Case Name: Proctor v. Cole
Court: Supreme Court of Indiana
Jurisdiction: Indiana
Decision Date: 1885-10-29
Citations: 104 Ind. 373
Docket Number: No. 11,802
Parties: Proctor v. Cole.
Judges: 
Reporter: Indiana Reports
Volume: 104
Pages: 373–384

Head Matter:
No. 11,802.
Proctor v. Cole.
Judgment. — Contempt.—Estoppel.—A proceeding against a party for contempt in violating a restraining order does not involve the merits of the legal controversy between the parties, and it is only where the merits are involved that a judgment will operate as- an estoppel.
Evidence. — Declarations of Assignor of Promissory Note. — The declarations of an assignor of a promissory note, made after he has parted with title and possession, are not admissible against his assignee.
Pbomissoby Note. — Bona Fide Holder. — Nominal Consideration. — The mere nominal consideration of one dollar is not sufficient to constitute a person a bona fide holder of a note.
Same. — Equitable Assignment. — As against one who has a prior equitable assignment, a party who has paid merely a nominal sum for a promissory note, and agreed to pay a sum equal to the half of the proceeds that he may realize from it, is not a good faith holder of the note.
Same. — Set-Off.—Mutuality.—Mutuality is essential to the validity of a set-off, and the claim asserted as a set-off must be held by the party who pleads it, and not by him and another jointly.
Same. — Equitable Consideration. — Husband and Wife. — Parent and Child.— The promise of á husband, who has borrowed money from his wife, to pay it to her children, is an equitable consideration which will support the assignment of a promissory note from the husband to one of such children.
Husband and Wife. — Contract to Repay Money Borrowed from,' Wife. — Performance. — Equity.—A husband may not only voluntarily perform a contract to repay money borrowed from his wife, but equity will compel performance.
Pabent and Child. — Promissory Note. — Assignment.—Consideration.—A son may lawfully assist his father in conducting a litigation with his money, time and services, and a debt so incurred by the father will constitute a valid consideration as against his creditors for the transfer of a promissory note to the son.
From the Elkhart Circuit Court.
J. M. Vanfleet, for appellant.
J. H. Baker and F. E. Baker, for appellee.

Opinion:
Elliott, J.
The appellant's complaint alleges that three promissory notes were by him executed to Henderson Cole, on the 31st day of January, 1880; that, on the 25th day of February, 1880, he purchased of Mrs. S. A, Wells a note ex •ecuted by Henderson Cole; that at the time he purchased this note he had no notice that Henderson Cole had transferred any of the notes executed to him by the appellant; that, on the same day, he brought suit against Henderson Cole and obtained an order restraining him from transferring any of the notes; that after the order had been served on Henderson Cole he endorsed the notes to the appellee, who received them with knowledge of the appellant's defence and •of the restraining order.
The complaint, as originally drawn, charged that the appellant filed a complaint and affidavit against Henderson Cole and the appellee, asserting that they had violated the restraining order; that - the parties named appeared and attempted to show cause why they should not be punished; that such proceedings were had that the court adjudged that Henderson Cole and Erastus B. Cole were guilty of a contempt of court in violating the restraining order, and that they should both be placed in custody until they turned over to the clerk the notes or their proceeds. On motion of the appellee, that part of the complaint which sets forth the proceedings relative to the arrest and punishment of the appellee and Henderson Cole was struck out.
It is contended with great earnestness, that the ruling on the motion to strike out part of the appellant's complaint was erroneous. The argument upon this point rests on the assumption that the order of the court adjudging the appellee •.and Henderson Cole guilty of contempt adjudicated the question of the right of the former to enforce collection of the notes assigned to him. This assumption is groundless. An order declaring a party guilty of contempt is not such a judgment as concludes him from maintaining an action upon a claim asserted against the party at whose instance the attachment for contempt was issued. A proceeding against a party for contempt does not involve the merits of the legal controversy, and it is only where the merits are involved that a judgment will operate as an estoppel. Bigelow Estoppel, 37; Freeman Judgments, sections 325, 326; Wells Res Adjudicata, section 440.
In proceedings against a party for contempt, the controversy between the litigants can not be determined, for there •can be no issue formed that will enable the court to pronounce a judgment upon the merits. The jurisdiction to punish contempts is given for the purpose of enforcing the orders •of the court and of securing that respect which the law intends that it shall command. The object of punishment is not to adjudicate upon private controversies, but to vindicate the authority and dignity of the. court. A party may be guilty of contempt and yet possess a clear legal right, and in adjudging him guilty of contempt the court does not and can not adjudicate upon his legal rights. The investigation in such a case stops when it is ascertained that a contempt was committed, and nothing more is or can be concluded by the order of the court. It is not simply because a proceeding in .a matter like that set forth in the rejected part of the complaint is summary or special that a judgment is not conclusive, but because in such a matter no judgment can be rendered that will determine the rights of the parties.
The facts developed by the evidence are substantially these: On the 23d day of February, 1880, Henderson Cole assigned the notes executed to him by the appellant to the appellee. The assignment was not written on the notes, but was contained in a separate instrument. At the time the assignment was written, the notes were in the hands of the attorney of the assignor for safe-keeping, and an order was drawn on the attorney to deliver them to the appellee. The restraining order was issued in a suit brought by the appellant against Henderson Cole to restrain the transfer of the notes, and was .served on him on the night of the 25th of February; on the morning of the 26th, before the appellee obtained possession of the notes, he was informed that some sort of a suit had been instituted against his assignor by the appellant. On the day last mentioned, the appellee obtained possession of the notes, and they were then endorsed to him in due form. The appellant, on the 25th day of February,. 1880, two days after the assignment of the notes executed by him, obtained from Mrs. S. A. Wells a note executed by Henderson Cole, the appellee's assignor; for the note acquired from Mrs. Wells, the-appellant paid one dollar and agreed to give her a sum equal to half of whatever sum he might realize from the note.
On the trial the appellant offered to prove statements made-by Henderson Cole, the appellee's assignor, on the 25th day of February, 1880. The court did right in excluding these-statements. The declarations of an assignor made after he-has parted with title and possession are not admissible against, his assignee. In this instance there was a written instrument transferring title, and as the notes were in the possession of an agent, the agent held the notes after the transfer for the person to whom they were assigned. Both title and possession, therefore, passed to the assignee. The case falls, fully within the rule that the declarations of the assignor made after assignment are not competent against the person to whom the assignment transferred title. Harcourt v. Harcourt, 89 Ind. 104; McConnell v. Hannah, 96 Ind. 102.
What we have said on the motion to strike out part of the-complaint disposes of the question presented by the offer to introduce in evidence the record of the proceedings in the-matter of the contempt prosecuted against the appellee and. his assignor.
It is argued that commercial notes can not be transferred so as to cut off a bona ficle set-off acquired before the maker of the notes had notice of the transfer unless there has been a regular transfer by endorsement. We do not regard the appellant as a bona fide holder of the note transferred to him by Mrs. Wells, for the reason that he had not paid value before notice of the transfer. Our cases have steadily held that in order to constitute a person a bona fide holder of a note, or a bona fide purchaser of property, it must appear that he paid value before notice of the equities of the party who asserts a. claim to the note or property. Anderson v. Hubble, 93 Ind. 570 (47 Am. R. 394, and authorities cited); Anderson v. Wilson, 100 Ind. 402. The consideration of one dollar is a mere nominal one, and a nominal consideration does not make the person who pays it a purchaser for value. The agreement to pay one-half the proceeds that might be realized is a venture approaching very near a mere wagering contract; at all events, it is not such an agreement as will creatq,-a right' against prior equities.
The counsel for appellant argues that the appellee must suffer defeat because he was not a purchaser for value and the owner of a legal title to the notes before the appellant obtained the note pleaded as a set-off. So far as the argument assumes that the appellee was not a holder for value, it rests upon an erroneous assumption of fact, and so far as it asserts that unless he was a holder for value he can not defeat the appellant's set-off, it cuts against the counsel with fatal effect. We agree that if the appellee is not a holder for value he can not defeat an equitable set-off, and we accept as correct the doctrine of the cases of Heck v. Fink, 85 Ind. 6, and Murray v. Ballou, 1 Johns. Ch. 566; but we do not-agree that he did not have a prior equity, for we are clear that he did have an equity that only a set-off acquired in good faith, without notice, and for a valuable consideration, can defeat. The assignment to him was an equitable one, and vested in him as the assignee an equitable title that can not be defeated except by one holding either superior or prior legal or equitable rights. Board, etc., v. Jameson, 86 Ind. 154, see p. 165. For the reason that the appellant's claim is later in point of time, and was not acquired for a valuable consideration paid before notice of the assignment, he can not prevail against the prior and superior equities of the appellee.
In the case of Tinly v. Martin, 80 Ky. 463, the question decided was in principle precisely the same as that involved in the case in hand, and the court there said, of such a contract as that made by the appellant with Mrs. Wells, that " Such contracts ought not to be favored by either the chancellor or common law judge ; but where the debtor is alone involved, it may be that he will not be heard to complain for being compelled to discharge a debt he justly owes." The holding in that case was, that "A court of equity, where the rights of others than the obligor in the note intervene, will not sanction such a speculation by aiding the party making the ventur% to defeat a clear and acknowledged equity." In principle the case of Claflin v. Dawson, 58 Ind. 408, is the same as the case referred to, and it is strongly in point in the present case.
The note which the appellant seeks to make available is not his sole property, if, indeed, he has any property in it at all. He agreed with Mrs. Wells that he would pay her half the proceeds that should be realized, " either directly by collection, or indirectly by way of set-off." This left in Mrs. Wells a real and substantial interest in the claim. " Equity," as the old maxim says, " looks through form to substance," and the substance of this agreement is, that Mrs. Wells shall receive one-half of the proceeds of the note. The nominal title to the note is in the appellant, but at least half of the real interest in the note is in Mrs. Wells. The nominal title of the appellant is but the shadow, while the right to the proceeds of the claim is the substance. A mere shadow does not vest a real interest; the substance carries the interest. The language used in Claflin v. Dawson, supra, applies here with great force. " It would be a strange perversion, as it seems to us," said the court in that case, " of the equitable grounds in which the law of set-off had its origin, to give judicial sanction to the appellant's claim in this case to set off the Perry account against the appellee's cause of action. The appellant never ' held ' the account assigned to him by Perry as the actual and unqualified owner thereof; and, as we construe the provisions of our code on the subject of set-off, the object and purpose thereof were the protection and defence of the bona fide owners of cross-demands." The -assignment of the note relied on as a set-off did not make the appellant the real party in interest, as to the entire proceeds of the note; the utmost that can be granted is that he became the owner of one-half of the proceeds, and no more. If Mrs. Wells was entitled to one-half the proceeds she is to that extent a real party in interest. Board, etc., v. Jameson, supra, and authorities cited.
Conceding, but by no means deciding, that the appellant has a real interest in one-half of the avails of the note obtained from Mrs. Wells, he is still not in a position to defeat the appellee. This we affirm, because he can not use a note in which another has an interest as a set-off. Our decisions are uniformly to the effect that the claim asserted as a set-off must be held by the party who asserts it, and not by him and another jointly. Mutuality is essential to the validity of a set-off. Griffin v. Cox, 30 Ind. 242; Booe v. Watson, 13 Ind. 387; Blankenship v. Rogers, 10 Ind. 333 ; Johnson v. Kent, 9 Ind. 252; Carter v. Berkshire, 8 Blackf. 193; Richardson v. St. Joseph Iron Co., 5 Blackf. 146. There are cases where the want of mutuality will not defeat a set-off; but such cases are those, and those only, in which it is necessary to allow the set-off in order to prevent irremediable injustice. Cos-grove v. Cosby, 86 Ind. 511; Wulschner v. Sells, 87 Ind. 71, see p. 75. This is not such a case, for the equities are strongly against the appellant, who holds by virtue of a contract not favored in law the claim asserted as a set-off, and urges it against one who has the clear prior equity arising from an equitable assignment.
It is insisted that under the statute a set-off will prevail against a mere equitable assignment, and we are referred to Be Due v. First Nat'l Bank, 16 N. W. Rep. 426, and Bone v. Tharp, 18 N. W. Rep. 906, and to section 276 of the code. We do not deem it necessary to decide this question, although it is argued by appellee's counsel, who refer to Hankins v. Shoup, 2 Ind. 342; Beard v. Dedolph, 29 Wis. 136; Baker v. Arnold, 3 Caines, 279; 1 Parsons Notes and Bills, 278, and Daniel Neg. Inst., section 745. Whatever may be the law on this subject the appellant is not in a situation to defeat the appellee, for, as we have already shown, the equities of the latter are prior in point of time and superior in rank. Counsel refers us to City Bank of New Haven v. Perkins, 29 N. Y. 554, Sullivan v. Bonesteel, 79 N. Y. 631, and Rogers v. Squires, 98 N. Y. 49, and, building upon these cases, argues that it is no concern of the appellee whether the title to the note pleaded as a set-off is good or bad. We think otherwise. The appellee is not, as in the cases cited, the maker of the note, but is an assignee endeavoring to make good his claim against the maker of the note, and it is the maker who is endeavoring to defeat the assignee. Whether the maker can make good his set-off depends upon how he acquired the note pleaded as a set-off and the character of his title to it, so that the question vitally concerns the appellee.
Filed Oct. 29, 1885.
Judgment affirmed.
Mitchell, C. J., did not take any part in the decision of this case.