De Hass v. Dilbert

• Decision Date: 24 October 1895
• Docket Number: 26.,25,,24
• Citation: 70 F. 227
• Parties: DE HASS v. DIBERT (two cases). SAME v. ROBERTS.
• Court: U.S. Court of Appeals — Third Circuit

70 F. 227

DE HASS v. DIBERT (two cases).

SAME v. ROBERTS.

Nos. 24, 25,, 26.

United States Court of Appeals, Third Circuit.

October 24, 1895

T. W Shreve, for plaintiff in error.

Robert S. Frazier, for defendants in error.

Before DALLAS, Circuit Judge, and BUTLER and WALES, District Judges.

BUTLER District Judge.

The suits were brought on indorsements of a promissory note and its accompanying interest coupons; and by agreement of parties were tried together. After a jury had been sworn, a paper was filed consenting to a verdict for the plaintiff in $3,837.60 subject to the opinion of the court on the following questions reserved:

'First Whether under the evidence, to wit, the writing sued on and the attached guaranty and the mortgage securing said obligation, and the writing sued on, dated the 15th day of June, 1887, for $3,000, payable to the order of John D. Knox & Co., is a negotiable commercial instrument.

'Second: Whether the indorsement of John Dibert & Company after the assignment, without recourse made by John D. Knox & Company, the payees, upon the writings sued pro ut, same in evidence, made the said John Dibert & Company liable as indorsers of negotiable commercial paper, the transfer from John D. Knox & Co. to John Dibert & Co., and the transfer of John Dibert & Co. to F. S. De Haas, having been made in the state of Kansas.

'Third: Whether the plaintiff is entitled to recover interest at the rate of twelve per cent. per annum from the date of protest of the writings sued on to the date of verdict, the law of Kansas authorizing the making of contracts bearing such rate of interest.'

The court filed an opinion in the plaintiff's favor as respects the first question, in the defendants' favor as respects the second, and entered judgment for the latter.

The promissory note sued on and accompanying interest coupons, with the indorsements thereon, are as follows:

'Know all men by these presents: For value received we promise to pay John D. Knox & Co., on order, $3,000.00 lawful money of the United States, 5 years after date hereof, with interest thereon at the rate of 8 per cent. per annum, payable semiannually on the 15th day of December and June in each year, according to the tenor of 10 interest coupons for $120.00 each, hereto annexed and bearing even date herewith.

'Said principal and interest being payable at the banking house of John D. Knox & Co., Topeka, Kan. It is expressly declared and agreed that this note and coupons hereto attached are made and executed under, and are to be construed by, the laws of the state of Kansas, in every particular, and are given for an actual loan of $3,000.00. This note and these coupons are to draw 12 per cent. interest per annum after maturity, and are secured by a first mortgage on real estate.

'And if any of the interest coupons shall not be paid when due, the whole of the principal shall mature and be due at said time without demand, and said principal debt and said unpaid coupons shall represent and stand for the amount due, and the unpaid coupon first matured shall become a part of the principal, and the whole of said principal and the first unpaid coupon shall bear 12 per cent. per annum interest thereon from the maturity of said coupon until paid.

'Topeka, Kansas, this 15th day of June, A.D. 1887.

'R. J. McFarland, 'Ida McFarland.'

Indorsed: 'For value received we hereby assign and transfer the within bond, together with all our interest in and rights under the same, without recourse, to John Dibert & Co. John D. Knox & Co.

'Pay to the order of F. S. De Hass.

'John Dibert & Co. 'E. G. De Hass, Executrix of F. S. De Hass.'

'$120.00 Topeka, Kansas, June 15th, 1887.

'Fifty-four months after date we promise to pay to the order of John D. Knox & Co., $120.00 at the banking house of John D. Knox & Co., Topeka, Kansas, with interest after maturity at the rate of 12 per cent per annum. This coupon being for six months' interest on a principal note for $3,000.00, value received.

'Due December 12, 1891. R. J. McFarland.

'Ida McFarland.

'Loan No. 3,151.'

Indorsed: 'For value received we hereby assign and transfer the within bond, together with all our interest in and rights under the same, without recourse, to John Dibert & Co. John D. Knox & Co.

'Pay to the order of F. S. De Hass.

'John Dibert & Co. 'E. G. De Hass, Executrix of F. S. De Hass.' '$120.00. Topeka, Kansas, June 15th, 1887.

'Sixty months after date we promise to pay to the order of John D. Knox & Co., $120.00 at the banking house of John D. Knox & Co., Topeka, Kansas, with interest after maturity at the rate of 12 per cent per annum. This coupon being for six months' interest on a principal note for $3,000.00, value received.

'Due June 15th, 1892. R. J. McFarland.

'Ida McFarland.

'Loan No. 3,151.'

Indorsed: 'For value received we hereby assign and transfer the within bond, together with all our interest in and rights under the same, without recourse, to John Dibert & Co. John D. Knox & Co.

'Pay to the order of F. S. De Hass.

'John Dibert & Co. 'E. G. De Hass, Executrix of F. S. De Hass.'

The plaintiff excepted to the entry of judgment, and assigns the same as error.

Should judgment have been so entered? As respects the first question reserved, we agree with the circuit court. The note and coupons are mercantile instruments, not only according to the laws of Kansas, by which the parties bound themselves, but according to the law-merchant as well; and we deem it unnecessary to add anything to what the court has so well said on the subject.

As respects the second point raised, we cannot adopt the conclusion reached. If the payee's transfer of the paper had been by indorsement, instead of assignment, no question could have arisen. The assignment relieved the maker from the effect of his promise to pay 'to order,' and thus subjected the paper to defense by him in the hands of subsequent indorsees. The suit, however, is not against him but against the indorser, John Dibert & Co.; and the question presented is therefore, what is the effect of the indorsement? It must be decided by the terms of the statute of 3 & 4 Anne, and the construction given them by the courts. Originally promissory notes were not recognized as mercantile instruments, but were treated as common choses in action; and were therefore not transferable. The statute placed them on equality with bills of exchange, provided for their transfer by indorsement, giving to such transfer the effect accorded to indorsements of bills of exchange; and thus made them mercantile instruments. Soon after the date of the statute the question arose: Is a promissory note from which the term 'order,' or 'bearer,' has been omitted, embraced by it, and therefore transferable by indorsement, with the consequences, as respects the indorser and indorsee, therein provided for? By the omission the maker reserved to himself the right to defend against payment after transfer; and it was therefore urged that the instrument is not covered by the statute, and consequently that the indorsement creates no obligation. The English courts, however, decided otherwise; holding that the instrument is within the spirit of the statute; that it is consequently transferable by indorsement; and that such transfer has the same consequences between the indorser and indorsee, as it would have if the term had not been omitted; thus holding the paper to be a mercantile instrument, the indorsement of which creates a contract to pay according to its face-- if the maker fails to do so. The courts said the indorsement is substantially the drawing of a new note in the terms of the old; or of an inland bill of exchange whereby the indorser orders the maker to pay the money due him to the indorsee. From the date of the earliest decision of the question (in Hill v. Lewis, 1 Salk. 132) to the present time there has been no variation in this respect by the English courts, though the point has been repeatedly raised; and the decision has been uniformly followed in this country. As the supreme court of Pennsylvania said in Leidy v. Tammany, 9 Watts, 356: 'The English courts, looking upon the statute as a remedial one, entitled to a liberal construction in accordance with its spirit, extended it to notes not made transferable by their tenor, when they are deemed mercantile instruments. ' This statement is fully sustained by Hill v. Lewis, 1 Salk. 132; Hodges v. Stewart, Id. 125; Smith v. Kendall, 6 Term R. 123; Burchell v. Slocock, 2 Ld.Raym. 1545; Turnpike-road v. Hurtin, 9 Johns, 217; Leonard v. Mason, 1 Wend. 522, Codwise v. Gleason, 3 Day, 12; Smallwood v. Vernon, 1 Strange, 479; Leidy v. Tammany, 9 Watts, 353. In...