
    Merritt v. Todd.
    A promissory note, payable on demand, with interest, is a continuing security : an indorser remains liable until an actual demand; and the holder is not chargeable with neglect for omitting to make such demand within any particular time.
    Whether, however, the lapse of time, or a failure to pay interest at the customary periods, may not subject the holder of a note after transfer to a defence existing in favor of the maker against the first holder, Qucere.
    
    Appear from the Supreme Court. Upon the trial before Mr. Justice Emott, without jury, which was waived, he found these facts: On the 5th day of May, 1852, Obadiah Peck borrowed of the plaintiff $2,000, and made his promissory note therefor on that day, payable on demand, with interest, to the order of Bufos L Todd, who indorsed the note at the time it was made, with knowledge of the facts, and for the accommodation of Peck. The interest was paid on the note by Peck for three years (but whether annually or otherwise, did not appear). Peck became insolvent after the making of the note. On the 24th day of December, 1855, payment of the note was demanded of Peek and refused, and notice thereof given to the indorser. On these facts, the judge found, as a conclusion of law, that the demand of payment was not made witbin a ■reasonable time, and that the indorser was discharged. He gave judgment dismissing the complaint. The judgment was affirmed at general term in the second district, and the plaintiff appealed therefrom to this court.
    
      E. W. Chester, for the appellant.
    
      Amasa J. Parker, for the respondent.
   Comstock, Ch. J.

There is a most inconvenient uncertainty as to the rule of law applicable to the question in this case— an uncertainty, not inherent in the subject, but which arises-from the want of harmony, and still more, I think, from the want of an intelligible principle in many of the adjudged cases. The difficulty is not inherent, because there are two opposing principles, either of which would furnish a rule sufficiently clear and precise for the determination of this and all similar controversies; but the greater number of decided cases, while following neither one of those theories, do not suggest any other having the elements of certainty which belong to a rule of law.

In the light of one of these principles, the contract is interpreted according to its terms, that is to say, a promissory note, payable on demand, with interest, and indorsed, is regarded as a continuing security; so that, on the one side, the maker is not deemed in default until the money is actually demanded, while, on the other, the holder may make the demand when he pleases, and is not chargeable with neglect if he does not make it within any particular time. In this view, which gives the most obvious interpretation to the language of the contract, no dishonor attaches to such a note until payment is required and refused; and the indorser is held if notice of the refusal is given to him with due diligence. And this is the doctrine of the English courts. In Brooks v. Mitchell (9 Mees. & Wels., 15) a note of £1,000, payable on demand, with interest, had been indorsed and transferred several years after its date; and the question was, whether the indorsee took it subject to equities between prior parties. The court observed: “ If a promissory note, payable on demand, is, after a certain time, to be treated as overdue, although payment has not been demanded, it is no longer a negotiable instrument. But a promissory note, payable on demand, is intended to be a continuing security. It is quite unlike the case of a cheque, which is intended tó be presented speedily.” Such was also the doctrine laid down in Borough v. White (4 B. & C., 325).

The alternative, or opposing rule, is; that the holder of such, a note as we are speaking of must, if he wishes to charge the indorser, make his demand of the maker without delay, or, in the language of the law-merchant, within a reasonable time. This is a rule sufficiently exact, if we give to the phrase, “ reasonable time,” its proper legal signification. In the sense of the law relating to bills and notes, these words exclude all delays, except such as necessity or convenience require. They call simply for due diligence in performing the act which is to be done. -They have no reference to what may be a convenient time for the maker of the principal obligation to pay his debt; but they refer solely to the time within which the holder can conveniently make the necessary presentment or demand, or give the required notice. What is reasonable time, or due diligence, is settled in most circumstances by legal rules capable of a definite application to questions as they arise. In the formation of these rules, a suppose'd credit, or indulgence toward the debtor, has never entered as a circumstance or element, to be considered. Thus, in the language of the books, notice of the dishonor of a bill or note must be given to the drawer or indorser within a reasonable time. But where the parties reside in the same town or city, this reasonable time is held not to extend beyond the next day after the presentment for acceptance or payment. (Story on Notes, §§ 319, 320.) Where they reside in different towns or cities, and the notice is sent by post, it must be mailed early enough for transmission on the day following the dishonor. ‘ So, in the cases where presentment for acceptance is necessary, as in the instance of a bill payable at so many days after sight, or, according to some authorities, payable at sight, the presentment must be made within a reasonable period: it need not be made on the very day when the bill is dated, or when it comes to the hands of the holder; but the bill cannot be held for a single hour as a time instrument or obligation. It must be presented as soon as the circumstances will reasonably permit, reference being had to the distance of the parties from each other, to sickness and other casualties; but no time is allowed for the convenience of the person on whom the bill is drawn. The notion of a credit or indulgence due to him, in respect to the funds in his hands, does not enter at all into the calculation. These are well settled rules of the commercial law; and if promissory notes, payable on demand, in all cases fall within them, there will very rarely be any difficulty in determining whether such a note has been demanded in due season to charge the indorser. The demand must, according to these rules, be always made within a reasonable time, that is to say, as soon as the holder can make it; allowing, for his convenience, the next day after it comes to his hands, if the parties reside in the same town, or longer, according to their distance from -each, and other circumstances which may reasonably prevent the prompt performance of the act.

We have these two principles, directly antagonistic to each other, by one or the other of which, questions like the one before us ought to be determined. We say this, because there is no intermediate ground to stand upon. A note payable on ' demand is either a continuing security, upon which a demand may be made in season at any time, or it is not,.and then a demand must be made immediately, that is to say, on the next day after the holder receives the note, or within such additional time only as the circumstances of distance, &c., may require. If we depart from these rules, and attempt to find one lying somewhere between them, we are lost in uncertainty, and the community will never know how to transact business of this nature in safety. If we admit the theory that, by taking a - demand note, some term of credit, of longer or shorter duration, is given to the maker, but yet a term not to be ascertained by an actual presentment and demand, then a question forever arises: what is that period of credit? And this is a question absolutely incapable of solution according to any principle intelligible in itself or capable of application to the dealings of men. If we say that such a note is not in dishonor for ten days, where the parties live near to each other, and that it need not be demanded within that time, what reason can be given for saying that it must be demanded within ten months ? It seems to me plain that such obligations are due immediately for the purpose of charging an indorser, or letting in a defence against an indorsee which existed between the original parties, or else that they are not due for those purposes until the money is called for. .

Some authority can be cited in favor of both these opposing principles. As I have said, a note, payable on demand; with interest, is regarded in England as a continuing security, imposing no duty of presentment within any particular time. In this country, one of the earliest cases on the subject which I have noticed is that of Field v. Nickerson (13 Mass., 131), which sustains the opposite doctrine. In that case the note was payable on demand, with interest, and indorsed by the defendant for the accommodation of the maker. No demand was made until eight months after the date of the instrument. The question was, whether the indorsee was discharged by that delay. Chief Justice Parker, in giving the opinion of the court, thought that such notes must be demanded within a reasonable time, in the sense of the commercial law, that is, as soon as the act could be conveniently done. He observed, in substance, that such a note, in respect to the duty of presentment, was like a draft payable at sight; and, if he was correct in that view of the question, the conclusion was plain, because, in regard to sight drafts, the rule is well settled. The holder must present them with due diligence, haying no reference to the convenience of the drawee.

But a considerable number of later cases might be referred to, resting on less definite grounds, and tending very much to obscure the general question. In Martin v. Winslow (2 Mason, 241), there was a delay of seven months in presenting a note payable on demand, and it was held by Judge Story that the indorser was discharged; but, in holding this, the doctrine was not asserted that immediate diligence must' be exercised in making the demand, nor was it suggested that, if the delay had been a month or a week shorter, the indorser would not have been held. On the other hand, the Supreme Court of Massachusetts, in Seaver v. Lincoln (21 Pick., 267), held that a demand made on the seventh day after its date upon a note payable on demand, with interest, was in due season to charf'1-"' the indorser. The holder resided eighteen miles from the maker and six from the indorser; but there was no suggestion or pretence that the delay was excused by any circumstances of that character, or that it could be accounted for at all by any convenience or necessity of the holder. Nor'does the case assert, on the other hand, that such securities are of a continuing character, according to the doctrine of the English courts. In Ranger v. Carey (1 Metc., 369), the note was transferred by the payee one month after it was given, and the court held that it was not to be deemed as due and dishonored so as to be subject to a defence which the maker had against the original holder. In the following year the contrary proposition was determined by the same court, in reference to a similar note transferred eight months after its date. (The American Bank v. Jenness, 2 Metc., 288.) No reason was given for either decision, except that, in one case, the time was only one month, and in the other, eight.

The course of decision in our own State is not more satisfactory. The earliest case is that of Furman v. Haskin (2 Caines, 369), where it appeared that eighteen months had elapsed before the transfer of the note, and this lapse of time was held sufficient to admit a defence of the maker. It does not appear that the note was on interest. In Sice v. Cunningham (1 Cow., 397), the question was, whether the indorser was discharged by a delay of five months in demanding payment of the note from the maker. The court held that he was discharged ; but, whether a delay for any shorter period would have the same effect, was not suggested, nor was any rule laid down for the determination of questions of this character. In the later case of Wethey v. Andrews (3 Hill, 582), the note Was payable on demand, with interest, and it was transferred three or four weeks after its date. It was held not dishonored, so as to let in a defence of a want of consideration. In this case, the circumstance that the security was on interest seems to have been treated for the first time as quite material to the question. Judge Coweh observed, that “ it would be contrary to the gene- ■ al course of business to demand payment short of some proper point for computing interest, such as a quarter, half a year, a year,” &c.; and he goes on to cite, with apparent approbation, the doctrine of the English courts, that such securities are of a continuing character, and. cannot be considered as dishonored until payment is demanded and refused. In Vreland v. Hyde (2 Hall, 429), it was decided by the Superior Court of the city of Hew York that such a note, I mean one on demand with interest, could be demanded, and the indorser charged, nineteen months after its date. I do not think that the' reasons assigned for that decision were very carefully considered, although the decision itself is in accordance with the conclusion to which I have arrived in the present case.

We are satisfied that questions of this kind ought to be determined according to one of the two rules which have been mentioned; in other words, that the demand may be made in due season at any time so as to charge the indorser, or else that he is discharged unless it be made with due diligence, in the general sense of the commercial law. Between these alternatives, we are to select the one which will best harmonize with the language of the contract and the intention of the parties. A demand note may be payable with or without interest. If the security be not on interest, it may be a fair exposition of the contract to hold that no time of credit is contemplated by the indorser, and that the demand should be made as quickly as the law will require upon a check or sight-draft. Such a note, payable at a bank where the maker keeps his funds, will perform essentially the office of a check, imposing the duty of early presentment in order to hold the collateral parties. Drafts or checks are, however, almost universally used in such transactions. But, whatever may be the rule where the security is not on interest,’we think that a note payable on demand with interest is a continuing security, from which none of the parties are discharged until it is dishonored by an actual presentment and a refusal to pay. The loan or forbearance of money may be for a definite or an indefinite time. If the parties declare in the written instrument, which is the only evidence of their agreement, that the money shall be paid on call, with interest in the meantime, a productive investment of the sum for some period of time is plainly intended. What, then, is that period ? The only answer which can be given is, that it is indefinite or indeterminate, and ascertainable only by an actual call for the money; and if that be the meaning of the principal parties, the indorser must be deemed to lend his name to the contract with the same intention. The only rational alternative is, that the payee or holder of such a note must demand its payment on the same day, or the day after, he receives it, unless some necessity or convenience of his own will excuse a longer delay; and he must give immediate notice of the refusal to the indorser. But a demand thus quickly made would probably, in every case, violate the actual intention of the parties, and it ought not, therefore, to be required as a rule of law for any collateral purpose. It should not be required in order to charge an indorser, if the act would not be consistent with the fair interpretation of the principal contract. In short, we see no good reason why a note, like the one now in question, should not be construed precisely according to its terms; and if we follow that construction, such instruments are not dishonored by the mere effluxion of time which is provided for in their own language. It may be well to observe that the present question is not identical with the one which arises where, after the transfer of such a note, the maker seeks to introduce a defence existing against the first holder. The lapse of time, or the non-payment of interest after the regular period or periods for such payment have passed, may be sufficient to put the purchaser on inquiry, or to justify a presumption that the instrument was actually dishonored before the transfer. It might well be true, in such a case, that a demand had been actually made and notice given to the first indorser so as to charge him, while, at the same time, the maker would be let in to defend, if he had any defence. Questions of charging the indorser, therefore, and questions of allowing an original defence to the maker, may depend on very different considerations.

On the whole, we are of opinion that, in the case before us, the indorser was duly charged by the actual demand upon the maker of the note and by the notice of his refusal to pay. In arriving at this conclusion we are aware that we go somewhat beyond many adjudged cases, and that the decision is in conflict with some of them. Yet we go no further than the principle of other cases fairly leads us; and we have the satisfaction of believing that the rule we lay down is not only just in itself and tends to uphold dealings according to their actual intention, but that it will promote certainty in a branch of the law where certainty is eminently desirable.

The judgments of the general and special terms of the Supreme Courts must be reversed, and a new trial granted, with costs to abide the event.

Selden, Denio, Davies, Mason and James, Js., concurred.

Hoyt, J. (Dissenting.)

The important question in this case is, whether the indorser of a promissory note, payable on demand, with interest, is discharged from his liability when a demand of payment was not made of the maker until more than three and a half years after its date.

- It was held in this State, as early as 1805, in the case of Furman v. Haskins (2 Caines’ R, 369), that a note payable on demand must be presented, within a reasonable time after its date, for. payment, or it will be considered as a note out of time and dishonored; and, what is a reasonable time, is a question of law, when the facts are ascertained. In that case, the note was transferred eighteen months after its date, and the court held it must clearly be considered as placing the note in the situation of one due and dishonored, and as imposing on the indorsee that risk. The case arose upon a demurrer to a plea setting up equities between the original parties to the note; and the court held the plea good.

In 1806, the case of Hendrick v. Judah (1 J. R, 319) was decided. That was an action upon a promissory note, made in England, payable on demand; and the suit was brought against the maker. On the trial, evidence of a set-off against the payee was offered and rejected unless it should be first shown that the note was transferred after it became due,. The Supreme Court held that the evidence was properly rejected, and said; The action was brought within a year after the date of the note, so that it must have been transferred within that time. It may have been indorsed soon after its date; and as the transaction was in England, we may intend that to be the case, as no evidence to the contrary was offered.” The court evidently would have allowed the set-off in that casej but for the presumption of the early transfer of the.note. And it has since been held that the presumption of law is, that the indorsement is contemporaneous with the making of a note, or, at all events, was antecedent to its becoming due. (Pinkerton v. Baily, 8 Wend., 600.) The case of Losee v. Dunkin (7 J. R., 70) was decided in 1810. The note was payable on demand, with interest, and was transferred two and a half months after its date. The court held that evidence of partial payments to the payee before transfer was properly admitted, and affirmed the judgment. The same principle was decided in the casé of Loomis v. Pulver (9 J. R., 244), as to notes payable on demand and transferred twb years after date. In that case the plaintiff sued the payee to recover back money paid on the note before it was transferred. The court held that he should have set up the payments when sued on the note by the indorsee, and, therefore, Could not recover. In the case of Sice v. Cunningham, (1 Cow., 397), decided in 1823, the action was against the indorser of a promissory note, dated on the 15th February, 1819, payable on demand, with interest; and it had been indorsed for the accommodation of the maker to secure a loan of money. The parties all lived in the city of New York. The maker was in good credit when the note was given, but stopped payment about the 23d of July, five months after the date of the note, on which day payment was demanded and refused, and notice given to the defendant. The Supreme Court, .after full argument, held, unanimously, that the defendant was not liable. This case cannot j in any of its material features, be distinguished from the case under consideration. It has stood for nearly forty years, and has never, so far as I have been able to discover, been questioned by the Supreme Court, or court of last resort in this State. The. only cases cited by the plaintiff in this State, in which it is claimed a contrary rule was adopted, are the cases of Vreeland v. Hyde (2 Hall’s Superior C. R., 429), and Wethey v. Andrews (3 Hill, 582).

In Vreeland v. Hyde, the action was upon a note payable on demand, with interest, without default or defalcation..

The Superior Court say: It is settled in our courts that a note payable on demand must be presented for payment within a reasonable time, and notice given to the indorser; and, when the facts are ascertained, what is a reasonable time is a question of law;” and refer to the cases of Sice v. Cunningham (supra), and Furman v. Haskins (id.) They then say, every case must, in some measure, depend upon its own circumstances. They do not profess to disturb or doubt the correctness of those cases, but attempt to distinguish the case then under discussion from them. The note in that case had been given about twenty-one months when payment was demanded. The court say, the note was given for a loan of money, and upon interest, and that the interest was paid and indorsed on the note at the end of the year. They say, that the note “evidently was not made for the ordinary purposes of mercantile negotiations. This is apparent from the phraseology of the note itself, and the caution with which it is worded. It is payable on demand, with interest, and is to be paid by the makers without default.” “ This is sufficient (it is said) to show that the indorsement of the. defendant was obtained under no ordinary circumstances, and that the maker had assured him he should come to no harm by his act of indorsing. That the note itself bears evidence upon its face that it was given to secure the repayment of a loan; and that it was not to be demanded at the usual time; and that the indorser was considered in the light of a security or guarantor.” * *• * “ The rule requiring presentment within a reasonable time was intended for, and is applicable to, negotiable instruments, made for commercial purposes-only."

I cannot assent to the doctrine that two notes, drawn and indorsed precisely alike, are to .be held to import a different obligation upon the maker, indorser or holder, upon the consideration whether ■ it was given for a loan of money or for commercial or other purposes. The only difference, in fact, between the note in the case last mentioned and the note of Sice v. Cunningham, consists in the words, “ without default or defalcation.” The court seem to assume that there was a difference in its being given upon interest and for money loaned. But a careful examination of the case of Sice v. Cunningham shows that the note in that case was given in the same manner and for the same purpose. In the statement of that case (1 Cow,, 397), it is not stated whether the note was or was not on interest. But, at page 398, in stating what occurred in submitting the case to the jury, it is said: “That it was contended by the plaintiff’s counsel that that note did not stand upon the footing of ordinary commercial paper; that it was deposited for a loan of money, and drawn payable with interest; and, therefore, the usual strictness in regard to presentment and notice was not required.” Besides, Sutherland, J., in his opinion, treats it as a note on interest.

In the case referred to in 3 Hill, 582, the action was against the maker, and the question was, whether he should be permitted to go into the consideration of the note. The payee had sold the note within a week after its date, and it had been again sold to the plaintiff within two, three or four weeks thereafter. The note was payable on demand, with interest. The court held the note was not to be deemed dishonored so as to let in the defence, and laid some stress upon the fact that the note was upon interest. “ It would be contrary to the general course of business to demand payment short of some proper point for computing interest, such as a quarter, half-year, year,” &c. . Even this rule would discharge the indorser in this case, for here three and a half years were suffered to elapse before a demand of payment.

The plaintiff’s counsel has referred to two or three English cases, and claims that the law there is settled in his favor. Barough v. White (6 Dow. & Ry., 379), was an action by the indorsee against the maker of such a note, and the defendant offered to prove the admissions of the payee showing that he gave no value for the note. The payee was not called as a witness, although he was in court. It was held that these declarations were properly rejected. This was sufficient to dispose of the case; but some of the judges thought the note should not be treated as overdue, and Littledale, J., thought the note was not overdue; that it was intended to be a continuing security; and that they could not treat it as overdue without payment having been demanded. Although this question of letting in the defence, if proper proof had been offered, was not necessary to the decision of the case, still it has been treated, in the two subsequent cases cited, as a leading case on that subject. Brooks, assignee, &c., v. Mitchell (9 Mees. & Wels., 15), was an action of trover to recover of the indorsee the amount of a note transferred by the bankrupt. The jury found that the payee indorsed the note to Boyle before bankruptcy, and that Boyle subsequently indorsed it to the plaintiff for value. But as to the question whether Boyle gave value for it, there was no sufficient evidence to the contrary. The court said, a promissory note, payable on demand, is intended to be a continuing security, and that it is quite unlike a check, which is intended to be presented speedily.

The case of Gascoyne v. Smith (1 McLeland & Tounge, 338) was also an action by the indorsee against the maker of a note payable on demand, with interest until paid; and the question was, whether it was subject to the equities of the original parties under the peculiar circumstances of the case, the maker having recognized the validity of the note by paying interest to the holder. The court held the plaintiff was entitled to recover, and that a note payable on demand, with interest until paid, is not to be considered as payable instantly. It will be observed that none of these English cases involve directly the question of the liability of an indorser of such a note, nor what would be deemed laches as to him.

The relation of the indorser of a promissory note like this is precisely the same as that of the drawer of a bill of exchange payable on demand or at sight. The indorsement of such note is an order by the indorser to the maker, who, by his promise, is the debtor, to pay the money to the indorsee. This is the exact description of a bill of exchange. (6 Bacon’s Abr., 771, tit. Merchant and Merchandise, No. 2.) The indorser of the note is the drawer; the maker the acceptor; and the indorsee is the person to whom it is made payable. (2 Burr, 676; 9 J. R., 120.)

There is, I think, no good reason for a distinction as to what is necessary to charge the indorser of such a note, and the drawer of a bill of exchange payable on demand. (6 T. R., 677; Chitty on Bills, 379.) The law is well settled that, to charge the drawer of a bill of exchange, or check, payable on demand, or at sight, it must be presented within a reasonable time, which ordinarily means that it must be presented, or remitted for presentation, the same or the next day after it is received, unless put in circulation by indorsement to other parties. (Chitty on Bills, 379, 381; Cambridge v. Allenby, 6 Barn. & Cress., 373; Smith v. James, 20 Wend., 193; Lough v. Statts, 13 id., 351; Mohawk Bank v. Broderick, 13 id., 133; Harker v. Anderson, 21 id., 372.)

The law being, as I conceive, well settled that the liability of the indorser of a note payable on demand is substantially that of a drawer of a bill of exchange, and that, to charge the latter, it is necessary that the bill should be presented within a reasonable time, as before indicated, there is no good reason why the same rule should not be applied to the indorsement of such a note. And it having, as has already been shown, been for fifty or sixty years the settled doctrine of the Supreme Court in this State, that such a note must be presented within a reasonable time to charge the indorser, the course of decision on that subject should not now be departed from without a manifest necessity therefor. It is of the highest importance that the law, especially so far as it relates to commercial paper, should be uniform, and, once settled, should be adhered to. The community adapts itself to the law, as it is, at least, supposed to be settled; and, I think, in this case, we should assume that the parties contracted with reference to the law on that subject, as it had been apparently settled in this State. Whatever might have been onr conclusions as an original question, I do not now think we should depart from the course of decision referred to.

Therefore, without discussing the question, as an original one, upon its merits, I think we should regard it as settled in this State that such anote, under the circumstances disclosed in this case, should be deemed dishonored long before the time it was protested, and the indorser discharged. The judgment should be affirmed.

Lott J., also dissented.

Judgment reversed, and new trial ordered.  