Case ID: mass_47/html/0007-01.html
Source: Caselaw Access Project
Author: {"author": "\n      Shaw, C. J.", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

James Baxter vs. William Little. The Same vs. Joseph Harris, Jr.
    When the first indorsee of a promissory note negotiates it after it is dishonored, and the second indorsee brings an action thereon against the maker or first indorser, the defendant cannot set off any claim which he has against the first indorsee, except such as existed at the time of the transfer of the note to the plaintiff, although he had no notice of such transfer when he acquired his claim against the first indorsee
    The first of these actions was by the indorsee against the maker of a promissory note for $330, dated March 1st 1837, payable to Joseph Harris, Jr. in four months, and by him indorsed. The action was commenced October 4th 1839.
    At the trial before the chief justice, the signatures of the maker and indorser were admitted by the defendant, and he relied upon a set-off of notes against the Franklin Bank, upon the ground that the note in suit was held by that bank, after it was due, and that he had a right to make the same defence against the plaintiff, as if the action were brought by the bank.
    In order to present the question of law, it was mutually conceded, that the note was discounted by the Franklin Bank, in the due course of business; that it was held by the bank, when it became due; that afterwards, and after the bank had stopped 'payment, in pursuance of a vote of the directors to pay the debts of the bank in such securities as they had, the note in question, on the 20th of December 1837, was delivered to the plaintiff, or to the person under whom the plaintiff claims tide, in exchange for bills of said bank, at par, which bills were then at a discount in the market: That before this action was brought — upon notice of the plaintiff’s attorneys that they had such a note, and demanded payment thereof, but without notice to the defendant that the note had been transferred by the bank — the defendant tendered to said attorneys, in satisfaction of the note, bills of the Franklin Bank, which they declined to accept: That the defendant has ever since had said bills, and has filed them in offset in this action,, and now relies upon that tender and set-off.
    The second of these actions was by the indorsee against the indorser of the same note, and all the facts stated in the previous case were agreed to in this. The defendant further, in this case, relied upon a balance due to him from the Franklin Bank, by way of set-off to the note. And it was further agreed by the parties, that on the 5th of June 1838, there was due to the defendant, on the books of said bank, a balance of $293-63, and that he had no notice of the transfer of the note to the plaintiff, until this suit was commenced: That within a month or two after the 20th of December 1837, when the note was passed out of the bank, notice was given to the defendant by the cashier, that it was so passed out: That the balance above mentioned, due to the defendant, on the 5th of June 1839, arose from post notes deposited on that day, except $12*88, which previously stood to his credit; and that the deposit then made cancelled all demands which the bank had against him, and left the above balance.
    It was agreed in each case, that judgment should be entered for the plaintiff, if in the opinion of the court he was entitled to recover; otherwise, that the plaintiff should become nonsuit.
    
      Bartlett & Homer, for the plaintiff.
    In the first of these actions, the bank notes that were tendered cannot be set off. Notes that are overdue are still negotiable, and the in-dorsee takes a legal title to them. Bayley on Bills, (2d Amer. ed.) 133. Chit, on Bills, (6th ed.) 126. And though such indorsee takes them subject to the equities between the prior parties, yet those equities must exist at the time he receives the note. No adjudged case authorizes the maker, in a suit by such indorsee, to avail himself, in defence, of matters subsequent, which affect the payee only. See Bank of Niagara v. M’ Bracken, 18 Johns. 493. Johnson v. Bloodgood, 2 Caines Cas. in Error, 303, and 1 Johns. Cas. 51. Cromwell v. Arrott, 1 S. & R. 185. The decision in Sargent v. Southgate, 5 Pick. 312, when carefully examined, will not be found to extend the doctrine farther.
    There is no such legal presumption that the title to a negotiable note remains in the payee, as warrants the promisor to make payments, or create set-offs, because he has not received notice of the transfer of the note.
    The case does not show that Little held the bank notes, which he now claims to set off, at the time the note in suit was transferred to the plaintiff; and for that reason, he must fail in his defence.
    In the suit against Harris, the indorser, the doctrine already advanced applies with additional force. See Collins v. Allen, 12 Wend. 356.
    
      I. J. Austin, for the defendants.
    It is not necessary that the matter of set-off should have existed when the transfer of the note was made; and no such restriction of the rule is found in the cases cited for the plaintiff. In Potter v. Tyler, 2 Met. 62, (which was a suit on a note discounted by this same Franklin Bank, and transferred when it was overdue,) it was said that the defendant was entitled to make the same defence against the holder, which he “could legally have made against the bank.” S. P. 5 Pick. 315. 11 Pick. 419. All demands, that accrue between the transfer and notice of the transfer, are to be allowed in offset. Chamberlain v. Gorham, 20 Johns. 144. Notice of the transfer, in this case, was not given till action brought. The previous notice, that the plaintiff’s attorneys had the note for collection, did not apprise the defendants that the plaintiff owned the note.
    The presumption is, that Little had the bank bills before the note was transferred; and it is for the plaintiff, who took the note after it was dishonored, to show the contrary.
   Shaw, C. J.

When a negotiable note is indorsed and transferred after it is due, and the defendant relies- upon matter of set-off which he may have against the promisee, he can avail himself only of such matter of defence as existed between himself and the promisee, at the time of the actual indorsement and transfer of the note to the holder. A note does not cease to be negotiable, because it is overdue. The promisee, by his indorsement, may still give a good title to the indorsee. Notes or other matters of set-off, acquired by the defendant against the promisee, after such transfer, cannot be given in evidence in defence to such note, although the maker had no notice of such transfer, at the time of acquiring his demand against the promisee. Having made his promise negotiable, he is liable to any lona Jide holder and actual in-dorsee ; and therefore, even after the note has become due, in making payments to the original promisee, or in further dealings by which he gives him a credit, he has no right to presume, without proof, that the promisee is still the holder of the note. Besides; in case of payment of a negotiable note, or of a credit which the maker intends shall operate by way of payment, he has a right to have his note given up, if paid in full, or to see the payment indorsed, if partial. Should he insist on this right, in the case proposed, he would at once perceive that the person, to whom he is making payment or giving credit, is no longer the holder of the note. And this appears to us to be the true distinction between the indorsement of a note overdue, and the assignment of a chose in action. In the latter case, notice of the assignment must be given by the assignee to the debtor, to prevent him from making payment to the assignor. Without such notice, he has no reason to presume that the original creditor is not still his creditor; and payment to him is according to his contract and in the due and ordinary course of business. The assignee takes an equitable interest only, which must be enforced in the name of the assignor ; and, until notice, he has no equity against the debtor, which can be recognized and protected by a court of law or equity. The indorsee of a note overdue takes a legal title ; but he takes it with notice on its face that it is discredited, and therefore subject to all payments, and offsets in the nature of payment. The ground is, that by this fact he is put upon inquiry, and therefore he shall be bound by all existing facts, of which inquiry and true information would apprise him; but these could only apprise him of demands then acquired by the maker against the payee.

We are aware that in the marginal note to Sargent v. Southgate, 5 Pick. 312, which is the leading case qn this subject, it is stated, that “ in an action by the indorsee against the maker of a negotiable note indorsed when overdue, the defendant may file in set-off a negotiable note made to him by the payee before he had notice that the note in suit was assigned.” And the point is so stated in. Minot’s Digest, 640. No such de cisión was called for, in that case, because all the demands, relied upon by way of set-off, were acquired by the defendant, whilst the original payee was holder of the note. But further on a careful examination of the opinion, we think it will not be found that there is any such dictum, in regard to notice. The inadvertence, in extracting the marginal note from the case, probably arose from the very obvious analogy between the case of the indorsement of a note overdue, and the assignment of a chose in action, especially as there was nothing in the facts or the argument to call for a distinction between the two cases. The opinion of the court in that case, therefore, is not an authority opposed to the ground of decision adopted in this, namely, that this right of set-off must be confined to those demands against the payee or prior holder, which accrued to the defendant, whils* such payee or prior holder was the actual holder of the note, and will not extend to demands which accrued afterwards, although no notice of the indorsement was given to the debtor.

The defendant Little, the maker of the note now in suit, not having shown that he held the bills of the Franklin Bank at the time that his note was transferred to the plaintiff, he cannot set them off, in this suit. In a case in New York, it was held that bills of a bank, held by the defendant when his note Decame due, could not be set off, in an action brought on the note by receivers appointed previously. Haxtun v. Bishop, 3 Wend. 13.

The English rule, in allowing set-off in an action upon a note, is somewhat more limited than our own, confining such defence to equities arising out of the same note, or transactions connected with it. Burrough v. Moss, 10 Barn. & Cres. 558. Here, it has been held, that an independent demand may be set off, where in other respects the party is entitled to go into that defence. Sargent v. Southgate, 5 Pick. 312. Ranger v Cary, 1 Met. 375.

Since the decision in Sargent v. Southgate, the principle decided by it has been confirmed, and the whole subject of set-off placed, by the Rev. Sts. c. 96, upon grounds more distinct and satisfactory than it was under the former statutes.

The principles already stated apply á fortiori to the case of Harris, the defendant in the second action, who was indorser of the same note. The note was transferred to the plaintiff by the Franklin Bank, in December 1837, soon after which, the defendant had actual notice of it from the cashier ; and it is found that the deposit to the credit of the defendant, upon which he relies by way of set-off, was made, and the credit obtained, in June 1838. It is stated indeed, that prior to that time there was a small balance to his credit, on deposit, of $ 12-88, but there were other demands of the bank, at that time, against the defendant, exceeding that deposit; so that the whole of the defendant’s demand against the bank, offered in set-off, accrued subsequently to the transfer of the note, which is now in suit, to the plaintiff.

Judgment, in both cases, for the plaintiff,