Stocking v. Toulmin , 3 Stew. & P. 35 ( 1832 )

Saffold, J.

The action was assumpsit on a pro-' missory note, made by the defendant in error, (who was also defendant below,) payable to Robert and "William Armstrong, or order, for five hundred dollars. Soon after it. was executed, the payees transferred the note by a blank indorsement, to Stephen Chandler, who transferred it for a valuable consideration, to the plaintiff, before.it was due, and without' indorsement.

The defendant, having given notice of-a set-off, gave in evidence notes, &c. due him from Chandler, with proof that, the note sued on, had been transferred to him previously to its assignment to the plaintiff — one of which notes was drawn payable to Hern-don, or bearer; the others in favor of the defendant. Further proof was also made, that the defendant was the legal owner of these evidences of debt, previous to notice of the transfer of the note from Chandler to Stocking.

The plaintiff, requested the court to instruct the jury, that the defendant, could not set off the demand he held against Chandler. But the court refused the instruction, and instructed the jury that they might set, off against, the plaintiff’s demand, all the demands the defendant had proved he had been in possession of, against. Chandler, previous’ to notice, that. the note had been transferred to the plaintiff. These instructions are assigned as erroneous.

Where one is sued, as maker of a promissory note or bond, by an assignee, no doubt exists, under our statues, as to the right of the defendant to set-off" any proper demand which he may have held against the payee, at any time previous to notice of the assignment by him.

The more difficult question is, does this right of set-off equally exist, in reference to demands, held against intermediate assignees — against those, through 'whose hands it may have passed by blank indorse-ments or otherwise?

To concede the right, as respects demands against a plaintiff, holding as a subsequent indorsee, is not decisive of this question. The statute “ concerning defalcation,” of 1799, appears, at least, to embrace a case of that kind. It provides, that, “if two or more, dealing together, be indebted to each other, upon bonds,” “promises," &lc., “and one of them commence an action in any court, if the defendant cannot gainsay the deed, bargain, or assumption upon which he is sued,” he shall be allowed the benefit of any proper subject of set-off. - The only construction which this slalute will admit of, or which this court has ever given it, is, that such defendant shall be enlilled to any set-off, which ho held against the plaintiff, at the institution of the suit. The language of 1 lie statute,-as above, quoted, that if two or more, dealing together, be indebted'to each other, ■“ and one of them commence an action,” the defendant shall be allowed his set-off, renders it materia], in conferring the right of set-off, that the. same as-signee of the note or bond, against whom the defendant has a counter demand, shall sue upon it. If, instead of suing upon it, the assignee transfer it to another, the latter assignee may have no knowledge of the claim of set-off. If it be farther assigned, the .last assignee may have no knowledge, (the assignment being blank,) that, the person against whom the set-off exists, ever held the paper. ■ It would, also, be but a natural occurrence, if, under such a rule of practice, the maker of the note should purchase up demands on the intermediate assignee, to be used as a set-off — but, of which such assignee had no notice, until after he' had further assigned it: or, if the counter demands should be procured after the transfer of the note, but betore notice to the maker — the principle would be the same.

Again, as contended in. argument, if this be the rule of practice, the maker of a note, say for six hand red dollars, wind) has been assigned a‘half dozen limes, may have purchased up demands of one hundred dollars, against, each of the assignees, while holding the paper, or afterwards, before nolice of the farther transfers, and when sued by the last as-signee, may avail himself, by way of set-off, of all these several demands — when, five of ihe six persons against, whom they exist, are apparently strangers to the transaction ; and, in fact, had considered themselves, subsequent 1o their respective assignments, without the least interest in the subject.

The consequnnce of this rule would be not only the danger that, much of the litigation would be (X parle, as the plaintiff might be ignorant of all the circumstances of the demands urged as stts-off; and the persons ultimately responsible for them, equally ignorant of the pendency of the contest; but' the allowance of ihe sefs-off would lay the foundation for as many perplexing causes of aclion as ihe re might be persons whose debts would be thus discounted. They of course should be held.responsible to the assignee whose debt had been thus scaled or defeated; but. before being so liable, they must in common justice, have an opportunity of contesting the claims of set-off, wliHi could not tie insured, and without u Inch 1he judgment, against the assignee could be no evidence against them. Thus it appears, that according to the principle alluded to, no honesty of purpose between assignor and assignee, combined with' ordinary prudence, would secure thejaticr against disappointment and injustice.

Yet, however inexpedient we may consider the principle, if a fair construction of ihe laws'applicable to this subject, entitles the defendant to the set-off, this conrl lins no power 1o deny if. For the defendant, it is contended, dial the “act concerning the assignment of bonds, notes, &o. and for oilier purposes,” passed in 1812, secures this right of sel off.

The substance of this act, so far as it affects filis qnestiou, is this, that all bonds and noles may be assigned by indorsement ; and the assignee may sue in his own name, and maintain any action which the obligee or payee could have maintained thereon, previous to assignment ; and in all actions to be commenced upon any such assigned ’bond or note, the defendant shall’be. allowed the benefit, of all sels-oif (discounts and payments) possessed (had or- made) against the same, previous to notice of ihe assignment, in fb.e same manner as if 1he same had been sued on by the obligee or payee (herein. It. is also .insisted that the decisions of this court, in reference to the latter statute, in the cases of Richardson vs. Farmsworlh? and Ferguson vs. Hill, recognize right of defence against any indorsee, on the'ground of an existing set-off, against any intermediate holder of the note, in the same marinerías if it were against the payee of the note. In determining 1 he construe-lion of the statuto,.it is necessary slrictly to examine its language, as well as probable intent. It declares in substance, that in all actions on assigned noles, the defendant shall be allowed the benefit of all sets-nff, had or possessed against the same, previous to notice of the assignment, in the same manner as if the same had been sited on by the payee therein. This language is conceived 1o sustain the argument, that the sets-nff alluded to, are such as might, exist against the demand in its original state — such as had arisen against the payee, while he retained the note, or before notice to the maker, of the transfer. This interpretation is sanctioned by the clause which allows the set-off, in the same manner as if the note had been sued on, by the payee therein.

Had the legislature intended otherwise, it may well be presumed they would have declared the intention more explicitly. All doubt could have been removed by some familiar expressions~^as, that the defendant should be allowed all séts-off possessed against the'same, or against any subsequent holder, previous 'to notice of the assignment, by the payee, or any indorsee.

Then, for the reasons that the statute has avoided the use of the more appropriate language, to confer the right of set-off, as allowed by the Circuit court; that the right would operate a farther innovation of the common law regulations of commerce; and, that the inexpediency of the innovation is believed to have been illustrated — the more limited construction is the only one we are authorised to give the statute.

But, it is contended, that some of our former decisions, referred to, have gone farther. My purpose will now be to show the contrary. Let it be recollected, that the defence of set-off is, in its nature, essentially different from that of payment, or any satisfaction, or modification of a contract. The debts or demands to be offered as sets-off, admitting them to be valid, and subsisting claims against the plaintiff, or against the payee, in case of an assigned nole; yet they have no application to, or connection willi the note sued on, except in the discretion of the defendant, He may use them as a set-off, or decline doing so, apd make them the- ground of a separate action against the plaintiff; or transfer them, at his election. If he be insolvent, or have any other motive to withhold the set-off, he may be expected to do so, and the plaintiff has no voice in it. It is so far different with respect to payment, or any alteration of a contract, that, to effect either, the agreement of both is necessary; and, when fairly made, it becomes identified with the contract, and either party can insist upon it, with some exceptions, in favor of negotiable paper. According to the common law, the maker or acceptor of a negotiable instrument, after assignment, could not impeach the equity thereof, if the assignment was made before the maturity, .while no suspicion attached to the paper. But, after maturity, if the holder, instead of demanding payment, or on refusal of payment, should transfer the paper, the circumstances are deemed so suspicious, as necessarily to put the obligee on enquiry, and subject him to the equity of the demand.

Our statute of 1812, referred to, has varied the law, in this respect, on instruments embraced by it; and authorises the makers of bonds, notes, &c., to impeach the consideration or equity of the demands, (or, in the language of the statute, to avail themselves of “ any discounts,” against them,) though they were assigned before maturity, and regardless of the number of assignments. It also entitles such maker to the benefit of all sets-off, which he had, or possessed against the payee, previous to notice of the assignment. This is considered, by this court, the true construction of the statute.

In the case of Richardson vs. Farnsworth, it appeared, than a mercantile firm, (composed of Wheeler, Gay and Graggs,) were the true owners of a note assigned to them by a blank indorsement, anrl 1 hat they had received payment of the note; 1 hat, long after the payment, the name of FariTswortli bad been inserted in the blank indorsement, for the purpose, alone, of excluding the evidence of payment; and, that Farnsworth had no interest in the note, being but a nominal plaintiff. The court, held, that, under the statute of 1812, the defendant was authoris-ed to avail himself of any payment, made to any person to whom the note had been transferí ed, or who was otherwise legally authorised to receive it.

Had Farnsworth been the real assignee, without notice of the payment made, as aforesaid, the defendant, according to the statute, would still have been entitled to the defence, as a “payment” made to one authorised to receive it, and before notice of the assignment to another. And, in that case, even a set-off, against the mercantile firm, -would have been admissible, as they were the covert, though i*eai plaintiffs.

The other case, (Furguson vs. Hill,) maintains only an analogous principle. There Furguson, to whom, or bearer, the note was made payable, transferred it, by delivery, to Robinson, who, for a sufficient consideration, contracted with Hill, to allow him .an extended term of credit, on the note: afterwards, in violation of the agreement, suit was brought on the note, before the expiration, of the time, in the name of Furguson, for the use of De Jarnett. Hill having pleaded this agreement, in abatement of the suit, the plaintiff demurred to the plea; but the Circuit court sustained the plea, and this court affirmed the judgment. . The effect of parol contracts, in varying the import of written ones, was then considered, and it was said, 1he verbal- contract, if made at the time of executing tine written one, could not prevail — for, to do so, it must contradict evidence, or vary an agreement of higher dignity, purporting tp be the same. But, it was also held, 1 hat a subsequent parol agreement was distinct from the former; and, if, on sufficient consideration, might control it: and, further, that Robinson, having been the owner and legal holder of the note, was competent, during the time, to receive payment, and release the demand, or vary the contract, at. discretion ; consequently, that respecting it, which might be made; and that the the maker was entitled to the benefit of any contract subsequent suit, by the payee, for the use of another, could not impair the right.

It does not follow, in the language or reason of the statute, that the right of set-off exists, for demands against intermediate assignees, whose interests have ceased. On the contrary, as shown, the principle cannot be tolerated.

We are of opinion, the judgment below must be reversed, and the cause remanded.

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1 Stew,?5,