Bank of Mobile v. Hall , 6 Ala. 639 ( 1844 )

ORMOND, J.

The notes of the defendant in error, out of which this controversy arises, being payable in Bank, are to be governed by the rules relating to inland bills of exchange; and being transferred by indorsement to the plaintiffs in error before they were due, and without notice of the equity now attempted to be sot up, the only question is, -whether the indorsees received them in the usual coarse of trade.

In Bay v. Coddington, [5 Johns.C. 54,] it was held, that receiving negotiable paper as a guaranty or indemnity against future responsibilities, as an accommodation indorser for the person from whom it was received, was not in the usual course of business or trade. That to be so, it must have been i-eceived in payment of an antecedent and existingdebt — for cash or property advanced, debt created, or responsibility incurred on the strength and credit of the paper. Since that time, the decisions of the supreme court of New York seem to have vibrated on this question, so that, in the language of Mr. Justice Story, in Swift v. Tyson, [16 Peters, 1.] it is difficult to ascertain what the law of that State is on this subject.— [See Ward v. Howell, 9 Wendell, 170; Rowsa v. Brotherson, 10 ib. 85; Ontario Bank v. Worthington, 12 ib. 593; Payne v. Cutler, 13 ib. 605; Bank of Salina v. Babcock, 21 ib. 490; Bank of Sandusky v. Scoville, 24 id. 115.]

In the case referred to in 16 Peters, this question came before the supreme court of the United States, and it was there held, after a review of all the authorities, English and American, that the receipt of a negotiable instrument in payment of a precedent debt was, in the usual course of trade; and if it was received before it was due, and without notice of an equity between the original parties to it, the holder was not affected by it. Such was the decision, also, in Brush v. Scribna, [11 Conn. 388,] and such appears to be the received doctrine of the English courts.

We agree entirely with the doctrine as thus stated. It appears to us there is no sensible distinction between receiving a bill in payment of a pre-existing debt, and purchasing it with money or property. In either case, the consideration is a valuable one; and all the reasons which apply to protect the holder against latent equities between the original parties of which he had no notice, apply with the same force in the one case as in the other.

This is conclusive as to the note held by the Bank of Mobile. The Bank received the note absolutely and unconditionally in payment of a debt, and relinquished the security thus paid off. The Bank is then a holder of the note, received by indorsement before its maturity, and without notice of the equity of Hall, for a full and valuable consideration, and upon the well established principles of the law-merchant, is not affected by the latent equity existing between the original parties.

Something was said in argument about the title of the Bank to the note, and the authority of Hallett to act as its agent in obtaining it. It is not a matter of any moment whether Hallett had authority, in the first instance, to make the negotiation with Andrews or not, as his acts, as such agent, have been ratified by the Bank.

Hallett, the holder of the other note, does not stand in the same predicament. He, it appears, was the surety of S. Andrews in a bond for title to a lot of ground, in the city of Mobile, to the Planters’ & Merchants’ Bank, the lot being incumbered by a mortgage to one Plagan, and that he received the note from Andrews to indemnify him and save him harmless from loss on his surety-ship; that he has since been compelled to discharge the incum-brance.

It appears to us, that this note was not received in the usual course of trade between merchants, so as to protect the holder against a latent equity. In the case of Swift v. Tyson, [10 Peters, 1,] already referred to, the court expressed their opinion, that a note received as collateral security for an existing debt, is received upon a valuable consideration in the usual course of trade. That point, however, did not arise in the cause, and the expression of an opinion upon it for that reason, was objectéd to by Mr Justice Catron.

In Cullum v. The Branch Bank at Mobile, [4 Ala. 21,] this court intimated that the taking a note as collateral security for the payment of a debt, would not be such a transaction as would shut out the equities between the original parties, but the opinion is expressed, that a new consideration, “such as the discharge of other paper, or of other parties,” would produce that result. This point, however, was not involved in that case. Here, when this note was received, there was no debt existing between Hallett & Andrews, but a mere contingent liability on the part of the former, to pay a debt in future for the latter; it was not then received even as collateral security for a debt then existing, but was received as an indemnity against possible future loss.

No case has been cited, which goes the length here contended for, and it cannot be said with any propriety, that such a transaction is a dealing in the usual course of trade. It will not be contended that Hallett can resist the equity of the maker of the note against his assignor, on any other ground than the actual payment of the security debt, against the payment of which, it was intended as an indemnity; yet, this right to hold the note, discharged from the equities between the original parties to it, if it existed at all, must have attached to it at the moment it was endorsed, and could not depend upon some future act to be performed by the endorsee, and depending for its performance on his volition; otherwise, it might happen that he would collect the note, and never pay the surety debt

Such being the aspect of the case, and the inquiry into the equity between the original parties being opened, how would the case stand as between them? Upon this point, there can be no doubt. The case of Cullum v. The Branch Bank of Mobile, previously cited, is an authority full to the point, that if the incum-brance was concealed by the vendor at the time of the sale, equity would relieve the purchaser from the payment of the purchase money pro tanto, on the ground of fraud, although the incum-brance was of record, and there was a warranty against incum-brances. And further, that when a purchaser with warranty is evicted by a title to which his covenants do not extend, and the vendor is insolvent, equity will restrain him from recovering the purchase money.

This is decisive as to the equity of Hall, whether the warranty of the vendor is against incumbrances or not; or whether the in-cumbrance was concealed at the time of the sale of the land, which appears to be the true aspect of the case upon the record. Hal-lett being in no better condition than his assignor, but subject to the same equity, cannot recover on the note.

It results from the opinion here expressed, that the decree of the chancellor must be reversed, as it respects the Bank of Mobile, and the cause be remanded for further proceedings, not inconsistent with this opinion. Costs adjudged in favor of the Bank of Mobile against Hall, and against Hallett and in favor of Hall.