STEPHEN JENNINGS vs. ARTHUR C. MOORE

LORING, J. It appears from the report that on April 9, 1896, one Dr. J. C. Moore, who had "made an assignment for the benefit of creditors," called upon the plaintiff at his office in Boston and told him that among his assets were one hundred and twenty shares of the Laconia and Lakeport Street Railway, (formerly the Laconia and Lake Village Horse Railroad,) which he did not wish sold at a forced sale; that he and his friends had control of the road and that he thought the stock worth more than it was likely to bring if pushed to a sale. These one hundred and twenty shares were then pledged as security for two notes (sixty shares on each note) held by a bank in Manchester, New Hampshire. One of these notes for $3,000 was signed by Dr. Moore alone; the other note for $2,500 was signed by him and by one Fellows, and both were overdue. At Dr. Moore's request the plaintiff agreed to take up the notes if Dr. Moore

Page 201

"would arrange for a fifteen days' sight draft to the Manchester bank's correspondent bank in Boston," the money advanced to be repaid with interest at one and one half per cent per month. The plaintiff asked Dr. Moore if he "couldn't get some one to make the new note," as he, Dr. Moore, was in insolvency, and suggested his nephew, the defendant. The plaintiff made out the note here sued on, Dr. Moore took it back to New Hampshire, and it was either handed to the plaintiff by Dr. Moore (as the plaintiff testified) or mailed to him (as Dr. Moore and the defendant testified). Afterwards the fifteen days' sight draft was drawn and was paid by the plaintiff in Boston; and thereupon he received the two notes with the one hundred and twenty shares of stock.

On January 7, 1897, the plaintiff sold the stock at auction in Boston and bought it in for $10 a share. The jury were warranted in finding that the stock was a local stock not known in the Boston market; also that at the date when sold by the plaintiff it had a market value in Laconia, New Hampshire, of from $15 to $54 a share. They were warranted also in finding that the assignee of Dr. Moore's estate objected to the stock being transferred to the plaintiff, on the ground that the sale had not been properly conducted and that the plaintiff had not realized the full value of it. After protracted negotiations it was agreed between the assignee and the plaintiff that no proof should be made by the plaintiff against the estate of Dr. Moore, and that the assignee should not redeem the stock. The stock was transferred to the plaintiff on October 8, 1900, under this agreement. In August, 1897, (that is, the August succeeding the January in which the plaintiff sold the stock,) the defendant wrote to the plaintiff stating that he understood that he had sold the stock and asking for the return of his, the defendant's note. The plaintiff acknowledged receipt of the letter and promised to bring the matter before his attorney. Nothing more was heard by the defendant from the plaintiff until this writ, dated April 17, 1902, was served upon him.

Before considering the several contentions made by the defendant, it will be convenient to make a statement of the rights of the parties resulting from these transactions.

The equity in the one hundred and twenty shares of stock was

Page 202

in the assignee of Dr. Moore's estate. The shares were collateral for the two notes taken up by the plaintiff and held by him as his property, which notes together with the shares he was bound to surrender to Moore or the defendant on payment of the note here sued on. It is stated in that note (the note here sued on) that these shares were collateral security for that note. But that was at most an agreement not operative until the rights of Dr. Moore's creditors in the stock in the hands of his assignee had been extinguished. The shares were pledged as collateral for the two notes originally held by the Manchester bank and taken up by the plaintiff, and that pledge could not be changed without the consent of the assignee for the benefit of the creditors of Dr. Moore. The assignee could redeem the shares in the hands of the plaintiff on paying the amount due on these two notes.

The ruling does not profess to have been made on the pleadings. Under these circumstances they are of importance only so far as the rights of the parties in equity differ from their rights at law.

In Guild v. Butler, 122 Mass. 498, 501, this court expressly left undecided the question whether the maker of the note there in question could in that action be shown to be a surety. This question without doubt was left undecided because of the cases of Fentum v. Pocock, 5 Taunt. 192, (cited with approval by this court in Commercial Bank v. Cunningham, 24 Pick. 270, 275, 276, and in Fall River Union Bank v. Willard, 5 Met. 216, 221,) on the one hand, and on the other hand the cases of Pooley v. Harradine, 7 El. & Bl. 431, Hollier v. Eyre, 9 Cl. & F. 1, Greenough v. McClelland, 2 El. & El. 424, and Overend v. Oriental Financial Corporation, L. R. 7 H. L. 348, 360. These cases of Commercial Bank v. Cunningham, 24 Pick. 270, Pooley v. Harradine, 7 El. & Bl. 431, Greenough v. McClelland, 2 El. & El. 424, and Oriental Financial Corporation v. Overend, L. R. 7 Ch. 142, were cited on the briefs in Guild v. Butler. See original papers in Guild v. Butler, 122 Mass. 498, 501. It had been held in Fentum v. Pocock that the parties to a negotiable instrument could not go behind its terms to show that the parties to it in fact held a relation to each other different from that indicated on the face of the negotiable paper in question. But it was the established law of England before the judicature act, that in

Page 203

equity the true relationship of the parties to a negotiable instrument could be inquired into and that it could be shown in equity (for example) that the maker of a note was in fact a surety and an indorser the principal; and further, that in such a case, if the indorser who was in fact the principal was dealt with so as to discharge a surety, the maker was discharged. See Pooley v. Harradine, 7 El. & Bl. 431, and the other cases supra.

What is meant by the rule of Fentum v. Pocock is that the maker of a negotiable note enters into a written contract with all subsequent holders thereof to pay that note as the one primarily liable thereon. That written contract between the maker and the subsequent holder can no more be contradicted by parol than any other written agreement. But on the other hand the rule of Pooley v. Harradine is that if as between the maker and the indorser the indorser is the one primarily liable on the note and the maker is the surety and this is known to the holder, the holder must in equity have regard to the relation between the maker and indorser in enforcing the contract between himself and the maker. If he interferes with the rights of the maker as between himself and the indorser, the same result ensues as if the maker had contracted with him as surety and the indorser had contracted with him as principal.

We are of opinion that under the allegations of the answer in the case at bar the rights of the defendant in equity should be considered by us. It is alleged that Dr. Moore, who was an anomalous indorser under Pub. Sts. c. 77, §15, was and was known to be the principal obligor. This allegation is made in connection with an allegation that Dr. Moore was released. He was not released, as will be shown later on. But, as we have said, the ruling made does not purport to have been made on the pleadings, and under those circumstances we think that the equitable rights of the parties should be considered.

We are of opinion that in equity at any rate the true relation can be shown in this Commonwealth. It is not necessary to decide whether the defence is not open at law. The defence of a surety was held to be open at law in this Commonwealth when Baker v. Briggs, 8 Pick. 122, was decided; and it was held in Carpenter v. King, 9 Met. 511, that in a common law contract one signing as principal may show that he was a surety.

Page 204

Coming now to the contentions of the defendant: The first contention made by him is that on the evidence it was a question for the jury whether he signed the note for the plaintiff's accommodation and to be used only if the plaintiff found it necessary to raise money at a bank. The note was given by the defendant for the accommodation of Dr. Moore and not for the accommodation (speaking strictly) of the plaintiff, since it was something stipulated for by the plaintiff as part of the trade. But the question remains which of these two things did the plaintiff stipulate for: Did he stipulate that he should have the note of a third person or did he stipulate that a note signed by a third person should be handed to him to be used only if he found it necessary to raise money at a bank to carry the transaction through? The question of what the jury were warranted in finding on this point depends on the testimony of Dr. Moore. His testimony was that the plaintiff during the negotiations "wanted to know, as I was in insolvency - previous to that I had made an assignment for the benefit of creditors - if I couldn't get some one to make the new note. He said he didn't care who it was. I told him I didn't know about that, situated as I was, and he said that Arthur C. Moore, my nephew, would be just as good as anybody. I told him I would try to get him." In answer to the question "for what reason he wanted a new note," he said that "he was very short of money, and he might be obliged to use the stock and note in the bank, and he did not want to use it as it was, neither did he think it would be advisable to present the note with my name as maker on it, I being in insolvency," and that he could not use the old notes because "they were overdue." "He said all he wanted was to get something that he could use at the bank; that he was obliged to borrow money when the draft came due." Nothing more was stipulated for and no condition was made when the note was delivered to the plaintiff. In considering the significance of this evidence it should be added that the defendant then was without means, and was known to the plaintiff to be "a young man, who had worked for Dr. Moore a good deal." On the other hand this note was the only written obligation or statement signed by any one, of the terms on which the $6,200 necessary to take up the two notes in the Manchester bank was

Page 205

to be repaid to the plaintiff. On the whole we are of opinion that it has not been shown that the note was not delivered as a note to the plaintiff but was handed to him only for use by him if he found it necessary to raise money in carrying out this transaction.

The defendant's next contention is that the plaintiff is bound to account not only for what he realized from the sale but for what he would have realized from it if it had been conducted with care. The plaintiff contends that he never realized on the stock, that he offered at the trial to return it to the defendant, and that he is not bound to account for what was or what with care might have been realized from a sale of it. It is apparent that there was a change in the value of the stock "after they built the line to the Weirs" in "1897 or 1898," and that the stock is not worth to-day what the jury were warranted in finding it could have been sold for on January 7, 1897, if it has any value at all now.

What the plaintiff relies on when he makes the contention that he never realized on the stock is his testimony that he went through this form of sale for the purpose of getting the stock transferred into his own name because it then stood in the name of Dr. Moore, who had been in insolvency or was liable to be, and he sold it to have it transferred. But the jury were not bound to accept this testimony as true. More than that, there was evidence that he sought to prove the balance due on the two notes taken up by the plaintiff, for which these one hundred and twenty shares were collateral, against the estate of Dr. Moore in the hands of his assignee after deducting the amount realized from the sale of the shares on January 7, 1897. That is direct evidence that he intended to realize on his security.

The defendant was entitled as surety, on paying the note here sued on, to receive the two notes, and, if the jury found that the plaintiff had undertaken to realize on the stock while the notes were in his hands, to what could have been realized on it had the sale been conducted with care. A finding that the sale was not conducted with care was abundantly warranted on the evidence. It was sold in Boston where it was not known, while in Laconia there were four sales of it in the preceding August and one in the preceding November at from $17.50 to $54.25; and

Page 206

there was testimony from those familiar with its value that there was no change in its value down to the date of the sale on January 7, 1897, and that it was then worth $15 to $54.

The plaintiff was not bound to sell the stock pledged as collateral for the notes bought by him. But under the notes he bought he had a right to sell it. If he chose to exercise that right he had to use due care in realizing the value of it, or if he did not use due care he must account to the defendant as surety for what would have been realized had he done so. See Guinzburg v. Downs Co. 165 Mass. 467, and Guild v. Butler, 127 Mass. 386, respectively, for the last two propositions. The plaintiff's agreement not to prove against the estate of Dr. Moore did not release him from the note here sued on. That note was made after Dr. Moore made an assignment for the benefit of his creditors, and could not be proved under the assignment. The agreement not to prove related to the two prior notes held by the Manchester bank and taken up by the plaintiff. But if, after crediting the defendant with the value of the stock which the plaintiff is bound to account for as of January 7, 1897, (when he undertook to sell it,) any balance is due the plaintiff on the note, the defendant can deduct what was lost by this agreement not to prove the two notes, under the familiar rule laid down in this Commonwealth in Guild v. Butler, 127 Mass. 386.

The defendant next made the contention that the contract was a New Hampshire contract, and that under the statute of New Hampshire put in evidence by him no more than six per cent interest is due under it. It is not necessary to consider whether that is the true construction of that statute, since we are of opinion not only that the contract could have been found to be a Massachusetts contract on the testimony of the plaintiff that Dr. Moore handed to him in Boston the note here sued on, but also that apart from that fact the contract was a Massachusetts contract. We are of opinion that it is a Massachusetts contract even if the note was mailed to the plaintiff as the defendant and Dr. Moore testified. The agreement for the taking up of the two notes was made in Massachusetts; the two notes were to be taken up in Massachusetts by the payment in Massachusetts to the Boston correspondent of the Manchester bank of a fifteen days' sight draft drawn by it on the plaintiff if the defendant signed and delivered to the plaintiff in Massachusetts this note signed in New Hampshire but dated "Boston." It was held in Hill v. Chase, 143 Mass. 129, that a similar contract could be found to be a Massachusetts contract. Under the circumstances of this case, for the reasons given in that decision, we are of opinion that the jury should have been instructed that the contract here in question was as matter of law a Massachusetts contract. See also in this connection Pine v. Smith, 11 Gray 38; Meyer v. Estes, 164 Mass. 457; Nashua Savings Bank v. Sayles, 184 Mass. 520.

The plaintiff has pointed out that the ruling as to the rate of interest was too favorable to the defendant in that the jury were directed to compute interest at the rate specified in the note to the date of the writ only, in place of to the date of the verdict; see Kendall v. Equitable Assurance Society, 171 Mass. 568, where the cases are collected.

A few questions of evidence remain:

The evidence of what was said between Dr. Moore and the defendant was competent not to fix the defendant's rights (those depended upon what was agreed upon between the plaintiff and Dr. Moore) but to show (if it did show it) that the defendant, in delivering the note, acted on what was agreed upon between Dr. Moore and the plaintiff. The evidence of the trade in pursuance of which the note was given was competent to show that the note was a Massachusetts note, and to show that in equity the defendant was a surety and what his rights were as such. The evidence of the agreement between the plaintiff and the assignee of Dr. Moore's estate was competent to show how the plaintiff had dealt with securities to which the defendant was entitled in equity as a surety on paying the debt owed by him to the plaintiff. The entry must be

Verdict set aside.