1. An endorser of a promissory note is a competent witness to
prove an agreement in writing made with its holder at the time of
his endorsement that he shall not be held liable thereon where the
paper has not afterwards been put into circulation, but is held by
the party to whom the endorsement was made.
2.
Bank of United States v.
Dorm, 6 Pet. 51, explained and qualified.
3. An agreement like the one mentioned above, and the
endorsement, taken together, are equivalent, so far as the holder
of the note is concerned, to an endorsement without recourse to the
endorser.
4. The omission of endorsers on a series of notes, transferred
to the holder in settlement of their own note held by him, upon an
agreement in writing that they should not be held liable on their
endorsement, to set up the agreement as a defense to an action
against them, brought by the holder on two of the notes, does not
preclude them from setting up the agreement in a second action by
the holder on others of the same series of notes. The judgment in
the original action does not operate as an estoppel against showing
the existence and validity of the agreement in the second
action.
5. When a judgment in one action is offered in evidence in a
subsequent action between the same parties upon a different demand,
it operates as an estoppel only upon the matter actually at issue
and determined in the original action, and such matter, when not
disclosed by the pleadings, must be shown by extrinsic
evidence.
This action was against the defendants, as second endorsers of
certain promissory notes transferred by them to the Ocean National
Bank of the City of New York. The bank having failed, the notes
came into the possession of the plaintiff, as its receiver. The
facts are sufficiently stated in the opinion of
Page 94 U. S. 424
the Court. The defendants obtained judgment, and the plaintiff
brought the case here.
Mr. JUSTICE FIELD delivered the opinion of the Court.
This was an action against the defendants, as second endorsers
upon ten promissory notes of one McOmber, made at Saratoga Springs,
in the State of New York, in June, 1870, each for $500, and payable
to his order in from thirty-two to forty-one months after date.
The defense set up to defeat the action was that the notes in
suit were transferred in June, 1871, with other notes of the same
party of like amount and date, to the Ocean National Bank by the
defendants in part satisfaction of a note of their own then past
due, the balance being paid in cash, and were endorsed by the
defendants as a mere matter of form, upon an agreement in writing
of the bank that they should not be held liable on their
endorsements, or be sued thereon.
On the trial, Harvey Brown, one of the defendants, was called as
a witness to prove the matters thus set up as a defense, and was
permitted, against the objection of the plaintiff, to testify to
the settlement of the note of the defendants, the transfer for that
purpose to the Ocean National Bank of the McOmber notes, and their
endorsement by the defendants under the agreement of the bank not
to hold them liable as endorsers, and that this agreement was in
writing and was destroyed in the great fire at Chicago, in October,
1871.
To meet and repel the defense founded upon this agreement, the
plaintiff produced and gave in evidence a record of a judgment,
recovered by him against the same defendants upon two other notes
of the same party, of like amount and date as those in suit except
that they became due at an earlier day, which were part of the
series of notes transferred by the defendants to the bank and
endorsed by them in settlement of their own note as already
mentioned, and were included in the agreement as part of the same
transaction.
The questions presented for our determination relate to the
Page 94 U. S. 425
competency of the witness Brown and the admissibility of the
evidence of the alleged agreement of the bank, and to the operation
of the judgment mentioned as an estoppel against the defendants
setting up any defense founded upon the agreement.
The objection to the witness arose from his being a party to the
notes, and, as such, it is contended that he was incompetent to
impeach or discredit the same or to show that his liability was not
such as his endorsement imported. The case of
Bank of the
United States v. Dunn, reported in the 6th of Peters, is cited
in support of this position. There, the endorser of a note had been
permitted by the court below to testify, against the objection of
the plaintiff in the action, to a verbal understanding with the
cashier and president of the bank which took the note, that he was
not to incur any responsibility, or at least would not be held
liable on the note, until the security pledged for its payment had
been exhausted. The admission of the witness this Court considered
erroneous, holding that no one who was a party to a negotiable note
could be permitted by his own testimony to invalidate it, which in
that case meant that no one could be permitted to show that a note
endorsed by him was void in its inception or that his endorsement
did not impose the liability which the law attached to it. The
opinion which announces the decision proceeds upon two grounds:
1st, that the evidence would contradict the terms of the
instrument, or change their legal import, and 2d, that it would be
against public policy, as tending to destroy the credit of
commercial paper, to allow one who had given it the sanction of his
name and thus added value and currency to the instrument to testify
that it was executed or endorsed by him under such circumstances as
to impair his obligation upon it.
This last position was supported by reference to the celebrated
case of
Walton v. Shelley, 1 T.R. 296, decided in 1786,
where the endorser of a promissory note was held by the King's
Bench to be inadmissible as a witness, on grounds of public policy,
to prove the note void for usury in its inception, Lord Mansfield
observing that it was
"of consequence to mankind that no person should hang out false
colors to deceive them, by first affixing his signature to a paper,
and then afterwards giving testimony to invalidate it."
Aside
Page 94 U. S. 426
from the assumed estoppel of the parties from their position on
the paper, the maxim of the Roman law that no one alleging his own
turpitude shall be heard (
nemo allegans suam turpitudinem est
audiendus) was cited to justify the decision. That maxim was
plainly misapplied here by the great Chief Justice, for it is not a
rule of evidence, but a rule applicable to parties seeking to
enforce rights founded upon illegal or criminal considerations. The
meaning of the maxim is that no one shall be heard in a court of
justice to allege his own turpitude as a foundation of a claim or
right; it does not import that a man shall not be heard who
testifies to his own turpitude or criminality, however much his
testimony may be discredited by his character.
The doctrine of
Walton v. Shelley maintained its
position in the courts of England only for a few years. In 1798, it
was by the same court overruled in the case of
Jordaine v.
Lashbrooke, 7
id. 601, Lord Kenyon having succeeded
Mansfield as Chief Justice. Since then, the rule has prevailed in
the courts of that country, that a party to any instrument, whether
negotiable or not, if otherwise qualified, is competent to prove
any fact affecting its validity, the objection to the witness from
his connection with the making or circulation of the instrument
only going to his credibility, and not to his competency. In this
country, there has been much diversity of opinion upon the point,
some of the state courts following the rule of
Walton v.
Shelley, while others have adopted the later English rule. The
general tendency of decisions here is to disregard all objections
to the competency of witnesses and to allow their position and
character to affect only their credibility. This diversity of
opinion could not have existed unless there were grave reasons for
doubting the soundness of the original decision. Be that as it may,
it has led those courts which, on considerations of commercial
policy, adopted the rule of
Walton v. Shelley to qualify
the rule, so as to limit its application strictly to cases arising
on negotiable bills and notes, and to cases where the transaction
affecting the validity of the paper was not between the parties in
suit. The holders of commercial paper, who enter into agreements or
transactions with the makers or endorsers, affecting its validity
or negotiability, cannot
Page 94 U. S. 427
invoke protection against the infirmity which they have aided to
create. There are no considerations of commercial policy which can
exclude the parties in such cases from testifying to the facts.
Thus, in
Fox v. Whitney, 16 Mass. 118, the Supreme Court
of Massachusetts, which had previously recognized the rule in
Walton v. Shelley, held that the rule applied only to a
case where a man, by putting his name to a negotiable security, had
given currency and credit to it, and did not apply to a case
between original parties, where the paper had not been put into
circulation, and each of the parties was cognizant of all the
facts. This decision meets our concurrence, and, if it qualifies
the decision in the case of
Bank v. Dunn, we think the
qualification a just and proper one.
These considerations dispose of the objection to the competency
of the witness Brown. The notes of McOmber were never put into
circulation by the Ocean National Bank. No one, therefore, has been
misled by the endorsement of the defendants; no false colors have
been held out by them. No credit or currency has been given by
their name. The receiver has, with reference to the notes, no
greater right than the bank has; he stands in its shoes. If the
bank could not have enforced a liability upon the defendants
against its agreement that they should not be held liable, the
receiver cannot enforce it. The agreement itself is not immoral nor
illegal. The defendants by their act ran the risk of being charge
upon the notes; they would have been liable had the notes been put
into circulation. But beyond this risk, they were protected by the
agreement; upon that they could rely so long as the bank held the
notes.
The objection that the agreement was inadmissible because it
tended to vary and destroy the legal effect of the endorsement is
not tenable. The agreement, being in writing, is to be taken and
considered in connection with the endorsement, and the two are to
be construed together. So far as the bank was concerned, the
agreement made the endorsement equivalent to one without recourse
to the endorsers.
The next question for determination relates to the operation of
the judgment recovered by the plaintiff against the defendants, as
an estoppel against their setting up the defense founded
Page 94 U. S. 428
upon the agreement. The action in which that judgment was
recovered was brought in the same court as the present action,
against the defendants as second endorsers upon two notes, which
were part of the series of McOmber notes, transferred to the bank
of the defendants in settlement of their own note, and their
endorsement was embraced in its agreement. The defendants pleaded
the general issue, but the court finds that by the advice of
counsel learned in the law, they defended the action in good faith
solely upon the ground that their liability had not been fixed as
endorsers by due prosecution of the makers of the notes, as
required by the laws of Illinois, and that this defense was not
sustained, for the reason that it appeared that the makers of the
notes resided in the State of New York, and that the endorsement
was made there. The agreement of the bank not to hold them liable
as endorsers was not pleaded nor relied upon, yet it is contended
by counsel that inasmuch as it might have been thus pleaded and
relied upon, therefore the judgment is an estoppel against the
setting up of that agreement as a defense in a subsequent action
between the same parties upon other notes, equally as if its
validity and efficacy had been litigated and determined.
In taking this position, counsel have confounded the operation
of a judgment upon the demand involved in the action, in which the
judgment was rendered, with its operation as an estoppel in another
action between the parties upon a different demand. So far as the
demand involved in the action is concerned, the judgment has closed
all controversy; its validity is no longer open to contestation,
whatever might have been said or proved at the trial for or against
it. The judgment is not only conclusive as to what was actually
determined respecting such demand, but as to every matter which
might have been brought forward and determined respecting it, and
that is all that the language means which is quoted by counsel from
opinions in adjudged cases, in seeming consonance with his
position.
When a judgment is offered in evidence in a subsequent action
between the same parties upon a different demand, it operates as an
estoppel only upon the matter actually at issue and determined in
the original action, and such matter, when not disclosed by the
pleadings, must be shown by extrinsic
Page 94 U. S. 429
evidence. We have recently had occasion, in the case of
Cromwell v. County of Sac, supra, p.
94 U. S. 351, to go
over this ground and point out the distinction mentioned, and it is
unnecessary to repeat what we there said.
See Bigelow on
Estoppel; Note to the case of the Duchess of Kingston, in Smith's
Lead.Cas.; and Robinson's Practice, vol. vii. The position of
counsel is clearly untenable.
As to the objection of want of authority in the president of the
bank to make the agreement with the defendants, the finding of the
court is conclusive. His authority was a fact to be determined by
the court, under the stipulation waiving a jury, and we do not sit
in review of questions of fact.
Judgment affirmed.
MR. JUSTICE CLIFFORD dissented.