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Vol. II.]

HOTCHKISS v. THE NATIONAL SHOE AND LEATHER BANK.

[No. 7.

The statement made of the character and form of the instruments would seem to furnish an answer to these questions. The agreement respecting the scrip preferred stock is entirely independent of the pecuniary obligation contained in the instrument. The latter recites an indebtedness in a specific sum, and promises its unconditional payment to bearer at a specified time. It leaves nothing optional with the company. Standing by itself it has all the elements and essential qualities of a negotiable instrument. The special agreement as to the scrip preferred stock in no degree changes the duty of the company with respect either to the principal or interest stipulated. It confers a privilege upon the holder of the bond, upon its surrender and the surrender of the certificate attached, of obtaining full preferred stock. His interest in and right to the full discharge of the money obligation is in no way dependent upon the possession or exercise of this privilege.

Whether the privilege was of any value at the time the bonds were received by the defendants we are not informed, nor in determining the negotiability of the bonds is the value of the privilege a circumstance of any importance. Its value can in no way affect the negotiable character of the instrument. An agreement confessedly worthless, providing that upon the surrender of the bonds the holder should receive, instead of full paid-up stock in the railway company, stock in other companies of doubtful solvency, would have had the same effect upon the character of the instrument.

In Hodges v. Shuler, 22 N. Y. 114, which was decided by the court of appeals of New York, we have an adjudication upon a similar question. There the action was brought upon a promissory note of the Rutland & Burlington Railway Company, by which the company promised, four years after date, to pay certain parties in Boston one thousand dollars, with interest thereon semi-annually, as per interest warrants attached, as the same became due; "or, upon the surrender of this note, together with the interest warrants not due, to the treasurer, at any time until six months of its maturity, he shall issue to the holders thereof ten shares of the capital stock in said company in exchange therefor, in which case interest shall be paid to the date to which a dividend of profits shall have been previously declared, the holder not being entitled to both interest and accruing profits during the same period."

It was contended that the instrument was not in terms or legal effect a negotiable promissory note, but a mere agreement, and that the indorsement of it operated only as a mere transfer, and not as an engagement to fulfil the contract of the company in case of its default. But the court of appeals held otherwise. "The possibility seems to have been contemplated," says the court, "that the owner of the note might, before its maturity, surrender it in exchange for stock, thus cancelling it and its money promise, but that promise was nevertheless absolute and unconditional, and was as lasting as the note itself. In no event could the holder require money and stock. It was only upon a surrender of the note that he was to receive stock, and the money payment did not mature until six months after the holder's right to exchange the note for stock had expired. We are of opinion that the instrument wants none of the essential requirements of a negotiable promissory note. It was an absolute and

HOTCHKISS v. THE NATIONAL SHOE AND LEATHEr Bank.

[No. 7.

Vol. II.] unconditional engagement to pay money on a fixed day, and although an election was given to the promisees, upon a surrender of the instrument six months before its maturity, to exchange it for stock, this did not alter its character or make the promise in the alternative, in the sense in which that word is used in respect to promises to pay."

In Welch v. Sage, 47 N. Y. 143, the effect of the certificate attached to the bonds issued by the Milwaukee & Saint Paul Railway Company, identical with those in this case, was considered by the same court of appeals, and the court there held that the certificate constituted no part of the bond; that the latter was entire and perfect without it, and that the admission of the debt and the promise to pay were in no degree qualified by it.

The absence of the certificates, at the time the bonds were received by the defendants, was not of itself a circumstance sufficient to put the defendants upon inquiry as to the title of the holder. There is no evidence in the case, as already observed, that the privilege which the certificates conferred was of any value; and if it had value no obligation rested upon the holder to preserve the certificates. He was at liberty to abandon the privilege they conferred and rely solely upon the absolute obligation of the company to pay the amounts stipulated. The absence of the certificates when the bonds were offered to the defendants amounted to little if anything more in legal effect than a statement by the holder that in his judgment they added nothing to the value of the bonds. In the case of Welch v. Sage, already cited, it was held that the absence of the certificate from the bond when taken by the purchaser would not of itself establish the fact that the purchaser was guilty of fraud or bad faith, although it would be a circumstance of some weight, in connection with other evidence.

The law is well settled that a party who takes negotiable paper before due for a valuable consideration, without knowledge of any defect of title, in good faith, can hold it against all the world. A suspicion that there is a defect of title in the holder, or a knowledge of circumstances that might excite such suspicion in the mind of a cautious person, or even gross negligence at the time, will not defeat the title of the purchaser. That result can be produced only by bad faith, which implies guilty knowledge or wilful ignorance, and the burden of proof lies on the assailant of the title. It was so expressly held by this court in Murray v. Lardner, 2 Wall. 110, where Mr. Justice Swayne examined the leading authorities on the subject, and gave the conclusion we have stated. See also Goodman v. Simonds, 20 How. 343.

In the present case it is not pretended that the defendants, when they took the bonds in controversy, had notice of any circumstances outside of the instruments themselves, and the absence of the certificates referred to in them, to throw doubt upon the title of the holder.

We see no error in the rulings of the court below, and its judgment is, therefore, affirmed.

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By bond dated July 7, 1863, B. promises to pay to W., three years after date, $2,000 without interest, in funds current in the State of Virginia, being money borrowed. Held: 1. Parol evidence is admissible to prove the consideration of the bond and the character of the contract.

2. The evidence showing that it was a contract of hazard, and that the parties contemplated the possibility, though not the probability, of the failure of the Confederacy, and intended that the bond should be discharged in the currency in use when it fell due, W. is entitled to recover the value of $2,000 in the United States currency then in use in Virginia on the day it fell due, with interest from that date, and no more.

THE case is stated in the opinion.

Strouse & Marshall, and Skeen, for the appellant.

Figgatt, for the appellees.

ANDERSON, J. This was an action of covenant brought upon an obligation in these words:

"Three years after date we bind ourselves, our heirs, &c. to pay to Samuel S. Wrightsman the sum of two thousand dollars, without interest, in funds current in the State of Virginia, being money borrowed by us on joint account.

"As witness our hands and seals this 7th day of July, one thousand eight hundred and sixty-three.

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The court gave judgment for $277.77, with interest thereon from the 7th of July 1866. To which judgment the plaintiff obtained a supersedeas from one of the judges of this court.

Several errors are assigned in the petition. First, setting aside the verdict of the jury of the 9th of September, 1871, and granting a new trial; second, setting aside the verdict of the jury of the 6th of April, 1872, and granting a new trial; and third, in sustaining the demurrer to the evidence. The grounds of the two first assignments of error will be noticed in considering the last-the demurrer to the evidence.

On the con

The court does not seem to have sustained the demurrer. trary it gave judgment for the lowest alternative assessment of damages by the jury. The question as to the plaintiff's right of recovery was not submitted to the jury, but only the assessment of damages, in case the court should determine the law in favor of the plaintiff. Upon the demurrer the court was the judge both of the law and the facts, and it was only the province of the jury to assess the damages. Accordingly the jury found the damages to be $2,000, with interest, &c., on one construction of the contract, if the court should so construe it upon the evidence ; upon another construction of the contract, if the court should so construe it, they assessed the damages at $277.77, with interest, &c.; and upon

Vol. II.]

WRIGHTSMAN v. BowYER.

[No. 7.

another construction of the contract, if the court should so construe it, they assessed the damages at $1,360.50, with interest thereon from the 7th of July, 1866, till payment. This verdict seems to have covered the whole ground of contention, and to have ascertained what should be the plaintiff's recovery in damages in either aspect in which the case might be viewed by the court. And the court being of opinion, from the evidence, that the contract was entered into with reference to Confederate States treasury notes as a standard of value, and was to be fulfilled and performed in such notes, gave the plaintiff judgment for $277.77, with interest, according to the finding of the jury in such case. And it now devolves upon this court to determine whether, upon the evidence certified, there is error in that judgment.

If the bond was the only evidence in the record, it being for a loan of money at a time when confederate money, as is judicially known, was the only currency; and when contracts were almost universally made with reference to that currency as a standard of value, I think the fair presumption would be that the lending of confederate money was the consideration of the obligation; that the contract was made with reference to it as the standard of value, and that it was payable in the same kind of currency. See Dearing v. Rucker; Miller and Franklin v. The City of Lynchburg; Meredith v. Salmon; Walker's ex'or v. Page et al.; Hilb. v. Peytons; and Calbraith v. The Porcelain Earthenware Co. And if that were so, I should not be disposed to disturb the judgment of the circuit court. But I think the parol evidence repels that presumption. It shows that the consideration of the obligation for $2,000, payable in three years, without interest, was $2,500 in confederate treasury notes; from which it would seem that confederate treasury notes were not the standard of value to which reference was had in the contract. It is also further proved that it was the intention of the parties to fix the day of payment so remote that it would not fall due until after the war; and that the parties considered the probabilities whether it would be payable in confederate currency or not. The borrowers calculated that the war would result in favor of the Confederate States, and that, although it would be payable in a better currency, it would be confederate; but that if it did not result in favor of the confederacy, the bond would have to be discharged in United States currency. This they did not think probable, and therefore, as they were getting $2,500 for $2,000 without interest for three years, they were willing to run the risk. It is evident, from their own testimony, that they were aware of this risk, and that it entered into their calculations; and that they contemplated that this contingency might arise, in which the obligation they were assuming might have to be discharged in United States currency. Thus they made a contract of hazard to pay $2,000, in three years, without interest, not in gold, but in funds current at the maturity of the bond, whether those funds were confederate or federal, depending upon the result of the war. Such I think is evident from the testimony of the obligors themselves; and it accords with the testimony of the obligee. He did not know what would be current funds after the war, whether confederate or federal; but he was willing to run the risk, and to take $2,000 in whatever funds were current when the bond fell due. So that I am obliged to regard it

Vol. II.]

WRIGHTSMAN v. BOWYER.

[No. 7.

as a contract of hazard, the risk being the contingency, which was in the contemplation of both parties, whether the war would result for or against their country. Whether such a contract was lawful and could be enforced, whatever might be my opinion if it were an open question, I deem it unnecessary to say, as, since the decision of Boulware v. Newton, it has not been regarded as an open question,-that decision having been followed in subsequent cases, but with the declaration that the principle should not be extended in its application: which I understand to mean that unless it clearly appears that the parties contracted with reference to a contingency that the war should result in the overthrow of the confederacy and the destruction of its currency, and the substitution of United States currency instead, and that it was contemplated and intended by the parties that in such event the contract should be solvable in United States currency, the principle of Boulware v. Newton should not be applied. I think it is evident in this case that it was in the contemplation of the parties that such a contingency might arise, and that, in that event, the obligation should be discharged in the funds which were then current, though it should be United States currency.

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But even in Boulware v. Newton it was not held that the obligor should pay the face of the bond. Judge Rives, in whose opinion the other judges concurred, says: "It would be scarcely proper at this time to anticipate and prejudge a question that may hereafter arise out of the obligation to pay in current funds.' This is a grave question, which may not arise, and should not be decided except in a proper case, and upon the fullest consideration." Then Boulware v. Newton does not go so far as to hold that upon a contract payable in "current funds" the obligee was entitled to recover the face of the bond. The question is raised in this case pointedly by the verdict of the jury. And we come now to its consideration. It can hardly be regarded as an open question. It has been raised and decided by this court in two cases, and in both decided the same way: in Beirne, &c. v. Dunlap, 8 Leigh, 514; and in the recent case of Dungan v. Henderlite, 21 Gratt. 149. The former case was an action of debt upon an obligation, dated June 12, 1833, to pay on the 1st of September, 1834, "the sum of $813.79, in notes of the United States Bank or either of the Virginia banks." There was a demurrer to the declaration, on the ground that debt would not lie. This court held that debt would not lie upon the obligation, and that the demurrer was well taken. Judge Parker said that a contract "to pay $813.79 in bonds or bank paper means bonds or notes calling for that sum.' Paper," he says, "may rise or depreciate in value before the day of payment; and if the day passes when the contract is to be fulfilled, the measure of the obligee's rights and of the obligor's liabilities is the value of the notes on that day, to be ascertained by the verdict of a jury, and awarded in damages." Again: "Where the named sum is to be paid in any determinate quantity of a collateral article, subject to fluctuation in its market price, (and what was more so than current funds' at the period of the maturity of this obligation and since, except confederate currency prior to the overthrow of the Confederacy?) the value of that article is the thing due; and as it may be more or less than the named sum for which the creditor is willing to take the article, it must be estimated in damages

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