Case ID: serg-rawl_14/html/0127-01.html
Source: Caselaw Access Project
Author: {"author": "Tilghman, C. J.", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

[Lancaster,
    May 24, 1826.]
    LIGHTY against BRENNER and another.
    IN ERROR.
    In an action by the assignee of a promissory note against the drawer, the defendant cannot, under the plea of payment, give in evidence declarations made by the assignor, before the assignment, “ that he would fix the drawer,” &c. if no notice has been given by the plaintiff, that such declarations would be offered in evidence.
    Where the assignee of a promissory note, drawn payable -without defalcation, takes it with full notice of a right of defalcation, attended with circumstances of strong ■ equity, arising between the drawer and payee subsequent to the date of the note, he takes it, (at least if the payee was insolvent at the time of the assignment,) subject to such right of defalcation.
    From the record of this case, returned on a writ of error to the Court of Common Pleas of Lancaster county, it appeared that Brenner and Bead, the defendants in error, brought this action of debt, 'not exceeding four hundred dollars, against Henry Lighty, the piair.fiff in error, on a promissory note for three hundred dollars, dated Lancaster, November 25th, 1816, drawn by the said Henry Lighty, and payable to Christian Neff or order, without defalcation, on the 1st of -April, 1817. On the 6th of January, 
      1817, Neff, in the presence of a subscribing witness, assigned all his right and title to the note to the said Brenner and Bead. The defendant, having pleaded payment, with leave to give the special matter in evidence, gave notice to the plaintiffs, that he should prove on the trial, that on the 29th of August, 1815, Henry Lighty, the defendant, became bound, with Christian Neff, as surety for the said Neff, to John Brubaker, in an obligation conditioned for the payment of sixteen hundred dollars, on the 15th of the following- September: That the said John brought suit against the said Christian and Henry to Jiugust Term, 1816, in the Court of Common Pleas of Lancaster county, and on the 23d of Jiugust, 1816, obtained a judgment against them for one thousand six hundred and ninety-foiir dollars, and forty cents, on which he issued a fieri facias, returnable to November Term» 1816, against the said Christian and the said Henry, and the sheriff returned the said fieri facias, “Debt, interest, and costs paid in full,” all which was paid by the said Henry as surety for the said Christian, who was insolvent: That on the 15th of April, 1814, Christian Neff, Benjamin Bear, and Henry Lighty, the defendant, gave their bond to John and Samuel Brubaker, conditioned for the payment of one hundred pounds on the 1st of April, 1816, in which the said Benjamin and Henry were sureties for the said Christian: That Michael Brubaker, to whom the said bond had been assigned, brought suit upon it against the obligors to August Term, 1816, in the Court of Common Pleas of Lancaster county, and obtained a judgment against them for two hundred and seventy-three dollars, on which a fieri facias issued to November Term, 181.6, to which the sheriff returned, “ Debt, interest, and costs paid in full,” all which was paid by the said Henry Lighty as surety of the said Christian Neff: That the said Henry Lighty, on .the 15th oí April, 1814, became surety in three other bonds, conditioned for the payment of one hundred pounds each to John and Samuel Brubaker, which became due, respectively, on the 1st of April, 1817,1st of April, 1818, and 1st of April, 1819, and which were satisfied by the said Henry Lighty: That before the plaintiffs took the note on which this suit is brought, they called on the defendant, and were informed that he would not pay it, and had a full opportunity of examining and making "inquiry into the whole transaction, which they declined, and said that if they had known it they would not have come out, and that they would return to Lancaster and put Christian Neff in jail: That they did return to Lancaster and arrested Neff on a capias ad satisfaciendum, and afterwards took an assignment of the promissory note in question: That the plaintiffs well knew that Neff was insolvent, and that the note or bill now in suit, was given through mistake, imposition, and want of consideration: That a receipt, dated the 27th of March, 1817, given by the attorney of Michael and' John Brubaker to Hen
      
      ry Lighty for five hundred dollars, paid by the said Henry in the suit brought against him and Christian Neff\ by the said J. and M. Brubaker, would also be given in evidence.
    The counsel for the plaintiffs objected to the whole of the matter contained in the notice, and the court, after argument, rejected all except that part which is printed in italics; whereupon the counsel of the defendant excepted to the opinion.
    The defendant further offered to prove, that Christian Neff' had declared, before the note on which this suit is brought was given, “ that he would fix Henry Lighty; that he would think on him as long as he lived.” The counsel for the plaintiffs objected to these declarations being given in evidence, and the court having overruled them, a second bill of exceptions was tendered by the counsel for the defendant, and sealed by the court.
    The jury found a verdict for the plaintiffs, for four hundred and seventeen dollars debt, with six cents damages and six cents costs.
    
      TV. Hopkins and Hopkins, for the plaintiff in error.
    1. There is error in the verdict, because it exceeds the amount for which the writ issued. The action was debt on a promissory note, not exceeding four hundred dollars, yet the verdict veas for four hundred and seventeen dollars debt. Reed v. Pedan, 8 Serg. & Raivle, 263. [This exception was afterwards waived by the counsel, who stated that it would be raised and argued in some other causes, which were to be heard during the term.]
    2. It has always been taken for granted,- that out of the city or county of Philadelphia, where for commercial reasons a different rule was introduced, a promissory note, even in the form of the note in question, was subject to defalcation. Not to permit the evidence to be given, of which the plaintiffs received notice, would be against all equity. The offer was to prove, that the debt and costs upon the judgments against Neff and the defendant, on which executions were issued, were returned, paid, by the sheriff, and that Neff was insolvent; from which the jury might surely have inferred, that payment had been made by the defendant. 1 These executions were so returned before the note of the defendant was assigned to the plaintiffs. But even if the defendant had hot satisfied these judgments, chancery would certainly not permit Neff to recover against the defendant on this note, until he had freed him from the judgments; and if Neff would, not be permitted to recover, neither would the plaintiffs, who are indorsees with full np-tice, and therefore stand in no better situation than the indorser. Besides, there was direct proof of payment of five hundred dollars, prior to the institution of this suit. It cannot admit of a doubt, that notwithstanding the words, “ without defalcation,” there might be defalcation between the original parties to the instrument. A contrary doctrine would be extremely ruinous in the country, and the words, “without defalcation,” would be but a trap for the unwary. The case of Lewis v. Reeder, 9 Serg, & Rawle, 193, does not interfere with this case. The plaintiff was an innocent indorsee without notice, and this court will certainly not go further than to afford protection in such cases, to which the plaintiffs in this, case have no claim. They cited, Reed v. Ingraham, 3 Dali. 505. diet of the 27th of February, 1797, Purd. Dig. 98. Com. on Cont. 30. Jlct of 1705, Purd. Dig. 177. diet of the 28th of May, 1715. Purd. Dig. 97. diet of the 20th of March, 1810, Purd.. Dig. 453. diet of the 26 th of March, 1814, sect. 5, Purd. Dig. 361. diet of the 21 st of March, 1814, 6 Laws of Penn. 165. Humphries v. Blight’s Assignees, 4 Dali, 370. Cromwell's Executors v. dlrrott, 1 Serg. & Rawle, 183, 185, 186. Bury v. Hartman, 4 Serg. & Rawle, 187. 4 Mass. Rep. 370. 6 Mass. Rep. 428. 7 Mass. Rep. 58. 5 Mass. Rep. 334. 1 Mass. Rep. 1. Chitty on Bills, 145.
    3. The declarations by Neff\ that he would fix Henry Lighty, &c. ought to have been received. They certainly tended to show an intent to take a ruinous advantage of the defendant. They were therefore evidence of fraud and imposition, which, it was conceded, the defendant had a right to prove.
    
      Rogers and Buchanan, for the defendants in error,
    when about to argue the error assigned in the verdict, were told by the court it was not necessary to speak to it.
    With respect to the first bill of exceptions, they contended, that the evidence was properly rejected, 1. Because the money was not paid by the defendant until after action brought. 2. Because he had stipulated that no defalcation should be made,
    1. The note was assigned to the plaintiffs on the 6th of January, 1817, and no money was paid until afterwards, which is sufficient to prevent a set off against the note in the hands of the assignees. But the case is much stronger for the plaintiffs below than this. It is true, judgments were obtained by Brubaker against the defendant below as security for Neff, prior to the institution of this suit, but the money was not paid until afterwards. The evidence was therefore irrelevant, for as the plaintiff’s cause of action must be complete when suit is brought, so the right of the defendant to defalcation ought to be complete at the same period. 1 Binn. 158. Id. 433. 3 Dali. 505. The circumstance that the defendant was liable to execution on the judgments in which he was security for Neff, was not a matter which could be set off against the note, and there is no mode in Pennsylvania by which he could obtain protection on that ground. It does not appear, however, that the money was ever paid by the defendant below. The sheriff returned, “ Debt, interest, and costs paid,” without saying by whom, and non constat the payment was not by Neff himself.
    2. The note having been made payable without defalcation, amounted to an agreement that there should be no set off, even between the original parties to the note. This, in effect, was de-eided in Seed v. Ingraham, 3 Dali. 505; and in Lewis v. Seeder, 9 .Serg, & Sawle, 193, the very point now in dispute was determined in relation to a note drawn in the same form as this, out of the city and county of Philadelphia. There is an obvious difference between a set off against the indorsee, and evidence (of which he had duly received notice) of fraud in obtaining the note, or mistake, which would make it void. To the latter there can be* no objection; but where the parties stipulate that there shall be no defalcation, justice requires that they shall be held to their agreement. •
    The declarations attributed to Neff injhe second bill of exceptions, were nothing more than loose expressions/of no weight and not proper to be brought forward to affect a third person. But, independently of this consideration, the court was right in rejecting them, because no notice was given that they would be offered in evidence.
   The opinion of the oourt was delivered by.

Tilghman, C. J.

This is an action on a promissory note drawn by Henry Lighty, the plaintiff in error, payable to Christian Neff or order, without defalcation, for three hundred dollars, dated Lancaster, November 25th, 1816, and payable the 1st of Jtpril, 1817. On the 6th of January, 1817, Neff assigned all his right and title to the said note, under his hand and seal, to Brenner and Bead, the plaintiffs below, who are defendants in error. The assignment was attested by a subscribing witness. The defendant pleaded payment, with leave to give the special matter in evidence. Two bills of exception to evidence were taken by the counsel for the deféndant on the trial in the Court of Common Pleas. Errors have been assigned, in the opinion of this court, on each of these bills, and there was also an error assigned in the verdict, which; having been relinquished, I shall take no notice of it. The second bill of exceptions may be disposed of in a-few words. The court rejected the evidence offered by the defendant, of certain declarations made by Christian Neff, before the giving of the note on which suit was brought, viz. “that he would fix Henry Lighty,” &c. No such declarations were contained-in the notice of special matter, given by the defendant to the plaintiffs, and therefore they could not be given in evidence. The great question between the parties turned on the first bill of exceptions. The plaintiffs denied that the matters of which notice had been given, except a particular part thereof, were legal evidence. The notice was placed at large on the record, and is in substance as follows: That the plaintiffs well knew, before they took the assignment from Neff, that he was insolvent, and that the note now in suit was given through mistake, imposition, and without consideration. This is the part of which the defendant was permitted to give evidence by the decision of the court. But all the rest was rejected, viz. that u subsequent to the date of the note, and before the assignment to the plaintiffs, the defendant had paid divers sums of money, exceeding the amount of the notes for which he had been bound as security for Neff previous to the date of the note; and that he had also paid divers other sums of money after the said assignment, and before the commencement of this action, for which he had been previously, bound as security for the said Neff, and for which judgment had been obtained against him: That before the plaintiffs took the assignment, they came to the defendant, and asked him whether it would be paid; whereupon he told them that he would not pay it, and offered to inform them of the whole transaction between him and Neff, which they declined hearing, and said, that if they had known the note would not be paid, they would not have co.me to him; and that they would.return to Lancaster and put Neff in jail: That they did accordingly return to Lancaster, sued out a capias ad satisfaciendum against Neff, and had him arrested, and then took from him the transfer of this note. .And that the defendant has paid several thousand dollars for the said Neff, which he has lost by reason of his insolvency, of all which the plaintiffs were fully apprized before they took the assignment from him.” The Court of Common Pleas were- of opinion, that the note having been drawn expressly payable without defalcation, the defendant was precluded from every kind of defence partaking of the nature of defalcation, although he might, .show that the note was void in its origin, because obtained by fraud or without consideration. This, I think, is outrunning the act of assembly, (27th of February,. 1797,) by which nothing more was intended, than to put promissory notes dated in the city ,or county of Philadelphia, upon the same footing as commercial, negotiable paper in England, and in most of the other states of America. Before that, we had been behind our neighbours, in consequence of the decision in M‘Cullough v. Houston, 1 Dall. 441. But it was not designed to run into the contrary extreme, by giving to notes expressed to be without defalcation, a sanctity which should in all, circumstances preclude a defence which might call the validity of note in question, or show that though good in its creation, the holder ought not to recover on it. In Cromwell’s Executors v. Arrott, 1 Serg. & Rawle, 180, a note payable without defalcation on demand was indorsed, and kept by the indorsee for fourteen months after its date, without notice of the indorsement to the drawers. In the meantime, considerable- payments had been made to the payee, and it was held that these should be allowed by the holder, because he had not given notice of the in-dorsement in due time. Where a note is transferred in the usual course of business, without notice of any. objection to its payment, the holder takes it discharged from any--defence or equity which might have existed between the original parties. In Humphries v. Blight’s Assignees, (4 Dall. 370,) in the Circuit Court of the United States, it was said by Judge Washing-tow, “ that in the case of negotiable paper, he had always, thought, that the assignee takes it discharged of all the equity between the original parties, .of which he had no notice. But, whenever the assignee has notice' of such equity, be takes the assignment at his peril.” The note now in question is not within the provisions of the act of the 271,h of February, 1797, because it is dated at Lancaster, and not ia the city or county of Philadelphia. It was determined, how/ever, in the ease of Lewis, &c v. Reeder, 9 Serg. & Rawle, 193, that a note, not within the purview of that act of assembly, if drawn expressly without defalcation, should not be subject, in the hands of a holder who came to it bona fide and without notice, to an inquiry into the want of consideration. But, if taken with notice, no doubt the want of consideration may be set up as a defence. Indeed, in the present instance, it was not denied, that the defendant nnight give evidence of any fraud pr unfairness in the obtaining of the note, of which the indorsee had notice at the time of his receiving it. But it was strenuously contended, that no advantage could be taken of a right of defalcation between the drawer and payee, because the drawer had stipulated not to defalk. It is unnecessary to consider what force there would have been in this argument, if the defendant had set up a right of defalcation existing at the date of the note. The case before us exhibits a right of defalcation, attended with circumstances of strong equity, which arose after the giving of the note and before its assignment. Can it be said, that the plaintiffs, who took an assignment, with full knowledge of these circumstances, are bona fide holders? I think not. Being informed that the payee was insolvent, and largely indebted to the drawer, they had him arrested on a capias ad satis-faciendum, and then, by way of procuring payment of their judgf ment, obtained the. assignment of this note. Can this be reconciled with principles of honesty and good conscience? On an application to chancery, I cannot but think, that the payee would have been enjoined from putting the note into circulation. The transaction has not one feature of a negotiation of paper in the usual course of business. The assignment is made under hand- and seal, in the presence of a subscribing witness. It was a desperate attempt to secure the payment of a pre-existing debt, at the expense of the drawer, who was to be turned round, to seek satisfaction from an insolvent debtor. There is nothing in the case of Lewis v. Reeder, so much relied on by the plaintiffs, to give counte- . nance to such a doctrine. There the paper was received, without notice of anything to impeach it. I repeat, that I give no opinion on -a case, if such should hereafter arise, where a note should be-drawn payable without defalcation, and afterwards the drawer should give notice to one who was about to take an assignment of it, for good consideration, that he should set off against ;it, a debt due from the payee to himself at the date o.e the note, or even af-terwards, the payee not being insolvent. The ease before us is widely different, and contains circumstances, which, if proved to the satisfaction of the jury, ought, in my opinion, to bar the plaintiffs’ recovery. There was error, therefore, in rejecting the evidence offered by the defendant, for which the judgment should be reversed, and a venire de novo awarded.

Judgment reversed, and a venire facias de novo awarded.