Case Name: Downing v. Gibson
Court: Iowa Supreme Court
Jurisdiction: Iowa
Decision Date: 1880-04-24
Citations: 53 Iowa 517
Docket Number: 
Parties: Downing v. Gibson.
Judges: 
Reporter: Iowa Reports
Volume: 53
Pages: 517–520

Head Matter:
Downing v. Gibson.
1. Promissory Note: assignment after due: counter claim. Under section 2546 of tbe Code, the defendant in an action by the assignee of a negotiable promissory note, transferred after due, may set up as a counter claim or cause of action a note held by him against the assignor, which was acquired by him before notice of the transfer of his note by such assignor.
Appeal from PoUc Gvreuit Gowrt.
Saturday, April 24:
Action upon a. promissory note, of which the following is a copy:
.“$800. Thayer, Iowa, August 8, 1872.
One year after date, for value received, I promise to pay the bearer eight hundred dollars, at Thayer, with ten per cent interest annually after date. Y. H. Gibson.”
The defendant averred in substance that the note was executed and delivered, by him to O. B. Gibson, and that plaintiff received the same from said Gibson long after it became due; that defendant owned a note against said O. B. Gibson, as follows:
“$863. Thayer, Iowa, April 9, 1872.
One year after date, for value received, I promise to pay to S. Gibson or order the sum of eight hundred and sixty-three dollars with interest at ten per cent per annum from date.
(Signed) O.' B. Gibson.
Indorsed: Pay Y. II. Gibson. S. Gibson.”
That long before the note in suit was transferred to plaintiff both plaintiff and O. B. Gibson well knew that defendant was the owner of the above note against O. B. Gibson; that O. B. Gibson is now, and was when plaintiff received the note in suit,? bankrupt and insolvent. There was. a reply denying that defendant owned the note set out in the answer, and denying that defendant owned said note when plaintiff became the owner of the note in suit, and denying that plaintiff and O. B. Gibson knew defendant owned the note set out in the answer at the time plaintiff became the owner of the note sued on. There was a trial by the court without a jury,'and a. judgment was rendered for the plaintiff for the full amount of the note set forth in the petition. Defendant appeals.
Wright, Gatoh' c§ Wright and- Hull da Whitaker, for apj>ellant.
Phillips, Goode clb Phillips and Hindman db Hall, for appellee.

Opinion:
Rothrock, J.
-WThe evidence shows beyond controversy that the plaintiff purchased the note in suit of O. B. .Gibson after it became due. It also conclusively appears that the defendant purchased the note set up in the answer before he had any notice of the transfer. of the note in suit to the plaintiff. . The question to be determined is this: In an action by the assignee of a negotiable note; transferred after due, may the defendant set up as a counter claim or cause of action a note executed by the assignor of the note sued upon by plaintiff, which was assigned to defendant before -notice of the transfer of his note to plaintiff? The question involves a construction of § 2516 of the Code, which is as follows: "In case of the assignment of a thing in action, the action by the assignee shall be without prejudice to any counter claim, defense or cause of action, whether matured' or not, if matured when plead, existing in favor of the defendant and against the assignor before notice of the assignment; but this section shall .not apply to negotiable instruments transferred in good faith and upon valuable consideration before due."
It seems to- us that the purpose and intent of this section is-to include all things or choses in action, except negotiable instruments transferred in good faith, and upon valuable consideration -before due, and that it applies to the assignment' or transfer of- dishonored negotiable notes to the same extent as to any other chose in action, such as accounts, non-negotiable paper, and -the like. That such was the understanding of the Code Commissioners appeal's from the following note, explanatory of the section under consideration: "Parties may have claims against each other, but not connected, with or growing out of the same transaction. One may assign and become insolvent; in an action by the assignee the other party cannot bring in his claim as a defense. The substitute provides a remedy, and will do much to prevent the transfer of any but negotiable paper before due. None other should be protected."
Section 2760 of the Eevision provided that: "In case of an assignment of a thing in action, the action by the assignee shall be without prejudice to any set-off or other defense existing before notice of the assignment; but this section shall not apply to negotiable instruments transferred in good faith and upon valuable consideration before due."
It was held under this section in Richards v. Daily, 34 Iowa, 427, that in an action by the indorsee of a promissory note received after maturity the maker cannot plead a set-off existing in his favor against the payee and growing out of a transaction not connected with the note, and that the holder in such case tabes the note discharged of all independent matters, and subject to such equities only as inhere in, or are connected with, the note itself.
Without entering iiito a discussion of the soundness of the reasoning of that opinion or the correctness of its conclusion, it is sufficient to say that § 2546 of tire Code is widely different from § 2760 of the Eevision of 1860. By the 'latter a set-off or other defense was allowed; by the former the defendant is permitted to set up " any counter claim, defense or cause of action, whether matured or not, if matured when plead, existing in favor of the defendant and against the assignor, before notice of tbe assignment." Tbe claim set up by tbe defendant never was a set-off beld by kina against tbe assignor of tbe plaintiff, nor a defense thereto. Tbe plaintiffs' assignor at the time the defendant became tbe owner of the note set up by him as a cause of action had transferred tbe note in tbe petition described to the plaintiff. Tbe defendant, therefore, never in any sense held a set-off against tbe plaintiff's assignor, but be beld a cause of action against him, and acquired it before notice of tbe transfer of tbe note to tbe plaintiff, and bis cause of action is within tbe very terms of § 2546 of tbe Code.
We think no importance should be attached to tbe use of tbe word " assignment " instead of " indorsement " in tbe statute under consideration. An assignment of a thing in action may be by parol or in writing. Switzer v. Smith & McGowan, 35 Iowa, 269; Conyngham v. Smith, 16 Id., 47 L. That a promissory note is a thing in action need not be discussed. Tbe rule requiring a. party who purchases dishonored commercial paper to make inquiry of tbe maker is a wholesome one, and in no sense impairs tbe value of negotiable instruments, in tbe bands of an innocent holder who acquires them for value and before maturity. ' We. think under tbe evidence in this case tbe cause of action set up by tbe defendant should have been set off against tbe note upon which tbe action is founded.
Reversed.