State Bank v. Rhoads , 89 Pa. 353 ( 1879 )

Mr. Justice Sterrett,

delivered the opinion of the court, June 9th 1879.

Before the passage of the Act of 1869 it was a settled rule of evidence in this state that a party to commercial paper, negotiated in the ordinai'y course of business before maturity, was incompetent to testify to anything tending to impeach its validity, before or at the time it passed out o’f his hands. If, by the endorsements thereon, it appeared to have been regularly negotiated, he was not permitted to prove the contrary for the purpose of removing an apparently well-founded objection to his competency. To this extent we adhered to the rule in Walton v. Shelly, 1 Term Rep. 296, as modified by subsequent cases. The ground of exclusion was policy of law, not interest. The rule was based on “ the impolicy of permitting one who had assisted to put into circulation a commercial instrument, afterwards, to aver a taint upon it at the time it passed through his hands Gilpin v. Howell, 5 Barr 41; Bank v. Walker, 9 S. & R. 229, and Barton v. Fetherolf, 3 Wright 279. Under the operation of this rule Lindemuth, the maker of the note in suit, would have been incompetent to prove the facts relied on as a defence in the court below; but the Act of 1869, declaring that “ no interest nor policy of law shall exclude a party or person from being a witness in any civil proceeding,” has entirely changed our practice in this respect. All witnesses are now prima facie competent, so far as interest and policy of law are concerned. The design of the act was to make competent all who are not within the scope of the proviso; but it was not intended to convert into competerit testimony that which was before incompetent. The act operates not on evidence, but on persons, by removing the disqualification.to testify which previously attached to them on account of the policy of law or personal interest in the subject-matter of the controversy. If not excluded by the proviso to the act, the witness is competent to testify to whatever might have been proved before by any competent and disinterested witness. Tested by this principle, the witness Lindemuth was clearly competent. The main ground of defence in the court below was that the defendant Rhoads was an accommodation endorser for the maker; that the note, of which the one in suit is a renewal, was made and endorsed, in pursuance of a previous arrangement -with the cashier that it should be given to the bank, to be held as collateral security for notes to be afterwards discounted for Lindemuth, the maker, and that, without subsequently discounting any paper for him, the bank undertook in violation of the agreement to hold the note as collateral security for his previous indebtedness. It was admitted by the cashier of the bank that the note was given and held as collateral security; but he claimed that it was collateral for pre-existing indebtedness and any paper that might afterwards be discounted. He testified that he met Lindemuth, the maker, and requested him to procure a note for $10,000, securely endorsed, for the purpose of holding it as collateral security for notes already discounted by the bank and for any that might be discounted in the future; that the note, duly endorsed, was delivered to him sometime afterwards and held as above stated. Hence, the main fact in dispute was whether the original note was given as collateral for pre-existing indebtedness and future discounts, or' only as collateral for such discounts as Lindemuth might subsequently obtain. It was conceded that the note was received from Lindemuth for a special purpose, and on certain terms and conditions, with the knowledge that Rhoads was an accommodation endorser. On this branch of the case the only question was whether it was given for pre-existing indebtedness or for subsequent discounts only. If it was given and held for the purpose alleged by the defendant, and no discounts were subsequently obtained by the maker, it follows that the bank, in' attempting to enforce collection of the note, was making a fraudulent use of'it, both as against the maker and endorser. Under these circumstances it was clearly proper to prove what was alleged; and for this purpose Lindemuth was a competent witness under the act. Any objection that previously existed on the ground of interest or policy of law, on account of his being the maker of the note, was out of the way and there was no error in permitting him to testify.

The testimony as to the entire transaction was properly before the jury. The learned judge instructed them that if the plaintiff’s version of the matter was foun'd to be true, the verdict should be in favor of the bank for the amount of Lindemuth’s indebtedness with interest. On the other hand, after stating to the jury what was claimed by the defendant as the true version of the transaction, he said: “If the jury find that it was agreed between Lindemuth and Sturgeon that the note of August 27th should only be held as collateral security for subsequent discounts, and it was so endorsed by the defendant, and that the defendant had no knowledge when he endorsed the second note that the first had been discounted, it will then be the further duty of the jury to ascertain when the note of August 27th came into the possession of the bank. The liability of the defendant will start from that time; and for only such notes, subsequently discounted, if any, is the plaintiff entitled to recover, with interest from the time they were due.” The questions of fact involved in the case were thus fairly submitted to the jury, who, by their verdict, in effect found that the note in suit was given to secure future discounts and that no such discounts were obtained.

The assignments of error to the admission of testimony are not sustained, and as the ease stood upon the evidence before the jury there was no material error in the general charge or in the answers to points submitted. Judgment affirmed.