Case Name: John Lillie, Executor, v. James L. Bates et al.
Court: Ohio Circuit Court
Jurisdiction: Ohio
Decision Date: 1888-01
Citations: 3 Ohio C.C. 94
Docket Number: 
Parties: John Lillie, Executor, v. James L. Bates et al.
Judges: Before Stewart, Shatjck and Shearer, JJ.
Reporter: Reports of cases argued and determined in the circuit courts of Ohio
Volume: 3
Pages: 94–98

Head Matter:
(Second Circuit — Franklin Co., O., Circuit Court
Jan. Term, 1888.)
Before Stewart, Shatjck and Shearer, JJ.
John Lillie, Executor, v. James L. Bates et al.
1. In a suit upon a promissory note, evidence of an oral agreement, made contemporaneously with the execution thereof, to the effect that a stranger to the paper, instead of the maker, is to be alone liable for • its payment, is not admissible.
2. In an action by a second indorsee of a negotiable instrument against the maker, the latter is not entitled to set off a demand against the plaintiff’s indorser.
Error to the Court of Common Pleas of Franklin County.
The original action was brought by James L. Bates, one of the defendants in error, to recover of John Lillie, executor of John Lillie, deceased, upon two promissory notes, executed by said decedent, in his life-time, and one J. R. Straughan, in favor of Josiah Kinnear, or order, and by him assigned in writing, after maturity, to FornhofF & McCabe, and by the latter indorsed and re-delivered to Kinnear, who again put them into circulation, whereby they became the property of said Bates.
The answer sets up :
1. That said notes originated in a transaction between Kinnear, the payee, and the firm of J. L. & W. H. Hastings, whereby Kinnear sold his interest in the firm of J. Lillie & Co., which was composed of himself and the makers of said notes; that at the time of their execution, and as part of the transaction, it was orally agreed that said makers were not to be liable thereon, but that said J. L. & W. H. Hastings were to pay them, and, therefore, it is alleged, said notes are, as to said makers, wholly without consideration.
2. That, on the 6th of November, 1877, while said FornhofF & McCabe (then insolvent) held said notes, they were paid by setting off against them an indebtedness due from said Fornhoff & McCabe to said makers.
An amendment to said answer alleges, in substance: That whatever liability, if any, was incurred by said makers by the execution of said notes, was incurred on behalf of said firm of J. Lillie & Co. and for its benefit; that on thel2th“of November, 1877, while Fornhoff & McCabe still held the notes, a settlement was had between said holders and said firm, whereby it was ascertained that said Fornhoff & McCabe were indebted to said firm in a sum largely in excess of the amount of said notes; and that said notes were then presented for payment. That at that time said Fornhoff & McCabe were, and still are, insolvent. That since said settlement said Jno. Lillie, as executor, has become, and is, the owner of said demand against said firm; and he prays that so much of said claim as may be .necessary to satisfy said notes, be set off against the same.
Issue was taken by appropriate pleadings upon the averments of said answers, by the various parties.
The verdict was for the plaintiff below, and, a motion for new trial having been overruled, judgment was entered on the verdict. A bill of exceptions containing all the evidence is part of the record.
We are asked to reverse the judgment upon numerous grounds, which, however, are embraced in three :
1. Error in the admission of evidence.
2. Error in permitting certain witnesses to testify.
3. That the verdict is against the weight of, and is not sustained by sufficient, evidence.

Opinion:
Shearer, J.
The record shows that the testator, John Lillie, J. R. Straughan and Josiah Kinnear, composed the firm of J. Lillie & Co. Kinnear sold his interest in the concern to J. L. & W. H. Hastings, who succeeded him in the firm business. In settlement with Kinnear, for reasons satisfactory to the parties, the notes in suit executed by Lillie and Straughan were given, instead of the obligations of the Hastings.
I. On the trial the defendants below offered evidence tending to prove that in the transaction first stated, it was orally agreed that said Hastings were to pay said notes, and that the makers were not to be liable thereon, and upon this question there arose a controversy as to the competency of evidence upon that point. No ruling upon this question could have been prejudicial to the plaintiffs in error. The evidence was clearly incompetent, under the well-known rule that a written contract cannot be contradicted or varied by proof of a contemporaneous oral agreement. This being so, and the record showing that Kinnear transferred his interest in the firm to said Hastings, and took the notes of his co-partners for the purchase-price, it follows that the defense of want of consideration fails.
II. Fornhoff, a party to the suit, was permitted, against the objection of the executor, plaintiff in errror, to testify concerning the interest of his firm in said notes. It is claimed that he was not a competent witness; and the same is said as to Kinnear, also a party, who testified in contradiction of the alleged arrangement exonerating Lillie and Straughan from liability upon said notes. There was no prejudicial error in this, as, in our view of the case, the testimony of these witnesses was immaterial, and could not affect the right of recovery.
III. The important question is whether the demand of J. Lillie & Co. against Fornhoff & McCabe, which was due when the latter held these notes, (and which assuming said notes to have been partnership obligations of J. Lillie & Co., and in view of the insolvency of Fornhoff & McCabe might have been available as a set-off in a suit between said parties upon said notes), can be set off in this case against the defendant in error Bates. In other words, can a set-off which is available in a suit upon a negotiable instrument by an indorsee after due, against the maker, be asserted against a subsequent indorsee ?
Numerous authorities have been cited in support of the affirmative of this proposition; but, we think, the solution of the question depends entirely upon the construction of the statutes relating to the subject.
It is claimed in argument that under the provisions of section 5077, R. S., the plaintiff in error is entitled to have the amount of these notes applied in reduction of his demand against Fornhoff & McCabe; that is to say, that the two demands must be held to be compensated to the extent that they equal each other; that this is so, because while Fornhoff & McCabe held the notes, they and the claim of J. Lillie & Co. constituted cross-demands ; and that if either party had brought an action against the other, the latter could have set up their claim by way of set-off; and that the assignment of the notes by Fornhoff & McCabe cannot deprive the plaintiff in error of the benefit of such set-off. This is true, if this section applies to negotiable instruments.
It is to be observed that under section 5077 it is the assignment of the demand which shall not defeat the set-off. The term assignment, in its technical sense, refers to the transfer of bonds and notes not negotiable, and, also, to the transfer, without indorsement, of instruments which are negotiable. 1 Daniels' Neg. Inst., § 729.
In the case at bar the notes were indorsed in blank by Fornhoff & McCabe. They were not assigned in the legal sense. The transferee did not, therefore, take title by assignment; but by indorsement. This would seem to be conclusive as to the applicability of the section mentioned. If it is to be held that the section applies to transfers by indorsement, then it follows that the indorsee before due of negotiable paper takes it subject to any equity, or set-off, which the maker might have asserted against the indorser; and the statement of that proposition is its own refutation. Manifestly this section does not apply. This is clear, when in this connection section 3173, R. S., is considered.- This section provides that:
" If any such notes be indorsed, or delivered, after the day on which it is made payable, and the indorsee institutes an action thereon against the maker the defendant shall be allowed to set up any defense he might have made had the action been instituted in the name, and for the use of the person to whom the note was originally made payable."
This section is a codification of the law merchant as to the rights of a maker of a negotiable instrument against an indorsee after due; and was introduced into our legislation more than half a century ago. Section 5077 is a later provision, hnd applies to all cross-demands other than negotiable paper. It is general in its terms. Section 3173 is restricted in its operation.
" It is an established rule in the construction of statutes, that a statute treating a subject in general terms, and not expressly contradicting- the provisions of a prior act, shall not be considered as intended to affect the more particular and positive provisions of the prior act, unless it be absolutely necessary to do so in order to give any meaning." State ex rel. Fosdick v. Perrysburgh, 14 Ohio St. 472; 19 Ohio St. 346.
J. D. Sullivan and J. G. Richards, for plaintiff in error.
J. T. Holmes and H. J. Booth, for defendant in error.
Applying this rule to the sections under consideration, it follows that section 3173 must control in determining the right of the plaintiff in error to assert his set-off against Bates. His demand is not a " defense" within the meaning of the section. If it were, he could not have pleaded it against Kinnear, " the person to whom the note was originally made payable." Nor is it an " equity." " Set-off is not an equity," 1 Daniels' Neg. Inst., § 746. It follows from these conclusions that the judgment of the court below must be affirmed.