Powell v. Waters — 17 Johns. 176

Majority

p. 148

J. and T. Powell against Waters.

Headnote

Mere delay to sue the principal does not affect the rights ... of the creditor surety! A delay, therefore, er'"of'í note', after it had be-’ So™6 diSimge the endorsor. what a'w'une'ss testified on a twéen^hcsarac parties is not admiss* e, nn-Jess it is first Ssh*ad W

Where a. made a note Sfendant*0 'or order, which byStheedrfcnd-iiiscounted'at'a accommodation o(UA.,m\vho, on its being refused gotiated it to a adiscoum°with a knowledge of ces C'thismdoes not’ amount to a fraud which can affect the rights of the holder agamst endorsor.

A party to a is a competent witness, in a suit on that note, to prove any fact which has arisen subsequently to his becoming- a party to such note, which does not involve his own turpitude. By the rule that a party to a negotiable note cannot be a witness to invalidate it, is understood, that a person whose name appears on negotiable paper, shall not be admitted to say, that it was tainted with or fraud when it passed from his hands.

Thus a second endorsor is a competent witness to prove that the third endorsor had said that he had received and discounted the note’on usurious interest.

Where a note is made for the purpose of raising money, and is discounted at a higher premium than the legal rate of interest, and none of the parties, whose names are on the note, could, as between themselves, maintain a suit upon it, when it became payable, if it had not been discounted, then the transaction is usurious, and the note void.

THIS was an action of assumpsit, tried before Mr. Justice Van Ness, at the Orange circuit, in December, 1818.

The plaintiffs declared, as third endorsees, against the defendant, as first endorsor of a promissory note, dated July 14, 1814, for 1,500 dollars, made by Benjamin Wood, payable ninety days after date, at the bank of Newburgh, to the defendant or order, who endorsed it to R. Sf W. Smith, who endorsed it to J. and T. Powell Sf Co., by whom it was en dorsed to the plaintiffs.

*At the trial, the defendant called Wm. Smith, one of the endorsors of the note, to prove that the note was made in order to be discounted at the bank of Newburgh; and that the witness having been entrusted with the note to take to the bank, he had fraudulently put it in circulation. The witness testified, that the note in question was a renewal of a former nQte ^ same amount3 0f which B. Wood was the maker, and which was made an<i defendant was. the endorsor, and endorsed for the purpose of being offered for discount at the bank of Newburgh, for the accommodation of Wood,; that the witness also endorsed the note, and presented it, for discount at the bank, who refused to discount it; that the witness then called on Henry Parish, of the firm of J. Sf. T. Pow-e(l Co., to discount the note, which he did accordingly; and was, at the same time, informed by the witness of the sPec*a^ purpose for which the note was made.

The witness never communicated to the defendant that he ]la¿ negotiated the note to J. Sf T. Powell Sf Co. The note jn question was made and endorsed lor the purpose oí taking UP ^le fe,rmer note °f which Wood had the exclusive benefit; and the former note was taken up with the proceeds of the Present note. The defendant did not know, when he endorsed the note in question, that the former note had been negotiated to p0U!eil ⅛ Co. The witness said he was not present when ~ . , . ,. , , J , . , the note m question was signed by Wood, and endorsed by tpe c}efenc[ant. It was delivered to him by Wood, and he had no instructions or directions from either, in what manner he was j0 negotiate it, and nothing passed between them on the subject; though Wood knew how he meant to dispose of it,

p. 149

and both he and the defendant well understood that with the avails of it he was to take up the original note.

The defendant further offered to prove, by the same witness, that J. Powell, one of the plaintiffs, had since admitted to him, that the note was usuriously discounted. This evidence was objected to on the part of the plaintiffs, and overruled by the judge.

The defendant then called Benjamin Wood as a witness and the purpose of his testimony being stated, he was objected to by the plaintiff’s counsel, but admitted by the judge. #He said he was the maker of both the notes mentioned by the last witness; that he procured the defendant to endorse the first note, for his accommodation, to be discounted at the Newburgh bank, and the witness delivered it to Smith to get it discounted there. The second note was made and endorsed for the purpose of taking up the first, and he delivered it to Smith for that purpose, who, on his return from Newburgh, told the witness that he had negotiated the note to Powell ⅜ Co. The witness further stated, that when the defendant endorsed the second note, he told him that it was to be discounted at the Newburgh bank, and with the proceeds the first note was to be taken up; and he supposed that the defendant did not know that the first note had not been discounted at the bank, or that it had been negotiated to Powell Co. After the note in question became payable, October 15, 1814, Jacob P., one of the plaintiffs, told the witness, that he would give him time to pay, provided he would give security. The note was then in the hands of an attorney for collection, where it remained for about a year, on the promise of the witness to give security. The witness, after the note fell due, had extensive dealings with Powell &f Co., and had paid them above 4,500 dollars. The witness failed in 1816, until which time he was able to pay his debts, and was able to pay the note in question long after it fell due. On being questioned as to the manner in which he paid the sum mentioned to Powell &f Co., the witness said, that his brothers were sureties for him, and two hundred acres of land, of which he was in possession, were conveyed to them by his father, at the request of the witness, which they then mortgaged to Powell ⅜ Co., for the debt.

The attorney testified that the plaintiffs put the note in question into his hands, for collection, in June or July, 1815; the witness did not demand payment of the defendant until December following ; and the note not being paid, he commenced a suit in that month. Wood was then solvent, though there were large demands against him. His instructions were to receive the joint bond of Wood and the defendant, if they offered it, payable in one year, He delayed commencing the suit, in consequence of the repeated promises of Wood, to get the bond executed, which was the #only security mentioned. He saw and conversed with Wood only, and supposed that he

p. 150

communicated the proposals to the defendant, with whom he was intimate.

The defendant offered to prove what a witness had sworn, on a former trial, between the same parties, on this note, as to the usury alleged, which, being objected to, was overruled.

A verdict was taken for the plaintiffs, for 1,940 dollars and 29 cents, subject to the opinion of the court, on a case containing the facts above stated.

The case was submitted to the court, with the points and authorities, without argument.

delivered the opinion of the court. The material points in the cause are, whether the note in question was fraudently put into circulation? whether the plaintiffs are bona fide holders of it ? and whether the confession of one of the plaintiffs, that the note was usuriously discounted, was admissible evidence ? There is no force in the objections, that the indulgence granted by the plaintiffs to Wood, discharged the defendant, or as to the overruling the proof, of what a witness had sworn on a former trial, as to usury in the transaction. It is decisive, as to these points, that mere delay to sue does not affect the rights of the creditor even against a surety ; and that to entitle a party to give in evidence the testimony of a witness on a former trial, it must be shown, that the witness is dead; and this was not shown or pretended,^[2]

The note in question was a renewal of one which had been drawn by Wood, and endorsed by the defendant. The first note was intended to be discounted at the Newburgh, bank, but was discounted by the plaintiffs; and it appeared, by the testimony of Smith, an endorser of the note, subsequent to the defendant’s endorsement, that the present note was delivered to him by Wood, endorsed by the defendant, without any directions or instructions from either, in what manner he was to negotiate it, though it was well understood by Wood and the defendant, that with the avails he was to take up the original note. Independently of the question of usury, there is nothing in the objection; the #first note was made and endorsed to raise money on, and it was entirely immaterial whether it was discounted at the Bank of Newburgh, or elsewhere. It did not alter or increase the responsibility of the endorser; the money to be raised was intended to be for the benefit of Wood, and he did receive the money for which the first note was discounted. If the plaintiffs knew, when they received the note, that it was intended to be discounted at the Bank of Newburgh, and had been refused, it would not affect them, or establish any fraud.

p. 151

Smith, the' second endorser of the note, and the person who had procured the plaintiffs to discount the first note, and had negotiated the note in question to them, to take up the first note, was asked, whether Jacob Powell, one of the plaintiffs, had not, since the note was discounted, admitted to him, that it was usurious!? discounted. This question was objected to by the plaintiff’s counsel, and overruled.

The situation in which Smith stood did not incapacitate him from testifying to that fact. He was not asked any question involving his own turpitude, as whether the note which he passed as a good and available note, was void within his knowledge, when he offered it to the plaintiffs, and that I consider to be the precise point on which a majority of this court, in Winton v. Saidler, ( 3 Johns. Cas. 185 .)^[2] rejected the testimony of an endorsor. The reasoning of Mr. Justice Thompson, who delivered an opinion on that side of the question, proceeds on the maxim, that nemo allegans suam turpitudinem est audi-endus; he considered it as contrary to sound policy and morality, that a party to a negotiable note should be admitted as a witness to invalidate it; meaning, undoubtedly, to be understood, that a person whose name was on a negotiable paper, and who had thereby contributed to its circulation, should not be heard to say, that the paper, thus sanctioned by his name, was tainted when it passed from his hands. But if it receives its taint when it is negotiated to the party plaintiff, by the facts then happening, it is not contrary to public policy or morality, nor would it come within the principle of the decision of Win-ton and Saidler, to hear the witness as to such facts, if there were no other objections to his testifying. *If the plaintiffs discounted the first note upon a usurious consideration, and the note in question was a mere substitute for that note, they are not entitled to object to the evidence, that they themselves were guilty of usury, because Smith, whose name was on the note, was the agent of Wood, in making the usurious bargain. The principle in Winton and Saidler was intended as a protection for the fair and bona fide holders of a negotiable note or bill against any prior transaction, which had already invalidated the paper, so far as regarded any person who had, by endorsing the paper, or putting his name to it, as a party, from being a witness to impeach it. The case of Skelding v. Haight ( 15 Johns. Rep. 275 .) is in point to show that a party, whose name is on a negotiable paper, may be permitted to testify as to any facts which arise subsequent to the signature of the witness. Upon authority, then, Smith was a good witness to prove the usury by the plaintiffs, in their acquisition of the note,^[3]

(a) (a) Vide Stafford v. Rice, 5 Cowen, 24.

(b) (b) Vide M’Fadden v. Maxwell, post. 188. Myers v. Palmer, 18 Johns. Rep. 167 . Tuthill v. Davis, 20 Johns. Rep. 285 . Stafford v. Rice, 5 Cowen, 22. Utica Bank v. Hillard, Ibid, 153. Baskins v. Wilson, 6 Cowen, 471.

p. 152

It may, however, be urged, that the purchase of the note by the plaintiffs, at such a discount as would amount to usury, ⅛ case the note was originally intended to be sold to them, is no*'' unc^er circumstances, usurious, and in fact that it was the mere purchase of the note at a less sum than its face. The case of Munn v. The Commission Company ( 15 Johns. Rep. 55 .) settles this point. It is there said, that if a bill or note be made for the purpose of raising money, and it is discounted at a higher premium than the legal rate of interest, and none of the parties whose names are on it can, as between themselves, maintain a suit on the bill when it becomes mature, provided it had not been discounted, that then such discounting the bill would be usurious, and the bill would be void. In the present case, the note was endorsed for the accommodation of Wood., and it was not an available paper in the hands of either the payee or endorser, until it had been negotiated to the plaintiffs, and the transaction, therefore, would be usurious, if the plaintiffs purchased the note at a less sum than its nominal amount, deducting the interest for the time the note had to run.

It certainly was an extraordinary question which was put *to the witness, whether one of the plaintiffs had not admitted to him, since the note was discounted, that it was usuriously discounted; for Smith, being the person who transacted the business, would himself know the fact. Still, however, I perceive nothing improper in the question ; his answer may have shown the relevancy and propriety of the inquiry; and it is not to be supposed that the question would have been entirely overruled, but under the idea that Smith, being an endorser, would not be permitted to testify at all to the usury. Had not that idea prevailed, the question would have been so shaped by the judge, as to elicit all that the witness knew on the subject. We, therefore, grant the motion for a new trial, with costs to abide the event of the suit.

New trial granted.

Footnotes

(a) (a) What one swore on a former trial, cannot be given in evidence unless he be dead. That he is beyond the reach of process of subpeena, and cannot be found on diligent inquiry, will not render such proof admissible. Wilbur v. Selden, 6 Cowen, 162.