Lincoln v. Fitch

The person who indorses and puts in circulation a negotiable security, is incompetent as a witness to show that it was void at its inception. Pacts may be so interwoven with each other that a person, who is a competent witness as to some of them, and wholly incompetent as to others, cannot be allowed to testify to those for which he would otherwise be a competent witness. A defendant cannot offer evidence in support of an issue which he has not presented by his pleadings. The receivers of a bank, appointed to close its concerns, have no rights superior to those which the bank would have had if its management had remained in the hands of the directors; and the liabilities of third parties to the bank are not increased or otherwise varied by the appointment of receivers. A draft having come into the possession of a bank fraudulently and without consideration, its exhibition as the property of the bank, to persons who thereafter became creditors of the institution, can have no effect upon the liability of the drawer and acceptor of the draft, The president of a bank, with the knowledge of the directors, obtained possession of a draft, which had been signed in blank and intrusted to a third party for another purpose, without consideration, and without the knowledge of the drawers, and made use of it to increase the apparent assets of the bank: — Held, that the bank could stand in no better condition than the person who had been entrusted with it and had thus misappropriated it.

Exceptions and Motion fob New Trial from Nisi Trim, Davis, J., presiding. This was an action of assumpsit upon a draft and bank check. The claim for the check was abandoned at the trial. No evidence in support of that claim was offered. The draft or acceptance was as follows: —■ “Boston, March 14, 1854. “$10,000. Two months after date, pay to the order of A. F. Smith, at bank in Boston, ten thousand dollars, value received, which place to account of “'A. F. Smith & Co. “ To Fitch, Hodgdon & Co., Springvale, Me.” Across the face of the draft ivas written, “ Accepted, Fitch, Hodgdon & Co.”: and on the back, “A. F. Smith.” “For value received, we hereby waive demand and notice as drawers and indorsers of the within. “A. F. Smith & Co., “A. F. Smith.” It appeared that the defendants were interested in a factory at Springvale, in York county, and sometimes had occasion to raise sums of money in Boston. When such occasions occurred, it appeared that they generally transacted the business through said A. F. Smith. Sometime prior to the date of this acceptance, anticipating that they might wish to raise a few hundred dollars in Boston, to meet the balance of a small liability at the Merchants’ Bank, the defendants left with said Smith a draft and a bank check signed by them in blank; it being understood that said acceptance and check might be used to discharge that liability, in case it became necessary by their failure to furnish other funds in season for that purpose. Other funds were seasonably furnished, and said blanks were not used; but remained in the hands of said A. F. Smith. And it further appeared, that a part of the loan of the Ooehituate Bank, consisted of securities discounted for the benefit of the Lyons Iowa Central Railroad Co., and that some of the securities had remained in the bank overdue and unpaid, until it had become the subject of complaint on the part of the bank commissioners. Stephen M. Allen, whose deposition the defendants introduced, was president of the bank, and transacted nearly all its business. Wishing to substitute some other paper more acceptable to the bank commissioners, and to withdraw so much of that loan as was overdue, in order to negotiate in New York to better advantage for its payment, the said Allen, acting for the bank, made the arrangement with said A. E. Smith for the acceptance and bank check, the particulars of which were stated by said Smith in his deposition. Smith knew that the president was acting for the bank, but he knew nothing definite of the purpose for which the acceptance or check was to be used. Allen received the acceptance and check of Smith, and the Cochituate Bank received them of Allen as president. Smith received no value for the acceptance or check, and the bank paid nothing for them to anybody. This whole arrangement was made without the knowledge or consent of the defendants, who resided in Sanford, in this State, and had no knowledge or intimation of the transaction until after the bank failed. It stopped payment on the 15th of April, 1854, and its assets having passed into the hands of receivers, they, as such, brought this action. The defendants appeared and pleaded the general issue and filed their brief statement of defence. The case was tried, and the jury returned a verdict for the defendants. The plaintiffs filed a motion to set aside the verdict, as against evidence, and for a new trial. They also excepted to certain rulings of the presiding Judge. The points raised by the exceptions fully appear in the opinion of the Court. The motion for a new trial was not relied upon at the argument of the cause. 1. The defendants offered the deposition of Asa E. Smith, and when it was read to the jury, the counsel of the plaintiffs objected to the answer to the second interrogatory. It is true that the Judge overruled the objection, and the answer was read; but it is also true that the Judge instructed the jury, at the i’equest of defendants’ counsel, made in the course of his argument, that the said answer could only be received for the purpose of showing, so far as it had that tendency, that the draft was accommodation paper; that it was not admissible as evidence to prove any fraud in the inception of the draft, or that it was fraudulently put in circulation, and that for any such purpose they must disregard it and lay it out of the case. Having stated the ruling and the instruction, we now give the question and answer. Interrogatory 2. — “Did Fitch, Hodgdon & Oo. receive any thing, to your knowledge, for or on account of said paper ?” Answer. — “They did not to my knowledge.” It is very clear that the answer has no tendency to prove any fraud in the inception of the note; and if it had, when unexplained, it would make no difference, as the jury were seasonably and most explicitly directed, that it was not admissible for that purpose, nor even to prove that the draft was fraudulently put in circulation. They were instructed by the Judge, at the request of defendants’ counsel, that the answer could only be received so far as it had a tendency to show that the draft was accommodation paper. It was, in effect, saying to the jury, I will allow the answer to be read, and if you think it has any tendency to prove that it was accommodation paper, you may take it into consideration for that purpose only; but it is not admissible, nor can it be received, for any other purpose whatever. 2. Evidence admissible for the purpose of proving any one of the issuable facts in a case, although clearly inadmissible for other purposes, may always be submitted to the jury under proper instructions. State v. Lull, 37 Maine, 246; Sckillingcr v. McCann, 6 Maine, 370; Bangor v. Brunswick, 30 Maine, 398; Wkitnexj v. Cottle, 30 Maine, 31. Smith is not interested; and if he was, that would make no difference, as it could only affect his credibility. His deposition was taken on the 17th of March, 1855, since the Act for the admission of interested witnesses went into operation. Laws of 1855, c. 181, page 207. It follows, therefore, that the only remaining question is, was it competent for the defendants to prove by Smith that nothing was paid for or on account of the draft, as a ground of inference, that it was accommodation paper ? Surely, it is not an impeachment of a bill or note, to show that it was made for the accommodation of one of the parties to the instrument; nor is the instrument any the less obligatory in the hands of .third persons after such proof is made. Assuming that the bank in fact received the draft, as the jury have found, on what principle is it that the testimony should be excluded ? It is not upon the ground that Smith is interested, because that difficulty, if it existed before the Act of 1855, is now removed. There is no rule of policy in this or any other country which excludes this testimony. 3. The effect of the evidence, is not to prove that the instrument was originally void, nor to permit the witness to invalidate his own act. It is simply to allow the witness to explain the transaction as it took place between the original parties, in exact accordance with the views expressed by Willes, J., in the leading case of Walton v. Shelley, 1 Term R. 301. It was proposed in that case, to prove by the indorser, that the consideration of the note was illegal, and that the note was void at its inception; and it was held by Lord Mansfield, that it was against public policy to permit the witness to disclose that fact, as its effect would be to invalidate his own act as indorser. No such question arises in this case, and we have no desire to touch the great controversy to which that decision has given rise. That doctrine was overruled in England shortly after it was laid down, and has never since received the sanction of the British courts. Jordaine v. Lashhroolce, 7 Term R. 601. Eor the sake of the argument, let it be admitted that the weight of American authority is on the side of the case first named. Assuming that to be so, then it must be admitted that the indorser of a negotiable security, negotiated before it is due, and in the hands of an innocent party, is not a competent witness to prove that such security was originally void. But it is a sufficient answer to the supposed admission, to say that nothing of the kind is proposed in this case, nor is any such proposition involved in the ruling of the Court. On the contrary, the ruling of the Judge, as it appears in the bill of exceptions, adopts and affirms the opposite rule. 1 Greenl. Ev. § 384r-5-6; 2 Williams on Ex’rs, 670, part 1 of 2d vol. While the American courts pretty generally adhere to the rule in Walton v. Shelley, they are not disposed to extend it, and in many cases it has been limited and restrained. Bucle v. Appleton S¡ ais., 14 Maine, 284; Thayer v. Crossman, 1 Met. 416; Franklin Bank v. Pratt, 31 Maine, 501. The defendants insisted at the trial, that Stephen M. Allen was the agent of the bank, and that he received the draft of Smith for and on account of the bank, and the jury have found by their verdict that it was so, and that too under instructions as favorable to the plaintiffs as they can ever expect. Such being the fact, we think it clear that it was competent for the defendants to prove that no value was paid for the draft. Bramhall v. Bechet, 31 Maine, 205 — 211; Story on Prom. Notes, §§ 190, 194, and cases cited; 2 Greenl. Ev. §§ 171 & 172, pp. 167, 169 ; Byles on Bills, 454, (* p. 323;) as to what is accommodation paper, Byles on Bills, 184. Want of consideration may be set up as a defence between any of the immediate or original parties to a bill or note. It being established, that Allen was the agent of the bank, it is clear that the defendants may show that the bank paid no value, unless the absurdity can be maintained that the receivers stand in a more favorable position than the corporation which they represent. Speaking of the original parties to a promissory note, Story says: — The same rule will apply to any derivative title under them, by any person who acts merely as their agent, and has given no value. Story on Prom. Notes, § 194. An executor or administrator has no greater rights, in a suit on a bill or note, payable to tbe deceased person whom they represent, than such deceased person would have had during his life time; and the same rule is applied to the assignees of a bankrupt’s estate; and why should it not be applied in this case ? We see no reason, and think that none exists or can be suggested. Byles on Bills, pp. 40, 360; Hyde v. Skinner, 2 P. Wms. 196; Williams v. Burritt, 1 C. B. 402; 2 Williams on Ex’rs, 670, part 1, 2d vol. 4. The instructions requested were properly withheld. There is no evidence in the case tending to prove that Smith agreed that the draft should go into the possession of the bank, or that he had any knowledge whatever of the purpose for which it was to be used; consequently the first request was not called for, and was therefore properly refused, and the same remark applies to the second request. They assume a state of facts which, did not exist, and which there was no testimony to prove. The doctrine of the requests is erroneous, and therefore they must have been refused, even if the facts were as the requests assumed them to be. Agricultural Bank v. Robinson fy als., 24 Maine, 274. This case decides that the doctrine in the requests is wrong. The requests assume that the above case is not good law, and for the present we are willing to leave that matter to the Court. 2 Smith’s Lead. Cases, 562; 3 Hill, 219. 5. The general doctrine is now firmly established in this country, that whenever a corporation is acting within the scope of the legitimate purposes of its creation, all parol contracts made by its authorized agents, and express contracts of the corporation, and all duties imposed upon it by law, and services rendered and benefits conferred at the request of its agents, raise an implied promise, for the enforcement of which an action will lie against the corporation. Story on Ag. § 53, on p. 58, and cases cited; Bank of Columbian. Patterson, 7 Cran. 350-6; Angelí on Cor. c. 8, § 7, p. 212, note 4, and c. 8, § 8, p. 214, note 6. An agent for a corporation may be appointed, as in the case of an individual, by a formal written instrument, as by power of attorney; or by an informal instrument, as by letter of instructions or by an unwritten request; or by implication, from his acquiescence in the acts of the agent. Story on Ag. § 54, p. 64; Frankfort Bank v. Johnson, 24 Maine, 490. The officers of a bank are held out to the public as having authority to act according to the general usage, practice and course of business of such institutions; and their acts, within the scope of such usage, practice and course of business, bind the bank in favor of third persons having no knowledge to the contrary. Story on Ag. § 114, p. 130; Franklin Bank v. Steward, 37 Maine, 519; Minot v. Mechanics' Bank, 1 Pet. on p. 70. Agency may be inferred from the relative situation of the parties; or, what is more common, from the habit and course of dealing between the parties. Maine Stage Co. v. Longley, 14 Maine, 484; 2 Greenl. Ev. § 64 & 65, and cases cited, pp. 56 & 57; Warren v. Ocean Ins. Co., 16 Maine, 439; Badger v. Bank of Cumberland, 26 Maine, 428. In all cases, except where the appointment of the agent is in writing, ho is a competent witness to prove his authority. 1 Greenl. Ev. § 416, p. 532; Lowber v. Shaw, 5 Mason, 242; Crooker v. Appleton, 25 Maine, 131. The Judge erred in permitting Smith to testify to want of consideration for the acceptance. Smith was one of the drawers, and. lie was also an indorser, and therefore incompetent to testify to any facts which tended to render the acceptance invalid. Though the rule of exclusion has been generally applied to cases where the instrument is declared void by the statute, it is not limited to those cases. In Bank of United States v. Bunn, 6 Peters, 51, the Court say, “ it is a well settled principle, that no person who is a party to a negotiable instrument, shall be permitted by his own testimony to invalidate it.” In Bank of Metropolis v. Jones, 8 Peters, 12, the Court held the maker of the note incompetent to disclose any fact which tended to avoid the note. And the Court say, “if one whose name appears as drawer, indorser or acceptor, shall be competent to prove facts or circumstances which lessen or destroy its value, before or at the time he becomes a party to it, the credit of commercial paper could not be sustained.” To the same point are Henderson v. Anderson, 3 Howard, 73, and Knights v. Putnam, 3 Pick. 184. The payee is not competent to swear to want of consideration between himself and maker, in a suit by indorsee against the maker, even When the note was taken to secure a preexisting debt. Rossenberger v. Bitting, 15 Penn. 278. This case is not within the exception in Thayer v. Crossman, 1 Met. 416, for the acceptance was indorsed before maturity. Nor within the exception in Fox v. Whiting, 16 Mass. 118, for the suit is brought by indorsees. The second request for instruction should have been complied with. 1. The defendants, by giving the acceptance in blank to Smith, made him their agent to fill the blank and negotiate the paper. They took the risk of his using it for any purpose. They enabled him to perpetrate a fraud and must bear the loss. Licklanow v. Mason, 2 Term R. 63 j Putnam v. Sullivan S/ at., 4 Mass. 45, is much in point. The maker or indorser of a note for a particular purpose, takes the risk of its being used for a different purpose and in a different manner. Sweetser v. French, 2 Cush. 309. “ Principals are responsible for the frauds, deceits and torts of their agents, although they did not authorize, justify or participate in them, or even know of such misconduct, or even if they forbade or disapproved.” Story'on Ag. § 452. 2. Allen’s acts and agreements are not the acts or agreements of the bank, nor is his knowledge the knowledge of the bank. The proof shows that he was acting for himself. His discount of the acceptance was but provisional. It was necessary that the board of directors should pass upon all paper offered. Washington Bank v. Lewis, 22 Pick. 24. The case is distinguishable from Agricultural Bank v. Robinson, 24 Maine, 274. The request for instruction assumes that the jury may find that the bank paid full value for the acceptance, and that the public was induced to give credit to the bank.