283 the repQrt.Qf.the master dire.etil1g:the'defendants to pay into court, sum of $3,899.09 for·distribution between complainants and intervenors,.in,the proportjon recommended by 'the master. A sum to to per cent. of that amount will be taxed against and pl;lid out of the £und solicitors. The defendants will also be required into court the costs of the suit.
WINDSOR
SAV. BANK' V. McMAHON et aZ.
(O';rcuit Court, 8. D. Iowa,. W; D. April 6, 1889.) L'NEGOi'i.A:BLE MERCHANT. IN AMOUNT-LAW.
A stipplation in a promissory note, the installments of interest, lind, when due, the principal, llayable at a !Siven placfl, ."with renders the note non-negotiable under the law merchant, as it cannot be known. until the times of paymentarriV'e what the'rates of exchange will be, and the necessary to discharge the note is therefore' uncertain.
2.
SAME-JURISDICTION OF FEDERAL COURTS.
Under actCong. 1875, providing that the federal courts shall have .no juris, diction :of a suit founded on a contract in favor of an assignee unless the assignor could have prosecuted:the'suit in'the same court, "except in cases of promissory notes. negotiable by thelaw-me.rchant, and bills of exchange, " the negotiability ofa note, 80 far as is necessary to determine the question of jurisdiction, is governed wholly' by the rules of the law-merchant, regardless of the statutory provisions. of the state in which the action is brought.
,
In Equity. Bill for foreclosure. , The Windsor Savings Bank, assignee .of William B. Somers, brought . this bill against S. A. McMahon and others, to foreclose a mortgage executed by said Mc¥ahon on land to seC1,ll'e the payment of a note to said . " Somers. L. W. R088, for cOmplainant. Wright,. Baldwin &: Haldane, for defendants. J.This suit was brought for the purpose of foreclosing a JDortgage executed by S. A. McMahon, given to secure the payment of note for $14,000. The note bears date at Council Bluffs, a Iowa, and provides that "both principal and interest payable at the office of J. W.and E. L. Squire,.Oouncil Bluffs, Iowa, with exchange on New York." The jurisdiction of the court is now questioned by a suggestion on behalf of the defendant that the note is payable to the order of William B. Somers,l,l.n.d it is admitted by the parties that at the date of the the sui,t the mortgagor and payee of the note were citizens of the state of Iowa. Underth!=l provisions of the act of 1875, in force when the suit commenced, this cour.t has .not jurisdiction of a suit founded contract in favor ofan assignee, unless the assignor could have prosthe' same in this court in case no assignment had been made, 'i1.1 cases nc;>tes negotiableb:K the law-merchant,.and
284
FEDERAL REPORTER,
vol.
bill:s of exchange." Under the agreed facts this court has not jurisdiction, unless the note sued on is negotiable, according to the principles of the law-merchant, for it is admitted that when. the suit was brought the payee and assignor of the note and the principal defendant were citizens of the same state. The point is whether the provision that the principal and interest are payable with exchange destroys the negotiable character of the note, according to the principles of the law-merchant. The question is not whether the note may be negotiable under the provisions of the state statute. The state legislature may declare that all instruments or contracts for the payment of money are negotiable, and shall possess the incidents pertaining to negotiable paper; but that would not change the test of negotiability fixed by the act of congress of 1875. That test is negotiability according to the principles of the law-merchant, not according to the provisions of the state statute. It is not a question of the true intent and meaning of the contract as defining the rights of the parties thereunder, in which case the rule of the state statute would be obligatory upon this court, as well as the courts of the state, in all matters wherein the state statute controls or defines such rights, and thus forms part of the contract of the parties. When the act of 1875 was passed it denied jurisdiction to the courts of the United States in all cases. wherein the cause of action had been assigned, unless the assignor could have instituted suit in the federal court, except in cases .based upon promissory notes, negotiable by the law-merchant and bills of exchange. As already stated, the question is whether a note which provides that the severalinstallments of interest as they come due, and· also the principal sum, shall be paid at Council Bluffs, Iowa, with exchange on New York, is or is not negotiable according to the of the law-merchant. Upon this question, the authorities are not in accord. The general rule has long been established that certainty in the sum to be paid is one of the elements essential to render notes liegotiable. Many cases hold that the spirit of the rule is observed if the principal sum to be paid is made certain, even though there may be some slight addition by way ofitHerest or exchange to be made thereto. While the argument in support of the conclusion is certainly plausible, yet the difficulty with it is that it opens the way to introducing too many uncertainties; thatit may ultimatelyobviate the rule itself; and that is not advisable. If we adhere to the principle that, to render a note negotiable, the amount to be paid at maturity must be ascertainable from the face of the note, without resort t,) evidence dehors the instrument, we have a fixed and certain rule for guidance; bnt, if we depart from this principle, doubt and uncertainty will arise as to the true character of notes' and other like instruments for the payment of sums depending on contingencies. If there was a fixed rate of. exchange established by law, or if the note provided the rate to be paid, so that from the face of the note it could be computed what the exchange would be, then the note itself would contain all the facts necessary to be known in order to ascertain the sum necessary to be paid at maturity in discharge of the obligation of the maker, and in that case there would not be any uncertainty in the amount of the note. When.
WINDSOR SAY. BANK fl. M'MAHON.
285
however, the provision is that, as each payment of interest comes due, the amount thereof is to be paid at Council Bluffs, Iowa, with exchangeon New York, and the like provision ae to the principal sum, it is evident that every payment of interest and principal is uncertain in amount, in that it depends upon the rate of exchange charged at the time the payments come due, and this rate cannot be determined from the face of thenote, nor by reference to any law or fixed rule, but is dependent upon what may be the rate current at the several times the installments of theinterest and the principal are payable, and this rate cannot be known until the time of payment arrive, and then only by evidence to be gathered from banks or other dealers in exchange. In ascertaining the amount. now due upon this note and the unpaid coupons, it is neCtlssary that evidence be introduced showing the rate of exchange current in Council Bluffs, Iowa, at the several dates of the maturity thereof. Thus we find that the element of certainty in the amount to be paid is wanting, and unless the court adopts the principle that it is not the fact of uncertainty, but the amount thereof, that controls the question of negotiability, it must be held that the note sUt3d on lacks an essential requisite of negotiability. The contract evidenced by the note binds the maker thereof to pay the installments of interest and the principal, with exchange on New York, and the latter provision is just as much a part of the contract as are the provisions touching the principal sum and the interest. Resolving the contract into its several parts, we find it to be a contract for thepayment of the principal sum of $14,000 in five years from date, for thepayment of $490 every six months as interest, and for the payment on t:ach installment of interest, and also on the principal sum when paid, of the current rate of exchange between Council Bluffs, Iowa, and New York. The party is bound to pay this current rate of exchange, as a. part of the contract. The amount thereof is left wholly dependent on what the rates may be when the several payments come due, and there is no legal or business rule by which the amounts can be ascertained until the day of payment arrive. It is difficult to conceive of any other provisions that could have been incorporated into this note that would have rendered the amounts· to· be paid more uncertain than this one touching the payment of exchange. True, the fluctuations in the rateof exchange may not have been very great, yet this could not have been foreseen with certainty when the note was executed. When the note was signed it was impossible to know whether the rate of exchange to be paid upon the principal sum when it matured five years thereafter would be' one-tenth oione per cent. or one per cent. Therefore it is clear that, unless we abandon the rule of requiring certainty in the amount to bepaid at maturity as an essential element in negotiable paper, this note' cannot be held negotiable under the principles of the law-merchant. \ Counsel cite a number of cases wherein it has been held that provisions waiving the benefit of appraisement or exemption laws, or for thepayment of attorney's fee and the like, do not destroy the negotiability of the note containing them. These prC'visions do not affect or render
286
EEDERAL: REPQRT.E;R,
vol. ,38; "
J,lndertain the amount to be paid:at the maturitY' of the paper., lUbe note is,pronipUy paid at: maturity,' these provisions do not come jnto ef.. foot. ' They are intended to define :the rights, of.the 'parties fn case the :pate is not paid, and the polder is obliged to resort to means for t46 collection thereof. , They arerheld to be provisions, outside the con.. trilict of payment of the note, and llot affecting it. InAhe case at .bar, the,obligation to pay ex,change is part of the contract of payment, and canilotbe separatedtherefron1. When each paynHmt of mterest matured, aswell as when the principalcame,due, the maker ofthe note was bound to ,pay the amount of exchangeaocording to the then, current rate, as well as the a,mounts ofthe interest and principal. to be negotiable uuderthe law-merchant, must define by its terms what ,the obligation ,of the maker is, so that, as it passes from hand to hand in thebusiness world, it may be ascertainable fi-om the face of the instrument what is demandable from the maker. If there inheres in the contract of payment an element of uncertainty of suoh a nature that,as each payment is made, it is necessary, in order to determine the sum that must be'paid to fully, discharge the contract, to make inquiry touching. an extrinsic fact, and ascertain by such inquiry what the rate of exchange is at a given point between that placeand New York, it certainly seems that such an illstrumentis not "a courier without luggage," but, on the contrary, is hampered by the abs<;>lute necessity j imposed by its own terms Oli the maker, of ascertaining,as, each p'aymellt lilatures,w}),at the exchange upon the interest or principal amounts to at the rate then prevailing at the place of payment. Counsel have not cited, nor have I been able to find,any decision ot the United ,States supreme court upon the exact question. It may counsel urge,that the supreme court, having regard. to what it is claimed is the common understanding in the business community, may hold that notes containing the provision found in the 'one, now in question'are negotiable., When, however, the jurisdiction of the, court is involved, as in the present instance, it is the safer rule not to entertain jurisdiction when reasonable doubt exists, as it is better for the parties to have resort to a court whose jurisdiction cannot be assailed, especially in cases wherein the title to realty'may become involved. But it cannot be said that in this circuit we are without controlling authority on the point, as in the' case of Hughitt v. Johnson, 28 Fed. Rep. 865, the circuit judge held, in a case pending in the Eastern district of Missouri, that a clause binding the maker to pay exchalilge rendered the amount payable upon a note uncertain,and defeated its negotiability. If, then, the note sued on is notnegotiable, this court had not jurisdiction when the suit was brought, and the ordermust be that it be dismissed without prejudice;
WESTERN LAND WESTl!1RN
&
EM!GRATION
00.". GUINAULT. March 14; 1889.)
287
LAND & EMIGRATION CO. ".GUINAULT, Re<lorder,et al. (Oircu:lt (Jo'Urt,lIJ. D. Louisiana.
TAXATION-SALE
Act La. 1882. (Laws 1884.§ 5;) relating to slllesfor taxes. provides that "the purchaser shall however assume' ai:Jdpromlse to pay. and shall take said property SUbJect to. all unpaid taxes on'the saine due subsequent to DecemberBl. \879. · Held, that the, act did not have the effect of reviving against the property sold liens for taxes which had become barred by limitation.
11'01\ NON-PAYMENT-PRESCRIBED LIENS.
In Equity. On demurrer to bill. Bill by the Western; Land & EniigrationCompnny, 11 corporation of Indinna, against George' ,Quinault, recorder of mortgages for the parish of Otleans; C. Harris()n Parker, state' 'collector of the First municipal district of New Orlean$; Isaac.W. Patton, state tax collector fOJ: the ;Fourih,SiJr;th,and Seventh districts, and the city of New Orleans-toreftrainthe .collection of a tax. ,The bill alleges, among other things: .. (1)' That in the year 1884 the general as1lembly of 'the state of Louisiana enacted an act entitled ·An act to provide for the sale of property bid in for and adjUdicated to the state, and of property on which taxes are due the 'state prior to December 31, 1879; tl>regnlate' in what manner said Eales areto take place; to provide for the payment and cancellation of all incumbrances, and of all taxeBdueprior '31, 1879; to establisb the validity of sales made in compliance herewith; to provide for the payment of costs incurred under this act, and for the payment of unpaid costs incu rred in ad and offering for sale. immovaLle: property; to enforce the paYment of taxes which were due to the state prior to'December 31, 1879; and to provide how the 'payment into the' state treasury shan be made of' mofieyrealized to the state from the enforcement of this act,'-being act No. 82 of the Acts of Louisiana for the yeat 1884, 'approved on' the 10th day of JUly, 1884. That James D. Houston, late state tax collector for the upper distritt of the city of New Orleans, in compliance with the provisions of said act, did advertise and otter for sale various anll sundry squares and lots ofgrOl1nd Bituatedin the Firstl,'Fourtb,Sixtb, and Severith districts of the cityo! New Orleans; and, baving fulfilled all the requirements of said act, did during theyears 1886 and 1887 Bell and adjudicate unto Domingo Negrotto, Jr., the following described squares andlots'of grouiid,to;.wit: '" ' 'That, in compliance with said adjudications, the said Domingo Negrotto, Jr., did pay unto the said James D. Houston, then state tax coUector fOf the upper district of t·be city ofNew Orleans, the price at whilJh said squares and lots of ground were adjudicated tohim, respectively, and the sa'id Houston thereupon gave to the saidNe. grotto a receipt for the'pnce of said property so paid unto him,togetherwith aprooea-verbalof the Bale of each of said properties;erititling him Madju dicatee to a deed for eao'll of said properties, as provided by the said act No. 82 of the acts of the state of Louisiana for the year 1884 aforesaid.' Tlmtin compliance' withsection 5.of the said act, No. 82, approvedJuly 10, 1884, above referred to, the said D.:N'egr6tto, Jr., the purchaser of said squares andlotil of g'roundaforesaid, did assume and promise to pay,'and did take said propel'ty subject to, all ul1paidtaxes on ,the same due SUbsequent to December 31, 1879: 'I, , I 'i' ' , ' I , then (iollectorfOr. the' upper 'drstfict oftnl! Cl'tyo'f New Orleans, did make and exe;.
