Maitland v. Citizens' National Bank

Alvmt, J., delivered the opinion of the Court. This appeal is taken from a judgment of the Superior Court of Baltimore City, rendered in an action on a promissory note, of which the defendant was maker, for ⁵⁵⁶ $10,000, dated January 11th, 1872, payable four months after date, to the order of Phillips & Maitland, and hy them endorsed to the plaintiff. The note was protested for non-payment at maturity. The declaration was in the usual form, and the pleas were, that the defendant never was indebted as alleged, and that he did not promise as alleged.

At the trial, two bills of exceptions were taken by the defendant; the first to the ruling of the Court in admitting certain evidence offered by the plaintiff; the second to the rulings of the Court in granting the three prayers .offered by the plaintiff as instructions to the jury, and the refusal to grant the first, second, third and fourth prayers .offered by the defendant. Before proceeding to consider the specific questions presented by the bills of exception, in order the better to iunderstand the nature of the transaction out of which the controversy arose, we shall state briefly the leading facts of the case as disclosed by the record. The son of the defendant and a party by the name of Phillips, composed the firm of Phillips & Maitland, a house doing business in the City of Baltimore at the time of the making the note sued on. This firm, for some .time prior to the date of the note, had kept an account with the plaintiff, and had received from the latter discounts of drafts or bills drawn upon certain houses in New York to a considerable amount.

While the account was still running, in consequence of some distrust as to the .solvency of the house of Phillips .& Maitland, the bank, hy its directors, after examining into the state of the account, instructed its cashier,. Mr. Gruest, to call upon Mr. Maitland, of the firm of Phillips & Maitland, for collateral security. This instruction was given the cashier some time between the 5th and 10th of January, 1872 ; and on ■the last mentioned date, Mr. Maitland presenting himself .at the .bank, had his attention called to the instruction of ⁵⁵⁷ the board of directors by the cashier, with a request that the security should be furnished; but whether the security required by tbe board of directors and demanded by the cashier was for all existing indebtedness of the firm to tbe bank as w'ell as for all indebtedness that might thereafter he contracted with it, is the controverted question in the ease. According to the testimony of the cashier, Guest, the demand was for collateral security for all drafts then held, as well as for all that might thereafter be discounted for the firm; and the giving of the defendant’s note as collateral security was suggested to Mr. Maitland, Jr., hy the cashier himself.

On the other hand, it was proved on the part of the defendant, that security was only required, and therefore only given, lor drafts thereafter to he discounted, including two drafts discounted on the 10th of January, 1872. Phillips & Maitland failed on the 15th of January, 1872, and, according to the testimony of the plaintiff’s cashier, of the drafts discounted for the firm from the 10th of January to the day of their failure inclusive, the sum of $5,681 remains unpaid, and of drafts discounted for them previous to the 10th of January, 1872, there remain unpaid over $15,000. The defendant himself testified that he had no interest in the business of Phillips & Maitland, and no connection whatever with that house, but on the 11th' of January, 1872, he signed the note in suit, and gave it to his son, Burgwyn Maitland, for the purpose of being left with the plaintiff as collateral security for the payment of the two drafts which had been discounted by the plaintiff for Phillips & Maitland, on the 10th of January, 1872, and of any drafts which that house might thereafter get discounted by the plaintiff; that he did not take the note to the bank himself, nor accompany his son to the bank, nor had he any interview on the subject with any officer of the bank; that the note when signed by him was in blank, as to the amount and time of payment, his- son having ⁵⁵⁸ authority to fill both blanks when he took it to the bank, provided the amount did not exceed $10,000. The defendant further testified that the note was given to Phillips & Maitland for the purpose stated, in response to a request made of him on the evening of the 10th of January, 1812, by his son, Burgwyn Maitland, who stated to him, that the plaintiff’s cashier had, on that day, declined to discount two drafts drawn by Phillips & Maitland, unless he, the son, would bring defendant’s note, or some other security, as collateral, for their payment in case they were not paid by the persons on whom they were drawn.

The note was, therefore, made for accommodation of the house of Phillips & Maitland, and, according to the testimony of the defendant, was only to be used as collateral security for the two drafts discounted on the 10th of January, and such other drafts as should thereafter be discounted for that house. The defendant, therefore, contends that he is only liable on the note for any balance that may remain due on the two drafts discounted on the 10th of January, 1812, and on any subsequent drafts that may have been discounted by the plaintiff for Phillips & Maitland; while, on the contrary, the plaintiff contends that the note was given as collateral security for all drafts discounted for Phillips & Maitland, which remained unpaid at the time of their failure, as. well those discounted before as after the 10th of January, 1812, and consequently it is entitled to recover to the extent of the face of the note, if the indebtedness of Phillips & Maitland is as much as or more than that sum. Such being the nature of the controversy between the parties, as disclosed by the evidence, the plaintiff, on the trial, for the purpose of corroborating the testimony of its witness, Guest, in some particulars in regard to which the latter was in conflict with the testimony of Burgwyn Maitland, a witness for the defendant, as to the debts for which the collateral security was required to be furnished, ⁵⁵⁹ offered to prove by its president and two of its directors, the statements made by Guest to them soon after the transaction ; and, under the ruling of the Court, was allowed to prove that Guest, a few days after the 11th of January, 1812, and before the failure of Phillips & Maitland, stated to the board of directors that he had obtained from Phillips & Maitland the defendant’s note for $10,000, which was to be held by the bank as collateral security for all drafts which it was carrying'—that is, which it had discounted at the date of the note, as well as for all drafts which it might discount subsequent to that date, for that house. To the allowance of the question to be propounded to the witnesses, as also to the admissibility of the evidence elicited • thereby, the defendant objected, and the objection being overruled, such ruling forms the subject of the first exception. ■■ ; This exception presents a question that has been upon several occasions before this Court, as in the cases of Cook vs. Curtis, 6 H. & J., 93 ; Washington Fire Ins.

Co. vs. Davison, 30 Md., 104 , and McAleer vs. Horsey, 35 Md., 441 . The rule recognized and applied in those cases would seem to be an exception to the general principle which excludes all mere hearsay evidence, because ex parte and without the sanction of an oath. But the evidence admitted under it is not admitted to prove or disprove any fact involved in the issue on trial, but simply to corroborate or support the credibility of the witness who may be in some manner impeached. It is a rule, however, not very generally recognized in'the Courts of England, or of other States of this country, and it should not be extended, but applied strictly.

The Legislature, at its last session, abrogated the rule entirely as applied to the case of a party to the cause who may be examined as a witness, (Act 1814, ch. 386,) but left it in force as applicable to other witnesses. The object of the rule is to allow a party, whose witness is impeached, to show that the witness has been consistent ⁵⁶⁰ in giving tlie same narrative of fact; that his former statements, when without interest or motive to falsify the truth, consist with his sworn testimony as given on the trial; and thus, to some extent, remove suspicion that his testimony has been fabricated to meet the emergencies of the case, or that his recollection has varied, and is therefore not to he relied on. But, in order that the rule may be properly applied, and the evidence admitted under it furnish the foundation for some rational presumption in corroboration of the witness’s credibility, it should appear that there is real or substantial similarity, in facts and circumstances, between the unsworn and the sworn statements. Evidence of mere conclusions or deductions from certain transactions, formerly declared by the witness, do not corroborate or support the credibility of his evidence, consisting of what professes, to he the particular facts occurring in the transaction.

His opinions or conclusions may have been erroneously founded, or drawn from very different facts from those testified to by him. The former unsworn statements, as compared with his testimony on the trial, should furnish some test of the witness’s recollection, as well as of his integrity. In this case, the witness G-uest had testified to the particulars of a conversation and as to an understanding with Maitland, Jr., in regard to the collateral security required by the bank, and as for what that security was really given ; and in the evidence offered in corroboration, instead of consisting of a similar narrative of the facts to that testified to, the mere general statements or conclusions of the witness are given, that the note of the defendant was to be held as collateral security for all drafts discounted by the hank and remaining unpaid, whether prior or subsequent to the date of the note, This may have been the witness’s conclusion at the time, founded upon a state of facts quite dissimilar to those proved by him, and which, if those facts had been stated, might have rather tended to impeach than corroborate his ⁵⁶¹ evidence. Wo think, therefore, that there was error in the ruling on the exception to the admissibility of this evidence.

We come now to the main questions involved in the case, and they arise upon the prayers offered by the parties, plaintiff and defendant. And in considering the questions thus presented, it must be borne in mind throughout, that the note sued on was made purely as an accommodation note,—was indorsed to the plaintiff simply as collateral security, and that the right of recovery thereon is maintained by the plaintiff only in respect to the amounts due from the indorsers on the debts for which the note was intended as security. With respect to these propositions there is no controversy. The controverted questions raised by the prayers, particularly those of the defendant, which were rejected, are: 1st.

Whether an indorsee of a negotiable promissory note, made for the accommodation of the indorser, taking the note in good faith, as collateral security for an antecedent debt, and without other consideration, is entitled to the position of holder of such paper for value, and therefore not affected by the defence of the want of consideration to the maker. 2ndly. To what extent, if at all, is the indorsee and holder of the note affected by the fact that the note was made and delivered to the payees, to be used as collateral security only for certain debts, and the payees, disregarding the purpose for which the note was made and delivered to them, pledged it as security for other debts, in addition to those contemplated by the maker; and 3rdly, Upon whom is the onus of proof, as to the debts protected by the security, and the amount for which the plaintiff is entitled to recover, under the circumstances of the case. 1. Asa general proposition, we think it may be affirmed, as the result of all the well considered cases upon the subject, that it is no defence that the note sued on was known to the plaintiff to be an accommodation note between the ⁵⁶² maker and the payees, provided the plaintiff took the note for value, bona fide, before it was due. The reason is, as stated by Mr. Justice Story, in his work on Promissory Notes, sec. 194, that the very object of every accommodation note is, to enable the payee, or other party accommodated, by sale or negotiation, to obtain a free credit and circulation of the note; and this object would be wholly frustrated, unless the purchaser, or other holder for value, could hold such a note by as firm and valid a title as if it were founded in a real business transaction.

Indeed, the parties to every accommodation note hold themselves out to the public, by their signatures, to be absolutely bound to every person who may take the same for value, to the same extent as if that value were personally advanced to them, or on their own account, and at their request. And according to the doctrine laid down by Judge Story, every person is within the rule, and entitled to the protection of a bona fide holder for value, who has received the note in payment of a precedent debt, or has taken it as collateral security for a precedent debt, or for future as well as past advances. This latter proposition, to the full extent here stated, is maintained by Judge Story in his work on Bills, sec. 192, and in his work on Promissory Notes, see. 195, and is supported by the citation of many authorities, both English and American. The principle thus stated by Judge Story, so far as it asserts that a party who receives a negotiable note simply as collateral security for a precedent debt is entitled to protection as holder for value, has, it is true,-been controverted in some quarters; and the cases in which the principle has been repudiated, or its correctness denied, have been pressed upon the Court in the argument of the present case.

But the reasoning of those cases does not convince us of the correctness of the conclusions maintained by them. The leading American case upon this subject is that of Swift vs. Tyson, 16 Pet., 1 . In that case the Supreme ⁵⁶³ Court of the United States, by Mr. Justice Story, stated fully the grounds upon which the principle rests, that he who receives a negotiable instrument, as a promissory note, in payment of, or as collateral security for, a precedent debt, without other consideration, is a holder for value, within the rule of protection against antecedent equities. In the course of the opinion, the Court said: i(It becomes necessary for us, therefore, upon the present occasion, to express our own opinion of the true result of the commercial law upon the question now before us.

And we have no hesitation in saying, that a pre-existing debt does constitute a valuable consideration in the sense of the general rule already stated, as applicable to negotiable instruments. Assuming it to he true (which, however, may well admit of some doubt from the generality of the language,) that the holder of a negotiable instrument is unaffected with the equities between the antecedent parties, of which he has no notice, only where he receives it in the usual course of trade and business for a valuable consideration, before it becomes due; we are prepared to say, that receiving it in payment of, or as security for, a pre-existing debt, is according to the known usual course of trade and business. And why, upon principle, should not a pre-existing debt he deemed such a valuable consideration? It is for the benefit and convenience of the commercial world to give as wide an extent as practicable to the credit and circulation of negotiable paper, that it may pass not only as security for new purchases and advances, made upon the transfer thereof, but also in payment of and as security for pre-existing debts.

The creditor is thereby enabled to realize or to secure his debt, and thus may safely give a prolonged credit, or forbear from taking any legal steps to enforce his rights. The debtor also has the advantage of making his negotiable securities of equivalent value to cash. But establish the opposite conclusion, that negotiable paper cannot he applied in payment of or as security for pre-ox ⁵⁶⁴ isting debts, without lettiug in all the equities between the