Citizens National Bank v. Custis

²³⁸ Parke, J., delivered the opinion, of the Court. The' paper writing in controversy on this appeal would formerly have been a non-negotiable instrument, known as á single bill or writing obligatory, since, by concluding the body of the paper with the term “Witness my hand and seal,” it made the subsequent signature and seal of the subscribing obligor the real evidence of the execution of the instrument and gave to it the character and effect of a specialty (a). In an action at law on such a sealed instrument, the absence or failure of consideration could not be inquired into or be made a matter of defence, except through a plea by way of equitable defense (b); and an assignee acquired no greater or other right under the instrument than his assignor had, and, so, standing in the shoes of the assignor, he would take subject to all the equities, burdens, and set-offs existing between the original parties before the assignment or notice thereof, and the defenses which would have been available against the assignor would be available against the assignee (c). These and other characteristics distinguished a single bill from a negotiable instrument until the passage of the Negotiable Instruments Law (Acts of 1908, oh. 119), which enacted that the validity and negotiable character of an instrument should not be affected by the fact that it bears a seal (d).

Since the instrument at bar is in writing and is signed by the maker and contains an unconditional promise to pay to the order of the appellee a sum certain in money on demand, it is a valid and negotiable promissory note, notwithstanding the fact that the paper is executed with a seal, as was contemplated by the parties (e). Indeed, the terms “maker and endorser,” and the stipulation that the maker or an endorser of the paper in suit engaged to waive demand, protest, and notice of non-payment, alike signify that the effect of the statute on an instrument under seal but otherwise negotiable was within the contemplation of the parties and anticipated in the formation and execution of the instrument. Compare Jackson & Wife v. Myers Bros., 43 Md. 452, 464-465 . (a) Jackson & Wife v. Myers Bros., 43 Md. ²³⁹ 452, 463-466; Trasher v. Everhart, 3 G. & J. 234 ; Stabler v. Cowman, 7 G. & T. 284; Gist v. Drakely, 2 Gill, 330 .

(b) Ingersoll v. Martin, 58 Md. 67, 74 ; Snyder v. Jones, 38 Md. 542, 552 ; 1 Poe, Pl. & Pr., sec. 143A. (c) Talbott v. Suit, 68 Md. 443, 448 ; Goldman v. Brinton, 90 Md. 259, 266 ; National Bank of Bristol v. Balto. & O. R. Co., 99 Md. 661, 675, 676 . (d) Code; art. 13, see. 25. (e) Code, art. 13, sec. 203, 25, 24; Arnd v. Heckert, 108 Md. 300, 302 ; Dever v. Silver, 135 Md. 355, 362, 363 ; St. Paul's Episcopal Church v. Fields, 81 Conn. 670, 678 ; Clarke v. Pierce, 235 Mass. 552 ; Williams v. Peninsular Grocery Co., 73 Fla. 937 ; Hazlett v. Willaume, 76 Fla. 514 ; Grand Lodge etc. v. Stale Bank, 79 Fla. 471 .

The obvious meaning of the Negotiable Instruments Act was to confer negotiability upon any instrument of writing which, although sealed, possessed the essentials of a negotiable paper. The statute enacted in explicit terms that so far as its validity and negotiable character are concerned the instrument is not affected by its bearing a seal. In other words, the instrument being otherwise negotiable, the seal will be disregarded as interposing any bar to full negotiability. Thus the instrument becomes a statutory negotiable paper, and by a statutory conversion, loses its position and quality as a specialty to the extent both of its negotiable characteristics and of its validity or legal sufficiency as a negotiable instrument.

So, as a negotiable instrument, the paper writing in the instant case is the statutory equivalent of a negotiable promissory note, and therefore it must be assumed that the parties, who are charged with knowledge of the law, understood that the obligation was negotiable, and that their relative rights and liabilities would be construed and determined by the provisions of the Negotiable Instruments Act. Vanderford v. Farmers' Bank, 105 Md. 164, 168, 169 ; Arnd v. Heckert, 108 Md. 300, 302 ; Dever v. Silver, 135 Md. 355, 362 . By the express terms of this statute, the note now before the Court is deemed prima facie to have been issued for a valuable consideration, and the maker to have become a party ²⁴⁰ to thé note for value, but absence or total or partial failure of consideration is a matter of defense as. between the parties or as to any person not a holder in due course. Code, art. 13, secs. 43, 44, 47, 77; Herman v. Combs, 119 Md. 41, 43-44 ; Shaffer v. Bond, 129 Md. 648, 653-661, 663 ; Ingersoll v. Martin, 58 Md. 67, 73, 74 ; Black v. Bank of Westminster, 96 Md. 399, 416 ; Harper v. Davis, 115 Md. 349, 357 ; Bear Creek Lumber Co. v. Second Nat.

Bank, 120 Md. 566, 568 ; Dever v. Silver, 135 Md. 355, 362, 363 ; Leonard v. Union Trust Co., 140 Md. 192, 198, 199 ; Arnd v. Heckert, 108 Md. 300, 302 ; Jamesson v. Citizens’ Bank, 130 Md. 75, 83, 84 . The Negotiable Instruments Act, therefore, abolishes the conclusive presumption of consideration for a sealed instrument which is otherwise negotiable; but gives to every negotiable paper, whether with or without a seal, the prima facie presumption that it was issued for a valuable :consideration, and that every person whose signature appears thereon becomes a party thereto for value, subject, however, to the right of the maker, as against any person not a holder in due course, to show affirmatively the consideration to be absent, as in the case of a gift, or to have failed in whole or in part. Supra; and Harper v. Davis, 115 Md. 349, 357 ; De Grange v. De Grange, 96 Md. 609 , 613; Shaffer v. Bond, 129 Md. 648, 661-663 ; Dever v. Silver, 135 Md. 362 . The cases of Feeser v. Feeser, 93 Md. 716, 724 , and Jenkins v. Sullivan, 110 Md. 539 , are not in conflict with this statement of the law, as they present a different record, with other questions than those on this appeal.

It is true, each of these decisions was subsequent to the passage of the Negotiable Instruments Act in 1898, and dealt with a sealed instrument, but here the analogy ceases. No question was made of the absence or failure of consideration, which apparently was accepted as being sufficiently established by the presence of the seal to each paper writing, but the principal controversy in each case was whether the instrument was a valid obligation or of a mere testamentary character. But the distinction more pertinent to the appeal .at bar is that in neither instance did the facts bring the case within the act, ²⁴¹ because the specialty in each would not have been a negotiable instrument, if unsealed. The sealed instrument in the first appeal, also, was executed and delivered on August 24th, 1881, which was prior to the passage of the act, and, therefore, expressly excluded from its operation.

Code, art. 13, sec. 18. No decision of any appellate tribunal has been found or brought to our attention which would be authority for a conclusion different from the one here stated. The case of Kennedy v. Collins (1919), 30 Del. 426 , is the only conflicting authority we have been able to find. In that case the court instructed the jury that a sealed note was not subject to the defense of want of consideration, since the seal imported consideration.

The case was decided after the passage of the Negotiable Instruments Act in Delaware, but the court made no reference to the act, and the weight of the decision is further lessened by the consideration that the decision was made at nisi prius in an oral instruction to the jury, without any citation of authority. The decision cannot be accorded the weight of a judgment by an appellate tribunal; and there is no reason why it should prevail over the clear intent of the Negotiable Instruments Act, and the authority of our own and other appellate courts. Supra. And see 29 Yale Law Journal, 345. 2.

As the statute of limitations affects neither the validity nor negotiable character of an instrument, its execution with a seal would continue to make the twelve years period of limitations applicable, but a different problem is presented with respect to pleading. Clarke v. Pierce, 215 Mass. 552, 553 , Ann. Cas. 1914D, 421. So long as a sealed instrument is regarded as a specialty, the seal either imports a consideration or renders a consideration unnecessary to its validity as an enforceable obligation. Hence at common law the absence or failure of consideration for a sealed instrument was not available as a defense, and neither the usual and proper plea of non est faciumi nor the permissible special pleas at law to an action of debt on a specialty permitted any ²⁴² such defense to be made. 1 Poe, Pl. & Pr., sec. 625; Jenkins v. Sullivan, 110 Md. 539 ; Conowingo Land Co. v. McGaw, 124 Md. 643, 645 ; Waldeck v. Emmart, 127 Md. 470, 476 ; Merryman v. Wheeler, 130 Md. 566, 569 .

Consequently, the maker could not set up at law the defense of a total or partial failure of consideration in an action of debt on a sealed instrument, yet the legal right of the maker to maintain this defense against a holder not in due course was inherent in every negotiable instrument, and is expressly assured by the statute. If this defense be not allowed at law, the instrument under consideration would be deprived of one of the characteristic attributes of negotiable paper, and the purpose of the statute would be defeated to that extent. Code, art. 13, sec. 47; Leonard v. Union Trust Co., 140 Md. 192, 198, 199 . The logical and necessary conclusion would seem to be that the legislative intent was to put negotiable papers, whether sealed or unsealed, on a common substantive and procedural equality, and so to permit this defense of a total or partial failure of consideration to be made without reference to the presence or absence of a seal to an instrument of writing, if otherwise negotiable.

To allow this defense to be interposed at law is no more anomalous than for a specialty t'o be a negotiable instrument. Nor do we see any difficulty in giving practical effect to the clear legislative intent. By reason of the legislative mandate, the presence of the seal to a paper writing of negotiable form does not affect the substantive rights of the parties with respect to the absence or failure of consideration; and, the cause of action arising ex contractu, the form of the action is now in assumpsit by virtue of the provisions of the Acts of 1918, ch. 392 (Code, art. 75, sec. 4), and, so far as procedure is concerned, no distinction is to- be made in the pleadings by reason of the presence or absence of a-seal upon the instrument, but in every such suit at law it will be sufficient for the defendant to set up his defense of an absence or total or partial failure of consideration under the general issue plea of either ²⁴³ the defendant never promised as alleged, or was never indebted as alleged. 1 Poe, Pl. & Pr., secs. 623, 21, 58; Code, art. 75, sec. 4. The point here determined does not seem to have been directly passed upon in this court.

However, in Arnd v. Heckert, 108 Md. 300 , which was decided before the Acts of 1918, ch. 392, the action was by an endorsee on an instrument negotiable