Nelson v. First Nat. Bank

69 F. 798, 16 C.C.A. 425, 1895 U.S. App. LEXIS 2435

• Court: Court of Appeals for the Eighth Circuit
• Decided: August 19, 1895
• Docket: No. 543
• Status: Published

Opinion

SANBORN, Circuit Judge,

after stating the facts as above, delivered the opinion of the court.

Is the certificate of protest of a promissory note drawn in one of the United States, signed by residents of that state, and payable in another, competent evidence in the state of Minnesota of either the presentment, demand, dishonor, or notice of dishonor of the note? The first alleged error in the trial of this case is that the court below admitted in evidence the certificate of protest of the note in suit made by a notary public of the state of Connecticut. The objection urged to it is that the note stood upon the same footing as an inland bill of exchange, that such a bill requires no protest, and hence the certificate was not an official act, and is incompetent. This objection cannot be sustained on the ground that this was an inland bill or inland note, as distinguished from a foreign bill or foreign note. A bill of exchange drawn in one of the states of the United States, payable in another, is a foreign bill, under the settled interpretation of the commercial law in the national courts. Bank v. Daniel, 12 Pet. 32, 53, 54; Buckner v. Finley, 2 Pet. 586, 592; Dickens v. Beal, 10 Pet. 572, 579.

A more serious objection to the certificate is that the paper protested was not a bill of exchange, at all, but a promissory note, and it is not.necessary to protest such a note in order to charge the indorser. All that is required is that due presentment and demand shall be made, and that the indorser shall be seasonably notified that the note is dishonored, and that the holder looks to him for payment. Proof of such presentment, demand, and notice may be made by any competent witness, and the certificate of these facts by a notary is not indispensable to a recovery against an indorser. Nicholls v. Webb, 8 Wheat. 326, 331; Bay v. Church, 15 Conn. 15; 3 Rand. Com. Paper, § 1143. But it does not necessarily follow that the certificate of protest is incompetent evidence of presentment, demand, and dishonor, because a protest was unnecessary'to charge the indorser. It has been held by eminent authority that the certificate of a notary public is competent evidence of the presentment and demand of payment of a promissory note under the common law, though a protest was unnecessary to charge the indorser. Williams v. Putnam, 14 N. H. 542; Bank v. Stackpole, 41 Me. 302.

It is the common practice of banks and business men to cause a notary public to protest such notes as that here in suit, and it is a wise and salutary custom. It tends to insure prompt and efficient action, definitely fixing the relation of the parties at the maturity of Hie paper, and to preserve a correct and reliable record of their rights and liabilities. It was undoubtedly in view of these facts that the legislature of the state of Minnesota early provided that:

“The instrument of protest of any notary public appointed and qualified nmler ¡lie laws of this state, or the laws of any oilier state or territory of the Uniled States,, accompanying any bill of exchange or promissory nolo, which bas been protested by sucli notary for non acceptance or non payment, shall be received in all the courts of the state as prima facie evidence of the facts 1 herein coríiñed.” Gen. St. Minn. 1878, c. 20, § 8 (Gen. St. 1894, § 2275).

This slatuio is a conclusive answer to the objections to this certificate. Under it the certificate of protest in question would have been competent evidence in the courts of the state, whether a protest of the note was indispensable or not. Bettis v, Schreiber, 31 Minn. 329, 332, 17 N. W. 863. And the rules of evidence prescribed by the statute of a stale are declared by act of congress to be “rules of decision in trials at common law in the courts of the United States,” “exeexit where the constitution, treaties, or statutes of the United Btates otherwise require or provide.” Rev. St. § 721; Brandon v. Loftus, 4 How. 127; Sims v. Hundley, 6 How. 1, 6; Potter v. Bank, 102 U. S. 163, 165.

The notary public testified that, immediately after protesting the note, he mailed to the plaintiff in error, at the request of the bank, a copy of the note attached to a, certificate over hit? hand and seal that he liad protested the same for nonpayment. It is insisted that this notice was insufficient to charge the indorser, because it does not expressly slate that the bank looks to him for payment. The objection, is; uutenable. For what other purpose could the plaintiff in error have inferred, that this notice was sent to him toy the holder of this note? There is no hard and fast rule that requires the notice to state in so many words that the holder looks to the indorser for payment of the note. A notice of dishonor or of protest of the paper from which it may be reasonably inferred that the holder intends to look to ihe indorser for payment is sufficient notice of Hurt intention, and-no other inference could be reasonably drawn from this notice. A. notice of nonpayment and protest sent to Hie indorser by the holder of the note is, by necessary implication, an assertion by the holder of his right to collect of the indorser. Bank v. Carneal, 2 Pet. 543, 553; Mills v. Bank, 11 Wheat 431, 436.

It is argued that the certifícale of protest and the notice were incompetent, because the notary was the cashier of the bank Unit held the nose. It is true that, when the rule prevailed which disqualified any party interested in an action from testifying in the cause, some of the courts held that a party in interest could not protest commercial paper, on the ground that, inasmuch as he could not testify to the presentment, demand, and notice, he was disqualified from making evidence of these facts by Ms certificate. Bank v. Cox, 21 Wend. 119; Bank v. Porter, 2 Watts, 141. But, in the circuit courts of the United Btates, interest in the litigation no longer disqualifies a witness; and this rule falls with its reasoning. A notary public who is the cashier of a bank may now legally protest its paper,

It is assigned-as error that the trial court admitted in evidence the following letter:

“Stillwater, Minn., Feb. 27, 1885.

“H. N. Clemons, Esq., Danielsville, Ct.—Dear Sir: Yours of 21st inst., inclosing notice of protest, received. Mr. Nelson is now East, at Boston, I think; and I forwarded the same to him.

“Yours, resp’y J. A. Phipps, for C. N. N.”

Mr. Clemons was the notary public who testified that he protested the note, and mailed the notice of protest on February 21, 1885, directed to the plaintiff in error at Stillwater, Minn., where he lived. This letter of Phipps was the answer he received. Testimony had been introduced tending to prove that J. A. Phipps, who signed the letter, was at its daté a clerk in the office of the plaintiff in error, employed by the C. N. Nelson Lumber Company, a corporation of which Nelson was president. It was necessary for the defendant in error to prove that it had used reasonable diligence to notify Nelson of the dishonor of the note in order to charge him as an indorser. For this purpose, the testimony of the notary that he mailed the notice, addressed to him at his proper post-office address, was competent. But' the written admission of the clerk in the office of the plaintiff in error that the notice was received there, made at the time and in the usual course of business, was certainly not incompetent evidence of the diligence of the bank, and it is as convincing proof to our minds that the notice was actually sent as the testimony of any witness could be. The admission of the receipt of a letter by a clerk in the office of a principal who has authorized him to receive his letters may well be deemed to be the admission of his principal.

One of the chief defenses of the plaintiff in error was that the $10,000 of guarantied stock of Seymour, Sabin & Co. was worth the full amount of the note on February 23, 1885, and that the bank exchanged it on that day for the worthless stock of the Minnesota Thresher Company without his consent. ITis claim was that he was a surety for the maker of this note, and that this action of the bank absolutely réleased him, regardless of the value of the security exchanged. The court, however, held during the trial, and at'its close charged the jury, that the bank was liable to him on account of this exchange for the damage he had sustained thereby only, and that the measure of that damage was the difference between the Aralue of the guarantied stock of Seymour, Sabin & Co. and the value of the stock of the Minnesota Thresher Company at the time of the exchange. This is undoubtedly the true rule. It restores to the debtor all the loss he sustains, while it does no injustice to the creditor. It is supported by reason and sustained by authority. Vose v. Railroad Co., 50 N. Y. 369, 374, 375; Griggs v. Day (N. Y. App.) 32 N. E. 612; Potter v. Bank, 28 N. Y. 641; Booth v. Powers, 56 N. Y. 22; Thayer v. Manley, 73 N. Y. 305; Bank v. Gordon, 8 N. H. 66; Story, Eq. Jur. § 326; Law v. East India Co., 4 Ves. 824, 833; Payne v. Bank, 6 Smedes & M. 24, 38, 39; Neff’s Appeal, 9 Watts & S. 36, 43. Under this rule, an important issue arose over the value of the stock at the time of the exchange. At that time, Seymour, Sabin & Co., the corporation that issued the stock, and the Northwestern Manufacturing & Oar Company, the corporation which guarantied the stock, were insolvent, and all of (.heir property was in the hands of receivers appointed by the state court under chapter 76 of the General Statutes of Minnesota of 1878 (Gen. St. 1894, §§ 5889-591.1), to convert their assets into money, distribute it among their creditors, and wind up lire corporations. It is evident that there were then two, and only two, methods by which the holder of this stock could obtain anything of value for it. One was to still it for whatever it would bring in the market. The other was to follow the assets of these corporations in the slate court, and to obtain from the receivers the share of their proceeds to which the holder of the stock should become entitled on their distribution. Accordingly, the court below permitted competent witnesses to give to the jury their opinion of the value of this stock at the time of the exchange; and it also allowed the parties.to prove the amount of the assets and liabilities of the; corporations at different times between the appointment of the receivers, in May, 1884, and the sales of the property of the corporations by direction of the court, in 1887 and 1888, together with the amounts finally realized from those sales: There was certainly no error in this general rule. There is no better or safer criterion to determine the value of stock or of the debt of an insolvent corporation than a comparison of the value of its assets with the amount of its liabilities; and where the assets are sold at public auction, after ample notice, and converted into money under orders of a court, in accordance with the provisions of the sta tutes under which the corporations exist, the amount realized from their sale is ordinarily very conclusive evidence of their value. The fact, that the statutes of a state under which a corporation is organized constitute the charter of the corporation must not be overlooked in considering this question. Chapter 76 of the General Statutes of Minnesota of 1878 (Gen. St. 3894, §§ 5889-5911), which provided for the sequestration of the property of these insolvent: corporations and its sale under the orders of the state court, necessarily conditioned the value of the stock and liabilities of these corporations; and we should hesitate long before we should hold that the amount obtained for their property at a public sale in accordance with the law of their existence was no evidence of the value of that property.

Our conclusion is that the general rule adopted by the court below was correct, that proof of the value of the assets and of the amount of the liabilities of these insolvent corporations, and proof of the amount realized from t.heir assets at auction sales made under orders of the court, and the opinions of witnesses as to the value of the stock and the value of the assets, were all competent evidence tending to show the value of this stock and of the liability of these corporations upon it.

We turn now to the specific objections to the introduction of some of this evidence. The exchange of stock was made on February 23, 1885. It is assigned as error that the court below admitted in evidence a certain page of the report of the receiver of Seymour, Sabin & Go. to the district court of the state;, which contained a schedule of the liabilities of that corporation on May 12, 1884, the date when the receiver was appointed. But the condition of this record is such that this assignment cannot be considered. The objections to this page of the receiver’s report were that it was incompetent, irrelevant, immaterial, and hearsay, for the reason that the defendant in error proposed to offer a statement of a given fact made by the receiver to the court, and to have that statement stand as proof of the fact against the plaintiff in error (a stranger to the record), but did not propose to offer the report of thé receiver as an entirety; in other words, that it offered to prove what the liabilities of the corporation were, but did not offer to prove what its assets were in the opinion of the same man. The court overruled these objections, and the plaintiff in error excepted. But the defendant in error thereupon withdrew the offeiy and hence no prejudice resulted to the plaintiff in error from this ruling. After withdrawing this offer, the defendant in error offered in evidence the entire report of the receiver, which stated that the assets of the corporation on May 12, 1884, were $1,147,978.27 and that the liabilities were $1,751,766.19. The only objection the plaintiff in error made to this report was that it was “incompetent, but not on the ground that no foundation was laid”; but he does not seem to have pressed this objection, for no ruling was made upon it, and the report was thereupon read in evidence, and no exception to the action of the court or counsel was taken. Upon this record there is nothing in this objection for us to review. Moreover, if a proper foundation had been laid by the testimony of the receiver that this report was a true statement of the assets and liabilities of the corporation, the report would have undoubtedly been competent evidence of the worthlessness of the stock of that corporation, because it disclosed the fact that it was insolvent, and that its liabilities exceeded its assets by more than $600,000, nine months before the stock was exchanged, and the stock could derive no dividend or value from the property of this corporation unless its assets exceeded its liabilities. Since the plaintiff in error waived the objection that no foundation had been laid for the introduction of the report, it was properly received in evidence.

Another alleged error is that the court admitted in evidence a like report of the receiver of the Northwestern Manufacturing & Car Company, made May 10, 1884, over the objections of the plaintiff in error that it was incompetent, irrelevant, and immaterial. But the plaintiff in error subsequently verified the correctness of this very report by the testimony of the receiver, and offered it in evidence on his own behalf. If there was error in admitting it in the first instance, there was certainly no prejudice on the trial, after the plaintiff in error had himself verified and introduced it; and error without prejudice is no ground for reversal.

On September 27,1887, all the property of the Northwestern Manufacturing & Car Company was sold at public auction, by the order of the state court which was winding up the corporation, and the sale was afterwards confirmed by that court. Great publicity was given to the sale. Notice of its time, place, and character was given six weeks before the sale by publication in the two leading newspapers oi' iiie city of St. Paul, in tue Chicago Tribune, the New York Evening Post, the Boston Journal, and the local newspaper published at the home office of the corporation, at Thill water, in Minnesota. On September 20,1888, all the properly of Seymour, Sabin & Co. was sold at public auction, by order of the same court, and that sale was subsequently confirmed. Complaint is made that the court below a(hriitied these orders of sale, the reports of these sales made to the court by the officers appointed to conduct them, and the orders confirming them. The objection urged is that these sales were too remote from February 23, 1885, when the stock was exchanged, to be any evidence ©f the value of that stock at that time. If it were not for the fact already adverted to, that the assets of these corporations were in custodia legis at the time of the exchange of the stock, and that these sales were made by the court in accordance with the provisions of the statutes under which these corporations were organized, this objection might well be sustained. Property that is not in the custody of the law, and property that may, at the option of a party, be taken from its custody, may ordinarily be freely sold by iis owner at public or private sale immediately or within a very short period of time. In an action for the conversion of such property, opinions of its value or sales of it at a period remote from the time of its conversion are incompetent evidence of its value. This is the general rule, because the great hoik of property is of this character. It is subject to public or private sale at any time at the option of its owner. But the assets of these corporations were not in this situation when this stock was exchanged. They were in the custody of the court, and no stockholder or creditor could reach or sell any of them without its order. They were subject to an unusual restriction as to their sale or disposition. They could Toe sold only under the orders of the court, and in accordance with the provisions of the statutes relative to the winding up of the insolvent corporations; and the owners of this stock could obtain nothing from'these assets except through the proceeds of such a sale. The actual value of the stock did not then depend upon the value of the assets of these corporal ions to sell at private sale in the open market at that time, but it depended entirely upon the amounts that could be realized from these assets by the court through the administration of the trust imposed upon it by the statutes. To say that the amounts which the court did realize from this property are no evidence of the amounts which it should or could have realized is to fly in the face of the presumption of sound judgment, wise discretion, and reasonable diligence, raised by the fact that the administration of the affairs of these corporations was conducted, and these sales were made, under the orders of a court of general equity jurisdiction. It was within the discretion of that court to direct a sale of all this property Immediately after the receivers were appointed, or to postpone the sales of some of it to times when, in its opinion, larger sums could be realized. That court undoubtedly pursued the course which in its opinion would be most beneficial to the creditors and stockholders of these corporations, and the result was that the sale of the last of these assets was made three years and seven months after the ex.change of this stock. But the vital question here was, what were these assets worth on February 23, 18S5, to sell under the orders of this court, in whose custody they were, under the provisions of the statutes of Minnesota. The testimony of witnesses familiar with the property and its value was properly offered and admitted to prove this fact. Competent witnesses were properly permitted to testify to their opinion as to the value of the stock at the time of its exchange. Evidence of the amounts which the assets of this corporation actually did sell for was also admitted in evidence; and, after the most patient and careful consideration, we are unable to persuade ourselves that the amount which the property actually brought under the orders of the court was not some evidence of the amount which this property was worth on February 23, 1885, to sell under those orders.

The court below permitted a number of competent witnesses called by the plaintiff in error to testify what the guarantied stock of Seymour, Sabin & Co. was worth in their opinion at the time the bank parted with it, but it refused to allow one witness to give his opinion on this subject on the ground that he had not shown himself competent to do so. This ruling is assigned as error. The witness was the cashier of the First National Bank of Stillwater in 1884 and 1885, and that bank held some special preferred stock of Seymour, Sabin & Co., as collateral to a debt due to it. The car company had kept an account with this bank prior to its failure in May, 1884. The bank held a claim against the car company at the time of its failure, and some of its bills receivable passed through the bank for collection. The witness knew all these facts, and that the car company was in high credit before it was declared insolvent; but he had never examined its assets, and knew nothing of their value except from the statements of the officers of the corporation or of the officers of the court, and nothing of the liabilities of the corporation except that claims to the amount of more than §3,000,000 were made against it. He knew of' sales of the stock made before the failure in 1884, but he knew of but one transaction concerning the stock after the receivers took the assets of the corporations into their possession, and that transaction was that the bank held some of it as collateral. There was no evidence that the stock had any market value, that this witness knew of any market value for it, or that he had formed auy opinion of its value after the corporations were adjudged insolvent and the receivers were appointed; and in this state of the proof the court below held that he was not competent to enlighten the jury by his opinion of its value in February, 1885. A witness ought not to be permitted to give in evidence his opinion of the value of an article unless it appears that he has an opinion, and that he has had and has used advantages superior to those of the jurymen for acquiring correct information on which to base his opinion. In this instance it did not appear that the witness had acquired any correct information from which to form an opinion, or that he had formed any opinion whatever upon this subject. Moreover, an appellate court ought not to reverse a judgment on account of the ruling of a trial court upon the competency of a witness to testify, unless the ruling is prejudicial and clearly erroneous, because the bearing and action of the 'witness on the stand may sometimes properly influence the trial court upon a doubtful question of this character, and these cannot be printed and presented to the appellate court. For these reasons we are satisfied that this case ought not to be reversed on account of this ruling.

It is contended that the plaintiff in error was relieved from all liability on the note in suit, and that the court should have so charged the jury, because he stood in the relation of a surety for the maker of the note, and the defendant in error had permitted its claim against the principal to become barred by the statute of limitations before the trial of this action. The facts on which this claim is based are that the bank filed a claim against the maker of the note and the plaintiff in error in this action several years before the statute of limitations ran against either of them, and caused the summons in the action to be served upon the plaintiff in error, but did not cause it to be served upon the maker of the note at all, and its claim against him became barred by the statute before the trial of the action. There was, however, no evidence of any agreement on the part of the bank to extend the time of payment to the maker, or to forbear or delay the prosecution of its action against Mm. The statutes of the state of Minnesota provided that an action might he brought against two or more persons for the purpose of compelling one of them to satisfy a debt due to the other for which the plaintiff was a surety. Gen. St. Minn. 1878, c. 66, § 330 (Gen. St. 1804, § 5272). The plaintiff in error could have paid the note at any time before the statute ran in favor of the maker, and could then have enforced repayment by the maker, or he could have maintained an action against the maker under the statute we have cited, without first paying the note. Under this state of facts, the plaintiff in error was not released from his liability on the note by the mere failure of the hank to press its action against the maker. Conceding that the plaintiff in error was an accommodation indorser of the note, and that his relation to the maker after he was charged as an indorser was that of a surety, still this relation imposed no obligation of active diligence upon the bank in the prosecution of its suit against the principal. The surety assumes for himself the liability of his principal. The contract of suretyship is not that the creditor will see that the principal pays the debt or performs the obligation, but that the surety will see that the principal pays or performs. It is true that, if the creditor makes a binding agreement with the principal that he will extend the time of payment or forbear to collect the debt, this will release the surety. But the reason of this rule is that such an agreement ties the hands of both creditor and surety, and deprives the surety of his right to pay the debt at any time and enforce repayment, from the principal. Mere forbearance or delay in enforcing the obligation of the principal has no such effect, and hence does not release the surety. 2 Brandt, Sur. § 342; Reid v. Flippen, 47 Ga. 273, 276, 277; Whiting v. Clark, 17 Cal. 407, 411; Hunt v. Bridgham, 2 Pick. 581, 584; Mueller v. Dobsehuetz, 89 ; Hubbell v. Carpenter, 5 N. Y. 171, 177, 178; Rucker v. Robinson, 38 Mo. 154; Morse v. Huntington, 40 Vt. 488.

There are 43 alleged errors assigned in this record. We have carefully considered each one of them. We have reviewed the most important of them,—-those upon which counsel for plaintiff in error appeared to place chief reliance,—and we have stated the reasons why they cannot be sustained. No good purpose would be served by an extended discussion of the alleged errors we have not noticed. It is sufficient to say that no exception was taken to the charge of the court, the evidence was sufficient to warrant the verdict, and the court below, in our opinion, committed no material error in the trial of this case. The judgment below must be affirmed, with costs; and it is so ordered.