Case Name: Kelly & Co. vs. Smith & Shotwell
Court: Kentucky Court of Appeals
Jurisdiction: Kentucky
Decision Date: 1858-10-11
Citations: 1 Met. 313
Docket Number: 
Parties: Kelly & Co. vs. Smith & Shotwell.
Judges: 
Reporter: Kentucky Reports
Volume: 58
Pages: 313–318

Head Matter:
CASE 55 — IN EQUITY
OCTOBER 11.
Kelly & Co. vs. Smith & Shotwell.
APPEAL FROM LYON CIRCUIT COURT.
1. The partial or total failure of consideration, or even fraud between the antecedent parties to a bill of exchange, will be no defense to the title of a bona fide holder of the bill for a valuable consideration, at or before the time it becomes due, without notice of any infirmity in the bill. (Story on Bills, sections 14,188, et passim; 2 Dana, 414.) The Revised Statutes, chap. 22, sec. 6, does not embrace bills of exchange or alter the common law rule.
2. The Code of Practice adopted in March, 1851, sec. 58, expressly excepts bills of exchange from the operation of that part of the same section which provides that “ in the case of an assignment of a thing in action, the actionby the assignee is without prejudice to any discount, set-off, or defense now allowed;” and this provision of the Code, not being inconsistent with the Revised Statutes, (chap. 22, sec. 6,) is not repealed thereby. [See. 58, supra, is identical with section 31 of the last edition of the Code.]
3. A contract for the sale of slaves was made in Louisiana, and the bill of exchange for the price was drawn and delivered there, payable in Kentucky. It was addressed to K. & Co., in Kentucky, and, in the absence of proof to the contrary, must be taken to have been accepted in Kentucky. Held — That the performance of the contract, and the defenses to which it is liable, in the hands of an innocent holder, are to be controlled by the laws of the place of acceptance and performance. (Story on Bills, sections 131,158, et passim; Story's Conflict of Laws, sec. 286.)
4. Under the laws of Louisiana a bill of exchange in the hands of a bona fide holder, for value, is not subject to any abatement of the face of the bill arising out of transactions between the original parties; as for unsoundness in negroes sold for which the bill was given. (17 Howard, 11-16.)
5. In a suit upon a bill of exchange judgment may be given for the principal and the interest which has accrued thereon to the time of the judgment. (Revised Statutes, chap. 53, see. 6,^. 420.)
The facts appear in the opinion of the court.
M. Mayes for appellants—
The laws of Louisiana govern the contract; and under those laws the defendants may rely upon the defense set up in their answer. (Civil Code of Louisiana, articles 2496, 2500, 2501, 2502, 2505, 2506, 2507, 2509, 2510, 2514, 2519, 2520, 2521, 2525.)
The defendants had the same right to make the defense relied on, to the action brought by Smith and Shotwell, that they would have had if the action had been in the names of the payees of the bill. (Rev. Stat., chap. 22, sec. 6,p. 193.) Section 31 of the Civil Code of this state, being inconsistent with the Revised Statutes, is repealed. (Rev. Stat., 127.)
Plaintiffs should have shown that they paid a valuable consideration for the bill. (Chitty on Bills, 10 American from 9 London Ed.,p. 648.)
The judgment should not have been for the principal with the interest which had accrued added, and interest upon the aggregate of principal and interest.
T. N. Lindsey for appellees—
The law of Kentucky governs the contract Smith & Shot-well, as the holders of the bill, cannot be affected by any failure of consideration or redhibitory rights existing with Kelly & Co. If they have rights as regards their vendors, they must seek them by suit upon the covenants in their bills of sale.
In 17 Howard's Reports, 11-16, Arthurs, &c., vs. Hart, the supreme court of the United States decided that the redhibitory rules of the Code of Louisiana do not apply as between the bona fide assignee of a bill of exchange and the acceptors and parties to the contract on which the bill was founded.
G. W. BAitBouR and C. D. Bradley on same side—
The defense set up is not available as against Smith & Shot-well. (Early vs. Me Cart, 2 Dana, 414; Ohitty on Bills, 85, 86; 3 Kents Com., 78-80; 1 Wheaton's Selwyn, 262 — 266.) The provisions of the act of 1798 are the same as those of the Revised Statutes. We refer also to the Code of Practice, (sec. 31.)

Opinion:
JUDGE WOOD
DELIVERED THE OPINION OF THE COURT.:
This was an action in the Lyon circuit court by Smith & Shotwell, the indorsees and holders, against Kelly & Co., the acceptors, upon a bill of exchange, drawn in New Orleans, but payable in Kentucky, at the bank of Louisville, addressed to the drawees at Suwannee Iron Works, Eddyville, Kentucky, and accepted by them, as we must infer, at that place.
The record shows that Smith & Shotwell were the holders of the bill, bona fide, for a valuable consideration, before protest.
The defense was, that the bill was drawn in the State of Louisiana, that it was given to the payees as part of the price of a lot of negroes, and that the negroes, so sold and delivered in Louisiana, were guarantied by the act of sale against all the redhibitory vices, maladies, and defects prescribed by law. That several of the slaves were affected by certain of the vices, maladies, and defects thus guarantied against; that some of them were unsound and of- no value; that, by the laws of Louisiana, the vendees of the slaves were entitled to the action of redhibition — that is, the avoidance of the sale on account of the vices and defects in the slaves, or abatement of the price. Fraud in the sale, and in obtaining the bill, was alleged. A failure of consideration was also alleged.
The question is, are these available defenses against the bill in the hands of Smith & Shotwell ?
We hold that the matters alleged do not constitute a good defense to the action of Smith & Shotwell upon the bill. They are innocent holders — holders, bona fide, for a valuable consideration, before notice.
The partial or total failure of consideration, or even fraud between the antecedent parties, will be no defense to the title of a bona fide holder of the bill for a valuable consideration, at ^or before the time it becomes due, without notice of any ^hrmity in the bill. (Story on Bills, secs. 14-188, etpassim.)
\put it is contended that this rule of the common law is altered byrhe Revised Statutes of Kentucky, chapter 22, sec. 6. That section makes assignable " all bonds, bills, or notes, for money or property," "so as to vest the right of action in the assignee; but not to impair the right to any defense, discount, or set-off that the defendant has and might have used against the original, or any intermediate assignor, before notice of the assignment to the plaintiff."
This section does not alter the rule of the common law in reference to bills of exchange. The object of this statute was to make assignable contracts not before assignable. It was not intended to embrace, and does not embrace, bills of exchange. They, from their very nature, are the subjects of indorsement, and have always, from their earliest use, been assignable by the common law. They are in no respect, and for no purpose, within the operation of this section of the Revised Statutes.
This section is not distinguishable, in its terms, from the act of 1798, upon the same subject. Since the passage of that act it has been held by this court, in the case of Early vs. McCart, (2 Dana, 414,) that fraud, or want of consideration, is not available as between the drawer and an innocent indorsee or holder for a valuable consideration, to whom the bill had been transferred before its time of payment had elapsed, or before it had been otherwise degraded or rendered suspicious.
We think it is not to be doubted that this well settled principle of the law merchant remained unchanged by our Revised Statutes.
The Code of Practice (see sec. 58 of Code as adopted March, 1851) expressly excepted bills of exchange, promissory notes placed upon the footing of bills of exchange, common orders and checks, from the operation of that section of the Code, which provided that " in the case of an assignment of a thing in action, the action by the assignee is without prejudice to any discount, set-ofF, or defense now allowed."
This provision of the Code, as adopted by the general assembly the 22d day of March, 1851, was not repealed by the adoption of the Revised Statutes, not being inconsistent with each other, inasmuch as bills of exchange are not embraced by the section of the Revised Statutes relied on.
It is insisted that as the contract for the sale of the negroes was made in Louisiana, and the bill of exchange drawn and delivered there to the payee, this case must be decided by the law of Louisiana, and by that law the defense here relied upon would be good.
This position is not tenable, for more reasons than one.
The bill was addressed to Kelly & Co., at the Suwannee Iron Works, Eddyville, Kentucky. In the absence of proof to the contrary, we must infer that the bill was accepted at the place to which it was directed. The contract of acceptance, then, was made in Kentucky, and the laws of Kentucky would therefore govern it, unless the acceptance was given in one-place payable in another, in which case the law of the place where the bill was payable will govern.
But the place of payment and place of acceptance is the same. The acceptance was given in Kentucky, and the contract was to be performed in Kentucky. The bill was payable at the bank of Louisville, which is in Kentucky. This being true, the law of Kentucky will certainly control. (Chitty on Bills, secs. 131 — 158, et passim; Story on Conflict of Laws, sec. 286.)
It is not very material in this case, however, whether Kentucky was the place of acceptance or not, as it was certainly the place where the contract was to be performed. The performance, therefore, of the contract, and the defenses to which it is liable in the hands of an innocent holder, are to be regulated by the laws of Kentucky.
But it is not true that in Louisiana even the matters relied on in the answer in this case would constitute a valid defense ' to an action by an innocent holder of a bill of exchange against the acceptor It has been decided by the supreme court of the United States that the plaintiffs in an action upon a bill of exchange, who were bona fide holders of the paper for value, were not subject to a defense similar to the one relied upon in this case, " nor to any abatement of the face of the bill, arising out of the transactions between the original parties." (17 Howard, 11-16, Arthurs, &c., vs. Hart.) This "was a writ of error to the circuit court of the United States for the eastern district of Louisiana.
Another objection taken to the judgment is, that it is for too much, if plaintiffs were entitled to a judgment at all. Judgment was rendered for the principal of the bill, with the interest which had accrued to that time added. This was not erroneous.
Under the old system of pleading, assumpsit was the proper form of action upon a bill of exchange. Upon the trial of such an action, the jury were authorized to find in damages, not only the principal, but the interest whioh had accrued upon the bill to the time of finding the verdict; and judgment might well have been rendered upon the verdict.
This judgment, however, is authorized expressly by sec. 6, chap. 58, title Interest and Usury, p. 420, Revised Statutes: "A judgment or decree may be for the principal and accrued interest ; but if rendered for accruing interest, it shall bear interest only according to its terms."
We find no error in the record; wherefore, the judgment of the circuit court is affirmed.