First National Bank of Huntington v. Henry

• Decision Date: 19 December 1900
• Docket Number: 18,796
• Parties: First National Bank of Huntington v. Henry et al
• Court: Indiana Supreme Court

58 N.E. 1057

156 Ind. 1

First National Bank of Huntington v. Henry et al

No. 18,796

Supreme Court of Indiana

December 19, 1900

From the DeKalb Circuit Court.

Affirmed.

J. B Kenner, U. S. Lesh and J. S. Slick, for appellant.

A. A Adams, D. M. Link, T. R. Marshall, W. F. McNagny and P. H Clugston, for appellees.

OPINION

Baker, J.

On June 24, 1895, appellant filed in the Whitley Circuit Court a complaint in one paragraph against appellees John C. Henry and his wife Sadie Henry and against one James Arnold. The complaint charged that on June 14, 1892, Henry executed his note for $ 8,000 payable three years after date to Arnold or order at a bank in this State; that, on the same day, to secure the payment of the note, Henry and his wife executed to Arnold their mortgage of Henry's real estate in Whitley county; that on June 16, 1894, Arnold pledged the note and all rights under the mortgage to appellant as collateral security for large loans of money obtained by Arnold from appellant; that the condition of the pledge was that if any part of Arnold's debt to appellant remained unpaid when the Henry note fell due appellant was to collect the Henry note and apply the proceeds as far as necessary to the payment of Arnold's debt; that $ 15,000 of Arnold's debt to appellant remains unpaid; that the Henry note is due and unpaid; that Arnold is made a party defendant to answer as to his interest in the note. With the complaint appellant filed an affidavit that Arnold had become and was a non-resident of the State and that the object of appellant's suit was to enforce a lien on land within the State. On this affidavit an order was issued and publication of notice was made. Henry and Henry personally appeared. The cause was sent on change of venue to the DeKalb Circuit Court. In that court appellees Galbreath and Foust, on their application, were admitted as parties defendant. Henry, Galbreath and Foust filed separate affirmative answers, seeking to avoid payment of the note to appellant by reason of matters that they claimed would be available against Arnold if he had remained the holder of the note. Thereupon, on December 28, 1896, appellant by leave of court filed a second paragraph of complaint. This paragraph differs from the first only by reason of the addition of the following averments: That appellant took the note from Arnold as a pledge without actual notice of any defenses; that it was the agreement between appellant and Arnold that Arnold should indorse the note to appellant, but that by inadvertence and mutual mistake the note was delivered to appellant by Arnold without indorsement; that appellant failed to notice that the note was not indorsed until after the maturity thereof; that thereupon appellant at once sought to have Arnold indorse the note, but found that he had left for parts unknown; and that Arnold has since remained away. Henry, Galbreath and Foust filed affirmative answers to the second paragraph of complaint similar to their answers to the first paragraph. Appellant's demurrers to the answers were overruled. Reply in denial. Trial by court. Special finding of facts and conclusions of law. Motions for a venire de novo, for a more specific statement of the conclusions of law, and for a new trial, were overruled. On these various adverse rulings the assignments of error are predicated.

The first alleged error is the overruling of appellant's demurrer to the answer of no consideration, addressed to the second paragraph of complaint. Appellant presents two questions under this assignment: (a) Is appellant entitled to a correction of the mistake and an order for the indorsement of the note by James Arnold? (b) If appellant is entitled to such relief, will the indorsement relate back to the time it was to have been made or take effect only at the time actually made?

It is unnecessary to determine whether or not, on the facts stated in the second paragraph of complaint appellant would have been entitled to an order for the indorsement of the note by Arnold, if the court had had jurisdiction of the person of Arnold. In seeking to enforce Arnold's agreement to indorse the note, appellant was pursuing a remedy in personam. It was not alleged that Henry or Galbreath or Foust was a party to or had notice of Arnold's agreement to indorse. The part of the complaint that attempted to show a right to specific performance of the contract was aimed at Arnold alone. The contract was personal to Arnold alone and called only for the performance of a personal act by him. On the foundation that appellant was entitled to an order for specific performance against Arnold, the complaint sought to build up a right in appellant against the other defendants to recover on the note as commercial paper, indorsed by the payee, before maturity, in due course, to an innocent purchaser, for value. But appellant was not entitled to the order because the record on its face showed that the court did not have and could not have jurisdiction of the person of Arnold. Not only did the second paragraph of complaint disclose that Arnold was not within, and could not be brought by personal service within, the jurisdiction of the court, but the record already before the court revealed that Arnold, on proper affidavit of non-residency, had been brought in only by constructive service. The statutes of this State authorize constructive service upon non-residents only in certain cases, of which a case for specific performance is not one. In Edwards v. McClave, 55 N.J. Eq. 151, 35 A. 829, the holder of a note negotiable under the law merchant brought a suit in equity against the administrator and heirs of the deceased maker and against the payee. The bill disclosed that the note, payable to the payee or order, was executed without consideration, but that the holder acquired the note from the payee, by delivery, before maturity, for value, and without notice of any defenses; and that at the time of delivery, it was the intention of the payee and of the purchaser that the note should be indorsed by the payee, but that this was neglected by mistake. On grounds unnecessary to notice here, it was held that the bill was without equity as against the heirs of the maker. In regard to the equity of the bill as against the administrator of the maker's estate and the payee of the note, the court said: "If the court cannot decree specific performance of the contract to indorse, it cannot, as it seems to me, decree a liability against the maker, as if the note were indorsed. If this view be correct, the complainant's bill must fail against the administrator, for the reason that it discloses that no such decree can be rendered against E. Wilkes McClave, the payee, because he is not within the jurisdiction of the court, and the bill states that he cannot be brought within its jurisdiction, and the decree for payment without indorsement is prayed. A decree for indorsement of the note made against the payee upon publication and without obtaining jurisdiction over his person, would be without due process of law under the fourteenth amendment of the federal Constitution as construed in Pennoyer v. Neff, 95 U.S. 714, 24 L.Ed. 565. It appearing, therefore, by the bill itself, that the contract which lies at the basis of the whole proceeding, viz., the personal contract of E. Wilkes McClave to indorse the note, cannot be enforced by reason of the want of jurisdiction over his person, I am of the opinion that no decree against the administrator can be made upon the bill." In 1 Daniell's Ch. Pl. & Pr. (6th Am. ed.), *550, the author states the proposition thus: "Where it appears on the face of the bill that the defendants were, at the time of the institution of the suit, residents in a foreign country, and that the suit does not relate to any of the subjects in respect of which the court is warranted in exercising jurisdiction against persons so resident, a demurrer for want of equity will be allowed." Mr. Daniell's text is amply supported by the cases of Cookney v. Anderson, 31 Beav. 452; Cookney v. Anderson, 1 DeGex. J. & S. 365; Foley v. Maillardet, 1 DeGex. J. & S. 389; Samuel v. Rogers, 1 DeGex. J. & S. 396; Stephenson v. Davis, 56 Me. 73; Spurr v. Scoville, 57 Mass. 578; Erickson v. Nesmith, 46 N.H. 371. In Cookney v. Anderson, it was decided (1) that constructive service will not confer jurisdiction unless the suit relates to a subject in respect of which constructive service is authorized by statute, and (2) that the subject of the suit then before the court was not within the class in which constructive service was warranted. The second point was overruled in Drummond v. Drummond, L. R. 2 Ch. App. 32, but the first stands. Now, in the present case, the holder and the maker of the note were before the court; but the payee was not, except to answer as to the foreclosure of the mortgage securing the note, and possibly as to his interest in the debt evidenced by the note. (See Nelson v. Johnson, 18 Ind. 329, and Swingle v. Bank, 41 Ind. 423.) In that situation, the court could proceed and determine the rights between the holder and the maker with respect to the note as it appeared in the hands of the holder. But how could the court establish a new and independent contract on the part of the absent payee--the contract of an indorser? And with what justice could the court hold the maker upon the note as if it was indorsed in accordance with the payee's alleged agreement to indorse, without hearing the payee in reference to the existence or validity of such an agreement? If the court, in the absence of the payee, should determine as between the holder and the maker that the note should have been indorsed and should therefore be treated as having been indorsed, the maker...