Davis v. BrownDavis v. Brown
delivered the opinion of the court.
This was an action against the defendants, as second indorsers upon ten promissory notes of one McOmber, made at Saratoga Springs, in ■ the State of New York, in June,-1870, each for §500, and payable to his order in from thirty-two to forty-one months after date.
The defence set up to defeat the action was that the notes in. suit were transferred in June, 1871, with other notes of the same party of like amount and date, to the Ocean National Bank by the defendants, in part satisfaction of a note of their own then past due, the balance being paid in cash, and were indorsed by the, defendants as a mere matter of form, upon an agreement in writing of the bank that they should not be held liable on their indorsements, or be sued thereon.
On the trial, Harvey Brown, one of the defendants, was called as a witness to prove the matters thus set up as a defence, and was permitted, against the objection of the plaintiff, to testify to the settlement of the note of the defendants, the transfer for that purpose to the Ocean National Bank of the McOmber notes, and their indorsement by the defendants under the agreement of the bank not to hold them liable as indorsers ; and that this agreement was in writing, and was destroyed in the great fire at Chicago, in October, 1871.
To meet and repel the defence founded upon this agreement, the plaintiff produced and gave in evidence a record of a judgment, recovered by him against the same defendants upon two other notes of the same party, of like amount and date as those in suit, except that they became due at an earlier day, which were part of the series of notes transferred by the defendants to the bank, and indorsed by them, in settlement of their own note, as already'mentioned, and were included in the agreement as part of the same transaction.
The questions presented for our determination relate to the
The objection to the witness arose from his being a party to the notes, and, as such, it is contended that he was incompetent to impeach or discredit the same, or to show that his liability was not such as his indorsement imported. The case of The Bank of the United States v. Dunn, reported in the 6th of Peters, is cited in support of this position. There, the indorser of a note had been permitted by the court below to testify, against the objection of the plaintiff in the action, to a verbal understanding with the cashier and president of the bank which took the note, that he was not to incur any responsibility. or, at least, would not be held liable on the note, until the security pledged for its payment had been exhausted. The admission of the witness this court considered erroneous, holding that no one who was a party to a negotiable note could be permitted by his own testimony to invalidate it, which, in that case, meant that no one could be permitted to show that a note indorsed by him was void in its inception, or that his indorsement did not impose the liability which the law attached to it. The opinion which announces the decision proceeds upon two grounds : 1st, That the evidence would contradict the terms of the instrument, or change their legal import; and, -2d, that it would be against public policy, as tending to destroy the credit of commercial paper, to allow one who had given it the sanction of his name, and thus added value and currency to the instrument, to testify that it was executed or indorsed by him under such circumstances as to impair his obligation upon it.
This last position was supported by reference to the celebrated case of
Walton
v.
Shelley,
1 T. R. 296, decided in 1786, where the indorser of a promissory note was held by the King’s Bench to be inadmissible as a witness, on grounds of public policy, to prove the note void for usury in its inception ; Lord Mansfield observing, that it was “ of consequence to mankind that no person should hang out false colors to deceive them, by first affixing his signature to a paper, and then afterwards giving testimony to invalidate it.” Aside
The doctrine of
Walton
v.
Shelley
maintained its position in the courts of England only for a few years. In 1798, it was by the same court overruled in the case of
Jordaine
v.
Lashbruoke,
7 id. 601, Lord Kenyon having succeeded'Mansfield as Chief Justice. Since then, the rule has prevailed in the courts of that country, that a party to any instrument, whether negotiable or not, if otherwise qualified, is competent to prove any fact affecting its validity; the objection to the witness, from his connection with the making or circulation of the instrument, only going to his credibility, and not to his competency. In this country, there has been much diversity of opinion upon the point, some of the State courts following the'rule of
Walton
v. Shelley, while others have adopted the later English rule. The general tendency of decisions here is to disregard all objections to the competency of witnesses, and to allow their position and character to affect only their credibility. This diversity of opinion could not have existed, unless there were grave reasons for doubting the soundness of the original deci-sion. Be that as it may, it,has led those courts which, on considerations' of commercial policy, adopted the rule of
Walton
v.
Shelley
to qualify the rule, so as to limit its application strictly to cases arising on negotiable bills and notes, and to cases where the transaction affecting the validity of the paper was not between the parties in suit. The -holders of commercial paper, who enter into agreements or transactions with the makers or indorsers, affecting its validity or negotiability, can
These considerations dispose of the objection to the competency of the witness Brown. The notes of •McOmber were never put into circulation by the Ocean National Bank. No one, therefore, has been misled by the indorsement of the defendants ; no false colors have been held out by them. No credit or currency has been given by their name. The receiver has, with reference to the notes, no greater right than the bank has: he stands in its shoes. If the bank could not have enforced a liability upon the defendants against its agreement that they should not be held liable, the receiver cannot enforce it. The agreement itself is not immoral nor illegal. The defendants by their act ran the risk of being charged upon the notes; they would have been liable had the notes been put into circulation. But beyond this risk they were protected by the agreement; upon that they could rely, so long as the bank held the notes.
The objection that the agreement was inadmissible because it tended to vary and destroy the legal effect of the indorsement is not tenable. The agreement, being in writing, is to be taken and considered in connection with the indorsement, and the two are to be construed together. So far as the bank was concerned, the agreement made the indorsement equivalent to one without recourse to the indorsers.
The next question for determination relates to the operation of the judgment recovered by the plaintiff against the defendants, as an estoppel against their setting up the defence founded
In taking this position, counsel have confounded the operation of a judgment upon the demand involved in the action, in which the judgment was rendered, with its operation as an estoppel in another action between the parties upon a different demand. So far as the demand involved in the action is concerned, the judgment has closed all controversy; its validity is no longer open to contestation, whatever might have been said or proved at the trial for or against it. The judgment is not only conclusive as to what was actually determined respecting such demand, but as to every matter which might have been brought forward and determined respecting it; and that is all that the language means which is quoted by counsel from opinions in adjudged cases, in seeming consonance with his position.
When a judgment is offered in .evidence in a subsequent action between the same parties upon a different demand; it operates as an estoppel only upon the matter actually at issue and determined in the original action; and such matter, when not disclosed by the pleadings, must be shown by extrinsic
As to the objection of want of authority in tbe president of tbe bank to make tbe agreement with tbe defendants, tbe finding of the court is conclusive. His authority was a fact to be determined by tbe court, under tbe stipulation waiving a jury, and we do not sit in review of questions of fact.
Judgment affirmed.