136 U.S. 268 (1890), Chicago Ry. Equipment Co. v. Merchants' Nat. Bank

Citation:136 U.S. 268, 10 S.Ct. 999, 34 L.Ed. 349
Case Date:May 19, 1890
Court:United States Supreme Court

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136 U.S. 268 (1890)

10 S.Ct. 999, 34 L.Ed. 349




United States Supreme Court.

May 19, 1890

In error to the circuit court of the United States for the western district of Wisconsin.

This action was brought by the Merchants' National Bank of Chicago against the Chicago Railway Equipment Company, a corporation of Wisconsin, upon two written instruments, one of which is in the words and figures following: '$5,000. Chicago, Ill., January 20, A. D. 1884. For value received, four months after date the Chicago Railway Equipment Company promise to pay to the order of the Northwestern Manufacturing and Car Company of Still water, Minnesota, five thousand dollars at First National Bank of Chicago, Illinois, with interest thereon at the rate of ----- per cent. per annum from date until paid. This note is one of a series of twenty-five notes, of even date herewith, of the sum of five thousand dollars each, and shall become due and payable to the holder on the failure of the maker to pay the principal and interest of any one of the notes of said series; and all of said notes are given for the purchase price of two hundred and fifty railway freight-cars manufactured by the payee hereof, and sold by said payee to the maker hereof, which cars are numbered from 13,000 to 13,249, inclusive, and marked on the side thereof with the words and letters 'Blue Line, C. & E. I. R. R. Co.;' and it is agreed by the maker hereof that the title to said cars shall remain in the said payee until all the notes of said series, both principal and interest, are fully paid, all of said notes being equally and ratably secured on said cars. No. 1, GEO. B. BURROWS, Vice-Rresident. Countersigned by E. D. BUFFINGTON, Treasurer.' This writing is indorsed: 'NORTHWESTERN MANUFACTURING


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[10 S.Ct. 1000] Greenleaf Clark, for plaintiff in error.

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J. C. Gregory and John P. Wilson, for defendant in error.


Mr. Justice HARLAN, after stating the facts in the foregoing language, delivered the opinion of the court.

Are the writings in suit to be regarded as promissory notes, to be protected, in the hands of bona fide holders for value, according to the rules of general mercantile law as applicable to negotiable instruments, or are they anything more than simple contracts, subject, in the hands of transferees, to such equities and defenses as would be available between the original parties? This is the question upon which, it is conceded, depends the correctness of the several rulings to which the assignments of error refer.

By the statute of Illinois revising the law in relation to promissory notes, bonds, due-bills, and other instruments in writing, approved March 18, 1874, and in force July 1, 1874, (Rev. St. Ill. 1874, p. 718; 2 Starr & C. Ann. St. p. 1651, c. 98; Rev. St. 1845, p. 384,) it is provided:

'Sec. 3. All promissory notes, bonds, due-bills, and other instruments in writing, made or to be made by any person, body politic or corporate, whereby such person promises or agrees to pay any sum of money or article of personal property, or any sum of money in personal property, or acknowledges any sum of money or article of personal property to be due to any other person, shall be taken to be due and payable, and the sum of money or article of personal property therein mentioned shall, by virtue thereof, be due and payable as therein expressed.

'Sec. 4. Any such note, bond, bill, or other instrument in writing, made payable to any person named as payee therein, shall be assignable by indorsement thereon, under the hand of such person and of his assignees, in the same manner as bills of exchange are, so as absolutely to transfer and vest the property thereof in each and every assignee successively.'

Other sections of the statute throw some light on the question

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before us. The fifth section provides that any assignee to whom such sum of money or personal property is by indorsement made payable, or, he being dead, his executor or administrator, may in his own name institute and maintain the same kind of action for the rocovery thereof against the person making and executing the note, bond, bill, or other instrument in writing, or against his heirs, executors, or administrators, as might have been maintained against him by the obligee or payee, in case it had not been assigned. By the sixth section no maker of or other person liable on such note, bond, bill, or other instrument in writing is allowed to allege payment to the payee made after notice of assignment as a defense against the assignee. The eighth section provides: 'Any note, bond, bill, or other instrument in writing, made payable to bearer, may be transferred by delivery thereof, and an action may be maintained thereon in the name of the holder thereof. Every indorser of any instrument mentioned in this section shall be held as a guarantor of payment, unless otherwise expressed in the indorsement.' The ninth section allows the defendant, when sued upon a note, bond, or other instrument in writing for the payment of money or property, or the performance of covenants or conditions, to prove the want or failure of consideration: 'provided, that nothing in this section contained shall be construed to affect or impair the right of any bona fide assignee of any instrument made assignable by this act, when such assignment was made before such instrument became due.' The eleventh section provides that 'if any such note, bond, bill, or other instrument in writing shall be indorsed after the same becomes due, and any indorsee shall institute an action thereon against the maker of the same, the defendant, being maker, shall be allowed to set up the same defense that he might have done had the action been instituted in the name and for the use of the person to whom such instrument was originally made payable, or any intermediate holder.' Under the twelfth section, if the instrument has been assigned or transferred by delivery to the plaintiff after it became due, 'a set-off to the amount of the plaintiff's debt may be made of a demand existing against any

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person or persons who shall have assigned or transferred such instrument after it became due, if the demand be such as might have been set off against the assignor, while the note or bill belonged to him.' If the instrument is assigned before the day the money or property therein mentioned becomes due and payable, then, by the thirteenth section, the defendant, in an action brought by the assignee, is allowed to give in evidence at the trial any money or property actually paid on the note, bond, or bill, or other instrument in writing before it was assigned to the plaintiff, on proving that the plaintiff had 'sufficient notice of the said payment before he accepted or received such assignment.'

It is contended by the defendant that these statutory provisions, so far as they embrace instruments not negotiable at common law, relate only to the manner of their indorsement or transfer, and that the indorsee takes them, as before the statute, subject to all the defenses that might be interposed in an action between the original parties. This view is inconsistent with the decisions of the supreme court of Illinois. Some of these decisions will be referred to as indicating the scope and [10 S.Ct. 1001] effect of the local statute, as well as the views of that court upon the general principles of commercial law involved in this case.

In Stewart v. Smith, 28 Ill. 397, 406, 408, the principal question was as to the negotiability under the above statute of the following instrument: 'Chicago, 21st of January, 1859. Received from teams in our pork house, No. 114 West Harrison street, 280 hogs, weighing 45,545 pounds, the product of which we promise to deliver to the order of Messrs. Stevens & Brother indorsed hereon. G. & J. STEWART.' The court said: 'Testing the writing by this statute, there cannot be a doubt upon its assignability. It is an instrument in writing. It purports to be made by persons. By it those persons promise and agree to deliver a certain article of personal property to the order of certain other persons. By force of the statute, this article of personal property mentioned in the instrument of writing so made, by virtue of its being so mentioned and in such form of words, must be

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taken to be due and payable to the person to whom the instrument in writing is made. The statute does not require that the note or instrument in writing shall be payable at any particular time or place, or be expressed for value received, or that any consideration whatever should appear in the writings. An acknowledgment of indebtedness, in the simplest form, would seem to be all the statute requires to give it the character of negotiability. A writing in this form, probably the simplest, would be a perfect negotiable note under this statute: 'Due John Brown ten thousand dollars. July 4, 1862;' and signed by the maker. Such an instrument is clothed with all the attributes of negotiability, and imports a consideration, and no averments or proofs are necessary on those points. * * * The other point made by plaintiffs, that the instrument was overdue on the 26th of January, 1859, when it was indorsed, to such an extent as to put a prudent man upon inquiry in respect to all equities which the makers might have against it in the hands of the promisee, we do not consider a strong one. * * * The indorsement, being in season, cuts off all equities, if there were any, in defendant's favor, and the only hazard incurred in holding it back for payment was that the release of the indorsers might have been caused by it, but not the release of the maker.'

In Cisne v. Chidester, 85 Ill. 524, the action was upon the following note: '$120. May 2, 1871. On the first day of September,...

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