Limerick Nat. Bank v. Howard

• Decision Date: 04 July 1901
• Citation: Limerick Nat. Bank v. Howard, 71 N. H. 13, 51 A. 641 (N.H. 1901)
• Parties: LIMERICK NAT. BANK v. HOWARD et al.
• Court: New Hampshire Supreme Court

51 A. 641

71 N.H. 13

LIMERICK NAT. BANK

v. HOWARD et al.

Supreme Court of New Hampshire. Sullivan.

July 4, 1901.

Exceptions from Sullivan county.

Action by the Limerick National Bank against J. B. Howard and others.Judgment for plaintiff, and case transferred on defendants' exception.The supreme court at the adjourned law term, set the verdict aside, and plaintiff moved for a rehearing.Denied.

The plaintiffs' evidence tended to show that they discounted the notes for Reynolds, who indorsed them in blank, before maturity and for value.The defendants offered evidence to show that Reynolds induced them to sign the notes by fraud.This was excluded, subject to the defendants' exception.The plaintiffs' evidence showed that at the time of the indorsement they had no actual knowledge that the notes were obtained by fraud, but it tended to show that the plaintiffs had knowdedge of such facts and circumstances as would lead a careful and prudent man to suspect that they were procured by fraud.Upon this evidence the defendants claimed that the question of fraud should be submitted to the jury.This claim, it is admitted, is substantially in accordance with the law as held in Vermont.The court ordered a verdict for the plaintiffs, and the defendants excepted.At the adjourned law term of the supreme court in March, 1901, the court ordered the verdict set aside.Thereupon the plaintiffs filed a motion for a rehearing.

Eastman & Hollig and Burt Chellis, for plaintiff.

Hosea W. Parker, Ira Colby & Son, and R. M. Harvey, for defendants.

WALKER, J.Assuming that the notes were obtained by Reynolds, the payee, through fraud practiced upon the defendants, the court at the trial, in effect, ruled that there was no competent evidence that the plaintiff had knowledge of the fraud at the time it took the notes, or that it was not a bona fide holder.This result was reached presumably by applying the doctrine of this state, that mere suspicion of facts, which would be a defense to a note in the hands of the payee, is not notice of, and does not put the indorsee upon Inquiry as to, such facts.Green v. Bickford, 60 N. H. 159.On the other hand, if the law of Vermont, where the notes were payable, had been applied, it is conceded that the opposite result would have been reached, and the jury would have been instructed that upon the evidence it was material for them to find whether the plaintiff took the notes "without knowledge of facts and circumstances that would lead a careful and prudent man to suspect that the paper was invalid as between antecedent parties"(Bank v. Adams, 70 Vt 132, 142, 40 Atl. 166, 168), on account of the fraud practiced by the payee upon the defendants.It is admitted by both parties that this is a correct statement of the law of that state upon this subject.The good faith universally required of an indorsee when the maker raises the defense of fraud is a question for the jury in Vermont, in case there is evidence tending to show that reasonably prudent men, in the same situation with reference to the facts and circumstances, would have suspected the existence of the prior fraud.The knowledge of such suspicious facts and circumstances puts him upon inquiry, and he is chargeable with the knowledge of such fraud by the payee as careful inquiry would have disclosed.It is quite immaterial whether this proposition of law is or is not sustained by authorities in other jurisdictions, or whether it is or is not founded upon correct principle.It is also unnecessary to institute an inquiry into the relative merits of the conflicting decisions upon this subject in this state and in Vermont.The material question is whether the law of the place of the contract,—the place where the contract was to be performed,—or the law of the forum, shall determine the validity of the ruling ordering a verdict for the plaintiff.Does the question whether the plaintiff was a bona fide holder of the notes relate solely to the remedy and the procedure employed for the enforcement of the contract?If it does, the law of this state upon that subject must prevail.But if the contractual rights and obligations of the parties are substantially involved, whether they are made to appear on the pleadings or in the evidence adduced, it is equally clear that the question must be determined by the law of Vermont.A citation of authorities in support of these general propositions is unnecessary.They are elementary.Insurance Co. v. McKellar, 68 N. H. 326, 44 Atl. 516.

The principal issue in this case was whether the plaintiff was a bona fide holder of the notes.If it was not such a holder, evidence of fraud which would be a defense in an action in favor of the payee would be admissible in an action of this character in both jurisdictions.This proposition, which is not controverted, states with sufficient exactness the principal ground of defense relied upon by the defendants; and while it is not inaccurate to say that, upon the plaintiff's evidence and the evidence offered by the defendants, the question is whether a finding that the plaintiff was not a bona fide holder could be supported—that is, whether all the evidence is sufficient for that purpose,—that method of stating the question is liable to be misleading, and to suggest, in the first instance, that nothing is involved but matters relating solely to the remedy.If the expression "bona fide holder" had exactly the same legal meaning in New Hampshire and Vermont, it is not unlikely that this case might present nothing but a question of the sufficiency of evidence, which the law of the forum would ordinarily determine.Whart Confl.Laws, § 752.The assumption that that expression has the same meaning in all common-law jurisdictions is contrary to the fact.Tied.Com. Paper, § 289.It is apparent, therefore, that, before any question of the sufficiency of the evidence or the nature of the remedy can arise, the terms of the contract offered in evidence must be determined and fully understood.What the contractual rights and obligations of the parties are is a fundamental inquiry, which "must generally be settled before any question of remedy arises."Carnegie v. Morrison, 2 Metc.(Mass.) 381, 397.This inquiry may properly be made upon the pleadings, if sufficiently specific, or, as in this case, upon the evidence.The plaintiff, as an indorsee of the notes, seeks to recover the amount due from the makers.The defendants, admitting the execution of the notes so far as this particular defense is concerned, say that the notes were obtained by the fraud of the payee; the plaintiff replies that it gave full value for the notes without actual knowledge of the fraud claimed by the defendants, and is therefore a bona fide holder; the defendants rejoin that the plaintiff had knowledge at the time it took the notes of such facts as would lead a prudent man to suspect that they were obtained by fraud, and therefore it is not a bona fide holder.This formal manner of stating the respective claims of the parties shows plainly that they are at issue over the definition of a term necessarily involved in the contract; and until this issue is determined the rights of the parties under their contract must remain obscure and doubtful.The solution of this question depends primarily upon the legitimate ascertainment of the intention of the parties; and as it is plain, as a legal proposition, that the contract was made in view of the law of Vermont, it follows that the parties, in effect, embodied the law of that state in their contract, and thereby furnished the evidence from which their understanding of the meaning of "bona fide holder" must be ascertained.

If the defendants had expressly stipulated in the notes that they were not payable to any indorsee, even for value and before maturity, who at the time of the indorsement should have a reasonable suspicion of the fact that the payee obtained them by fraud, the defendants' intention in this respect would not be more clearly expressed than it is by the payee's blank indorsement of the notes to the plaintiff.The defendants intended to subject themselves to such contractual liabilities, and such only, and the plaintiff intended to assume as indorsee such contractual duties, and such only,...