very different thing. In my judgment"it impairs the obligatiotJ. of his ccmtract. See Corbin v. Board Oom'rs, 3 Fed. Rep. 356. So far, then, as the legislature had the power and by the act of 1865 did make the tax deed of the plaintiff's grantor conclusive evidence of his title, I do not think the legislature of 1887 had the' power to modify it. If notice of the sale was not an essential part of the proceeding. the legislature of 1865 had the power and did make the tax deed conclusive evidence on the point. But, if the notice was necessary to the validity of .the sale, then, as I have concluded, the legislature did not have the power to make the deed conclusive evidence of the fact. In either view of the matter, the act of February 21, 1887, has no effect on the decision. In the former case, as to this deed, the conelusiveeffect of the act of 1865 could not be modified', and in the latter one the deed is only prima facie evidence at best. But I am pleased to think that the just and long-needed provision in this act, requiririg a party who contests Ii 'tax title to refund the money, with interest, which has been expended in the payment. of taxes for his benefit, may be applied to this transaction in the suit inequity. It is to add that.the supreme court of the state has not passed on the questions involved in this case, or otherwise I would have been spared thetrou,ble of considering them. There must be II finding that the ,plaintiff is not the owner of the premises, or entitled to the posses... sian of them, and that the defendant is.
EXCHANGE NAT. BANK .Gowre.
JOHNSON and others.
Tenne88ee. March 15. 1887.)
PROHISSORi-' NOTES-PAYMENT TO ORIGINAL HOLDER AFTER ASSIGNMENT FOR
If the indorsee constitute the indorser or original holder his agent, by relying on him to collect of the maker, taking himself no steps for that purpose until after the failure of the indorser, payment to the original holder will be good. .
SAH_INDORSER PAYING THE NOTE.
If a batik accept the note of the indorser in discharge of his liability as in· dorser, the title to the first note reverts to the indorser, lind payment to hini is good, although the indorser leave the note on deposit.with the bank; but it is a question for the Jury to determiJ;le whether, on' the facts of the case, the new note be taken In discharge of the indorser's liability, or as a mere memorandum note, not intended to affect the title to the old !iote.
If the maker pay other than the rightful owner of the note; he. cannot rely on f1!;cts unknown to him. and not his acthm; as an estoppel, but if the facts be of a character that establish an agency for collection, that is a defense against repayment.
At Law Motion for new trial. Suit upon a negotiable note made by the defendants to their factors, and paid to them by shipments of produce as agreed upon, but while
EXCHANGE NAT.· nANK V. JOHNSON.
the note was held by the plaintiff. bank, by a transfer under circumstances stated in the opinion of the court., McCorry & Bond, for plaintiff. ' Pitts & Hays and Mr. Meeks, for defendants.
HAM:MONP,J. The verdict in this case for the defendants is wellsupported by the proof upon at least one ground not at all affected by the objections taken on this motion for a new trial to the charge of the court. I do not see how the jury could esCape finding tha,t Ferry, Davis & Co. were the agents of the plaintiff bank for the collection of the note, be its ownership or interest whatever it may have been. The statement of the not agents for collecprincipal Clerkanl'l.the president, that they tion and were never authorized, is; utterly worthless , being merely their, opinions or conclusions upon thaHssue ,of fact, l;tnd, not their testimQny as to the existence of oertain substantive circumstances' and frmn which the issue ,might be determined by thej\lry,whose :provinpe;it was to draw the, of fact all to the agency cnmstances, and not from the opinions of the witnesses. affirm, certainly,that there ,had never been any formal appointriJ,fl1t ()i; the firm as agents forithat purpose, ,but when theY are, asked, thority had Ferry, Davis & Co. at any time to collect said note? i" and, they answer; "They had no authority," or, "They had nO authority whatever, verbal or written,"-the testimony can go no further tharpmcp., an affirmation, and is entitled to no weight beyond that. Out of the well-known facts of the case the agency is established,notwithstanding these opinions to the contrary, and ,on the' cross-examination of the president it is substantially admitted. Being asked why the bank did not for nearly two years take any step towards the collection of this note, and others of similar character "disco\lnted" for Ferry,; Davis & Co., he replied: "Up to the time of their failure they were profuse in their promises and statements the parties whose nptes were held were going to make them shipments of cotton and cover their indebtedness, that they would promptly sell and take up the notes. After their failure, and as soon as we were able to get their books and accounts, we immediately, through our attorneys, ceHu. menced proceedings to enforce the collection of these notes .andaccounts." And subsequently, referring to this answer, he was asked if he was not willing and anxious that that should. be Qonejto which he replied, "y,es." . This was an agl3ncy abundantly sufficient to justify the makers in paying thenote to Ferry,Davis & Co; I and the facts show the bank Iiever for fm instant contemplated payment any other way until, after the failure of Ferry, DlliviS & Co., this somewhat bleattempt to compel the makers, to pay it a time was conceived. It is, considering the circumstances, taking an unfair advantage of the equivocal situation in which the makers were placed, and of which they never had any knowledge. , Coun$eLfor the to an estoppel. here, and asked a charge to that effect, which was refused, because, .the ,defendantsdid
not know; allYthing of the facts,-did not even' know that the bank held the note, and of course did not, in making thepaymenta, act upon, or rely in the least upon, the circumstances sought to be used to invoke the doctrine of estoppel. - As the court told the jury, the defendants acted most. recklessly, and in their own wrong, to pay the note to the original payees 'without demanding its production, or satisfying themselves that it had not been transferred to some one else having alone the right to collect it; and, under the commercial law, there could be neither sympathy with them, nor reHAf for them, if they found afterwards that some other holder was entitled to the payment. Yet there could be no doubt of their right to meet this -demand by the bankfor repayment by ,showing that-the payments they had already made to the original holder were authorized by the bank itself, as they undoubtedly were. The truth is, it is somewhat a misnomer'to callthe transaction a "discount" of the note by the bank. It took that form, undoubtedly, and so entered into book-keeping processes as a "discount," but, in substance and fact, itwRsthe transfer of the note, either in payment of, or as collateral security for; a pre-existing indebtedness to the bank. It is wholly immaterial which it was, since there was, in either case, an agreement be, tween -the -original holder making the transfer and the bank that the original holder, an'd not the bank, would collect the note, and apply the proceeds to the payment of the note itself, or to the indebtedness secured. Counsel for the plaintiff seem correctly to guage the transaction when they argue that it was not a pledge, either in payment of or as collateral for any particcilar debt, but only a pledge to secure "a line of credit" for the 'depositors' account with the bank; the object being to place the title in the bank-as Rsecurity for whatever should be due on the depositors' account, 'either, in the shape of notes, indorsements, or, overchecks, though the bank, as usual in-such cases, goes through the forms of "dis. count," deposits, "memorandum," or "call" notes, renewals, and the like, with the eVident convenience of thereby saving.us tons due for interest,discount, charges, etc., and preserving its usual style of bookkeeping. Neither can it be denied that the bank is as much under the protection of the commercial law with regard to such paper as if the transaction were in both form and substance what it seems to be in form. Nevertheless, be its holding what it may, if the bank delegates to its customer the power and duty of making collections for it, and receiving payment oftthe note, it cannot dispute the validity of such payments if its customer become unfaithfulj and does not pay over the collections. If anything more than the'confession of the president of the bank, aladverted,to,be needed to support this finding by the jury, let it be remembere<,l that the makers were country merchants, residing in a small village :on· the Tennessee -river, remotely situated from railroads and tbecenters of eommerce; that they were dealers in produce, and Ferry, ,Davis.& Co. were their factorsj that _ was the intention of both parit ties to have the note paid by shipments of produce to that firm, and not, after the manner efbanks l in money at the counter :ofthe bank,
.NAT. BANK'll. JOHNSON.
although it is in terms payable a.t: another than. the. pl.aintiff bank; that the plaintiff did not at maturity demand paYOfent, either at the bank where the note was payable on its. face, or of the makers; neither did the the pote was about to mature, give any notice t11at it held the .note, as was the usual course of business with ordinary paper to be collected by the bank,either on its oWD"account or for customers; nor did the plaintiff give any notice or demand any payment at allY time aft;er maturity, but silently held the note for nearly two years from August 4, 1883, the date of its "discount," until after the failure of Davis & Co., on February 8, 1885, and then only put it oudor in April, 1885. is some little pretense in the testimony of the principal clerk that this indulgence was on account of sh0rt and given as a favor to thEl makers; but this witness appears, on the oftbe deposition, to say nothing of the confession of the president and theother proof,_to be quite unreliable in his statements; altd the jury, no doubt, found· the facts as stated above, and juflgment concl.usive. . . . I do not wish to be misunderstood here. It is conceded that the makers can find no sort of l:lJlicuse in these circumstances to evage the ,rule of the. commercial law payment must be niade .t,o signee of the note foryalue before maturity, and without notice; that the ba.uk waS npt bpund to give notice of the transfer to it; that, as concerns the makers, it was not bound to de,mandpayment, at maturity or afterwards,a.uywherj3 ; that it might, during the whole period of the statute qflimitations, silently hold the note without ment, and that these ind1;1lgencies or want of notice could be no def,elllile to the paying, however ignorant they may have been of the sit. uation, to anyone else than the holder of the note. It was their business to assure theUlselves th!\t the person to whom payments were was thepersou entitled to. Teceiv6 payment. These facts and circqmsw,n,oos, in that sense to be relied on as a1;1y defense to this action, buttheyare, under the peculiarities of this case, conclusive evidence of an agreement,expressor implied, betweep. the bank and its customer, that the latter .should collect the note; whereby, fortqnatelyfor the defendants, the payments were authorized, even if the note did belong to t:he pank.. , .. lll;ore is needed to sustain the verdict, butl. think I should not set it aside ifthis feature w.ere wanting. It is quite evenly. ';>Il!anced, on. pther facts, whether the no,e di<i belong to the bank or to Ferry, Davis & Go., and, perhaps, fJ,·v.erdict either way should set aside. Notwithstanding the appearances already noticed, tll.e relation between Ferry, Davis & Co. and the. bank, in regard to this and ,othl'lr"country paper"h:eld by them, a;b.d"discounted" to the bank, might fact. D}isunderstood 1>Y either., and perhaps was very clearly and definitl:lly: at all by anything that was agreed between them upon the subject; and, 'cElrlainly nothing in proofhereIPakes it clear what .relation was. There ate abundant but no precise tlIat settle the. ,cqnlroversy, and, as peforeremarked,
, 'FEDERAL REPORTER.
the inferences to be drawn" from' the known facts' are about evenly balanced. ,; When Ferry, Davis & Co., on the eighth day of February, payable on demand to the 1884, ,executed their note for plaintiff bank, like many others 'previously and subsequently made, it was for, the a.ggregate amount of ,three notes of their country customers, then long past due; and which had' been held by the bank as the note of defendatitshere was held. These three notes were pinned to the demand note,and so remained in the bank until a year afterwards, when Ferry; l)avis &C6. ffailed; and 'made an assignment, preferring 'the bank', after which theno't13s were sent to attorneys for collection. None of the Witnesses testifies as to what was said between the parties at the time oHlHs transaction,' 'nor as, to what wits done by them, except as above stilted.: ,At that time the defendants here had paid to Ferry, , Davis & 00.' $234.86 on the note sued ,on, by shipments of c'Otton made this was credited subsequent to the transfer of the hote to the uponthe'ndte, and the cn!dit';wasacknowledged by the bank,-'-another circuIrJstance to establish that agency for collectioh,on behalf of the bank, already considered. :This credit was not entered on the'note formally .. It appears in 'figures bfpehcil, made in making calculations. and tMt is' till. It was, however, deducted in 'fixing the amount ofthe demand note, ahd'so was recbgnized by the bank as a proper credit. There is no proof that the llioneywaspaid to the' bank, certainly not as a credit on the note ; but, if at all, only by deposit ,to Ferry, Davis & CO.'s account, ,and this not of that particular collection, but as included ., in their genei'al deposits. No other fact appears; so far as the conduct of the bank isooncerned, but'there is in the evidence the often-repeated assertion that the officers of the bank did not consider that its relation towards the note was affected by this transaction. but that the ownership continued precisely as it was before. Yet this seems somewhat inconsistent with the fact that the bank did not undertake to collect this or any of the country paper until after the insolvency as!:lignment, nor until they had taken possession,Rs the president says, of the Ferry, Davis & Co. books and accounts, which would seem to imply that they looked to that assignment,and not the original" discount," as the source [)f title. ' " No suggestion is made in the proof that the three notes pinned to the ; demand note were held Rscollateral security for that note, nor for any Co.'s account "other indebtedness particularly,Ilor for Ferry, "generally. ' The theory of ,the officers is that the note was the bank's own property, having been "discounted." Therefore, in that view, the '·pitining of the three ,notes 'to ithe'demand note had no SIgnificance of a pledge as collateral,-:-nonewhatever. Nothing can be implied in that ,direction. Going further back,fwhat has already been said as to the BOcalled "discount" applies It was that in fbrIll. no doubt. The amount, less the charges.w/ts:ptltto Ferry,Davis & CO.'8 deposit ac(lount as if so much cash had :been deposited, 'but immediately a check was given for the precise amount, so that the deposit account stood ex, acUy as it did before. This checkwasio pay the baink, in Whole orin
EXCHANGE NAT. BANK V. JOHNSON.
part, some indebtedness due the bank, but what particular indebtedness is not disClosed. Doubtless it Was to pay some previous demand note Cir other form of indebtedness ; the clerk says perhaps to pay Ferry, Davis & Co.'s "straight paper," whatever that may mean,;....."the bank preferring two names business paper to Ferry, Davis & Co.'s oWn ; notes." From this and other testimony it may be inferred, notwith'stan<ling the president says that Ferry,' Davis & Co. were not in good credit with the bank, ,thllt Ferry, having been president himself, and ,being then a director, did have credit enough to get money without ad"equate security 'of any kind. But, after all, the transaction was the of one debt for another,-the defendants' note, indorsed by Ferry, Davis & Co., for Ferry, Davis & Co.'s "straight paper; " and, as the seq'ttelshowed, it "was at best only leuding on Ferry, Davis & CO.'s "sqlecredit, and Ii reliance upon their ability to'take care of the indorsed paper; for'otherwise the bank would have looked for itself to the collection of defendants' note, Ferry, Davis & Co., 'being authorized or ex¥> collect and all other paper like it; were not expected, as FerrY' sass, to pay each and every collection on its own particular note, and have the credits entered thereon, but were to put their money ori d\'l'Ppsit' as they should have it in hand to deposit, which they did. DisgUise it as one may, by the forms assumed, it was in fact not the iso1l1ted purchase or "discount" of a note by the bank which now it is . preiendedto have been, but one of a mass of transactions through which , this former president, and always director, of the bank, was permitted to have money on the strength of his own credit, secured by the deposit in the bank of his own business paper, which he himself was to continue to manllge as if the deposit had not been made." The :bank officers say the demand note was only a "memorandum note to keep the account alive," and was' not intended to be taken inpaymel1t of the others, which is il) keeping with the above suggestion as to the true state of the Ferry, Davis & Co. say they regarded the defendants' note and the others as regained by the "call note," as they term it, and afterwards as belonging exclusively to them. They charged it again to the defendants' account, and dealt with it as their own; but substantially they had done this before, and really their control was not any greater than it had 'been. The fact which is wholly inconsistent with their theory is that the note remained in and with the bank just as it had done. They explain this by saying it was there only as their own for safekeeping; but they state no' that the bank agreed to so keep ,it, cit'considered the transaction to be of that character. The truth is, Thll.v:e, 'no doubt, that, in their then condition, substantially all their paper was thus tied up in their bank, and they and the .bank did not , have any definite agreement about it.' They did not ask to have the 'notesreturned, as that would,':possibly, have been refused; and having . entire control of the debt due by defendants, and being themselves ex'pected to collect it, they did not wish or need' to press to conclusions any consideration of the question who was entitled to have the actual v.30F.no.8-38
possession of ,the paper. If had called for ,the paper on making allY pfi,yment, it would no doubt have been produged, and they would have. been none the wiser, whether it belonged to one or the other. But .remotely situated as they were, and .it being the original intention to meet the note by shipments of produce from time to time, stern as the commercial law is,:there is scarcely one business man in a thousand w40 could not have beetl caught in the same way. Ferry, Davis & Co. poncealed the fact' that the notes had been paid, and, perhaps, misled the bank in that regard, but this did not justify it in seeking repayment upon th,e theory t'pat the payments had not been authorized.. '.' , It is very difficult to determine on this proof whether the transaction / in reference to th9 demand note was as the bank claims, or as Ferry, Davis & Co. ,claim, but the jury might very well have ,inferred that ,was a payment outright,and that the ownership of Ferry, Davis. & Co. was restored. Those who wouldJive by the sword of the commerCIal law must likewise pl'lrishby it. Unexplained, and looking at the form only of the transaction, as plaintiff would have us, as to the "discount" of this particular note of the defendants, the bank was the purchaser for value, before maturity, in due course of trade, with Ferry, Davis & Co. liable , upon their indorM'fMltt, and not .The called on to make good that liability, which they.do, by giving this<demand note. Now, if the indorser pay a note, he is entitled to p0S!leBsion, and ipso facto recovers the,ownership, and ma.y pursue the mak,er. For myself, if called ontQ<lecide the fact on the proof here, I should find to have been precieely what, in legal contemplation, the parties in this case, on their. own, theory of a "discount." of the note,' although they might not have thought of or agreed upon that as the tech1)ical bearing of the transaction,and certainly I should not distur.b the .verdict of a jury to that effect. . . . , But, suppose that inference be wrong, then the only other possible one, on the technicalities of the law, would be that Ferry, Davis & 00., in· settlement of their liabilityq.dnr:lorsers, gave their own note; and, thus having recovered the ownership and possession of defetldants' note, .this they ,simultaneously pledged as collateral security for their own. ,.But it was then long past due, and hellce was not transferred before maJurity, and is open for whate,!er defense may be available under these circumstances; and that of the pledgeor's agency to collect for the, pledgee is still good, wh,ether any other be. or not. I cannot comprehend how the ,bank can ignore every circumstance connected with their .dealings with Ferry, Davis Co., except co discount, "setup the to defend/Ults growing out of that, circumstance, and maintain it; nor, if ! they set up ,that relation as the basis o.f title, how they can consistently . plaim to be holders of the note a8 collateral security, and .maintain that also. They did not, in my judgmeIlt,W:l1en probed to the bottom, hold in either relation, strictly speaking. It W\lS a delusion all the way through. The bank held the" country paper" of their customer in substance as a general security for advances,andto protect all balances that might be-
EXCHANGE NAT. BANK
come duej but it did not, irtfact, rely upon it, or use it for that purpose, more than it did when the transaction is looked at as a simple . "discount" of isolated paper or as a collateral pledge for a particular debt, -by looking to its collection, and to the appropriation of the proceeds to the debts due by the customer, as it'should have done, but left all that, unsecured, to the good faith and credit of the favored customer, looking alone to him for payment. And, the customer having failed, it takes a general assignment of all notes and accounts,with other assets, believing this note and others to be unpaid, but being disappointed in that belief it now attempts to claim through the ori¢nal "discount." If the defendants had known all this, the bank would have been est<pped, no doubt ; but they did not, and can only rely on their other defenses. But they have surely the ,right to scmtinize the bank's dealings with Ferry, Davis &; Co., andm aet up form against form, technicality against techqicality, and delusion against delusion, in the dealings of the bank with the customer. Thus, they compel the bank to elect its position. It does that, and chooses to treat its title as arising out .of the original "discount" of an isolated note. So treated, aside from the agency to collect, which is good on every ground, there is a form. of payment by the indorser, and positive ·proof that it was intended to have that effect; whereupon the bank derties that this form is the correct state of the affair i 'and relies uport some. undefined· outside intention to save it from that consequence. :It alleges that the demand nofuwa.s only "a memorandum" for the purpose" of keeping the account alive;" which means, I suppose, that; the appearance of having past-due paper or unbalanced overchecks must he avoided. But it must be apparent that this mode of dealing was liable to delude the indorser, and the makers of the hypothecated .or "disco.unted" notes, and comes very close to an estoppel in dealing with them. And, as on the issue ofan agency for collection, these circumstances maybe looked to by the jury as evidence in support of Ferry, Davis & Co. 'a testimony that it was in fact a payment of their liability as indorsers, and "a taking up of the by them, rather than the theory to which the bank officers testify. In view of all that has been said, it isilow plain that the criticism of the charge of the court is unavailing. No exception is or could be taken to the instructions oli the subject of an agency for collection; and, that fact being supported by the proof, the defense is complete without more. But I do not wish to rest under the imputation of having repUdiated Gosling v. GritJin,l (¥SS., Ct. Term., Jackson, 1875,) 3 S. W. Rep. 642. That case become. a leading one, and has b,een frequently follpwed and cited. It is unfortunate that, in the blockade attending the official ra-. portinl1;' of those times, it has never been reported. It is digested in 1 Meigs,·Dig.(2d Ed.) 335, approved in Richardson v. Rice, itself not officially· reported but appearing in 7 Cent. LawJ. 225, and is cited in Sawyer v, 'Moran, 3 35, and in 1 Daniel, Neg. Inst. (3d Ed.) §.830. I was of cou,nselon the winning side, and our BrotherJAcxaoN,
note at end of, case. ;
. J!'EDERAII REPORTER.
:lOW the circUit judge of this circuit, but then in thes.upretne court, delivered the opinion; I read it carefully from the opinion book before charging the jury in this case, and did not intend to depart from it. n . properly overrules VaUerlien v. Howell, 5 Sneed, 441, and if I charged the jury, as counsel state in their brief o.n this motion, that, after the pledge of the note as collateral to the demand note, it was necessary that the bank should give notice of its holding to the maker in order to protect itself against payments, the collateral note being then past due, I did commit an unintentional error, but not one for whjch a new trial should be granted, for the reason already stated. I did I\ot; reduce the charge to writing; as I often do, to avoid mistakes, but the brief notes from which it was delivered support my own memory that counsel are perhaps mistaken. On that point I havethis· note: "Collateral to new note: Must give notice if transferred .after du-easoollater!ll; of changed relation!'!." By this it. was .meantthat the jury should .bef,old that, if the bank had at. the time of the original" discount" appointed Ferry. Davis & Co. as its agent for collection, and ratified oollectiQus, madc:l by them at the time the demand note was given, and afterwards was It change of'this agency relation, the defendants sho1,lld have beep notified of the revocation of the agency. I have the defendants' request for instructions on the Jefense of estoppel, wbichwas refused, and the intention was to confine' the jury to the two points. of agency and & rtlCovery of ownership by the substitution of the demand note.. I state(l repeatedly during the argument that Gosling v. Griffin was approved, but that it did 110t apply to the faofis of this case. 'l,'he defendants did not deny Gosling v. Griffin, and so, on the whole, I am inclined to think I did not charge as stated. Nevertheless, I should grant a llew trial on the doubt about .it,as I may have been careless on a point not deemed of much importance, but Jor the fact that the case almost justified a direction of a verof an agency to collect, which I Came very near giving. dict on the I cannot think that the jury was misled from that point in the case by any error on the other point. Overrule the motion.
[N The foliowing is the opinion in Gos7ing v. Griffin, referred to above, which is also now reported in 3 S. W. Rep. 642:]
JACKSON, Special Judge. The material facts of this case·necessary to be noticed in determining the legal question presented by the record are the following: OnthElninth day of January; '1.872, the defendant, T. S. Gl';ffin, executed and delivered to Pollard & 'CO. ·h1s negotiable pl'omissory note for the sum of $598, payable 30 days· fofter date;. the consideration for said note be. ing the of a buggy which poIIa.rd & Co. had placed in said Griffin's h.ands fur sale, and which he had sqld, and used and appropriatedt4emoney. 'the payees in;said note being to plaintiff, Gosling, in the sum of $554:.25, evidenced by his acceptance,. which matured third January, 1871, and which had beeh placed in the hands 'of attorneys at Memphis for collection, on the tent4 day of January, 1871, indorsed in blank the defendant's said note for $598, and delivered it to the plaintiff's attorneys as collateral security for
EXCHANGE NAT. BANK 'lI. JOHNSON.
the indorser's acceptance,. which ,saidattornlilYs held f9r collection. Said attorneys, at the time of receiving defendant's note from said Pollard & Co·· gave to the latter a receipt specifying that said note was received by them as collateral security for the payment of said Pollard & Co.'s acceptance for $554.25, due third January, 1871. It appears that the defendant, after.the date of this transfer, and before the maturit.y of his said note, delivered to Pollard & Co. several lots of flour and meal in and satisfaction of his note. This flour and meal, to the amount of $613, was delivered on the twenty-fifth, twenty-sixth, twenty-ninth, and thirtieth of January, IB71, without notice or knowledge on the part of· defendant that his note had been previously indorsed and transferred by Pollard & Co. to the plaintiff. He accordingly refused to pay the note at its maturity, and was sued thereon by the plaintiff in first circuit court of.Shelby county. Among other pleas .not necEl$sary to be noticed, the defendant plead that said note'was not transferred to the plaintiff in due course of trade,but was given to the plaintiff by the Ifirm of Pollard & Co., aa collateral security for a debt which the said Pollard & Co. owed the further, that the defendant paid said note to the..firm of Pollard & Co. without notice from the plaintiff that he had the note assigned to him, and of this he put himself upon the country. . By consent of parties, a jury was waived, and· the case was tried by the court. and resulted in a finding "that, though the note. was assigned before maturity, it being received as collateral to secure a pre-existing debt, the fendant should nave been notified of the assignment, and the plaintiff cannot recover on the note because defendant was not so .notified before paying the note to Pollard & Co. Courtthereupon gave judgment for the defendant, from which the plaintiff has appealed in error to this court. In rendering judgment for the defendant upon the foregoing facts, the court below followed the case ·of Vatterlien v. Howell, 5 Sne(ld, 441, which presented the direct question here presented, and is conclusive of the present case, if it is to be adhered to as authority. In VatterUenv. Howell the material facts were that Howell & Co.· on the tenth March, 1856, executed to F. S. Brown & Co. their promissory note for $20B.50, due at six months. On the fifteenth day of May, 1856, Brown & Co., the payees, indorsed and delivered said note to Vatterlien as collateral security for the payment ofa pre-existing debt due from them to him. Vatterlien gave the makers no uotij}e of this aSSignment of the note to him, and on the thirtieth July, 1856, before the note matured, the maker paid the amount thereof to Brown & Co., the payees. When the note was due, Vatterlien sued the makers, and it was held that this payment to the payees before maturity, and after the assignment pf the. note, having been made without notice of the transfer, was a goo\! defense against the suit of said Vatterlien. This decision seems to proceed upon the idea that an indorsee of negotiable paper, who receives it before maturity as collateral security for or in payment of an antecedent debt, is bound to notify the maker of his being the holder, in order to protect himself against payments by the maker to the original holder or payee; that, in the absence of such tice, an indorsee must show himself to be a holder for value, and in due .course of trade, in order not to be bound by the maker's payment to the original payee, although made ·before (uaturity, and, after transfer of the note. We cannot assent to the correctness of this principle, as applied to negotiable paper. It, in effect, places such paper upon precisely the same footing as open accounts, and, in our opinion, attaches to the legal and complete transfer of negotiable instruments, which is supported neither upon principle nor thol'ity. It was decided in Clodfelter v. Oow, 1 Sneed,' 330. that the assignee of equitable rights and opan accounts must give notice to the debtor or holder of tbefund of the assignment. in order to protect
payri\ehts by the debtor to the assignor. Buttn the subsequent cases of Mutual Protectfrn Ins. 00. v. Hamilto'11,.5 Sneed. 277, and Sugg v.Powell;1 Head, 221, itwilJ\held that this doctrine asta noVice had no application to the asignment'ofnegotiable pape7', or of instruments which, though not negotiable by the law-merchant, are made assignable by law, so as to pass the legal interest or title, and permit the assignee to Bue in his own name. The rule announced in these caaes is irreconcilable with the position assumed in Vatterlien v. Howell. Nt) authority is cited to sustain the proposition or conclusion of law laid down in Vatterlien v. Howell, except the case of Van Wyck v. NO'f1)ell, 2. Humph. 192, which fails to support the decision. The contest in Van Wyck v. N01"()ell was between the true owner of the notes and a party holding them as collateral security. The former prevailed upon principles well settled in our decisions; but Judge GREEN, who delivered that opinion, re90gnized the fact that a pre-existing debt was a good consideration, as between the holder and the individual from whom he received the paper, though it would· not be sufficient to entitle himto hold against the true owner. The consideration on which Vatterlien received the transfer of the note from Brown & Co. being a good one, as between themselves, and tliat transfer having vested him with the legal title to the note so as to dispense with the necessity of his giving notice of the assignment, the conclusion seems to be inevitable that a payment by the makers to the original payee, after such transfer, and before maturity, should not be held good against the holder. Again, the decision in Vatterlien v. Howell ignores the distinction that should manifestly be taken between the payment of a negotiable note made after its transfer and such a payment bfffore assignment. The latter is the proposition discussed by the jUdge delivering that opinion. He says: "The argument is that, if a party pay a negotiable paper (as this is) before maturity, aM fails to take it up, he does it at hill peril, and if it is assigned before maturity,the assignee has the right to enforce its repayment." After correctly saying that this doctrine· was too broadly stated, the opinion pro,. ceeds: "It is true that if 8 party paY' a negotiable paper before due, and fail to take it up, and it is lifterwards; 8 tl d before maturity, negotiated in due COUrse of trade, the assignee, being an innocent holder for a valuable consideration, would be entitled to enforce its paY'ment. But it is equally true that, if it is taken in payment of, or as collateral security for, a pre-existing debt, negotiated in due course of trade, and the holder would stand in no better situation than the payee, and would be subject to all defenses which might be made against it in the hands of the payee." This was undoubtedly a'correct statement of the law as applicable to the case of payment of negotiablepaper made bfffore its transfer 'or assignment. But it did not follow from this. principle, as the court concluded' therefrom, that a payment made after'such transfer or assignment would stand upon the same footing and be eqilally available as a defense to an action by the holder. The indorsement and dellveI'ijlg of negotiable paper as' collateral security for pre-eXisting indebtedness is a transaction of daily OllCurrencein all commercial communities. Itisll legitimate use of su'ch paper,and, if the person so receiving it does not become thereby a holder for value and in due course of trade, according to the'law-merchant, so as to cut off all defenses, he is certainly entitled to pro. tection, as against payments ,made or equities arising between the maker and. indorser lifter the date The business of mercantile 'COinluunities is to a great extent transacted through,the madi om of bills of exchange and promissory notes j and this free circulation of such paper is a matter of too much importance to be restricted by adhering to an adjudication not founded upon principle, nor supported by authority. Qur decisions bave gone sufficiently far inholding that negotia. ble paper, ,transferred in payment of a pre-existing debt, or as collateral security;·issubject to all eqUities '01' defenses eXisting against the paper at
EXCHANGE NAT. BANK'll. JOHNSON.
the time of its transfer, and we are unwilling to extend the principles of these decisions so as to let in defenses arising a.fter such transfer. Every maker of negotiable paper knows, as a matter law, that it is transferable, by indorsement, so as to pass the legal and complete title to the paper, and the debt evidenced thereby, and it is his duty to pay to the holder upon production of the note.. Payments of negotiable paper before it is due, and in the absence of such paper, are not made in the due course of business, and the party so paying ShOltld be held to do so at his own risk; for, when the title has passed by indorsement'and delivery of such paper, the actual holder alone has the right to receive the money due thereon, and the maker, in paying to the original payee after such transfer, in the absence of the paper, either before or after its maturity, must abide the consequences of making payment to a party not entitled to receive it. Our legislature, in providing indemnity for makers of lost negotiable paper when sued thereon, upon the principle that the actual legal holder thereof could lawfully compel a repayment to himself. We therefore hold that, in the case of negotiable paper, the maker is not discharged if, before the the papet. and after its transfer,even,as collateral security, he makes payment to any person other than the real holde1". This conclusion isfortified by the rule applicable to overdue negotiable paper. When such paperis indorsedand transferred after maturity, the maker can avail himself only of.such matters of defense as existed between himself and the promisee or indorfilerat the time of theaetua.l indorsement and transfer of the note to the hoJder" This is so both upon theprinctples. of the law-merchant, and under the,.provisions of our statutes of· set-off.· It is founded upon wellsettled rule that a note does Dot cease to be negotiable because it is. OVerdue. The. payee, by his indorsement, may still communicate a good title to the indorseej nor; can the maker, when' sued tllereon, rely on .matters of defense against the, indorser Which arOse after such transfer, although he had no notice of tbe transfer at the- time of acquiring hiadefense. The makllr has no right to presume that such overdue paper, whiQh he haa made negotiable. and on which he agrees fo;'beliable to the actual holder or indorsee, remains in the handS of the original payee; and ifM pays to the original promisee, Without requiring the production of the paper; 'he does it at his own risk. This is the true distinction between the assignment of open accounts or equitable interest in a fund and the indorsement of a negotiable note. . In the former case notice of the assignment must be given the debtor to protect the assignee against future payments to the assignor. Such assignee acqUires only an eqUitable title, and, in the absence of such notice, the debtor may reasonably presume that the original creditor still holds or controls the claim, lloud may accordingly make payments to him in the ordinary course of business; 'But the indorsee of an overdue negotiable note acquites a fulliegal title, with tIle and exclusive right to demand and receive payment thereof. His rights being only subject to, the equities and defenses existing against the papercat tlJ-etime of its transfer to him, no defenses against the original payee acq:tlired atter ,the transfer .are available against him. Now, it is manifest that negotiable paper, taken as collateral security for pre-existing indebtedness before maturity, and before any equities or defenses exist against it, must stand upon the same footing as the transfer of suck ()verduepaper. The holder in neither case is considered a holder for value in ·-due course of trade, under the law-merchant. Both are SUbject to all equities . existing at the .time of the transfe:f, but neither is subject to defensf}8 arising . after such transfer. The doctrines are, we think, supported both by principle and authority. See Carr v. Lewis, 20 N. Y. 138; Wheeler v. Gulld,20 Pick. , M5; 1JadJtel' V. Little, 6 Mett:. 7; Edw. Bills & N. margo 538·.
Our conclusion Is that the case of VatterUen v. Sneed. 441, was not correctly decided, and should not be adhered to as authority. It follows from the principles already announced that the'defendant's payment to Pollard & Co., the original payee of the note suedoDI made before its maturity, but a,fter the date of its indorsement and transfer,to the plaintllf as collateral security, constitutes no valid defense to the plaintiff's suit upon said note, although the defendant may have had no notice of such transfer at the time oftnakiilg such payment. It r.esults, therefore, that the judgment of the circuit court must be -reversed, and that the plaintllf have judgment here upon the note,with cost, of suit.
others "'. 'PHILBRICKo_
(Oircuit Gourt. 8. D; ;FlfJrirJ,a. December13,l886.)
OF LADING AlID·DBAM'-Loss. On March 16,1886, S. "Offer 2, cal'S sacked oats. Can ship next sj;eame,r. 40 cents, f. o. b.;' to wbich P. answered: received. ,Sh.iP as BioHas Possible,'.; if good and offex: f.'o.' b. Last car poor; short weig.ht.badly sacked." On JlIth, perstea;mer two car-loads oats to shIpper's ordet. and indorsed bIll of ladmg, "DelIver to order of B. H. & Co., .. and attached a sight'draft on P. for price and marine insurance· . ,;.B.H.& Co;.indorsed the bill ofladingto.a bank, and forwarded it with draft forcolle,ctlon. No bill of lading was forwarded to P" but S. wrote him of the shipment, and sent invoice and. certificates of weil?;hts.The oats arrived ,before hiding, of the steamer P. that were two car-loads of oats that he could have on presentuig mdorsed bIll ot lading. On 29th the bank received and presented to P. the bill of lading, and attached draft for coIlection, but the draft was not paid, and the bill of lading -was not· delivered. The· oats were put in the steaUl,ship warehouse. and h!l<d not pused, and ,the saUle· night. destroyed by ure. Held, that the . the loss must fallon So .
At Law. A88ilJmpmt. By the court without jury, by stipulation. W. a. Maloney, for plaintiffs. Bowne PatterSon, for defendant.
LoCKE, J. On the sixteenth. March, 18M, plaintiffs,. merchants of Galveston, telegraphed to defendant, at Key West: "Offer two cars sltcked Oats. .Can ship next steamer; 40 cents, f. o. b. Reply by wire qUickifwantedj" to which he replied: "Telegram received. Ship as soon as. possibl,e, if quality good and offer f. o. b. Last car poor j short weight, badly On the 19th plaintiffs shipped per steamer two car·loads of oats to KeyWest, consigned to shipper's order, and indorsed the bill of lading,"Deliver to order of Ball, Hutchings & Co.," and attached a sight draft on defendant for price of oats,. and marine insurance, whicfit'hieyhad paid. Hall. Hutchings & Co. indorsed the bill of ladipgto the order ,of the Bank of Key West, and forwarded it to that draft tor collection. No bill of lading was forwarded defendant, but plai,ntiffs wrote informing him that they had shipped him two