Opinion of the Court.

upon the same footing they would have occupied if a chattel mortgage, covering all the notes, had been executed by the purchaser of the cars. If the notes had been in the usual form of promissory notes,. and the maker had given a mortgage back to the payee, the title would, technically, have been in the payee until they were paid. But they would, in such case, have been negotiable securities protected in the hands of bona fide holders for value against secret defences, and their immunity from such defences would have been communicated to the mortgage itself. In Kenicott v. Supervisors, 16 Wall. 452, 469, it was said that where a note secured by a mortgage is transferred to a bona fide holder for value before maturity, and a bill is filed to foreclose the mortgage, no other or further defences are allowed against the mortgage than would be allowed were the action brought in a court of law upon the note. To the same effect are Carpenter v. Longan, 16 Wall. 271, 274. See also Swift v. Smith, 102 U. S. 442, 444; Collins v. Bradbury, 64 Maine, 37; Towne v. Rice, 122 Mass. 67, 73.

The agreement that the title should remain in the payee until the notes were paid - it being expressly stated that they were given for the price of the cars sold by the payee to the maker, and were secured equally and ratably on the property -is a short form of chattel mortgage. The transaction is, in legal effect, what it would have been if the maker, who purchased the cars, had given a mortgage back to the payee, securing the notes on the property until they were all fully paid. The agreement, by which the vendor retains the title and by which the notes are secured on the cars, is collateral to the notes, and does not affect their negotiability. It does not qualify the promise to pay at the time fixed, any more than would be done by an agreement, of the same kind, embodied in a separate instrument, in the form of a mortgage. So far as the notes upon their face show, the payee did not retain possession of the cars, but possession was delivered to the maker. The marks on the cars showed that they were to go into the possession of the maker, or of its transferee, to be used. The suggestion that the maker could not have been compelled to pay if the cars had been destroyed before the maturity of the notes, is

Opinion of the Court.

without any foundation upon which to rest. The agreement cannot properly be so construed. The cars having been sold and delivered to the maker, the payee had no interest remaining in them except by way of security for the payment of the notes given for the price. The reservation of the title as security for such payment was not the reservation of anything in favor of the maker, but was for the benefit of the payee and all subsequent holders of the paper. The promise of the maker was unconditional.

Without deciding whether the notes here in suit would or would not have been negotiable securities if the transaction between the parties had been a conditional sale, we are of opinion that they are of the class of instruments that are negotiable according to the mercantile law, and which, in the hands of a bona fide holder for value, are protected against defences of which the maker might avail himself if sued by the payee. They are promises in writing to pay a fixed sum of money to a named person or order, at all events, and at a time which must certainly arrive. Ackley School District v. Hall, 113 U. S. 135, 139, 140; Story on Promissory Notes, § 27; Cota v. Buck, 7 Met. 588. It is true that, upon the failure of the maker to pay the principal and interest of any note of the whole series of twenty-five, the others would become due and payable; that is, due and payable at the option of the holder. But a contingency under which a note may become due earlier than the date fixed is not one that affects its negotiability. In Ernst v. Steckman, 74 Penn. St. 13, 15, cited with approval in Cisne v. Chidester, 85 Illinois, 525, the question was whether the following instrument was a negotiable promissory note: "$375. Paradise, Lancaster Co., Pa., June 11, 1869. Twelve months after date, (or before if made out of the sale of W. S. Coffman's Improved Broadcast Seeding Machine,) I promise to pay J. S. Huston, or bearer, at the First National Bank of Lancaster, three hundred and seventy-five dollars, without defalcation, for value received, with interest." It was there contended that the character of the instrument was changed by the fact that in the contingency of the sum being sooner realized from the sale of the machinery it might become

Opinion of the Court.

payable within the year. The court, after observing that the general rule, to be extracted from the authorities, undoubtedly requires that to constitute a valid promissory note, it must be for the payment of money at some fixed period of time, or upon some event which must inevitably happen, and that its character as a promissory note cannot depend upon future events, but solely upon its character when created, said: "Yet it is an equally well settled rule of commercial law that it may be made payable at sight, or at a fixed period after sight, or at a fixed period after notice, or on request, or on demand, without destroying its negotiable character. The reason for this, said Lord Tenterden, in Clayton v. Gosling, 5 B. & C. 360, is that it was made payable at a time which we must suppose would arrive." To the same effect are Cota v. Buck, 7 Met. 588; Walker v. Woollen, 54 Indiana, 164; Woolen v. Ulrich, 64 Indiana, 120; Charlton v. Reid, 61 Iowa, 166; Andrews v. Franklin, 1 Strange, 24; Cook v. Horn, 29 Law Times, (N. S.,) 369.

6

Upon like grounds it has been held that the negotiability of the note is not affected by its being made payable on or before a named date, or in instalments of a particular amount. In Ackley School District v. Hall, 113 U. S. 135, 140, it was held that municipal bonds, issued under a statute providing that they should be payable at the pleasure of the district at any time before due, were negotiable; for, the court said: "By their terms, they were payable at a time which must certainly arrive; the holder could not exact payment before the day fixed in the bonds; the debtor incurred no legal liability for non-payment until that day passed." In Mattison v. Marks, 31 Michigan, 421, which was the case of a note payable "on or before" a day named, it was said: "True, the maker may pay sooner if he shall choose, but this option, if exercised, would be a payment in advance of the legal liability to pay, and nothing more. Notes like this are common in commercial transactions, and we are not aware that their negotiable quality is ever questioned in business dealings." Carlon v. Kenealy, 12 M. & W. 139; Colehan v. Willes, Willes, 393; Jordan v. Tate, 19 Ohio St. 586; Curtis v. Home, 58 N. H.

Opinion of the Court.

504; Howard v. Simpkins, 60 Georgia, 340; Protection Ins. Co. v. Bill, 31 Connecticut, 534, 538; Goodloe v. Taylor, 3 Hawks, 458; Ricker v. Sprague Manuf. Co., 14 R. I. 402. In the last-named case it was said that if the time of payment named in the note must certainly come, although the precise date may not be specified, it is sufficiently certain as to time. It was, consequently, held that a reservation in a note of the right to pay it before maturity in instalments of not less than five per cent of the principal at any time the semi-annual interest becomes payable, did not impair its negotiability; the court observing that a note is negotiable if one certain time of payment is fixed, although the option of another time of payment be given. In view of these authorities, as well as upon principle, we adjudge that the negotiability of the notes in suit was not affected by the provision that upon the failure of the maker to pay any one of the notes of the series to which those in suit belonged, the rest should become due and payable to the holder.

Our conclusion is that the court below did not err in holding the notes in suit to be negotiable according to the custom and usage of merchants. They bear upon their face evidence that they were so intended by the maker and the payee. It was well said by Judge Bunn, at the trial, that the inference that any one contemplating the purchase of the notes would naturally and properly draw, would be, 25 Fed. Rep. 809, 811, "that the freight cars had already been sold by the payee to the maker, and that the payee was to retain a lien and security upon them, in the way of mortgage, for the payment of the purchase price, which would enure equally and ratably to all the holders of the notes, according to their several amounts, without regard to the time when such notes should fall due. If this be so, the contract was an executed one, the consideration for the notes had already passed, and the payment of the notes would not be made to depend upon any condition whatsoever." Judgment affirmed.

MR. JUSTICE MILLER and MR. JUSTICE GRAY dissented.

MR. JUSTICE BREWER was not a member of the court when this case was argued, and took no part in its decision.

Syllabus.

THOMPSON v. PHENIX INSURANCE COMPANY.

APPEAL FROM THE CIRCUIT COURT OF THE UNITED STATES FOR THE DISTRICT OF OREGON.

No. 311. Argued April 29, 30, 1890. Decided May 19, 1890.

Under some circumstances a receiver would be derelict in duty if he did not cause to be insured the property committed to his custody, to be kept safely for those entitled to it.

If a receiver, without the previous sanction of the court, applies funds in his hands to pay insurance premiums, the policy is not, for that reason, void as between him and the company; but the question whether he has rightly applied such funds is a matter that concerns only himself, the court whose officer he is, and the parties interested in the property. Where a receiver uses moneys in his hands without the previous order of the court, the amount so expended may be allowed to him if he has acted in good faith and for the benefit of the parties. When, by inadvertence, accident or mistake, a policy of insurance does not correctly set forth the contract personally made between the parties, equity may reform it so as to express the real agreement.

A policy of fire insurance, running to a particular person as receiver in a named suit, provided that it should become void "if any change takes place in title or possession, (except in case of succession by reason of the death of the assured,) whether by legal process, or judicial decree, or voluntary transfer or conveyance;" Held,

(1) That this clause does not necessarily import that a change of receivers during the life of the policy would work a change either in title or possession;

(2) That the title is not in the receiver, but in those for whose benefit he holds the property;

(3) That in a legal sense the property was not in his possession, but in the possession of the court, through him as its officer.

The principle reaffirmed that when a policy is so drawn as to require interpretation, and to be fairly susceptible of two different constructions, that one will be adopted which is most favorable to the insured. Although the policy in this case provided that no action upon it should be maintained after the expiration of twelve months from the date of the fire, yet the benefit of this clause might be waived by the insurer, and will be regarded as waived if the course of conduct of the insurer was such as to induce the insured to delay bringing suit within the time limited and if the insured delayed in consequence of hopes of adjustment, held out by the insuring company, the latter will not be permitted to plead the delay in bar of the suit.