Court Opinion

ID: 7066450
Source: CourtListenerOpinion
Date Created: 2022-07-24 07:27:12.63994+00
Date Added: 2024-06-11T16:12:24.723143
License: Public Domain

Lairy, J.
Appellee sued appellants on a note and recovered. The note sued on was in the words and figures following : *
“$667.00 Siberia, Ind., Nov. 16, 1906. On or before September 1st, 1908, we or either of us promise to pay to McCabe and Lindsey or bearer at the First National Bank of Greenup, Illinois, $667.00, Six Hundred Sixty-seven Dollars for value received and attorney’s fees, with interest at the rate of 6% per annum, annually from date until paid without any relief from valuation or appraisement laws. (Signed) Felix Linetti, William Seiler, Mayes O. Cummins, John Bombolaski, George Seiler, W. E. Wells.”
The complaint counts upon the note and alleges that the plaintiff was a banking corporation located and doing business in the town of Newton, Illinois. Facts are also alleged showing that the bank acquired title to the note in suit by endorsement in writing under such circumstances as would make it a bona fide holder if the note is negotiable as an inland bill of exchange. A statute of the state of Illinois on the subject of negotiable instruments is pleaded as a part of the complaint. If the note in suit is to be construed in accordance with this statute as interpreted and applied by the supreme court of that state, it is a negotiable note; but if it is to be construed in accordance with the statute of Indiana on the subject, it is not negotiable- for the reason that it is not payable at a bank within the State. §9076 *175Burns 1908, §5506 R. S. 1881; Ray v. Baker (1905), 165 Ind. 74, 74 N. E. 619; Midland Steel Co. v. Citizens Nat. Bank (1904), 34 Ind. App. 107, 72 N. E. 290. By certain paragraphs of answer to which demurrers were sustained, the appellants pleaded a defense against the payees of the note. These answers are not models of pleading and it might he difficult to determine from their averments whether they proceed upon the theory of fraud, or upon the theory of a warranty and its breach; hut it is practically conceded by appellee that they state facts sufficient to constitute a cause of defense to the note if it is not a negotiable instrument. By sustaining the demurrers to these paragraphs of answer, the trial court held that the note in suit was negotiable.
1. We are thus confronted with a conflict of laws, and are required to determine whether the character and effect of this note as to its negotiable qualities depend upon the law of the State of Indiana where it was executed, or whether they depend upon the laws of the state of Illinois where the note by its terms was made payable. Where suit is brought in this State upon a contract which does not disclose upon its face the place of its execution, it will he presumed that it was executed in this State. Rose v. President, etc. (1860), 15 Ind. 292; Baltimore, etc., R. Co. v. Scholes (1896), 14 Ind. App. 524, 43 N. E. 156, 56 Am. St. 307. The note in suit is dated at Siberia, Indiana, and suit is brought to enforce it in this State, and the presumption will he indulged that it was executed in Indiana.
2. To sustain the ruling of the trial court appellee asserts the law to he, that where a note is executed in one state and, by its terms, is made payable in another, the question of its negotiability is to be determined by the law of the state in which it is payable and not by that of the state in which it was executed. To sustain its position it cites a number of Indiana cases hearing upon the question, but none of them are exactly in point. Fordyce *176v. Nelson (1883), 91 Ind. 447; Patterson v. Carrell (1877), 60 Ind. 128; Midland Steel Co. v. Citizens Nat. Bank (1901), 26 Ind. App. 71, 59 N. E. 211; Garrigue v. Kellar (1905), 161 Ind. 676, 71 N. E. 523, 69 L. R. A. 870, 108 Am. St. 324. In the opinion of the court in the ease first cited, language is used which apparently is decisive of the question, but an examination of the facts of the ease will show that the question ivas not presented for decision. The note sued on In that case ivas executed in the state of Missouri and ivas also Xiayable in that state, and it is quite clear that the law of Missouri would control the question of its negotiability in a suit to enforce it in another state, where the statutes of Missouri were pleaded. The second case cited is similar to the first in that the note in suit was executed in the state of Ohio and was payable in that state. It was held that, as no statute of Ohio was pleaded, it would be presumed that the common law prevailed in that state, and that, the note sued on was not negotiable as an inland bill of exchange for the reason that such notes were not so negotiable by the law merchant, which formed a part of the common law, but are only made so by statute. The facts in the third case are similar to the facts in the case at bar, but the question here presented was not there decided. The note sued on in that case was executed in Indiana and was made payable at a bank in Pennsylvania, and was assigned to a bank at Kokomo, Indiana. The bank sued the maker but did not allege in its complaint, facts showing that a note of the character of the one in suit was negotiable under the statutes of Pennsylvania. The statutes of that state Avere not pleaded as a part of the complaint and no facts were alleged, therein showing that the bank Avas a tona fide holder of the note. The defendant by Avay of answer set up a defense against the payee of the note. As a reply to this ansAver the bank pleaded a statute of Pennsylvania on the subject of commercial paper and alleged that, under the decisions of the supreme court of that state construing that statute, notes *177such as the one sued on had been held to be negotiable in that state. Facts were also averred showing that the bank was a tona fide holder of the note. The Appellate Court held that the reply was a departure from the theory of the complaint and that a demurrer thereto should have been sustained for that reason. The court did not decide whether the facts stated in the reply were sufficient to show that the note was a negotiable instrument. An examination of the facts presented by the case of Garrigue v. Kellar, supra, shows that the note in suit was executed in the state of Illinois and was by its terms payable at a bank in Indiana. Under the statutes of Illinois a married woman may, by contract, become liable as surety, but in Indiana a married woman is prohibited by statute from entering into any contract of suretyship. An action was brought to enforce the note in this State and Mrs. Garrigue answered, setting up her coverture and her suretyship.' As a reply to this answer, the statute of Illinois was pleaded and it was further averred that the note was executed and delivered in that state for money there loaned. It was held that the question of her liability on the note as surety was controlled by the law of the state where it was executed and not by that of the state wherein it was payable. The question for decision in this case depended upon the capacity of one of the parties to bind herself as a surety. Questions pertaining to the formal validity of a contract or the capacity of the parties are always determined by the lex loci contractus. For the reason stated, this case is not decisive of the question here presented. In the ease of Ray v. Baker (1905), 165 Ind. 74, 74 N. E. 619, the note sued on, was dated at Lebanon, Indiana, and was payable at the Citizens Bank of Homer, Illinois. The statute of Illinois was not pleaded and the court would presume that the common law was in force in that state. The court held that the note was not negotiable under the laws of Indiana, but the question as to whether *178it was negotiable as an Illinois.contract was not presented or decided. The case of Mix v. State Bank (1859), 13 Ind. 521, may be distinguished in the same manner.
3. The question of negotiability or nonnegotiability of a note is one of construction or interpretation. It is determined by the form and conditions of the instrument when considered in the light of the law subject to which it is made. The quality and characteristics of a note as to its negotiability or the want of it attach at the time and at the place such note has its legal inception. When its obligations attach and it comes into legal being, it is either negotiable or nonnegotiable, and the quality thus impressed upon it at its inception will not be altered, either by lapse of time or change of place. If a note is nonnegotiable in the state or country where it has its legal origin it can not become negotiable because at a subsequent time it is carried or transmitted to another jurisdiction.
2. 4. Unquestionably the note in suit had its legal inception in Indiana, and if it is to be construed by the lex loci contractus, it was nonnegotiable in this State and it was therefore nonnegotiable in Illinois or any other state. It was payable, however, in the state of Illinois and if the lex loci solutionis is to control its interpretation, it was negotiable in Indiana at the time of its inception, and it was therefore negotiable in Illinois or in any other state. Where a contract is made in one state and, by its terms provides for its performance in another, and the laws of the two states differ, no fixed rule can be announced by which it can be determined in every case which law shall apply. Where the parties have manifested an intention in good faith to make their contract subject to the laws of one or the other of such states such intention will be given effect in construing the contract and determining the reciprocal rights and duties of the parties thereunder; but if the question to be decided relates to the formal validity of the contract or to the capacity of the *179parties, such question is to he determined in accordance with the lex loci contractus without regard to the intention of the parties. 2 Wharton, Conflict of Laws (3d ed.) §§427e-427n; Scudder v. Union Nat. Bank (1875), 91 U. S. 406, 23 L. Ed. 245; Phoenix Mut. Life Ins. Co. v. Simons (1893), 52 Mo. App. 357; Hager v. National, etc., Bank (1898), 105 Ga. 116, 31 S. E. 141; Campbell v. Crampton (1880), 18 Blatch. 150; Matthews v. Murchison (1883), 17 Fed. 760; Hunt v. Jones (1879), 12 R. I. 265, 34 Am. Rep. 635; Roubicek v. Haddad (1902), 67 N. J. L. 522, 51 Atl. 938.
In this case we are concerned only in determining the rights and obligations imposed by the contract, and we desire to limit our observations to the question before us. That the intention of the parties as gathered from the instrument itself shall have controlling weight in determining which of two conflicting laws shall apply to the construction of their contract seems to be supported by reason and possibly by the weight of authority, but the means of ascertaining such intention is not free from difficulty. The parties may stipulate in the contract that it shall be controlled by the laws of a particular state and where this is done in good faith, the question is free from doubt; but where this is not done, the question depends largely upon presumptions. Where a contract fixes no place for performance, the presumption is that it is to be performed in.the same state in which it is executed and that the parties contracted in reference to the lex loci contractus. Stickney v. Jordan (1870), 58 Me. 106, 4 Am. Rep. 251; New York Security, etc., Co. v. Davis (1902), 96 Md. 81, 53 Atl. 669; Dow v. Rowell (1841), 12 N. H. 49; Strawberry Point Bank v. Lee (1898), 117 Mich. 122, 75 N. W. 444. If it is executed in one state and by its express terms is to be performed in another, the first presumption is overcome. In such a case, in the absence of facts and circumstances manifesting a contrary intention, the parties will be presumed to have intended that their contract should be governed by the law of the place of per*180formanee. Wharton states the proposition thus: “When there is a conflict between the law of the place where the contract was made and that of the' place where it is payable, the great weight of authority accords with the position taken in ante §§450, 451, and favors the law of the place where the note or bill is payable, rather than that of the place where the maker’s or acceptor’s contract was made. This is true, not only as to the ultimate question of liability, but also as to the preliminary question of negotiability as affecting, the question of liability * * * 2 Wharton, Conflict of Laws (3d ed.) §451d; Brabston v. Gibson (1850), 9 How. 262, 13 L. Ed. 131; Calhoun County v. Galbraith (1878), 99 U. S. 214, 25 L. Ed. 410; Holmes v. Bank of Ft. Gaines (1898), 120 Ala. 493, 24 South. 959; Goddin v. Shipley (1847), 46 Ky. 575; Freeman’s Bank v. Ruckman (1860), 16 Gratt. (Va.) 126; Stevens v. Gregg & Co. (1890), 89 Ky. 461, 12 S. W. 775; Carlisle v. Chambers (1868), 67 Ky. 268, 96 Am. Dec. 304; Warren v. Lynch (1810), 5 Johns. (N. Y.) 239; Curtis v. Hutchinson (1845), 4 Ohio Dec. 19.
Some of the cases state it as a fixed rule that the law of the place of payment controls the question of negotiability as affecting liability, while others hold that a presumption of intention to this effect obtains in the absence of facts or circumstances showing an intention to the contrary; but as such circumstances seldom, if ever, exist, the distinction is not usually of practical importance. 2 Wharton, Conflict of Laws (3d ed.) §451d. In a few cases it has been held that the place of payment named in a note or bill of exchange is not to be regarded as important in determining which of two conflicting laws shall apply, but these cases are not in line with the current of decisions on this point. Garrigue v. Kellar, supra; Staples v. Nott (1891), 128 N. Y. 403, 28 N. E. 515, 26 Am. St. 480. In the case first cited, the question presented related to the capacity of a married woman to contract as surety. This question is one pertaining to the formal validity of the contract and its decision is always *181controlled by the lex loci contractus. What was said upon this question can not be regarded as necessary to the decision as the question presented was properly decided upon other grounds.
From an extended examination of the authorities we have reached the conclusion that the negotiability of the note in suit as affecting liability is to be determined by the law of Illinois. If the note provided that its legal effect should be governed by the law of that state there could be no question; and, as we construe the decisions, a provision for payment in that states gives rise to a presumption to the same effect. It was, therefore, an Illinois contract, the same as though it had been both executed and made payable there, and, being negotiable under the law of that state, it must be held to be negotiable here even though it does not conform to the standard of negotiability fixed by our statute. In the hands of a Toona fide holder it was not subject to the defense set up by the answers in question, and the court did not err in sustaining the demurrers thereto.
As heretofore stated, our statute in effect provides that notes payable to order or bearer in a bank in this State shall he negotiable as inland bills of exchange. It is suggested that the effect of the holding in this ease will be to render this statute partially ineffective. At first blush, there might appear to be some merit to the objection suggested, but when we consider the effect of the decision in connection with the statute it will appear that the objection is without force. Our statute can be given no extraterritorial effect. It applies to all notes payable within this State regardless of the place where they were executed, and to all notes executed in this State which do not specify the place of payment, as all such notes are presumed to be payable in this State. .
*1825. *181The court did not err in sustaining demurrers to the second and fifth paragraphs of answer. Both of these paragraphs set up a contract between the payees and nine persons *182named, by the terms of which it was agreed that the ownership of the stallion purchased was to be divided into ten shares of $200 each, which shares were to be taken and paid for by the nine persons named in certain proportions stated. It is averred that under this agreement all of the parties who had agreed to take stock were to sign the note and it was not to be delivered until all had signed. It is also averred that only six of the number signed it and that it was carried away by the payees and was never signed by the other three, and that said note was never delivered to the payees or to any other person. These paragraphs are sworn to and proceed upon the theory that the note in suit was never delivered. These answers disclose that the payees were permitted to have possession of the note before it had been signed by all of the parties who had agreed to take shares, and that they were enabled, through the negligence of the makers in this respect, to place it in circulation. It is well settled that where one of two innocent persons must suffer on account of the wrongful act of a third, that one must bear the loss whose fault or negligence enabled the third person to do the wrong. A want of delivery can not be urged as a defense against a hona fide holder of a negotiable note where it appears that the note got into circulation through the fault or negligence of the defendant. Gould v. Segee (1856), 5 Duer. (N. Y.) 260; Clark v. Johnson (1870), 54 Ill. 296; Shipley v. Carroll (1867), 45 Ill. 285; Kinyon v. Wohlford (1871), 17 Minn. 239, 10 Am. Rep. 165.
Plaintiff’s reply to the eighth paragraph of answer states facts sufficient to avpid the defense set up in that paragraph of answer. A reply in all respects similar was held sufficient in the case of Bowen v. Laird (1906), 166 Ind. 421, 77 N. E. 852. The demurrer to the reply was properly overruled.