70 F. 468 (7th Cir. 1895), 211, Phipps v. Harding

Docket Nº:211.
Citation:70 F. 468
Party Name:PHIPPS et al. v. HARDING.
Case Date:October 07, 1895
Court:United States Courts of Appeals, Court of Appeals for the Seventh Circuit

Page 468

70 F. 468 (7th Cir. 1895)

PHIPPS et al.

v.

HARDING.

No. 211.

United States Court of Appeals, Seventh Circuit.

October 7, 1895

Page 469

This suit was brought to recover the amount of a promissory note executed by the Hudson Furniture Company (a corporation of the state of Wisconsin), dated Hudson, Wis., March 26, 1892, payable April 14, 1893, to the order of Edgar Harding, the defendant in error, for the sum of $5,000, payable at the North National Bank, Boston, Mass. Prior to its delivery or acceptance, the plaintiffs in error severally signed their names upon the back thereof for the purpose of giving credit to such note with the payee. It was thereupon sent by mail from Hudson, Wis., to the payee, at his residence in the state of Massachusetts, with the request that he would accept it in lieu of and in extension of a note of the Hudson Furniture Company for a like amount then held by him, and maturing at or about the date of the new note. It was received by the payee in the state of Massachusetts, and there accepted by him for the prior obligation of the company, upon the faith and security of the individual names upon the paper. The note was not paid at maturity. It was not properly protested for nonpayment, nor were the plaintiffs in error seasonably notified of its presentment and nonpayment. At the time of its execution and delivery, the Hudson Furniture Company was insolvent, to the knowledge of the plaintiffs in error, who were directors of the company, constituting the majority of its board of directors at the time of its execution, and so continued down to and after the maturity of the note.

By the statute of Massachusetts (St. 1874. c. 404) it is enacted that 'all persons becoming parties to promissory notes payable on time, by signature on the back thereof, shall be entitled to notice of the non-payment thereof the same as endorsers.'

The case was tried in the court below, without the intervention of a jury. The court found the facts as above stated, and as conclusion of law upon such facts, held that the several individual defendants (plaintiffs in error here) were 'joint and several makers of said note, and therefore not entitled to protest of said note,' and judgment was rendered against all the defendants for the amount due upon the note.

It is assigned for error that the court erred in the following respects: (1) In the finding and decision of the said circuit court that at the time of the execution and delivery of the note upon which this action was brought to the plaintiff, the defendant, the Hudson Furniture Company, was insolvent; (2) in that the said court also found and decided that such insolvency was known by the defendants, Phipps, Coon, Jones, and Goss; (3) in the finding and decision of the said court that the said Phipps, Coon, Jones, and Goss signed the said note; (4) in the finding and decision of said court that said Phipps, Coon, Jones, and Goss were not entitled to protest of said note; (5) in the finding and decision that plaintiff recover from the defendants above named the amount due on said note, with interest and costs; (6) in the finding and decision of said court by which judgment is ordered according to the findings.

Charles P. Spooner and James P. Kerr, for plaintiffs in error.

M. H. Houtelle, for defendant in error.

Before WOODS and JENKINS, Circuit Judges, and BAKER, District Judge.

JENKINS, Circuit Judge, after stating the facts, .

Page 470

We are not at liberty to review the evidence to ascertain whether the finding of the court below upon the facts was warranted by the testimony. We are restricted to the consideration of the question whether the facts as found support the judgment rendered. Jenks' Adm'r v. Stapp, 9 U.S.App. 34, 3 C.C.A. 244, and 52 F. 641. We must therefore consider the case upon the assumption that, at the time of the execution of the note, the Hudson Furniture Company was insolvent, to the knowledge of the individual parties to the note, who were its directors. Whether the term 'insolvent,' as employed in the findings, was used in the sense of inability to meet obligations as they mature, and in contradistinction to 'bankruptcy,' meaning an absolute inability to pay a debt, without respect to time,-- a want of assets convertible into money sufficient to pay the debt,-- it is not necessary for us to consider. It may be observed, however, that it appears from the record that this corporation continued a going concern after the making of the note, and until February 11, 1893, when, at a meeting of the stockholders of the company, it was resolved that owing to the large loss of the company in its business during the previous year, as disclosed by the treasurer's report, the board of directors was authorized to proceed at once to collect all outstanding accounts, sell the property of the company, and apply the proceeds to the payment of its debt, and generally to do every and all things necessary to wind up the affairs of the company at the earliest date practicable.

'Insolvency,' in a popular sense, means 'bankruptcy.' There is, however, a state of insolvency which does not necessarily imply bankruptcy. This is true, doubtless, within the experience of most merchants and corporations engaged in trade. It is the incident of nearly every business that periods of depression are experienced, when there is a total inability to meet obligations as they mature; not from want of sufficient assets, but from inability to turn them presently into money for the payment of debts. That is a state of insolvency which, continuing, may ultimately result in bankruptcy. It, however, often occurs that by prudent management, well-directed energy, and by the indulgence of creditors, the business is kept upon its feet, and, with the advent of more prosperous times, at last re-established upon a sure and solvent basis. We are unable to say in what sense the term 'insolvent' was employed in these findings of fact. The history of the company, as we read it in the evidence, and as stated in the letter inclosing and asking acceptance of this note by Mr. Harding, indicates that the company was financially embarrassed, but that its directors hoped, through the indulgence of its creditors, to restore the company to a solvent condition, and to pay its notes after the end of the then current year. We have said this much, not that we deem the fact essential to a correct decision of the case, but simply to call attention to the necessity that, in findings of fact which are to be presented for review in this court, care should be taken that terms should not be employed which are susceptible of double or of doubtful interpretation. This is of importance, since we are without authority to review the evidence to ascertain the

Page 471

sense in which terms are employed, or to declare the sense in which they should have been used.

It is settled doctrine that the federal courts, in the exercise of their co-ordinate jurisdiction, are not bound by the decisions of the state courts upon subjects of general law, but are at liberty to follow the convictions of their own judgment. Swift v. Tyson, 16 Pet. 1; Railroad Co. v. National Bank, 102 U.S. 14; Burgess v. Seligman, 107 U.S. 20, 2 Sup.Ct. 10; Myrick v. Railroad Co., 107 U.S. 102, 1 Sup.Ct. 425; Railway Co. v. Prentice, 147 U.S. 106, 13 Sup.Ct. 261. Therefore, notwithstanding it has been held by the supreme court of the state in which this note was executed that parties standing in like relation to bills and notes with the plaintiffs in error here are to be treated as indorsers (Blakeslee v. Hewitt, 76 Wis. 341, 33 N.W. 1105), the supreme court of the United States, in Good v. Martin, 95 U.S. 90, and Bendey v. Townsend, 109 U.S. 665, 667, 3 Sup.Ct. 482, has determined that they must be treated as joint makers of the note with the party who appears thereon as maker. And such is also the law of Massachusetts. Bank v. Willis, 8 Metc. (Mass.) 504; Brown v. Butler, 99 Mass. 179; Way v. Butterworth, 108 Mass. 509; Allen v. Brown, 124 Mass. 77. We are therefore constrained to hold that the plaintiffs in error were joint makers with the Hudson Furniture Company of this note, and, if the contract is to be controlled by the law of the state of Wisconsin, were not entitled to notice of protest. Being joint makers of the note, their liability is controlled by the law of the place where the contract is payable, because they are deemed to have reference to the law of such place in the construction of the obligation assumed. Brabston v. Gibson, 9 How. 263, 277; Supervisors v. Galbraith, 99 U.S. 214; 218; Pierce v. Indseth, 106 U.S. 546, 1 Sup.Ct. 418; 1 Daniel, Neg.Inst. (4th Ed.) § 895. It would be otherwise with respect to the indorser of a note, for he is treated as in fact entering into a new obligation, undertaking that the maker will pay at the time and place stipulated, and that he (the indorser) will respond to his obligation at the place of the execution of his indorsement, if there delivered, in the event of dishonor and notice. If delivered at a place other than at the place of execution, the law of the place where delivered controls. Daniel, Neg. Inst. Secs. 868, 899; Slacum v. Pomeroy, 6 Cranch, 221; Musson v. Lake, 4 How. 262. The plaintiffs in error thus being joint makers of a note payable and delivered in the state of Massachusetts, their obligation is to be judged by the law of that state.

We are therefore brought to the inquiry whether the statute of that state to which reference has been made is operative to clothe the joint makers with the rights to notice of protest that an indorser is entitled to. This statute manifestly regards all parties to a note by signature on the back thereof, whether they were to be treated as guarantors or as joint makers, in the light of sureties for the maker, and recognizes the equitable right of such parties to notice of dishonor...

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