Case ID: scl_9/html/0033-01.html
Source: Caselaw Access Project
Author: {"author": "Mr. Justice Gantt Nott, J. \n      Cheves, J.", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

Rowland Rugely against John Davidson.
    Where a note is endorsed after it is due, although* it _ has lost its negotiable quality, and the strict rules which thev law imposes on' the holder do not apply, yet he is bound to demand payment from the maker in some reasonable time, or to make reasonable efforts to But the duties and responsibilities between endorser and endorsee, may be varied from the general rule by private stipulations; and it is not deemed a violation of any rules of evidence to admit parol proof of such special stipulations, in an action against the endorser of such anote. ,
   Mr. Justice Gantt

delivered the opinion of the Court.

This was an action of assumpsit on a note of hand, for 132 dollars 29 cents,, by the endorsee against the endorser. The note was given by one James Bairfield, on the 9th March, 1812, to the defendant, Davidson, and payable three days afterdate. Xtwras endorsed by Davidson to the plaintiff on the 15th of April, 1813; a period of twelve months and upwards having elapsed after the same became due, before the note was endorsed. Plea, general issue. The report states, that the writ in the present action was issued 9th March, 1816^ and that evidence was given by the plaintiff} that a previous action had been instituted on this note, and in which the defendant had been served with a copy on the 11th March, 1814. What became, of this first action, does not appear by the report.

Two prominent grounds of defence were gone into upon this occasion by the defendants :

1st. Laches, on the part of the endorsee.

2d. A special agreement between the endorser and endorsee, in regard to this transfer, whereby the latter specially undertook and agreed to sue the drawer, and proceed against him to insolvency, before he was to have recourse to the endorser ; and that in the event of the drawer’s insolvency, that the endorsee should not call upon the endorser for ^payment until the expiration of 3 years next succeeding the proof of insolvency.

To a due understanding of the merits of this case, it becomes essential to state some of the testimony.

On the part of the plaintiff, the endorsement was duly proved. In regard to diligence, he proved that he gave the note to one Henry Rugely, to demand payment of Bairfield ; that the said Henry Rugely inquired, on the road, for Bairfield, in the month of June, 1813, and was informed by a person, whom he had never seen before or since, that Bairfield was not at home, and that if his object was to demand payment, it was useless; that in January he was there again, and was informed that Bairfield had left the parish in which he had resided, and had gone to another parish, between Beaufort and Charleston; that he went to this parish, and could hear nothing of him: that on his first going down, he was within three miles of his residence, but he did not leave the main road.

This was the purport of the plaintiff’s testimony.

At this stage of the cause, the defendant, by his counsel; moved for a nonsuit, on the ground that no demand on the drawer had been proved; which motion the presiding Judge over-ruled.

The defendant offered the following proofs:

1st. The testimony of Samuel King, who deposed that he, the witness, resided in St. John’s parish the two years preceding the endorsement of the note; that he kn.ows James B airfield, and has been acquainted with him for 10 or 12 years back; that he has lived near him for two or three years, and did so about the time of the endorsement; that in 1813 Bairfield lived in St. John’s parish, and had been resident there for three or four years before that time; that he removed to the southward, and, as the witness believed, to Colleton, near Jacksonborough; that, when he left the neighbourhood of the witness, he possessed 4 negroes, and sold a tract of land for 500 dollars, and received in payment part cash; that he owned other property, such as furniture, and a small stock; that he was a surveyor, and was making money'; that he stood well in his neighbourhood, and that he was not considered insolvent — the witness never heard that he was, nor did he believe it.

Thomas Allison also deposed to circumstances in regard to the situation, and apparent circumstances ofjBairfield, at the time the note was given by him to Davidson, he having been present on the occasion; and his evidence favoured the presumption of Bairfield's solvency at that time, as he appeared to him to be well settled, lived well, and, to use his expression, appeared like a man with considerable money.

There was some testimony, but not. conclusive, that the negroes in Bairfield's possession were settled on his wife, and there was an ineffectual attempt to prove that he was insolvent.

The defendant then proved, very clearly a ^ . ir J J contract and agreement between the plaintiff and himself, as respected the transfer of this note, and whereby it appeared that the terms of it were, that the plaintiff was to use his best endeavours by law, and otherwise, to recover the amount of the note from Bairfield, and on failure, was to wait three years before he was to resort to the defendant for payment, as endorser; and that on the defendant asking the plaintiff why he did not perform his contract, he replied, that the defendant was nearer to him than Bairfield.

This latter testimony, although gone into, was aftérwards withdrawn from the Jury by the presiding Judge, as having been improperly admitted; and who, in charging the Jury, stated, that the defendant’s undertaking was a security to pay, in default of the maker to pay on demand. That it was necessary the plaintiff should have proved a demand on the maker of the note, unless it be proved he had. made a diligent endeavour to do so, and had failed.' That the law does not require every possible endeavour, but only an endeavour that, in ordinary cases, would be effectual. That the note having been indorsed after due, there was no necessity that the plaintiff should have made a demand within any particular time before action brought, and have given notice of non-payment to defendant, unless it be proved by defendant that he had suffered an actual loss by the delay; and that the verbal agreement between the plaintiff and defendant, in regard to the endorsement, and the course to • be pursued by the plaintiff in virtue of it, as agreed on, was not to be regarded by the Jury as evidence, the same having been improperly admitted.

I must here supply an omission of a circumstance, which ought to have been before stated, and which seems to me to. have a bearing on the merits of the defence set up by the defendant. A note was adduced in evidence, given by the plaintiff to the defendant for $15, wherein it was stated that it was “ to be paid out of Bairfield's note, if recovered, and if not recovered, to be deducted from Bairfield’s note.” This paper was dated 15th April, 1813; the same day the note was endorsed from defendant to plaintiff

The Jury found a verdict for the plaintiff for the amount of note and interest, after deducting the $15 note.

. The defendant has appealed for a new trial, on the following grounds :

1st. Because the presiding Judge misdirected the Jury, in stating to them that none of the doctrines of the law in relation to diligence on the part of the endorsee, and reasonable notice to the endorser, were applicable to this case, as the note was endorsed after it was due.

2d. Because it was not proven that the plaintiff ever made a demand of the maker of the note, or that he could not be found. '

3d. Because it was not proven that the maker of the note was insolvent at the time of the endorsement, nor at any other time, but strong proof of the contrary.

4th. Because parol evidence was admitted, to prove a report of a marriage settlement, as evidence of the insolvency of the maker of the note.

5th. Because the Court directed the Jury to find for the plaintiff even if they should think, that the insolvency of the maker had not been proved.

6th. Because the presiding Judge refused to receive parol evidence of the contract of endorsement,' to show it to be different from- the legal import of the written endorsement, and which evidence was not repugnant thereto.

7th. Because, the verdict was contrary to law and evidence.

It will be unnecessary to go into a minute consideration of the respective grounds taken in this case. The charge of the Judge does not appear to me to warrant some of the positions taken to the latitude expressed, particularly the first. The presiding Judge did seem to think that it was incumbent on the holder of the note to use something like. diligence, dispensing, however, with the necessity of a demand, where ordinary diligence had been observed, to find the party in order to its being made.

The law unquestionably does make a difference, and a great one, between a note endorsed before due and after, as regards the requisites to be observed by the holder.

In the first case it is to be observed, that the ■ paper having lost none of its commercial importance, it is essential that there should be a due observance of all those rules which usage has given rise to. Before the period for payment has arrived, the presumption is that punctuality (which is the life of trade) will be observed. In proportion as the paper is transferred from hand to hand, it acquires additional strength and vigour ; the last holder having a security for his debt commensurate to the property of the drawer and respective endorsers, each being made liable by law for the payment of the money, in the event of non-payment at the time the note becomes due. To the success of commerce punctuality becomes indispensable; its enter-, prizing and active spirit ill brooks everything like disappointment or negligence. If a failure ■happens, therefore, in the payment of the note at the time appointed, the law, which is 'bottoméd upon established usage, requires that due notice be given to those who are rendered responsible by this event, in order that they may be on the alert, and enabled to obtain, by vigorous exertion, the means of.rendering themselves secure,, by resorting as early as possible to the proper methods of obtaining payment, of the debt from the drawer. But when a note is endorsed after due, the transaction assumes a different aspeef. It is no longer a case within the custom and usage of trade; the expectation of punctuality of pay- ' merit from the drawer has vanished, and the holder, in ordinary transactions of, this kind, looks rather to the person with whom he has contracted, than the drawer, for indemnity. Still, however, it is the subject matter of transfer; the property of negotiability still belongs to it; but when negotiated, it is accompanied with qualifications entirely distinct from those which attended on it in its commercial career. In this degraded state of its existence, like every other commodity deteriorated in value, the parties may enter into specific stipulations respectingits true quality, and those stipulations and agreements become the law by which the case is afterwards to be expounded. This is a governing principle in all cases where a note has been endorsed after dué. In such cases, the maker of the note, in an action brought by an endorsee, will be admitted to go into the consideration of the note, and he may impeach it. See the case of Banks and Col-well, (3 Term Rep. 81.) The rule is a general one that hte may do so. (Kid, 284.) Now, if in a cáse'where,there is no privity of contract, (and none such exists between the endorsee and maker,) the latter may. impeach the consideration, and is allowed by law to go into all the equitable circumstances of the case in. his defence*' Surely the rule will apply with redoubled force where a privity of contract does exist.. Between such a party, defendant is permitted, under the general issue, to give in evidence either the want of consideration, or the non-performance by the plaintiff of a condition, precedent, &c. So, also, he may show that at the time of the commencement of the action, the plaintiff had no subsisting cause of action, or that there is an excuse for the nonperformance of it. (1 Chitty, 470, 472.)

In short, a note endorsed after due, will let the defendant into the same, and every kind of defence that might be set up in an action on a note not negotiable in its nature; and for this obvious and plain reason, that the note having been dishonoured, it is no longer considered in the light of a commercial paper, answering the purposes of trade, nor will the law fortify and strengthen the claim of the endorsee, in such case, on the basis of its being a negotiable instrument, or allow him to claim in opposition to the true merits of the case. The case before us is a contest between the immediate parties to the contract of transfer; no third person is any way concerned in it, and it is most evident to my mind, that in every case of this kind the circumstances of the transaction are admissible in evidence. This position is, I think, sufficiently recognised in the case of Pearson vs. Pearson, (7 Johnson's Rep. 26,) where it is said, “ Between the immediate parties to a negotiable instrument, or to the transfer of such instrument, it is competent for the defendant, notwithstanding the words valué received, to prove that no consideration had in fact passed from the plaintiff And in the Case of Barker vs. Prentiss, (6 Mass. Rep. 430,) it is said * parol evidence is admissible to connect some trust Or Condition to a bill or note, not appearing on the face of the instrument. This latter position is strictly and justly applicable to the case of a transfer of a note after due, and enables the endorser, in my Opinion, to show what the trusts arid conditions were Upon which the transaction was bottomed. Then how stands the Case ? the plaintiff received this note undera special agree* ment on his part to Use all due diligence in getting the money from Bairfield. He obliged him* self to sue the drawer to insolvency, and was not to resort to the endorser for three ye ays after that event. Now so far from having observed his contract, he has been guilty of the most pal-* pable negligence. The evidence furnishes a strong ground of belief that Bairfidd was perfectly able to have paid the debt at and after the endorsement, .The agent of the plaintiff who was within three miles of him, did not even call on hiifo and it is evident that there was no time before the suit that Bairfidd could not have been found. Independently of all this evidence, the %15 note carries along with it the most direct inference that the plaintiff was to look to Bairfield, and not to the endorser, for this debt, and that the endorser was not to be liable but in case of Bairfield's insolvency. Shall it be competent for the plaintiff, under such circumstances, to enforce a payment from the defendant, in direct contravention of the contract and agreement between them ? I think not — whatever may be the law in respect to diligence in cases on notes endorsed after due, it is still permissible and competent for the parties to legislate for themselves by special contract, what degree of it shall be observed. They have done so in the present case, and as the plaintiffhas not fulfilled the contract on his part, the defendant was not bound for the payment of the money. The evidence of this special transfer ought not to have been rejected ; it was .proper testimony for the consideration of a Jury. If there had been no express agreement in the case, I should still have thoüght that the very gross negligence of the plaintiff in making no attempt to get the money pf Bairfield, would have left a very questionable case as to his right of calling on the endorser in the event of Bairfield's failure, after so long a possession of the note by plaintiff. On this, however, no opinion is advanced.

Upon the whole, I think, the defendant is most evidently entitled to a new trial.

Nott, J.

I concur with a majority of my brethren, that a new trial ought to be granted in this case; but not for all the reasons assigned by niy brother Gantt. I agree, that the diligence spoken of in the books relative to negotiable instruments, is applicable to them only, when negociated in the usual course of commercial transaction, before they become due. But, nevertheless, the endorsee of a note of hand to whom it is endorsed, after it becomes due, must use some effort to get the money from the drawer of the bill, or payer of the note, before he can resort to the endorser. The endorsement is a bill of exchange drawn on the maker of the note; and the condition of the endorsement, is, that he shall call on the maker for payment, or use due diligence to do so. If the law has not settled what shall be due diligence in sueh a case, the parties may make it what they please. And having, by express stipulation, settled what degree of diligence should be used, I think the parol evidence to that point ought to have gone to the Jury. It did not contravene the legal operation of the endorsement. The endorser is not in any case the unqualified security for the payment of the money. He only becomes so in the event of non-payment by the drawer, after due diligence; and that due diligence is whatever the parties choose to make it.

The evidence which went to control the legal effect of the endorsement, I think, was properly rejected.

GrimM, J. I concur with the above.

Cheves, J.

This is a case of considerable importance, as it goes to affect two leading principles of law; and with just deference for the opinions of my brethren, who are of opinion that a new trial should be granted, I think to put doctrines, which had been long and wisely settled, afloat. It can do no more; for the judgment of the Court in this case can decide nothing but the case, and that only for the particular occasion, as the Court is equally divided on the principle: though a new trial must be granted, as under the late act of the Legislature my opinion can have no influence on this decision. The brief contains many grounds, but the following only have been relied upon in argument :

1st. Because the presiding Judge misdirected the Jury, in stating to them that none of the doctrines of the law, in relation to diligence on the part of the endorsee, and reasonable notice to the endorser, were applicable to this case, as the note was endorsed after it became due.

2d. Because it was not proved that the plaintiff ever made á demand of the maker of the note, nor that he could not be found.

3d. Because the presiding Judge refused to receive parol evidence of the contract of endorsement, to show it to be different from the legal import of the written endorsement, which evidence was not repugnant; to, but iff furtherance of, the same.

1st. I never had any doubt on this point. I found it the established law of the Courts of South Carolina, when I became a student of law; and from that time to the present, I have never known it to be disputed. And the practice in which it was my fate to be engaged, was such as brought many cases of the kind daily before the Courts in which I practised, and would necessarily have brought up the question, if the case had been susceptible of a doubt. I am sure there is no case and no doctrine in the books, which prescribes the notice and diligence of which this ground of the motion speaks. I am perfectly aware, that an insulated sentence may be found in any of the authorities on negotiable paper, which, if taken alone, may bear such a meaning. Thus it is said, in 1 Selwin, p. 407, “ Where a note is payable to order and endors-. ed, the endorser is considered as the warranter of the note; and, therefore, it is necessary, in an action brought against an endorser, to allege and prove a demand of the maker, and notice of the default or refusal to pay within a reason-, able time.” Here the language is general: but the authority referred to is Tindal vs. Brown, (1 T. Rep. 167;) and upon reference to that case, it is seen to be a case where the endorse-, ment was made before the note became due, So, in 1 Esp. N. P. Gould's edit. p. 97, it is said, “ The endorsee must show also that he used due diligence to make the demand from the maker* of the note; and such demand, if it can be made, shall not be dispensed with.” Here again the proposition is general: but the case quoted to support it, is Collins vs. Butler, 2 Stra. 1087; which is the case of a note endorsed before it was due; and so, I venture to say, will be found all the cases in the books, unless the case of Hall vs. Smith, (1 Bay's Rep. 324,) be an exception: but I cannot consider it as one, because it professes to be governed by the cases in the English books, and if it differs from them, it must have been from a misconception of them. But I desire no clearer authority to establish the doctrine for which I contend, than the opinion of Mr. Justice Bay in that case, which lays down the rule with perfect precision and truth. He says, he grounds his opinion principally “ on the circumstance of the note being endorsed after it became due, which made all the rules respecting due diligence inapplicable.'1'1

Chitty, (195,) in laying down the rule relative to demand of payment, says, “ It is settled that the holder of a bill must present it to the drawee for payment when due, when a time of payment is specified, and when no time is expressed within a reasonable time after the receipt of the bill, &c.” Thus every thing of an affirmative kind to be found in the books on this subject, will be found to relate to endorsements of notes or bills not due, or, in other words, not yet dishonoured. And nothing will be found which prescribes diligence in the demand, or in the notice of refusal or default to pay, where the bill or note was dishonoured before it was transferred. In the latter case the reason ceases. Diligence and notice are required, that the drawer of a bill of exchange, who is presumed to draw on funds he has in the hands of the drawee, and the endorser of apromissory note, who has given value to the maker of it for its amount, may take measures according to their own judgment, for their own security against a danger, of which, without such diligence and notice, they would be unapprised: nay, morer without which they would be lulled into security, in the belief that the bill or note had been duly honoured in the course of business, and according to custom. But it is otherwise, when the bill or note has been already dishonoured — the drawer or endorser already has all the notice which in other cases is required. His case is then exactly, that of a drawer or endorser, after a demand duly made and notice of default duly given; after which, nothing will discharge him but payment of the note or bill, unless the holder give time to those on whom the drawer or endorser is entitled to have recourse. No delay or indulgence, which is merely passive, will discharge him.

2d. It might, perhaps, have been a question, were it res integra, whether, if the pleadings were adapted to the case, it would be necessary to prove a demand and notice, at any time, where the note is endorsed after it becomes due. But it has been decided by this Court, in the case of Ecfert vs. Des Cowdres & Co. that a demand is necessary. The pleadings, too, generally state a demand, and therefore it is necessary to prove it. But it seems formerly not to have been required, even where the instrumént was transferred before it was due. • Mr. Kyd (p. 120) says, speaking of the commercial policy which required a demand of payment to be made, on notice of default, to be given with reasonable diligence, that “ so little was it Understood at the beginning of this century, within what time payment was to be demanded, that cases are reported of actions brought against the drawer, several years after the bills were due, and without demand from the drawee.” But this is only mentioned for illustration. 1 admit, a demand was necessary, and that proof of that demand should have been given on the trial, or that the plaintiff had made a reasonable endeavour to make that demand, and had failed. I think evidence was given that a reasonable endeavour was made On two occasions. On the first, the plaintiff’s agent did not go to the maker’s house; but when very near it, (within 3 miles,) he was informed he was not at home. It is said he got his information from a stranger. Of whom else could he inquire ? He resided himself 120 miles from the place, and every one, of whom he could inquire, would of course be a stranger to him. If he had gone to his house, and spoken to the deserted. Walls, the law would probably have been satisfied. But, instead of such a senseless ceremony, he made another endeavour. On this occasion, the maker had removed 40 or 50 miles from his former residence. He followed him thither, — inquired for him in the most public place in the district into which he was said to have removed, and of every person whom he met. If the witness was entitled to belief, was not this a reasonable endeavour ? His credibility was not doubted, and the question was distinctly and fairly submitted to the J ury, whether a reasonable and diligent endeavour had or had not been made to find the maker ; and they have, by their verdict, answered affirmatively. We every day refuse to set aside verdicts, under such circumstances.

3. The last ground is the rejection, of the parol testimony which was offered, to vary the legal effect of the endorsement. The general rule is, “ That parol evidence cannot be admitted to contradict, add to, or vary the terms of a will, deed, or other written instrument.” (Phillips, 423.) Two mistakes sometimes prevail — certainly not among the profession, for that would be an impeachment of their learning — first, that the rule only applies to deeds; and secondly, that if the testimony do not directly contradict the terms of the instrument, it is admissible; but the rule also applies to every written document, and forbids the introduction oí parol testimony to add to or vary the terms it. Now if the ground of the motion under consideration be recurred to, and I have stated it precisely from the brief, it will be found to be, u That the presiding Judge refused to receive parol evidence of the contract of endorsement, to show it to he different f rom the legal import of the written endorsement, &c.” On the parties’ own showing, then, ought not the question to be at an end ? You shall not vary, add to, or contradict the terms of the written instrument. But if the testimony is to prove the contract to be different from the legal import of the endorsement, must it not contradict, add to, or vary it ? How else can it show it to be different ? Thus the question stands on the counsel’s own statement But this ought not to govern the question, if the case be really otherwise. The testimony rejected was to prove that, at the time of the endorsement, and as a part of the contract of endorsement, the plaintiff, before he resorted to the defendant on that endorsement, was to bring suit, and proceed thereon to judgment and execution, and fail to recover by legal proceedings, and from the time of such failure to wait three years. Let this evidence be compared with the legal import and effect of the endorsement. If the testimony contradict, add to, or vary that impoi’t and effect, it was inadmissible. If not, it ought to have been received. The legal import and effect of the endorsement are, to authorize the maker to pay, and the endorsee to receive, the contents of the note, according to its tenor and effect, w*^ & promise on the part of the endorser, that if the maker do not pay on demand, he, the endorser, will pay the contents of the note, on demand being made of him. By the endorsement, all the plaintiff undertook to do was to demand payment of the maker. By the alleged parol agreement, he was to bring suit, obtain judgment, issue execution, and have of course the execution returned nullá hona. Does this not add to, vary, or contradict the effect of the endorsement ? Again, by the endorsement the plaintiff is entitled immediately after the demand of the maker, and default of payment by him, to resort to the defendant. But by the alleged parol agreement, he is not only to wait the result of a suit, judgment, and execution; but he is to wait three years beyond that event. Does this not contradict,, vary, or add to the effect of the endorsement ? If I do not suffer more than a Babelonish confusion of language and ideas, I think I may venture to say, the parol evidence does contradict, add to, and vary the legal import and effect of the endorsement.

What thus appears to be the result of fair reasoning, is confirmed by authority. Thus, in an early case, where it was attempted to show that a contract of insurance was different from that stated in the policy, Lord Chief Justice Pemberton (Phillips, 433) declared the evidence to he inadmissible, saying, it should no more be allowed, “than he who subscribes a hill of exchange,, payable at such a day, shall be allowed to go from it, and say, it was agreed to be on condition, &c. when it maybe that the bill had been negotiated.” Now there are but two possible distinctions which can be taken between the case here put as being beyond all dispute, and the case now before us. The 1st is, that the case. put is grounded upon the bill having passed into the hands of third parties, who were ignorant of the parol agreement; but though that reason is given by way of confirmation, it is not all the foundation of the principle : for in a case between the maker and the payee of the note, the maker was not permitted to show, by parol proof, that, at the time of making the note, it was agreed between him and the plaintiff that it should be renewed, and that payment should not be demanded 'on its becoming due. (Phillips, on Evidence, 433, and the cases there quoted.) The 2d distinction which I deem possible, is, that the case of an endorsement is different from a note. It will be only necessary to show, that every endorsement is, in effect, a new note, or bill. Thus Chitty says, (p. 116,) “ It is said to be equivalent, in its effects, to the drawing of a bill, the endorser being in almost every respect as a new drawer on the original drawee.” My brethren, who think this testimony admissible, I understand, do not agree on the same grounds. Two of them (my brothers Grimke and Gantt) think the whole admissible. The other (my brother JYott), only that part which stipulated proceedings by suit, because he thinks, as I have understood him, this was an engagement independent of the contract of endorsement, to use diligence not required by law, and that parol evidence of an independent engagement is admissible. That parol evidence of an independent engagement is admissible, I admit. But this is only a correct conclusion from premises neither granted nor proved. The testimony, in point of fact, was part of the contract of endorsement, as alleged by the witnesses, and not independent of it; and so it is alleged to be in the grounds of the motion, and let it be called what it may, it is contradictory, adds to, and varies the legal effect of the endorsement, as it establishes new and variant duties on the part of the endorsee, and postpones his redress. In short, I think there is not a shade of difference between this part of the rejected testimony, and that which is said to have stipulated a further delay of three years.

Tdeem it unnecessary to say any thing in reply to arguments on the impolicy of the rule. It is borne up on the authority of ages of acquiescence and happy experience; and those Judges whom we most revere for their learning and judgment, have given it their sanction and support, and have regretted any relaxations of it which may have taken place. But we every day acknowledge it as authority j and have rigidly adhered to it in a case (M‘Dowell vs. Bickley) decided at the present sitting of this Court.

Colcock and Johnson, J, concurred with Justice Cheves,