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Supreme Court of the United States,
JANUARY TERM, 1842,
Court of the United States for the Southern
District of New York.
This action was instituted in the Circuit Action on bill of exchange-holder of negotiable land in the State of Maine, on the first day of
Court upon a bill of exchange, dated at Port. paper, indorsed to him before maturity, pre. May, 1836, for one thousand five hundred and sumptively holder for value-such holder not affected by equities between original parties thirty-six dollars and thirty cents, payable six -construction of 34th section of the Ju. months after date, drawn by Nathaniel Norton diciary Act.
and Jarius S. Keith, upon and accepted by
the defendant, the bill" having been drawn Action in the Circuit Court of New York on a to the order of Nathaniel Norton, and by him bill of exchange accepted in New York, Instituted indorsed to the plaintiff. The principal and by the holder, a citizen of the State of Maine. The interest on the bill, up to the time of trial, mitted, and the defense was rested on allegations amounted to one thousand eight hundred and that the bill had been received in payment of a sixty-two dollars and six cents. The defense Beeresenting rode bien en de bibat the bea cacceptance bad to the action rested on the answers to a bill of chased from the drawer of the bill, to which lands discovery filed by the defendant against the the drawer had no title; and that the quality of plaintiff, by which it appeared that the bill the lands had been misrepresented, and the pur- had been received by him from Nathaniel Nor. chaser Imposed upon by the fraud of the drawer, ton, with another draft of the same amount in and those who were co-owners of the land and ca operators in the sale. The bill accepted had been payment of a protested note drawn by Norton received bona fide, and before it was due. There is no doubt that a bona Ade holder of a ne ! the Maine bank. When the draft was received
and Keith, and which had been paid by him to gotiable instrument for a valuable consideration, without any notice of the facts which implicate Itá by the plaintiff, it had been accepted by the validity, as between the antecedent parties, li he defendant, who resided in New York. The takes it under an indorsement made before the plaintiff had no knowledge of the consideration those facts, and may recover thereon, although, as which had been received for the acceptance, between the antecedent parties, the transaction and had no other transaction with the defend may be without any legal validity.
The holder of negotiable paper, before it is due. ant. He had received the drafts and acceptIs not bound to prove that he is a bona Ade holder ances in payment of the protested note, with for a valuable consideration, without notice ; for a full belief that the same were justly due, acthe law will presume that in the absence of all recording to their tenor; and he had no other defendant to establish by way of defense satisfac- security for the payment of the protested note tory proofs of the contrary, and thus to overcome except the drafts, nor had he any knowledge of the prima facie title of the plaintifr. The 34th section of the Judiciary Act of 1789,
any contract or dealing between the defendant which declares "That the laws of the several and Norton, out of which the said draft arose. States, except where the Constitution, treatles, or The defendant then offered to prove that statutes of the United States shall otherwise recog: the bill of exchange was accepted by him as cision in trials at common law in the courts of the part consideration for the purchase of certain United States, in cases where they apply," bas uni- lands in the State of Maine, of which Keith formly been supposed by the Supreme Court to be and Norton, the drawers of the bill, represented local; that is to say, to the positive statutes of the themselves to be the owners, and represented State, and the construction thereof adopted by them to be of great value, made certain esti. the local tribunals, and to rights and titles tomates of them which were warranted [*3 2*] *things having a permanent locallty, such as the rights and titles to real estate, and other mat by them to be correct, and also contracted to ters Immovable and intraterritorial in their nature convey a good title to the land; all of which contracts or other instruments of a commercial representations were in every respect fraudu. nature; the true interpretation and effect whereof lent and false; and that said Keith and Norton are to be sought, not in the decisions of the local have never been able to make a title to the tribunals, but in the general principles and doc- lands: whereupon the plaintiff, by his counsel, trines of commercial jurisprudence.
objected to the admission of said testimony, or NOTE:-A8 to abo will be deemed to have acted any testimony, as against the plaintiff, im. is notice to prevent holder from recovering, see eration on which said bill was accepted, under in good faith in taking bills and notes, and what peaching or showing the failure of the consid. aote, ante, p. 478.
the facts aforesaid admitted by the defendant, ferred to; and tending, as they do, to drive and those proven by him, by reading said an- commercial negotiable paper out of one of the swers in equity of the plaintiff in evidence. paths of its greatest untility--are they still to And the judges of the court divided in opinion overthrow the decisions of this court in the on the point or question of law, whether, under cases of Coolidge v. Payson, and Townsley v. the facts last mentioned, the defendant was Sumrall? It is contended, on the part of the entitled to the same defense to the action as if defendant, that they are, and that this high the suit was between the original parties to the court is bound to follow them with unreasoning bill, that is to say, the said Norton, or the said submission, because the bill in question was Norton and Keith, and the defendant; and drawn on the city of New York, in the State whether the evidence so offered in defense and of New York; and on account of the 34th sec. objected to was admissible as against the tion of the Judiciary Act of 1789, which proplaintiffs in this action.
vides, that "the laws of the several States, ex: And thereupon the said point or question of cept where the Constitution, treaties, or statutes law was, at the request of the counsel for the of the United States shall otherwise require or said plaintiff, stated as above under the direc. provide, shall be regarded as rules of decision, tion of the judges of this court, to be certified in trials at common law in cases where they under the seal of this court to the Supreme apply." Court of the United States, at the next session In answer to this, it is urged that in the first thereof to be held thereafter, to be finally de place, after observing that it is not pre- [*5 cided by the said last mentioned court.
tended that the decisions of the Supreme The case was submitted to the court on Court of New York referred to are founded printed arguments by Mr. Fessenden for the on, or are in exposition of, the constitution or plaintiff, and by Mr. Dana for the defendant. any statute of that State, that the phrase "laws
Mr. Fessenden argued that the defense offered of the several States," in the 34th section of the and objected to is no defense as against the Judiciary Act, means nothing else than the plaintiff in this action. The right of the plaintiff written constitutional system and statutes of to recover, reating, in the first place, on admis- such States; and that, if the framers of the act sions and proo, is established prima facie. The of Congress had not known that all the State defendant, by his course of proceeding, has had such written constitutions of governme. admitted: First, that the bill in suit was in-laws of paramount authority in those States dorsed to the plaintiff during its course, as and had not wished to frame their enactments negotiable paper, about five months before it in language popular and comprehensive, as became due, according to its tenor.
well as accurate, they would have used the Second. That when it was received by the word “statutes,” the appropriate technical word plaintiff, he had no notice, or knowledge, or for laws framed by the Legislature, instead of the Intimation of any fact to the dishonor of the word “laws.” If they had intended to embrace bill; on the contrary, he was assured by his in the section the traditionary, or otherwise de 4") debtor it would be paid promptly at ma- rived common law of such States, as expoundeu turity, and that previous acceptances given in by the decisions of the State courts, being, au payment of the sale of land had been paid at they were, scholars as well as lawyers, they maturity.
would have incorporated in the section, by way Third. That the acceptance was taken in of substitute or addition, some such general payment of a pre-existent debt, and that the phrase as “systems of law.” In common parplaintiff had no other security for the debt lance, the word “laws,” in the plural, means, due to him by Norton and Keith but this ac- and did mean in 1789, legislative enactments. ceptance, and an acceptance of the same The same word also embraces, popularity and character for the residue of his claim on Nor- technically, when speaking of the regulations ton and Keith; and that on receiving the ac. of the respective United States, their constituceptance he had given up the note of Norton tions of government as well as their legislative and Keith, which had been indorsed by one enactments; and the former, as well as the Child.
latter, were doubtless intended to be included By the cases of Bank of Salina v. Babcock in the thirty-fourth section. For these reasons ot al. 21 Wendell, 499; and Bank of Sandusky the word “laws," instead of the word “statv. Scoville et al. 24 Wendell, 115, it distinctly utes," makes part of the section. appears that the latest opinion of the Supreme It is admitted that if the bill had been deliv. Court of New York is (and seemingly as if ered to the plaintiff by Norton for value deliv. that court had never decided otherwise) that ered to him, Norton, at the time on the strength receiving negotiable paper in payment of an or credit of the bill, the defense should be re. antecedent debt, is the same thing, in all rejected. spects, as regards the rights of the recipient But it is contended on the part of the defend. indorsee of such paper, as if he had paid ant, that inasmuch as the bill was received by money, or any other valuable consideration for the plaintiff in payment, though it were absolute it, at the time, on the credit of the paper. payment of a pre-existing debt, and though he
But if these cases cannot be reconciled with has no evidence, os, security for, such debt, the plaintiff, Swift's side of the present question, except the new security in his hands, received are they, unsustained as they are by like de- in payment of the old; the bill in question was dsions in any other of the States in this Union; not indorsed to him in the usual course of trade, resting, as they do, on an obvious misinterpre- so as to give him any rights as the holder of it, tation of the case of Coddington v. Bay; and different from those of the person who transcontradicting, as they do, the earlier decision ferred it to him; however he may have received of the same court on the very point, in the it fairly and in good faith, and without notice case of Warren V. Lynch, which has been re- of anything which would disenable the party
f") transferring it to him, to recover it of the The phrase "usual courso of trade" is rather acceptor, and however the fact may be as to its vague and indefinite. It was once the usual original lawfulness. This is the question for course of trade to pay debts, and it should still the court to decide, and it is contended that the be 80. Most of the notes discounted at banks bill being so transferred and received in pay. are given for the renewal of notes to fall due, ment of a pre-existing debt, gives the indorsee all or for the payment of pre-existing debts. the rights as against the acceptor which he would The later decisions of the Supreme Court of have had, if, at the time he received it, he had New York, referred to, are professedly founded paid the amount of it, in money, to the indorser.on principles alleged to be decided in the case
It certainly should be so. The use of nego. of Bay v. Coddington, 6 Johns. Chancery Rep. tiable paper has hardly been of greater service 64, and the same case under the name of Cod. to civilized man, in facilitating the transmission dington v. Bay, decided in the Court of Corof the equivalent of money, and thus in answer. rection of Errors of that State, on appeal. 20 ing, in some respects, the purposes of money Johns. Rep. 637. This case does not sustain itself, than in preventing hostile proceedings in the position of the defendant. It was decided courts of law for the collection of money due. by Chancellor Kent expressly on the ground Indeed, one of the principal good effects of the that "the defendant did not receive the notes former is, that it tends to prevent suits at law. in the course of business," nor in payment in In point of fact, thousands of suits have been part or in whole of any then existing debt. In prevented by receiving a bill of exchange or the Court for the Correction of Errors the depromissory note, with an additional name upon cision of Chancellor Kent was affirmed. In it, payable at a future day, in discharge of a the case of Ward et al. v. Howell, 9 Wend. 170, debt, which although due, the debtor at the the note was not received in payment, but as a moment could discharge in no other way. But security. The other cases referred to, Rowsa v. if it comes to be settled by law that the creditor Botherson, 10 Wend. 85; Ontario Bank v. upon such an occasion, must, at his peril, ascer. Worthington, 12 Wend. 593; and Payne v. tain that the additional party, whose name is Cutler, 13 Wend. 605, are all founded on the upon the paper, has no good defense to its pay. principal laid down by Savage, Chief Justice, ment as against the person proposing to transfer in The Ontario Bank v. Worthington. "If the it to such creditor, it will deter him from re- plaintiff fails he loses nothing, he is in the same ceiving it in lieu of the money he demands; situation as before he took the paper, *and (*8 and will, in many instances, lead to suits, which it was his fault if he did not inquire into the otherwise would not have been commenced. value of the paper, and the defense against it;
This high court has once and again decided and all the cases assume that the case of Cod. he very question involved in this case, in the dington v. Bay decided what it did not decide.” case of Coolidge et al. v. Payson et al. 2 Wheat Whensoever a person receives a note or bill on, 66 to 73; and in Townsley v. Sumrall, 2 in payment of a pre-existing debt, he does lose Peters, 170 to 180.
something if he cannot collect the substitute he The general rule as to negotiable paper is, receives. He loses the debt. He does not stand that where it is not unlawful and void in its in the same situation as before he took the note inception, he to whom it is transferred while or bill. The same parties holden on the old current, in due form, and who receives it in and extinguished evidence of debt, may be on good faith, and for a valuable consideration, the new which he receives, and they may not. without notice of anything which would ex- If, then, these decisions of the Supreme Court onerate the maker or acceptor of it from paying of New York rest essentially on the principle it to the one from whom he receives it, can stated by Chief Justice Savage, they are not at recover its amount from such maker or acceptor, war with the law which is contended for in the although the party from whom he received it present case. could not. Lord Raymond, 738; 1 Salkeld, For these reasons it is contended that the 34th 126; 3 Salkeld, 71; Grant v. Vaughan, 3 Bur. section of the Judiciary Act does not render it rows, 1516.
But surely the discharge of a obligatory upon this court to disregard its own just debt is a valuable consideration. Comyn's decisions, and follow those of any court of the 7'] *Digest, New York ed. of 1824, Vol. I. page State of New York, upon a general question 300, title, “Action on the case upon assumpsit.” like the present, not affected by any statute of B, 3, “Discharge of a debt a good consideration that State, although the bill of exchange in to raise an assumpsit.” In Baker v. Arnold, question was drawn on the city of New York. 3 Caines' Rep. 279, it was decided by the But if law is otherwise, it is submitted that Supreme Court of New York that in an action the decisions of the highest court of the State by the indorsee of a note, not void in its crea is the Court of Correction of Errors. Gelson tion, and indorsed before it became due, the v. Hoyt, 3 Wheaton, 248. In the Court of consideration, as between previous parties to Errors of New York, the decision in Bay v. the note, could not be inquired into. In Russell Coddington has been spoken of with disapproV. Ball, 2 Johns. Rep. 50, a decision upon bation. similar principles will be found. Cited, also, If there is any question of law, not local, but Warren v. Lynch, 5 Johns. 339.
widely general in its nature and effects, it is the But it is contended on the part of the defend present question. It is one in which foreigners, ant, that later decisions by the Supreme Court the citizens of different States, in their contests of New York have established an opposite with each other, nay, every nation of the civil. principle, and that receiving a note in payment ized commercial world, are deeply interested. of a pre-existing debt is not receiving it in the By all without the United States, this court is usual course of trade, nor on a consideration looked to as the judiciary of the whole nation which gives the indorsee any rights on the paper known as the United States, whose commerce beyond those of the indorser.
and transactions are as widely diffused as is
the use of bills of exchange. The obvious and upon elaborate examination of all the decisions admitted wisdom of the thirty-fourth section of of the courts of the State of New York, that the Judiciary Act, in reference to our excellent, the defense was good and the verdict ought not but delicate and complex system of government, to be set aside, if the laws of that State applied if the section does not receive the construction to the case. contended for, and which it is believed the Upon the question whether, by the 34th sec. framers of that act designed, will lose its nature tion of the Judiciary Act of 1789, the law of and become folly; and the section will, as it the State of New York must be the rule of de. seems, be productive of mischiefs, in the ex- cision of this case, he argued that under the in. perience and remembrance of which its bene- junctions of the section that “the laws of the fits will be lost sight of, if the principle urged several States, except where the Constitution, on the part of the defendant shall prevail: treaties, or statutes shall otherwise provide or 9*] *How can this court preserve its control require, shall be regarded as rules of decision over the reason and affections of the people of in trials at common law in the courts of the the United States; that control in which its United States, in cases where they apply,” imusefulness consists, and which its own untram posed on the Supreme Court an obligation, as melled learning and judgment would enable it well to apply the decisions of the courts of this naturally to maintain; if its records show that Ştate, as the statutes, to cases which come beit has decided (as it may be compelled to decide fore this court. if the construction of the section referred to, It was necessary to adopt some system or advocated on the part of the defendant, is es- code of law for the administration of justice, tablished) the same identical question, arising by the newly erected courts of the United on a bill of exchange, first one way, and then States. the other, with vacillating inconsistency? In These courts were anomalous in character, what light will the judicial character of the created by statute; under the general provision United States appear abroad, under such cir- of the Constitution of the United States, limited cumstances ?
in jurisdiction to certain subjects; and without In cases in which the courts of the United rules of decision in the cases that would arise. States have jurisdiction, by the Constitution To have attempted to create a code of laws by and laws of the United States, the common mer- legislative enactment, would have been with. cantile law of the respective States applying to out present avail to the courts; and even with and governing those cases, is as much submit the aid of future experience and after years of ted to the actual consciences and judgments of labor, could not be expected to be perfect. the minds of the judges who constitute those The alternative was to adopt an existing syscourts, to be considered and declared, without tem of laws. The common law was sufficiently respect to the decision of any State court, as complete, and would have furnished rules of binding authority, as the same law, in cases decision for all cases, as well as modes of judi. where the United States courts have not juris-cial proceedings; but it would have then been diction, is to the best judgment of the State one system of law in the federal courts, for the courts, without respect to the decision of any whole United States. It may be questioned court of the United States, as binding authority. whether the law of the place of the contract, Congress, and Congress alone, has power to although a principle recognized by the common regulate commerce between the States. But it law, would have had effect in reference to the will be impossible for Congress to regulate com- several States. That principle has reference to merce between the States, if it be left to State a foreign contract. But the territorial limit of courts to declare authoritatively in the absence the jurisdiction of the federal courts (*11 of any statute upon the point, the force, and would be one country, and subject to one law. meaning of, and the right of parties under that Wherever within that limit the cause of action most important instrument of such commerce might arise, it would be subject to the same -the bill of exchange, when drawn and held administration of law by these courts when rein and by a citizen of one State, and accepted sorted to for the purpose of enforcing the right. and payable in and by a citizen of another This would have led to perpetual confliction State.
between the State and federal courts. Mr. Dana, for the defendant:
Another objection would be, that the common The first part of the argument of Mr. Dana law, however perfect in its structure, still had was upon the question, whether the acceptance many peculiarities not adapted to the condition of the bill of exchange by the defendant hav. of things in this counrty, and requiring to be ing been given in New York, the contract was modified to meet the exigencies of an enternot to be regulated by the laws of that State. prising people. Such modification had in fact This question was not brought before the court taken place in all the States, in all of which, at by the certificate of division, and the discussion least those having an English origin, the com. of the point by the counsel of the defendant is mon law had been adopted or rather inherited. therefore omitted.
Instead, therefore, of the entire body of the comMr. Dana declined arguing the question mon law, with all its peculiarities, it could be 10*] whether, by the laws *of the State of New adopted as modified by the States, and by so York, the defense set up by the defendant doing, the federal courts would be made to would have been admissible, as he did not sup- harmonize with the State tribunals, and the law pose it arose, properly, upon the certificate of of the place of contract be preserved. division.
If the phraseology of the section in question He thought the judges did not in fact divide be examined with reference to the whole subupon that point; but, on the contrary, they ject that Congress was to provide for, it will be gave judgment on a case made by the plaintiff, found substantially to express all that was necto set aside the verdict for defendant; and lessary for the adoption of the State laws to the