Citizens' Nat. Bank of Pocomoke City v. Custis

• Decision Date: 08 June 1927
• Docket Number: 14.
• Citation: 138 A. 261,153 Md. 235
• Parties: CITIZENS' NAT. BANK OF POCOMOKE CITY v. CUSTIS.
• Court: Maryland Court of Appeals

138 A. 261

153 Md. 235

CITIZENS' NAT. BANK OF POCOMOKE CITY v. CUSTIS.

No. 14.

Court of Appeals of Maryland

June 8, 1927

Appeal from Circuit Court, Somerset County; Robt. F. Duer and Joseph L. Bailey, Judges.

"To be officially reported."

Action by Bertha D. Custis against the Citizens' National Bank of Pocomoke City, executor of the last will and testament of John T. M. Sturgis, deceased. From the judgment, the defendant appeals. Reversed, and a new trial awarded.

Argued before BOND, C.J., and PATTISON, URNER, ADKINS, OFFUTT DIGGES, PARKE, and SLOAN, JJ.

L. Paul Ewell, of Pocomoke City (J. Shiles Crockett, of Pocomoke City, on the brief), for appellant.

Joshua W. Miles, of Princess Anne (Miles & Myers, of Princess Anne on the brief), for appellee.

PARKE J.

The paper writing in controversy on this appeal would formerly have been a nonnegotiable instrument, known as a "single bill" or "writing obligatory," since, by concluding the body of the paper with the term "Witness my hand and seal," it made the subsequent signature and seal of the subscribing obligor the real evidence of the execution of the instrument and gave to it the character and effect of a specialty. ^[1] In an action at law on such a sealed instrument, the absence or failure of consideration could not be inquired into or be made a matter of defense except through a plea by way of equitable defense; ^[2] and an assignee acquired no greater or other right under the instrument than his assignor had, and so, standing in the shoes of the assignor, he would take subject to all the equities, burdens, and setoffs existing between the original parties before the assignment or notice thereof, and the defenses which would have been available against the assignor would be available against the assignee. ^[3]

These and other characteristics distinguished a single bill from a negotiable instrument until the passage of the Negotiable Instruments Law (Acts 1898, c. 119), which enacted that the validity and negotiable character of an instrument should not be affected by the fact that it bears a seal. ^[4] Since the instrument at bar is in writing and is signed by the maker and contains an unconditional promise to pay to the order of the appellee a sum certain in money on demand, it is a valid and negotiable promissory note, notwithstanding the fact that the paper is executed with a seal as was contemplated by the parties. ^[5] Indeed, the terms "maker and indorser" and the stipulation that the maker or an indorser of the paper in suit engaged to waive demand, protest, and notice of nonpayment alike signify that the effect of the statute on an instrument under seal, but otherwise negotiable, was within the contemplation of the parties and anticipated in the formation and execution of the instrument. Compare Jackson and Wife v. Myers Bros., 43 Md. 452, 464, 465.

The obvious meaning of the Negotiable Instruments Act was to confer negotiability upon any instrument of writing, which, although sealed, possessed the essentials of a negotiable paper. The statute enacted in explicit terms that, so far as its validity and negotiable character are concerned, the instrument is not affected by its bearing a seal. In other words, the instrument being otherwise negotiable, the seal will be disregarded as interposing any bar to full negotiability. Thus the instrument becomes a statutory negotiable paper, and, by a statutory conversion, loses its position and quality as a specialty to the extent both of its negotiable characteristics and of its validity or legal sufficiency as a negotiable instrument. So, as a negotiable instrument, the paper writing in the instant case is the statutory equivalent of a negotiable promissory note, and therefore it must be assumed that the parties who are charged with knowledge of the law understood that the obligation was negotiable, and that their relative rights and liabilities would be construed and determined by the provisions of the Negotiable Instruments Act. Vanderford v. Farmers' Bank, 105 Md. 164, 168, 169, 66 A. 47, 10 L. R. A. (N. S.) 129; Arnd v. Heckert, 108 Md. 300, 302, 70 A. 416; Dever v. Silver, 135 Md. 355, 362, 109 A. 67. By the express terms of this statute, the note now before the court is deemed prima facie to have been issued for a valuable consideration, and the maker to have become a party to the note for value, but absence or total or partial failure of consideration is a matter of defense as between the parties or to any person not a holder in due course. Code, art. 13, §§ 43, 44, 47, 77; Herrman v. Combs, 119 Md. 41, 43, 44, 85 A. 1044; Shaffer v. Bond, 129 Md. 648, 653-661, 663, 99 A. 973; Ingersoll v. Martin, 58 Md. 67, 73, 74, 42 Am. Rep. 322; Black v. Bank of Westminster, 96 Md. 399, 416, 54 A. 88; Harper v. Davis, 115 Md. 349, 357 A. 1012, 35 L. R. A. (N. S.) 1026, Ann. Cas. 1913A, 861; Bear Creek Lumber Co. v. Bank, 120 Md. 566, 568, 87 A. 1084; Dever v. Silver, 135 Md. 355, 362, 363, 109 A. 67; Leonard v. Union Trust Co., 140 Md. 192, 198, 199, 117 A. 318; Arnd v. Heckert, 108 Md. 300, 302, 70 A. 416; Jamesson v. Citizens' Bank, 130 Md. 75, 83, 84, 99 A. 994, Ann. Cas. 1918A, 1097.

The Negotiable Instruments Act therefore abolishes the conclusive presumption of consideration for a sealed instrument which is otherwise negotiable, but gives to every negotiable paper, whether with or without a seal, the prima facie presumption that it was issued for a valuable consideration and that every person whose signature appears thereon becomes a party thereto for value, subject, however, to the right of the maker, as against any person not a holder in due course, to show affirmatively the consideration to be absent, as in the case of a gift, or to have failed in whole or in part. Supra, and Harper v. Davis, 115 Md. 349, 357, 80 A. 1012, 35 L. R. A. (N. S.) 1026, Ann. Cas. 1913A, 861; De Grange v. De Grange, 96 Md. 609, 613, 54 A. 663; Shaffer v. Bond, 129 Md. 648, 661-663, 99 A. 973; Dever v. Silver, 135 Md. 362, 109 A. 67. The cases of Feeser v. Feeser, 93 Md. 716, 724, 50 A. 406, and Junkins v. Sullivan, 110 Md. 539, 73 A. 264, are not in conflict with this statement of the law as they present a different record with other questions than those on this appeal. It is true, each of these decisions was subsequent to the passage of the Negotiable Instruments Act in 1898, and dealt with a sealed instrument, but here the analogy ceases. No question was made of the absence or failure of consideration, which apparently was accepted as being sufficiently established by the presence of the seal to each paper writing, but the principal controversy in each case was whether the instrument was a valid obligation or of a mere testamentary character. But the distinction more pertinent to the appeal at bar is that in neither instance did the facts bring the case within the act, because the specialty in each would not have been a negotiable instrument, if unsealed. The sealed instrument in the first appeal, also, was executed and delivered on August 24, 1887, which was prior to the passage of the act, and therefore expressly excluded from its operation. Code, art. 13, § 18.

No decision of any appellate tribunal has been found or brought to our attention which would be authority for a conclusion different from the one here stated. The case of Kennedy v. Collins (1919) 7 Boyce (30 Del.) 426, 108 A. 48, is the only conflicting authority we have been able to find. In that case the court instructed the jury that a sealed note was not subject to the defense of want of consideration, since the seal imported consideration. The case was decided after the passage of the Negotiable Instruments Act in Delaware, but the court made no reference to the act, and the weight of the decision is further lessened by the consideration that the decision was made at nisi prius in an oral instruction to the jury, without any citation of authority. The decision cannot be accorded the weight of a judgment by an appellate tribunal, and there is no reason why it should prevail over the clear intent of the Negotiable Instruments Act and the authority of our own and other appellate courts. Supra, and see 29 Yale Law Journal, 345.

As the statute of limitations affects neither the validity nor negotiable character of an instrument, its execution with a seal would continue to make the 12 years' period of limitations applicable, but a different problem is presented with respect to pleading. Clarke v. Pierce, 215 Mass. 552, 553, 102 N.E. 1094, Ann. Cas. 1914D, 421. So long as a sealed instrument is regarded as a specialty, the seal either imports a consideration or renders a consideration unnecessary to its validity as an enforceable obligation. Hence at common law the absence or failure of consideration for a sealed instrument was not available as a defense, and neither the usual and proper plea of non est factum, nor the permissible special pleas at law to an action of debt on a specialty, permitted any such defense to be made. Poe's Pleading (Tiffany Ed.)§ 625; Junkins v. Sullivan, 110 Md. 539, 73 A. 264; Conowingo Land Co. v. McGaw, 124 Md. 643, 645, 93 A. 222; Waldeck v. Emmart, 127 Md. 470, 476, 96 A. 634; Merryman v. Wheeler, 130 Md. 566, 569, 101 A. 551. Consequently, the maker could not set up at law the defense of a total or partial failure of consideration in an action of debt on a sealed instrument, yet the legal right of the maker to maintain this defense against a holder not in due course was inherent in every negotiable instrument and is expressly assured by the statute. If this defense be not allowed at law, the instrument under consideration would be deprived of one of the characteristic attributes of negotiable paper, and the purpose of the statute would be...