Herrick v. . Woolverton

41 N.Y. 581

• Court: New York Court of Appeals
• Decided: March 5, 1870
• Status: Published

Opinions

[EDITORS' NOTE: THIS PAGE CONTAINS HEADNOTES. HEADNOTES ARE NOT AN OFFICIAL PRODUCT OF THE COURT, THEREFORE THEY ARE NOT DISPLAYED.] The jury having found that the transaction between the defendant, who was the maker of the note, and Jonathan R. Herrick, who was the real payee or first holder, was a mere loan of the bank stock from the latter to the former, and that the note was made as a memorandum by way of security for the return of the stock, and for no other purpose, they virtually found that the paper, though in form a promissory note, was never intended as such between them; that it was issued to be used only for the purpose above specified, and was never intended by them to be issued, used or circulated as a promissory note, and doubtless, as between them it could not be claimed to be such; at least, unless default should be made by the defendant in the return of the stock, and it cannot be claimed upon the evidence in the case, that such default had been made.

An important inquiry, therefore, is whether at the time the note was transferred from the payee to the plaintiff, it had become due, in such sense as to be dishonored, for if it was, then the plaintiff took it subject to all equities between the payee and maker and he could not recover upon it, even though he took it without any actual notice of the defence and for a valuable consideration; for in such case the law implies notice to him of all existing equities or defences which the maker had to it as against the payee, and such presumption is conclusive.

If, therefore, the note was dishonored when the plaintiff received it, the charge of the judge and his refusal to charge as requested by the plaintiff's counsel, were correct. This proposition of law is not disputed, and is well established.

The uniform consent of authority in this State was, that a note payable on demand, must be presented within a reasonable time, or it would be deemed due and dishonored, so that a negligent transferee would take it subject to all equities existing between the original parties; and that the rule applied, whether the note was payable with interest or not. (Furman v. Haskins, 2 Caines, 369; Losee v. Durkin, 7 J.R., 70; Sice v.Cunningham, 1 Cowen, 397), (where the same rule was held between subsequent holder and indorser). And Wethey v.Andrews (3 Hill, 582), gives the same rule as applicable to notes on demand, with interest; holding, that a note on demand with interest, is a lasting security, but applying the rule to it, that the demand must be made within a reasonable time; and says, that notes on demand, without interest, are due immediately.

The rule, as to reasonable time, which has been applied to such notes, has been quite different from the rule, in that respect, applicable to checks, as between drawer and holder; and to drafts or bills of exchange, as between drawer or indorser, and holder, which requires them to be presented without delay. The rule as to such notes, requiring them to be presented within such time, as under all the circumstances of the case, and the situation of the parties, the court shall adjudge as matter of law, to be reasonable between them. In Furman v. Haskins, the note was held dishonored, where the transfer was made eighteen months after its execution. In Losee v. Durkin, where no special circumstances appeared, the court held, where the note was transferred two and a half months after it was executed, that in an action brought thereon by the transferee, the maker might prove a payment, made while it remained in the hands of the payees, and in that case, the note was payable with interest.

In Sice v. Cunningham, where the action was by the indorsee against the indorsers, it was held, that a note payable on demand, was due presently, and must be demanded within a reasonable time, and that a delay of five months in making demand of the maker, discharged the indorser; and the court also held, that proof of a parol agreement to vary the time of payment fixed by the note, could not be received.

In Wethey v. Andrews, the Supreme Court, for the first time, noticed any distinction between demand notes, with, or without interest. That was an action of the subsequent holder against the maker of a note on demand with interest. It was transferred from the payee to one Grimshaw, a purchaser thereof, within a week after it was executed; and within about a month after its execution, he transferred it to the plaintiff, who paid him the money for it. The defendant, the payee, and the first transferee, all lived in the same village, and the plaintiff lived within two and a half miles of them; and the defence offered was, that the note was executed without consideration. The plaintiff recovered, the court holding that the cases furnish no principle for fixing the time with exactness, when a negotiable note, payable on demand, shall be deemed dishonored, so as to let in a defence against the payee, as against one to whom it has been negotiated; that the note was with interest and came to the hands of the plaintiff some four or five weeks after it was executed, and that no law adjudges such a note to be dishonored so soon after its date. In delivering the opinion, COWEN, J., says, in substance, that, if the note had not been on interest, he should have thought it right to presume it had been demanded and payment refused, perhaps even at the time when Grimshaw obtained it; but he thought the contrary was to be presumed with regard to one which bore interest, and thought it would be contrary to the general course of business to demand payment short of some proper time for computing interest. He also cited the case of Barough v.White, as reported in 6 Dowl. Ryland, and in 4 Barn. Cress., as showing that such a note in England is considered as a continuing security and is not dishonored until payment is demanded and refused; but we are not informed that the court adopted that rule, and the whole case shows that it was meant to decide, and that such a note is not due or dishonored immediately.

Now, the precise question before the court in Wethey v.Andrews was, whether, in an action by a subsequent holder upon a note on demand, with interest, transferred by the payee withina week after its inception, the maker could set up the defence existing between him and the payee that the note was without consideration, upon the sole ground that it was dishonored by the delay of a week without demand for payment. The court was doubtless correct in its decision, and correct in saying that there was no case holding such a note to be dishonored; and in that respect, I think there is no distinction, in the cases to which the court alluded, between such notes and those payable on demand, without interest; for I am not able to find any case which declares a note on demand, without interest, dishonored by not being demanded or paid within a week after it is executed; and although, in the opinion, the judge treats the case as though the material transfer took place four or five weeks after the making of the note, it is actually certain that no such question was involved; for it is perfectly clear, upon principle and authority, that if the transfer to Grimshaw was before the note was dishonored, the subsequent holder would succeed to all his rights as between him and the maker, irrespective of all questions of notice to or of valuable considerations paid by such subsequent holder. It would seem that the judge supposed that the rule, held in the case of Barough v. White, which he cited, was different in England in regard to notes on demand, withinterest, from what it was in regard to demand notes not on interest; and if so, I think he was mistaken. But whether theopinion expressed by the judge in Wethey v. Andrews was correct or not, it must be conceded that the law of that case was correctly decided.

The Supreme Court, in the case at bar, followed what was supposed to be the principle adopted by this court in the case ofMerritt v. Todd (23 N.Y., 28). It is doubtless true that this court held, in that case, that a promissory note, payable on demand, with interest, is a continuing security; that the indorser remains liable until an actual demand of payment; and that the holder, as between him and the indorser, is not chargeable with neglect for omitting to make such demand within any particular time; and whether the reasoning upon which the decision was based be correct or not, such is the decision of this court. It however only decides what the law is between holder and indorser; and the chief judge, in his opinion, discriminates between that case and such as the one before us, and says: "It may be well to observe that the present question is not identical with the one which arises when, after the transfer of such a note, the maker seeks to introduce a defence existing against the first holder. The lapse of time, or the non-payment of interest after the regular period, or period for such payment have passed, may be sufficient to put the purchaser on inquiry or to justify a presumption that the instrument was actually dishonored before the transfer. It might well be true, in such a case, that a demand had been actually made and notice given tothe first indorser, so as to charge him, while at the same timethe maker would be let in to defend, if he had any defence. Questions of charging the indorser, therefore, and questions of allowing an original defence to the maker may depend on very different considerations." In other words, that, as to the maker, the note might be considered dishonored, while, at the same time, as between the holder and indorser, the former has been guilty of no laches.

It is clear to my mind, that this court did not intend to decide what the rule should be as between maker and holder, but only as between holder and indorser, and therefore, it cannot be claimed, as the Supreme Court seemed to suppose, that their decision in the case before us was required, and controlled by the case of Merritt v. Todd. Nor does it prevent us from determining the questions presented here, according to the decisions in other analogous cases. In fine, itdecides nothing in regard to such notes, as between maker and holder. And I am not aware of any case in this court, or the Supreme Court, except the decision in this case of the court below, which in terms dissents from the ruling in Losee v.Durkin, or attempts to overrule it; and that case which was decided in 1810, held that such a note as this was dishonored when it had been held by the payee for two months and a half, so as to let in the defence against the subsequent holder, by payment to the first holder, while he owned the note.

It may be, that, as against an indorser of such paper, he may be holden, though the maker should have a defence arising between him and a first holder of it, for the reason, that by indorsing the note, he submits his liability without any certain, fixed limits as to time, and to some extent consents to have his rights affected by the action of both maker and holder, even though as between them, it is due at once, so that the maker may pay it at any time; and the holder may demand payment, or sue the maker without demand at any time; that having indorsed such paper he has no right to complain that neither of them have taken such steps as to retire the note, or fix his liability at an earlier day.

It must be conceded, that under the rule which has obtained in this State, there has always been some doubt and uncertainty when such a note as this would become dishonored by want of demand or non-payment; but such uncertainty need not subject parties to any risk, where due caution is exercised.

I think it is not correct to say that such notes are intended for circulation from hand to hand as commercial paper. It is true that they do so circulate to some extent; but, generally, the notes which are issued and used for circulation are payable at a day certain, and in regard to which all the parties know when and how the liabilities of indorsers are to be fixed or discharged.

There is no good reason why such notes should circulate as commercial paper, any more than that paper payable at a time certain, and which is past due, should perform that office; for both alike must be paid whenever the holder requires it. And why should either kind be circulated. The obligation of the maker of either has matured, or at farthest, matures on demand, which in both cases may be made at once; and if the holder wants to raise money on them, why not apply for payment, and receive it from the party from whom it is due, instead of selling it to some one else, who may the next moment make such demand. The very fact, that the holder of such paper offers it for sale or circulation, seems to imply that there is some reason not apparent, why he does not demand its payment of the maker. And surely no one can doubt that such paper is legally payable immediately after it is issued, if the holder demands it.

Independent of authority, the application of the rule which is held between holder and indorser in Merritt v. Todd, to the case of holder and maker would leave the time when the note would be payable quite as uncertain as it would be when it becomes dishonored under the rule as claimed by the appellant, while all the maker's actual intentions in issuing the paper might be frustrated; and he must have no right to pay it until the holder choose to demand it. For it cannot be, that such note as against the holder is not payable until he chooses to demand it; and that at the same time, the maker may pay it when he pleases. The rule adopted in Merritt v. Todd, as applied to the indorser is, that the note is due only on actual demand, and if it is applied as against the maker, it must be accompanied with all its legal consequences; and of course, while the holder can require payment sooner or later, as he chooses; the only certainty on the part of the maker is, that he must be certain to have the money ready whenever it is called for, and yet continue liable to pay interest without any right to compel the holder to receive payment until he chooses to do so. And while such rule will enable the holder to carry out any intention that he may have had, to loan his money for such a time as is usual when made on the security of commercial paper, it affords no safe-guard against a change of such intention on his part, and leaves any such intention of the maker without any protection whatever; for the note is due when demanded. The holder may be as vigilant or negligent as he pleases. The maker and indorser are bound to wait his time; and the only law of the case is his will. If we adopt it in this case, we should change the well established principle, that as to such a note, the statute of limitations commences to run from its date, so that it should commence only from the time of demand made, and thus add still farther to the security of the holder, and to the prejudice of the maker.

I think the case of Merritt v. Todd, has extended the principle of continuing security in such a case to the very verge; and that to apply it between holder and maker would be putting the maker in the power of the holder to an extent which is entirely unnecessary. If it is the intention of the parties that paper executed between them shall be a continuing security and as a promissory note for a term of time at which interest is annually computed, it is much better that the paper should be made in such form as shall evidence such intention more clearly, and give to the parties the benefit of it, than to change the law so as to benefit the holder only.

In this country the law is, that a promissory note, payable on demand, unless demanded within a reasonable time, is considered as overdue and dishonored. (Ranger v. Cary, 1 Metc., 369;Croswell's Executors v. Arrot; 1 Sergt. R., 180; Loomis v. Pulver, 9 J.R., 244; Van Hoesen v. Van Alstyne, 3 Wend., 75, 79). And the rule is the same even if expressed to be payable with interest. (Thompson v. Hale, 6 Pick., 259; Sylvester v. Crapo, 15 Pick., 92; Newman v. Kettelle, 13 Pick., 418;Wight v. Foster, 13 Pick., 419; Nevins v. Townsend,6 Conn., 5; Losee v. Durkin, and Sice v. Cunningham,infra.) And, as in this state, no absolute measure of this reasonable time has been fixed. A day or two. (Field v. Nickerson, 13 Mass., 131, 137.) Seven days. (Thurston v.McKenn, 6 Mass, 428.) And even a month (Ranger v. Cary, 1 Metc., 369), is not too long. While eight months American Bank v. Jenness (2 Metc., 288); Ayers v. Hutchins (4 Mass., 370), three months and a half. (Stevens v. Brice, 21 Pick., 193.) And even two months and a half. (Losee v. Durkin, 7 J.R., 70); and Sice v. Cunningham (1 Cowen, 397, 404), have been deemed sufficient to discredit a note.

The statute of limitations commences to run from the date of a note payable on demand, whether without interest. (Newman v.Kettelle, 13 Pick., 418; Larson v. Lambert, 7 Halst., 247;Kingsbury v. Butler, 4 Verm. Rep., 458), or whether it bewith interest. (Mason v. Mohawk Ins. Co., 13 Wend., 267.)

COWEN, J., in Wethey v. Andrews, and the chief judge, inMerrit v. Todd, appeared to suppose that in regard to the time when demand notes became due, there was a difference in England between those payable with interest, and those on demand merely. And yet I think it will be found that no such distinction prevails there.

Formerly, notes on demand, were held to be due immediately. (Copp v. Doncaster Cro. Eliz., 548.) Where it was contended that the said demand was parcel of the contract, so that the money was not due until demand, and that a demand by bringing the action would not do, but the court said, the duty of payment was "a duty maintained, and, therefore, these need no demand, as in other cases." (Remhall v. Boyle, 10 Modern Rep., 38.) Where in an action upon a note payable on demand, it was moved in arrest of judgment that no demand was alleged in the declaration; but the court held it to be a debt in presenti, and that it was a debt plainly precedent to any demand. Collins v. Demming (3 Salk., 227) decides the same point, and also holds that the statute of limitation commenced running from the date of the note. And 15 Viner's Abr., 103, note, is to the same point.

It is assumed that the rule in England now is, that a note payable on demand with interest, is a lasting security, and is not dishonored until payment is demanded. In Barough v. White (as reported in 4 Barn. Cres., 325), which contains a report of what was said by each of the judges, the question was whether in an action brought by a subsequent holder of a note, on demand, with interest, for which he had paid value, the maker should be allowed to prove the declarations of the first holder while he owned it, that he gave no consideration for it to the maker. It was held that such declarations could not be given. And BAILEY, J., in his opinion, says: "In this case no demand was proved, and the note being made payable with interest, to Arnott or order makes it probable that the parties contemplated that the note should be negotiated for some time." And he also said, that the defendant did not identify the first holder with the plaintiff, and that for these reasons the evidence was properly rejected. The three other judges placed their decision on the ground, that the declarations of a prior holder of a note, cannot be given in evidence against a subsequent one, but that such alleged facts must be established by other proof. And such is the well settled law in this State. It is true, that LITTLEDALE, J., also said he thought the note not over due, and that it seemed to him that it was a lasting security. He, however, does not allude to the fact that it is with interest; and Holroyd, J., says it was not over due, "for a note payable on demand, is not open to the same suspicion, as a note over due which is made payable at a particular time." In Brooks v. Mitchell (9 Mees. Wels., 15), it was decided that a promissory note payable on demand, with interest, was not to be treated as over due, so as to effect an indorsee with any equities against the endorser, merely because it was indorsed several years after its date. Not an allusion is made by any member of the court, that the note was on interest, and PARKE, B., reiterates the assertion, that a promissory note payable on demand, "circulates for years," and "is current for any length of time." And the syllabus of the case takes no notice that the note was with interest.

But I have said, that in England there is no difference, in this respect, between notes on demand with interest, and notes on demand, merely. And I think the manner in which these two cases are treated by the judges, shows that they understood the rule to be, and that they were only applying the same rule to these notes, which they considered applicable to all other notes payable on demand. In Haywood v. Watson (4 Bingham, 496), the action was against the maker on a note as follows: "On demand, I promise to pay to Cyrus Morrell, or order, £ 1,000, value received," which passed to the plaintiff as subsequent holder long after it was executed, and the defendant attempted to set up a defence to it as against the first holder. But the court ruled that the plaintiff was entitled to recover on the ground that, when the plaintiff took the note, it was not dishonored. And PARKE, J., said: "For though the note was made in 1824, it was payable on demand, and therefore could not be esteemed over due till demand had been made." And the note was not with interest. I do not know how the English decisions on this subject are to be reconciled, for these cases hold, in conflict with the previous decisions, that all demand notes are continuing securities, and are not over due or dishonored until actual demand and yet they continue to decide that the statute of limitations commences to run against them from their date. (Norton v. Ellam, 2 Mees. Wesb., 461.) The action was on a note by which the maker promised to pay £ 400 on demand with simple interest, and the only question presented to the court was, whether the statute ran from the date of the note or from the time of the demand. The counsel attempted to draw the distinction that the note was payable withinterest, and therefore could not be due immediately, but the Court of Exchequer unanimously repudiated the idea, and say: "Then is there any difference when it is payable with interest? It is quite clear that a promissory note, payable on demand, is a present debt, and is payable without any demand, and the statute begins to run from the date of it. Then the stipulation for compensation in the shape of interest makes no difference, except that thereby the debt is continually increasing de die in diem." And as to notes payable on demand that do not stipulate for interest, the English decisions are uniform in declaring that the statute commences to run from their date.

I think, upon principle and authority, the note in question was dishonored at the time it was transferred to the plaintiff. And that neither the wants or convenience of business call for any change of the rule.

The charge of the judge therefore, and his refusal to charge as requested, were correct. The order of the General Term should be reversed and judgment rendered for the defendant on the verdict.