Chemical National Bank v. Kellogg

75 N.E. 1103, 183 N.Y. 92, 21 Bedell 92, 1905 N.Y. LEXIS 601

• Court: New York Court of Appeals
• Decided: November 21, 1905
• Status: Published

Opinion

Vann, J.

Each indorsement of a promissory note is a separate contract, standing apart from that made by the maker or any other indorser. (Spies v. National City Bank, 174 N. Y. 222, 225.) The validity of a contract of indorsement is ordinarily determined by the law of the place where the indorsement is made. (Union National Bank v. Chapman, 169 N. Y. 538, 543.)

As the note in question was indorsed by the defendant in the state of Hew. Jersey where she resided, under ordinary circumstances she would not be liable thereon, because the laws of that state do not permit a married woman to become a simple accommodation indorser. The laws of the state of Hew York, however, authorize a married woman to contract, even with her husband, the same as if she were unmarried, and it is insisted that the defendant is estopped from denying that her indorsement is a Hew York contract, inasmuch as the plaintiff, in good faith, purchased’ the note for value, before maturity, without notice of any thing to put it on inquiry and in reliance upon the fact that it was dated and made pay able in the state of New York, with nothing on the face of either the note or the indorsement to suggest that the contract was made in the state of New Jersey. We think this position is sound. Whoever conceals facts required by good faith and fair dealing to be disclosed, acts inequitably and will not be.permitted to assert those facts to the injury of one misled by such conduct. The defendant could not make her coverture a trap to catch innocent persons. She could not deliberately give the appearance of validity to her contract and then as against a bona fide holder plead that it was invalid. She knew that the note was dated and payable in New York, and that the presumption from those facts was that it was indorsed there. She also knew that if she delivered the note in this condition to her husband to enable him to negotiate it, any one who acted on such presumption, as he lawfully might in the absence of notice, would be injured if she should plead her coverture and that she actually indorsed it in New Jersey. It was, therefore, her duty, if she wished to act honestly toward others, to attach some notice to her indorsement, or give notice-in some other way,'so that innocent third parties might not be harmed by relying upon appearances which she had aided in creating. If she had written after her name, “ Oak Tree, New Jersey,” her place of residence, the plaintiff would have been put upon inquiry as to the validity of such a contract made in that state. 'With no attempt to give notice, by her indorsement in blank she gave currency to the note as one made and indorsed in New York. Pleading her indorsement as a New Jersey contract under these circumstances would be an attempt to take advantage of her own wrong, which the law will not permit.

The business of the country is done so largely by means of commercial paper that the interests of commerce require that a promissory note, fair on its face, should be as negotiable as a government bond. Every restriction upon the circulation of negotiable paper is an Injury to the state, for it tends to derange trade and hinder the transaction of business. Commercial necessity requires that only slight evidence should be insisted upon to establish an estoppel in pais as to the validity of commercial paper. The only practicable rule is to make the face of the paper itself, when free from suspicion, sufficient evidence, in the absence of notice, against all who aided to put it into circulation in that condition, unless the note is void by the positive command of a statute, such as the act against usury. Ho other rule would work well, for it would be intolerable if every bank had to learn the true history of each piece of paper presented for discount before it could act in safety. It is better that there should be an occasional instance of hardship than to have doubt and distrust hamper a common method of making commercial exchanges.

While it was unnecessary that the defendant should describe herself as a guarantor by adding the word “ surety ” to her signature, for possession by her husband, who was prior in order of liability to herself, was notice that she did not indorse in the ordinary course of business, still if she regarded her indorsement as a Hew Jersey contract she should have given notice of that fact in some way so that a purchaser in good faith might know that..it was not what it appeared to be, a Hew York contract. (Smith v. Weston, 159 N. Y. 194; Bank of Monongahela Valley v. Weston, 159 N. Y. 201.) Even in the state of Hew Jersey, where the common-law disabilities of married women have not been wholly removed, her indorsement would be enforced as a Hew York contract. (Thompson v. Taylor, 66 N. J. L. 253.)

Independently of the statute which will be cited presently, the argument in favor of an equitable estoppel rests mainly on the presumption that a note dated and payable in Hew York Avas made and indorsed in that state. While this question has seldom been before the courts, Mr. Daniel in his useful Avork on Hegotiable Instruments says it is the law and the authorities support the assertion. (Daniel on Neg. Inst. [5th ed.] § 728 ; Maxwell v. Vansant, 46 Ill. 58; Towne v. Rice, 122 Mass. 67; Belford v. Bangs, 15 Ill. App. 76; Lennig v. Ralston, 23 Penn. St. 137; Snaith v. Mingay, 1 M. & S. 87; Edwards on Bills, etc., § 378; Tiedeman on Bills & Botes, § 91.) Even if the question were entirely new, sound reasoning would lead to that conclusion. While the contract made by an indorser is independent of that made by the maker in the sense that it is of a different nature, and can be separately enforced, still it is dependent on the promise of the maker, because it is an agreement to perform his promise, upon certain conditions, if he does not. Therefore, the place where the maker promised, as stated in the note itself, must with all the other provisions thereof be read into the promise of the indorser, and it thus becomes by fair presumption, in the absence of notice to the contrary, the place where the indorser promised also. The purchaser has no other guide as to a fact which may involve the validity of the contract, and hence it is a commercial necessity that both contracts, so closely connected that the second cannot exist without the first, should be presumed to have been made at the same place, unless the one with power so to do rebuts the presumption by timely notice.

The learned counsel for the defendant seems to recognize the existence of this presumption, as he says in his points that, “If wre examine the note alone, then the negative inference might possibly arise that the defendant intended the note should be governed by the laws of another state.” He insists, however, that as the plaintiff stipulated the facts at the trial, it knew the defendant did not so intend. The rights of the parties do not depend on what the plaintiff knew at the time of the trial, but on what it knew when it discounted the note, and at that time, owing to the absence of notice, which was the defendant’s fault, it had no information but what the note gave. The defendant knew that her husband could use the note in any state, and the place of date and payment indicated the state where he expected to use it. Unless she intended that it should be used in a state where her indorsement would bind her, she must have intended to defraud and hence is estopped.

But, to clinch the argument, we have only to refer to the Negotiable Instruments Law, which provides that: “ Except where the contrary appears, every indorsement is presumed prima facie' to have been made at the place where the instrument is dated.” (L. 1897, ch. 612, § 76.) This statute was prepared for uniform action in all the states, and it has already been adopted in many. It is regarded as simply declaratory of the common law u pon the subject un der consideration. (Eaton & Gilbert on Commercial Paper, § 66.) Therefore, when the note was presented for discount in New York the plaintiff had the right under the statute to presume that it was indorsed in the state where it was dated, because nothing appeared to the contrary. The defendant, by her indorsement, aided in the negotiation of a note carrying with it that presumption, both at common law and according to the statute, and after the plaintiff had acted on the presumption she cannot be heard when she attempts to say that she indorsed in a state where her indorsement is not binding, and that, she did not intend to be bound by her promise when she made it.

The judgment should be affirmed, with costs.

Cullen, Ch. J., Gray, Bartlett, Haight and Werner, JJ., concur; O’Brien, J., absent.

Judgment affirmed.