Case Name: Abigail Thompson versus David Hale
Court: Massachusetts Supreme Judicial Court
Jurisdiction: Massachusetts
Decision Date: 1828-03-25
Citations: 6 Pick. 259
Docket Number: 
Parties: Abigail Thompson versus David Hale.
Judges: 
Reporter: Massachusetts Reports
Volume: 23
Pages: 261–264

Head Matter:
Abigail Thompson versus David Hale.
Where a promissory note on demand, with interest under the legal rate payable semiannually, made by H 8c C, copartners, in the name of the firm, to C or his order, was indorsed to the plaintiff after six months as collateral security for money borrowed by C, it was held, in an action against H, the surviving partner, that under those circumstances the plaintiff took the note subject to all the equity existing against it in the hands of C, the payee.
Assumpsit on a promissory note, dated June 7, 1824, for 7000 dollars, with interest semiannually at the rate of five per cent, signed “ Hale & Cross,” payable on demand to Cross or his order, and by him indorsed to the plaintiff. The receipt of six months’ interest was indorsed, under the date of December 10, 1824.
At the trial, before the Chief Justice, the plaintiff’s counsel produced another promissory note, dated December 22, 1824, made by Cross, for 4000 dollars, payable to the plaintiff in nine months with interest, and stated that the note in suit was indorsed to the plaintiff as collateral security for this other note, which was given on a loan of 4000 dollars by die plaintiff to Cross.
In defence it was stated, that Hale and Cross were general partners in trade, according to indentures entered into between them, by one article of which it was provided, that Cross should supply a capital of 15,000 dollars for the use of the firm, and that on the day of the date of the first note he did m fact pay towards this capital the sum of 7000 dollars, for which the note was given, there being entered upon that part of the indentures which was held by Hale, an agreement signed by Cross, that no use should he made of the note inconsistent with the articles of copartnership. In those articles it was agreed, that the transactions of the firm should be confined to auction and commission business, that no operation or speculation out of their regular business should be entered into by either partner without the consent of the other, that there should be an equal division of profit or loss, and that at the dissolution of the company the business should be closed and the profits or losses ascertained by first paying the capital with interest, and all other debts of the company.
Cross died in June, 1825, and according to a statement made by Hale of the partnership accounts, nothing was due to Cross from Hale & Cross.
All the evidence touching the agreement between Hale & Cross in relation to the note, and the state of the accounts of the firm, was objected to by the plaintiff’s counsel, as not ap plicable to the plaintiff, who was an indorsee for a valuable consideration and was not proved to have had knowledge of any thing which tended to impeach the validity of the note in suit. But it appearing that she received the note as collateral security only, more than six months after its date, and that the form of the note and the relation of the parties indicated something out of the ordinary course of business, and there being no evidence that the defendant was a party or privy to the transfer of the note to the plaintiff, or that he had any interest in the loan made by the plaintiff to Cross, the chief justice admitted the evidence. Whereupon the plaintiff consented to a nonsuit, with liberty to move to take it off and to have a trial, if the evidence was inadmissible, or if the plaintiff could make it appear that Hale would be indebted to the estate of Cross upon a final adjustment.
March 25th,
June 21st.
Cooke, for the plaintiff,
cited Dow v. Tuttle, 4 Mass. R. 414; Shed v. Pierce, 17 Mass. R. 623; Chapman v. Searle, 3 Pick. 38; Clark v. Leach, 10 Mass. R. 51; Webster v. Lee, 5 Mass. R. 334; Ayer v. Hutchins, 4 Mass. R. 372; Barough v. White, 4 Barn. & Cressw. 325; S. C. 6 Dowl. & Ryl. 379; Field v. Nickerson, 13 Mass. R. 138.
Hubbard and B. Sumner,
for the defendant, cited Wilson v. Clements, 3 Mass. R. 11; Hemmenway v. Stone, 7 Mass. R. 59; Ayer v. Hutchins and Field v. Nickerson, ubi supra; Furman v. Haskin, 2 Gaines’s R. 369; Prior v. Jacocks, 1 Johns. Cas. 169; Gill v. Cubitt, 5 Dowl. & Ryl. 324; Smith v. De Witss, 6 Dowl. & Ryl. 120; Bosanquet v. Wray, 6 Taunt. 597; Livingston v. Hastie, 2 Caines’s R. 246; Lansing v. Gaine, 2 Johns. R. 300; Livingston v. Roosevelt, 4 Johns. R. 251; Manufacturers fyc. Bank v. Binney, 5 Pick. 11 ; Smith v. Lusher, 5 Co wen, 708.

Opinion:
Parker C. J.
We think the evidence offered in defence to this action was rightly admitted.
In the first place, the note was not indorsed until after it became due according to its terms, which in ordinary cases is enough to let in evidence which between the original parties might go to defeat the note. In answer to this it is argued, that by the form of the note it is apparent that it was not intended to be paid according to the letter of the contract, for the interest is to be paid semiannually, and is at five per cent only. This is true, but these same circumstances had a tendency to show that it was not a regular business note, but that there might be circumstances between the parties to it which might affect the validity or the amount of it. Then again, one of the promisors and the payee is the same person. It is a note from a firm to one of the firm, which carries an indication that it had relation to partnership concerns and was to be governed by them : adding to all this, that the plaintiff did not take the note in the course of business, but as collateral security from the payee, who had given her a note for money borrowed on the same day, the conclusion is irresistible, that the plaintiff made inquiry and understood the use and purposes for which this note was given, and so took it liable to all such equitable grounds of defence as might have been made had the payee, if he could by law, sued Hale. A note may be dishonored on its face, or the indorsee may take it with notice that there are legal or equitable set-offs between the parties ; and in either case he must submit to such defence as a suit between the parties would justify.
If the indorsee receives the note under c'rcumstances which might reasonably excite suspicions that it was not good, he ought, before he takes it, to inquire into 'he validity of the note, and if he does not, he takes it subject tn any legal defence which might be made against a recovery by the promisee ; the being overdue is only one circumstance. Ayer v. Hutchins, 4 Mass. R. 372.
The nonsuit is to stand therefore, unless the plaintiff furnishes some ground to suppose, that on a trial it will appear that Hale is so indebted to the firm, or that the firm is so indebted to Cross, as to entitle her to recover.
See Bayley on Bills, (2nd Am. ed.) 135 to 137, and cases cited in the notes; 3 Kent's Comm. (3d ed.) 91; Stockbridge v. Dimon, 5 Pick. 225; Sylvester v. Crapo, 15 Pick. 93.
See Bayley on Bills, (2nd Am. ed.) 545; Bristol v. Sprague, 8 Wendell, 423; Boss v. Brotherson, 10 Wendell, 85; Smith v. Van Loan, 16 Wendell, 659.
See also Bayley on Bills, (2nd Am. ed.) 544, 545. and cases cited in the notes; 3 Kent's Comm. (3d ed.) 91 to 93; Cone v. Baldwin, 12 Pick. 545 Goddard v. Lyman, 14 Pick. 268; Grew v. Burditt, 9 Pick. 265