bill, took it
up when at maturity and then returned it to the testator, who was
at liberty to proceed upon it at any future time."
The bill was thus paid at maturity without the knowledge or
consent of the true owner, and was then remitted to the owner, and
it was held to be a valid bill in his hands.
In
Pacific Bank v. Mitchell, 9 Met. 297, it was held
that where the holder of a bill of exchange accepted for the
accommodation of the drawer sends it to a bank for collection, and
the bank, when the bill comes to maturity, passes the amount
thereof to the credit of the holder, this is not such a payment as
discharges the acceptor, but the bank succeeds to the right of the
holder, and may maintain an action on the bill against the
acceptor. The plaintiffs, it was held, succeeded to the rights of
the bank and became
bona fide holders of the bill.
In
Burr v. Smith, 21 Barb. 262, it was held that a
stranger may advance the money and hold the note if such is the
clear intention of the parties at the time of the transaction. The
court remark upon it as a suspicious circumstance that the payer in
that case was not called as a witness. He knew, it is
Page 93 U. S. 387
said, in what character and in whose behalf he paid the money,
and whose money it was with which the note was paid.
In
Harbeck v. Vanderbilt, 20 N.Y. 395, it was held that
when the amount due upon a judgment is paid, wholly or in part, by
one who is not a party nor bound by it, the judgment is
extinguished or not according to the intention of the party paying.
So held where one of the defendants in a judgment upon a joint
obligation paid his aliquot portion in cash, gave his note for the
remainder endorsed by a third person, and procured the judgment to
be assigned to a trustee for such person without his knowledge. The
judgment, it was held, remained unsatisfied for the amount not
actually paid by the defendant therein, and might be enforced by
the endorser as an indemnity against his contingent liability.
In
Keystone Bank v. Gay, 21 Barb. 459, the principle
was laid down that to constitute payment, money or some other
valuable thing must be delivered by the debtor to the creditor for
the purpose of extinguishing the debt and the creditor must receive
it for the same purpose.
Judgment affirmed.