Connecticut. Supreme Court of Errors.

Connecticut reports: containing cases argued and determined in ..., Volume 50 online

. (page 17 of 61)
Online LibraryConnecticut. Supreme Court of ErrorsConnecticut reports: containing cases argued and determined in ..., Volume 50 → online text (page 17 of 61)
Font size
QR-code for this ebook

Digitized by VjOOQIC


iBtna Kat. Bank v. Charter Oak Life Ins. Co.

we show that the minds of the parties met and that the
contract was a contract of indorsement and not a guaranty.
It was admissible because commercial custom and usage
govern and control, and the contract is presumed to be
made in accordance with the usage. Yeaton v. Bank of
Alezandridf 5 Cranch, 51 ; Renner v. Batik of Columbia^ 9
Wheat., 688 ; MilU v. Bank of U. States, 11 id., 431.

9. The court erred in not admitting the testimony of
Mr. Stedman, the insurance commissioner, as to the condi-
tion of the insurance company as to solvency, between
January and May, 1875. It was excluded on the ground
that the witness could not state his mere opinion or conclu-
sions to which he had come from the examination he had
made of the company, unless accompanied with the facts
upon which that conclusion was based. This ruling would
have been correct had he not been an expert, but, being an
expert, his testimony was admissible. 1 Greenl. Ev., § 440.
This testimony was material.

10. The court erred in excluding the testimony of Mr.
Walkley on the question whether he intended to assume
for the insurance company the obligation of an indorser to
the bank, when he indorsed the note. The question waa
admissible for the purpose of showing that the defendants,
by their president, undei*stood and intended the indorse-
ment to be a commercial indorsement, and not a guaranty.
Thunton v. Cornell, 38 N. York, 231; Fisk v. Chester, 8
Gray, 606 ; Skidmore v. Clark, 47 Conn., 20.

11. The court erred in not permitting Mr. Walkley to
testify that the non-payment of the first mortgage coupons
due July 1st, would have greatly diminished the value of
the first mortgage bonds, and have rendered the second
mortgage bonds of little or no value. 1 Greenl. Ev., § 440.

A. P. Hyde and C, E. Gross, contra.

Stoddard, J.* The defendant is a life insurance com-

* In this case Judges Ain>BKW8 and Stoddard, of the Superior Court
•at in the places of Judges Cabpsntbb and Pabdbb, who were disquali-
fied by interest.

Digitized by VjOOQIC

MAY TERM, 1882. 188

JStna Nat Bank o. Charter Oak Life Ins. Co.

pany, with no unusual powers respecting the subject of this
action. A judgment is demanded against it grounded upon
an indorsement made in its name upon an accommodation
note. The note was made by one Oliver H. Clark, for the
accommodation of the Connecticut Valley Railroad Com-
pany, was made payable to the order of the railroad com-
pany and bore the following indorsements : — " The Charter
Oak Life Ins. Co., by J. C. Walkley, President." "J. C.
Walkley." *'The Conn. Valley Railroad Co., by J. C.
Walkley, President." The note was discounted by the
plaintiff bank and the proceeds placed by the plaintiff, by
direction of Walkley, to the credit of the railroad company
upon the books of the bank. When the discount of the
original note (the note in suit being a renewal,) was made
the railroad company had overdrawn its account with the
plaintiff, and after applying the proceeds of the discount
upon that account there still remained an overdraft of

It is not claimed by the plaintiff that there is any express
authority in the charter of the defendant to authorize the
use of its name by way of accommodation indorsement to
pay the debts or to raise money for the use of the railroad
company, nor that the indorsement in question was made
by any express authority of the board of directors of the
defendant corporation* Of course it is entirely clear that the
Charter Oak Life Insurance Company was not chartered to
pay the debts, or to raise money for the use, of the Connec-
ticut Valley Railroad Company, and that any use of its
name by any agent by way of accommodation indorsement
to that end is wholly unwarrantable, illegal, and ultra vires. '
The plaintiff having discounted such accommodation paper,
and appropriated the 'proceeds to the payment of a pre-
existing indebtedness of the railroad company, must hold
the indorsement in question subject to all the ordinary limi-
tations upon the power of an agent of such a corporation to
use the name of the principal.

Two considerations are urged by the plaintiff to avoid
the application of that salutary principle which forbids an

Digitized by VjOOQIC


JBtna Nat Bank v. Charter Oak Life Ins. Ca

agent of a corporation to use its property for ends, purposes'
and objects foreign to the intent of the incorporating act.

First, it is contended that the indorsement of the defen*
dant was made by a person having general authority to use:
the name of the defendant corporation by way of indorse*
laent without restriction ; secondly, that the indorsement in
question was not an accommodation indorsement, but wa»
for value and in regular course of business.

Relative to the first contention, the case states that the
indbrsement was made by J. C. Walkley, who was president
o| the life insurance company from 1853 and of the railroad
oompany from 1869, to April, 1876, and that ^' the plaintiff
did not claim that Walkley had any express authority from,
the defendant to make the indorsement as president of the*
defendant company, but claimed that he had an implied
authority by having been in the habit of indorsing paper
and other obligations as president of that company; and
from 1871 till after the date of the note in suit, he was the
acting business manager of the defendant company, with
the knowledge and consent of its directors, and signed and
indorsed notes, checks and other obligations of the defen-*
dant to a large amount as its president. But the court ia
unable to find that he had mad» any signature or indorse-
ment of the name of the company, as its president, to any
paper or obligations of any kind with the knowledge of the
defendant company or of its officers, which they recognised
as binding on it, except when it was understood that the
defendant was to receive the proceeds or direct benefii
thereof." This finding of the court below disposes of tbim
claim of the plaintiff. As president and general manager
of the defendant corporation there is nothing in his acts ei
otherwise to show that Walkley was invested with power ta
use the name of the defendant except to promote the piir-
poses of its creation and in regular course of its business.
Being permitted to sign and indorse the defendant's name
upon paper in cases where it '* was to receive the proceeds^
or direct benefit thereof,*' does not empower such agent to
indorse accommodation paper to pay the debts of a third

Digitized by VjOOQIC

MAT TERM, 1882. 186

jStna Hat Bank v. Charter Oak Life Ins. Co.

party. Perry v. Simpson Waterproof Manf, Co.^ 87 Conn.,
534 ; Stjoazey v. Union Manf. Co.^ 42 id., 559.

It is also said by the plaintiff that this indorsement was
for value, in the regular course of business, and therefore
that the act of Walkley in making the indorsement was
authorized. And in this relation it is found that the defiBn*
dant held the amount of $76,000 of an issue of a million
dollars of first mortgage bonds of the railroad company, and
all its second mortgage bonds, amounting to $1,250,000, as
collateral security for a large indebtedness to the defendant
from the railroad company ; the amouot of which indebted-
ness is not found. The interest coupons of the first mort-
gage bonds were due July Ist, 1875 ; the railroad company
at this time had no available funds with which to pay them,
and the defendant was embarrassed by the failure of a New
York concern with which it had financial dealings. Prior
to June 30th, 1875, the defendant had generally provided
for the payment of the coupons by loaning the railroad
company the money, but it is not found that there existed
any agreement on the part of the defendant to pay the
coupons due July 1st, 1875, or to providis for their payment.
Walkley, at the time of the discount of the note, said to
the officers of the plaintiff that the maker (Clark) was
good ; that the railroad company could not then meet the
pajonent of the coupons, but that he hoped it would be able
to pay the note at its maturity from earnings of the road,
but if not paid, either by the maker or the railroad company,
the defendant would pay it ; that it was for the interest of
the defendant to have the coupons paid promptly in order
to keep up and maintain the value and credit of the bonds,
and that the defendant had ample security. The cashier of
the plaintiff bank supposed from what Walkley said to him
at the time the note was discounted, that it was virtually
for the benefit of the defendant, and was to be used by the
railroad company in payment of interest coupons of the
first mortgage bonds. The defendant at the time of this
discount had cm deposit in bank from $145,000 to $148,00^
Sttbjeot to check. The railroad company then and for years

Digitized by VjOOQIC


JStna Nat Bank v. Charter Oak Life Ins. Co.

prior thereto kept its account with the plaintiff; the defen-
dant never had any account with the plaintiff, did not agree
to pay any of the coupons, and did not pay any. Under these
circumstances, there being no contract by the defendant to
pay the debts of the railroad company, the plaintiffs claim
that the indorsement in question was not an accommodation
undertaking, must bo based upon the assumption that the
bonded indebtedness of the railroad company had in some
other way become actually the debt of the defendant, and
that the defendant was bound to pay the coupons, for under
the facts disclosed in the finding it certainly was not for the
interest of the defendant to pay these coupons. Holding
but |{76,000 of the first mortgage bonds as collateral security,
there could be no other object in paying the coupons upon
the entire issue of a million dollars except to preserve the
speculative value of the entire issue. The real value to the
defendant of the $76,000 held by it would be seriously
impaired by the payment by it of the coupons due July Ist,
1876, and would have been entirely annihilated by its pay-
ment of the coupons due January 1st, 1876. There is
nothing to found this claim of the plaintiff^s upon, no con-
tract express or implied on the part of the defendant to pay
the debts of the railroad company, and no facts in the case
to warrant the inference that the payment of these interest
coupons would affect the value of the second mortgage
bonds directly or indirectly. Indeed it is left doubtful by
the finding whether the second mortgage bonds had any
value to be protected. It does not appear that they had
any value whatever. And without further touching the
question of the power of this defendant, chartered for a
special purpose, and holding its funds and property in trust
for a particular object, to assume as principal debtor the
payment of interest coupons to the extent of seventy thou-
sand dollars a year for the purpose of protecting the market
value of bonds held as collateral security for an indefinite
and unascertained sum, is is sufficient to remark that this
act of Walkley's was not in the regular course of business
and that he had no power to involve the defendant corpora-

Digitized by VjOOQIC

MAY TERM, 1882, 187

iBtna Nat Bank o. Charter Oak Life Ins. Co.

tion in such obligations. Further, it may be noted that
when the note was discounted Walkley said to the officers
of the plaintiff bank, ^Hhat the maker of the note was
good, * * that he hoped the railroad company would
pay the note at its maturity, * * but that if not paid
-either by the maker or railroad company the defendant
would pay it." Here is a direct, unequivocal statement
made to the officers of the. plaintiff at the time of the dis-
count that the defendant was to be regarded as a mere
accommodation indorser, and that the obligation of the
defendant was not to be relied upon except upon the failure
of both the maker and the railroad company to pay the
note. Again, the form of the indorsement of the defen-
dants' name upon the note was by Connecticut law notice
to the plaintiff that the defendant was not primd facte an
indorser for value or in regular course of commercial
business. Hiddle v. Stevens^ 82 Conn., 387.

These considerations, with the fact heretofore stated, that
the proceeds of this discounted note were appropriated by
the plaintiff and applied in payment of a pre-existing
indebtedness from the railroad company to the plaintiff,
make further comment on this point superfluous.

Neither is there anything in this case to permit the appli-
cation of the doctrine of equitable estoppel. The plaintiff
was in no wise misled ; it had full knowledge, it has parted
with nothing.

Another consideration exists equally conclusive against
the plaintiff's right to recover in this action. The indorse-
ment in question in the defendant's name is a blank indorse-
ment of a negotiable note by a person not a party to that
note. In Connecticut such an indorsement has a peculiar
but absolutely settled import. It is found that no contract
different from that implied by law existed, and it is further
found as follows : — " It was not proved nor claimed by the
plaintiff that it had ever taken any steps to collect the note
of the maker, nor that he was not of sufficient ability to
pay it when it fell due, nor that the same could not have
been collected of him by the use of due diligence ; " thus

Digitized by VjOOQIC


MbnA Kat Bank v. Charter Oak Life Ins. Co.

negating the breach of the contract implied by law from
such an indorsement. There is no reason why this rule of
law should not govern this case. It is true that it is found
that Walkley at the time the note was made, as president of
the railroad company and of the defendant company, and
individually, executed and delivered to Clark, the maker, a
writing to the effect that whereas Clark had made the note
to the order of the railroad company, in the sum of 1(4,500,
for the benefit of the railroad company, the undersigned
agreed to pay the note at maturity and save Clark from all
loss thereon. The record however states that the court
^does not find that this agreement was made by Walkley
in pursuance of any authority from the defendant company,
express or implied, and that it was not proved that the
plaintiff had any knowledge of it till long after the note
became due." This is an attempted use by Walkley of the
defendant's name upon an agreement declared in express
terms to be wholly for the benefit of the railroad company.
Wben Clark took this agreement and signed the note he
bad full koQwledge that it was a scheme to pledge the credit
and property of a life insurance company to secure the
payment of a debt of a railroad company without consider-
ation. This was manifestly beyond the powers of Walkley,
and Clark had full information regarding all the facts. As
the defendant compuiy was not liable on this agreement to
Clark, the plaintiff certainly has no rights through an in-
valid agreement the existence of which was unknown to it.
Hie plaintiff undertakes to draw a distinction between such
an indorsement by a third person ^^ for the better security
of the payee," and such an endorsement made for the
^ purpose of getting the note discounted at bank." This
distinction is without foundation ; no substantial reason i^
suggested to support it. The person discounting a note is
practically the payee ; the nature of the transaction with
reference to the indorsement is the same ; in the one ease
tke payee named in the note refuses it unless he has the
indorsement for his ^^ better security," in the other the
penen refuses to discount the note for the same reason.

Digitized by VjOOQIC

MAY TERM, 1882^ 188

^tiia Nat. Bank v. Charter Oak Life Int. Oo.

Ifone of the decided cases countenance this attempted
distinction, and in several the language used by the judges
IS inconsistent with its existence. By way of illustration
see Middle v. Stevens^ 32 Conn., 387, and Holbrooh v. Camp^
88 id., 24. That of Cane v. Spaulding, 24 Conn., 682-3, cited
by the plaintiff counsel, supports no such distinction. That
case merely determines the real and true relation of the
parties to a note, presents a question ojF good faith as
between indorsers, and was well decided conformably to the
doctrine since laid down in Dale v. Chear^ 88 Conn., 18, and
QraveB y. Johnson^ 48 id., 164, and in similar cases. The
&ct is that in the state of Connecticut the rule of law
applying to indorsements of this character is no part of the
law merchant. See remarks of Dutton, J», in Riddle v.
SteveTiB^ 32 Conn., 886. The rule is peculiar to our state.
^Emilient judges while admitting have regretted its anoma-
lous existence. See the language of Waite, J., in Castle
V. Candee^ 16 Conn., 288, and of Dutton, J., in Riddle v.
Stevens^ cited above. A line of adjudications from the
earliest history of our jurisprudence to the present time
forbids further discussion in the courts as to the existence
of this peculiar law, and warns us that the office of courts is
^JU8 dicer e " and not "^w* dare ; " to interpret law and not
'to make law. Although it may be that in the vast increase
in recent years of commercial intercourse between our own
and other states and countries, this rule, confined and pecu-
liar to Connecticut, operates to declare a contract in most
instances different from the actual intent of the parties,
relief is to be had only through legislative action.

At the September term, 1880, of the Superior Court, the
defendant moved for an ordfer requiring the plaintiff to write
OVBT the blank indorsement of the defendant any contract
which the plaintiff might claim to prove differing from that
implied by law. The plaintiff objected to the making^of
such an order. The court howeve(r made the following
order : ** The plaintiff htls leave to amdnd by adding a new
^CDxmt on or before January 15th, 1881, and at the same time
tcr designate the count on which it relies, or in the alterna-

Digitized by VjOOQIC


iBtna Nat. Bank v. Charter Oak Life Iob. Co.

tive, to write the contract which it claims on the back of the
note over the indorsement of the defendant." In compli-
ance with this order the plaintiff, on the 14th day of January,
1881, filed the following:

^^^tna National Bank t;. Charter Oak Life Ins. Co.
Hartford County; Supreme Court.

^^ In the above entitled cause the plaintiff, in compliance
with the order of the court, but protesting that said order
is illegal and irregular, hereby gives notice that it intends
to claim a recovery under the fourth count of the declara-
tion, but does not hereby waive its right to offer evidence
to support any other count of the declaration, and does not
hereby waive its right to recover upon any other count of
the declaration if the facts warrant such recovery."

At the September term, 1881, of the court, at the comr
mencement of the trial, the plaintiff upon request of the
defendant refused to designate any one count of the declar-
ation on which it intended to rely, and the plaintiff's counsel
read to the court the whole declaration, consisting of four
counts, and claimed the right to offer evidence under each
of the counts. Thereupon the defendant renewed its
motion, and the court required the plaintiff to write over
the indorsement on the note, before trial, any claimed con-
tract differing from the one implied by law from such
indorsement. This last order was in strict accordance with
the rule stated iu Castle v. Candee^ 16 Conn., 284, and with
the settled practice in cases of this character. So long as
the plaintiff relies upon the contract implied by law the
defendant is apprised of the plaintiff's claim, but when he
seeks to avail himself of his right to prove another and
different contract, then, in the language of the court in the
case last cited, " we think upon the principles of fair trial
that it is the duty of the plaintiff, if required, to fill up the
indorsement before trial with the agreement upon which he
intends to rely in his proof."

It is unnecessary to determine the effect of the order
made in the first instance as limiting the right of a plaintiff
to frame his declaration with different counts to meet the

Digitized by VjOOQIC

MAY TERM, 1882. 191

JEtntk Nat Bank o. Charter Oak Life Ins. Co.

exigency of his proofs, for the plaintiff refused to conform
to the order at the trial. That order was then abandoned
and a new order made upon which the trial proceeded. The
plaintiff was not affected by the original order. No ques-
tion is here presented whether in a proper case the contract
sought to be proved might not be stated alternatively.
No claim was made that the plaintiff was uncertain as to
what precise contract its evidence would tend to prove.
The plaintiff simply refused to inform the defendant what
agreement it claimed the defendant had made. It was very
proper to require the plaintiff to do this.

Several questions of evidence arose upon the trial and
are presented by the record, most of which are unimportant
and are not pressed. Some however are insisted upon.
William R. Cone, president of the plaintiff bank, was offered
as an expert witness " to prove that it is the custom and
usage of banks generally to require all paper discounted by
them to be bankable or commercial paper, and all persons
indorsing the same to be bound thereby." Unless this
evidence was offered to contradict the contract implied by
law from such blank indorsement, by substituting in place
of the contract implied by law a contract implied from the
usage and custom of banks, it was wholly immaterial.
Nothing indicates that the paper was not ^^ bankable or
commercial," or that the persons indorsing it were not
** bound thereby." The persons indorsing the note are
" bound thereby " according to the rules of law applying to
their indorsement and in no other way. If the evidence
was offered to prove that banking people generally do not
regard such blank indorsement as importing the contract
which the Connecticut law implies, it was equally immate-
rial. Our peculiar rule of law in this particular did not
spring into existence through, nor is it dependent upon, the
understanding and custom of banks generally.

John W. Stedman, the insurance commissioner, was
asked — *^What was the condition of the defendant com->
pany as to solvency?" This was properly excluded. An
inquiry as to the solvency of the defendant company as

Digitized by VjOOQIC


JBtua Nat. Bank v. Charter Oak Life Ins. Co.

bearing upon the necessity of indorsing this note in order
to obtain money, is quite remote and inconclusive. And if
the defendant, was commercially insolvent, that fact would
not invest the president or any other agent with peculiar
power to use its funds to pay the debts of the railroad

J. C. Walkley was asked whether, when he indorsed the
note for the Charter Oak Life Insurance Company, he
intended to assume the obligation of an indorser to the
^tna bank. This question was properly excluded on the
ground stated in the ruling of the court below, that is, that
the uncommunioated and unexpressed intent of Walkley
was immaterial. Besides this there was properly no ques^
tion as to whether he in fact 'intended to assume the
obligation of an indorser." The controversy was as to the
legal effect of that indorsement, and that is not to be conr
trolled by his secret intent. His opinion was also properly
excluded as to the effect of the non-payment of the intereat
coupons of the first mortgage bonds upon the value of the
second mortgage bonds. If this was material to the issue,
such effect could not be shown by the opinion of Walkley,
not accompanied by any facts upon which the opinion pro-
. Deeded. There is nothing to indicate that the witness had
any special knowledge, or indeed that the subject \^as g£
a character upon which an expert's opinion could be given.
' The facts being shown it would seem that the court could
. form an opinion as well as Walkley. Such opinion at the
best would have been wholly speculative.

There is no ground for a new trial, and no error in the
judgment of the court below.

In this opinion the other judges concurred.

Digitized by VjOOQIC

JUNE TERM, 1882. 198

Smith V. The State.




Online LibraryConnecticut. Supreme Court of ErrorsConnecticut reports: containing cases argued and determined in ..., Volume 50 → online text (page 17 of 61)