Opinion
Argued May 8, 1874
Decided September term, 1874
Clarence A. Seward for the appellant. W.W. McFarland for the respondents.
Under the facts in this case, the question is: Who is the owner of the note, the express company, which has acquired the rights of the bank, or the defendants?
The instrument is plainly negotiable. There was some criticism on the argument, founded on the proposition that it was only the interest that was payable in lawful money. If all the language affecting the interest had been omitted, there would have been a distinct promise on the part of the United States to pay $1,000. The true construction is to regard the words affecting the interest as parenthetical. The note should read in this manner: "The United States promise to pay to the order of one thousand dollars (with interest at 7 3/10 per cent, payable semi-annually), in lawful money." The words "lawful money" qualify the word "dollars," in which the note itself is to be paid.
There are several objections urged to the negotiability of this instrument. One is, that it is under the seal of the United States treasury. There are, no doubt, decisions that an instrument under seal is not negotiable. These cases refer to private obligations between individuals. ( Clark v. Farmers' Manufacturing Co., 15 Wend., 256; Steele v. Oswego Cotton Manufacturing Company, id., 265.) They are not to be extended to the case of public securities like those issued by the government, and intended to seek for a market throughout the civilized world. The seal was not placed there to restrain their negotiability, but rather to stamp them as genuine, wherever they might be in circulation. Another objection is, that the instrument, on its face, was not payable to any particular person, but that the name of the payee was left blank. This fact does not affect the negotiability of the note. Any holder has the right to fill in his name in the blank space, and thus make the note payable to himself. ( Cruchley v. Clarance, 2 M. S., 90.) Until that is done, it will circulate as though payable to bearer. (1 Pars. on Notes and Bills, 33; 2 id., 448; Crutchly v. Mann, 5 Taunt., 529; Greenhow v. Boyle, 7 Blackf., 56; Attwood v. Griffin, Ryan M., 425.)
Again, it is objected that the note is in the alternative, and that, accordingly, it does not fall within the definition of a negotiable instrument. To this effect are cited: Atkinson v. Manks (1 Cow., 691); Cook v. Satterlee (6 id., 108); Matthews v. Houghton (2 Fairf. [11 Me.], 377); Story on Bills (§ 143). But in these cases the alternative was with the debtor, so that it could not be said that the instrument was payable absolutely and at all events. No case was cited, nor is it believed can any be found, in which, where the note is payable absolutely, as far as the debtor is concerned, and the creditor has an option to convert the obligation of the debtor into another and different one, it is held to be not negotiable, so long as the creditor has not exercised his option.
The only point on which any doubt would seem to arise would be whether the reservation, on the part of the debtor, of the right to pay the interest in coin instead of lawful money would destroy negotiability. This reservation, plainly, does not affect the principal; that is payable absolutely. Nor does it affect the payment of the interest in money, both kinds of currency, coin and paper, being equally lawful. The only question is, whether an alternative right, on the debtor's part, to pay interest in coin or paper destroys negotiability. The agreement to pay interest is a mere incident or accessory to the debt itself. ( Florence v. Drayson, 1 C.B. [N.S.], 584; Florence v. Jenings, 2 id., 454; 2 Parsons on Bills, 397, note v, and cases cited.) It is a maxim of the law that an accessory does not draw with it the principal but rather follows the nature of the latter. ( Accessorium non ducit sed sequitur suum principale, Broom's Maxims, 203; Co. Litt., 159, a, 151, b.) Under these rules, it would seem that the option to pay another rate of interest could not affect the negotiability of the note itself, since, independent of the clauses concerning interest, it has every element necessary to make it negotiable. The result of the discussion is, that until the creditor has exercised the option of demanding bonds, conferred on him by the statute in accordance with the contract, the note was negotiable paper; and if it had been stolen, prior to that time, and had been passed to a purchaser for value, he could have held it as against the lawful owner.
It is now necessary to consider the effect of the indorsement made by Mr. Mann, the cashier, on the note for the purpose of conversion into United States bonds. This will be discussed in the outset as though the indorsement was there when the bonds were negotiated to Benas Sons. The obliteration of the indorsement will be subsequently considered.
It cannot be successfully disputed that the printed statement on the back of the note, to the effect that it was convertible into bonds at the option of the holder, formed a part of it, and that the whole contract between the United States and the holder was to be derived from taking into consideration the statements and representations both on the face and the back of the note The holder, certainly, could have urged this is an application to the government to give him bonds for his notes. ( Overton v. Tyler, 3 Penn. St., 346.) It is there said that a "memorandum indorsed on a note, payable to bearer, is incorporated with it." Benedict v. Cowden ( 49 N.Y., 396) holds that a memorandum upon a note made contemporaneously with and delivered with it, and intended as a part of the contract, is a substantive part of the note, and qualifies it the same as if inserted in the body of the instrument, and with it constitutes a single contract. It cannot be material where the memorandum is found, whether on the front or on the back of the instrument. This must be particularly the case where the instrument is issued under a general statute, and where similar notes are largely in circulation, and familiar to all men engaged in the purchase of commercial paper. No one can complain that the rule is rigorously applied as no injustice can be experienced from it. When Mr. Mann indorsed on the notes the words: "Pay to the secretary of the treasury for conversion or redemption," thus exercising the option given him by the contract, the case fell under the rules applied to cases of election. It is a well settled legal principle that an election may be given in a contract either to an obligor or obligee. The case of Neele v. Reeve (2 Siderfin, 107) is a good early illustration. A covenanted with B that A or his son C, or either of them, should work with B at the grinding and polishing of glass. It was held that B had the election to require either of them to do the stipulated work.
An election once made is conclusive and irrevocable. ( Brown v. Royal Ins. Co., 1 Ellis Ellis, 853; Lawrence v. Ocean Ins. Co., 11 J.R., 241, 264; S.C., 14 id., 55, 56.) In the last case the chancellor said: "If a man has an election to do and demand one of two things, and he determines his election, it shall be determined forever. * * * If A gives B one of the horses in his stable, according to the instance given in Coke, B has his election to take which he pleases, as no one in particular was designated by A; but having elected one, all will agree that he cannot return it and take another." So in Layton v. Pearce (Douglas, 15), the defendant had received of G one pound six shillings, on condition that if a certain lottery ticket should come up a blank or a prize on the next day, he would deliver to G an undrawn ticket, or pay him twenty pounds. Lord MANSFIELD, in behalf of the court, said, that they were of opinion that if the option had been in G, and if he had made his election to take the twenty pounds, he would have put an end to the alternative, and have converted the agreement into an absolute contract for the payment of money. It is equally plain that if he had elected to take the undrawn ticket, there would have been, after such election, no right to demand the money. That would make the case very near to that at bar in electing to take the bonds.
There is nothing to prevent the holder from electing to take bonds at any time, though the notes cannot be actually converted into bonds until maturity. Until an election is exercised, they remain treasury notes; when that occurs their function is at an end, and the holder has only a claim against the United States for the proper amount of bonds. This is a chose in action and not negotiable. I think that the holder in the present case exercised its election when, after having made the indorsement, it placed the bonds in the possession of the express company for transmission to the United States treasury. It has never withdrawn its act, if it has the power to do so. The defendants in the present case having no privity with the parties to the transaction, cannot maintain that it was inchoate or imperfect, or that its effect was different from its apparent intent. Accordingly, if Mr. Mann's indorsement had been on the note when Benas Son received it, they would have taken it not as negotiable paper, but as an instrument bearing evidence of an election to take bonds.
The fallacy of the defendants' argument consists in the fact, that he regards the indorsement of Mr. Mann as an ordinary commercial indorsement. On that view, a holder whose name was not inserted in the body of the note might, perhaps, be denied the power of making a restrictive indorsement. That is not this case. The indorsement was for conversion. Its object was not to enforce or transfer the instrument, but to extinguish it, to destroy its life. When it issued from the hands of the bank it was inert, and formed no more a part of the commercial paper of the country. Had it reached the treasury in the due course of business, it would have been a mere claim for bonds. By the terms of the note itself the holder had the option to convert it into bonds. The word "holder" must be construed to mean any one who had lawful title, and cannot be confined to a person whose name was written on the face as payee. It is only as "holder" that a person has a right to fill in the name of a payee, and of course he may, in the same character, do the act which the statute prescribes, and elect to take bonds instead of money.
The final point is, whether the erasure of Mr. Mann's indorsement, by the thief, is material. His act must be deemed to be a mere act of spoliation, having no effect upon the instrument. (1 Greenl. on Ev., § 566.) It certainly could not restore an instrument to negotiability where that element had been lost. The true view is that it leaves the instrument precisely as it was. The law will still read the words: "Pay to the secretary of the treasury for conversion," on the note as being potentially present. If the erasure had any effect it would be to destroy the note as a negotiable instrument, as detaching a memorandum forming a part of it under the rule in Benedict v. Cowden ( supra). This view would be adverse to the position of the defendants. The correct rule, however, is that the act of the wrong-doer is a pure spoliation, leaving the previous rights of the parties wholly unaffected. The thief did not, as in the case of stolen notes payable to bearer or indorsed in blank, have even the nominal title. There can be no pretence of any legal ground upon which his act could destroy the plaintiff's right, any more than if he had mutilated the instrument or wholly destroyed it.
The judgment of the court below should be reversed.
All concur.
Judgment reversed, and judgment ordered for plaintiff on verdict.