Barker v. Barth , 192 Ill. 460 ( 1901 )

Mr. Justice Ricks

delivered the opinion of the court:

The main question in this case is, could Barth set off the note given by Barker to McElwee & Carney of $4573.94, bought by him for $750, against his note for $5000, and interest, sued on by Barker for the use of the Union National Bank of Chicago, and if so, whether for the full amount or the amount paid for the note sought to be set off.

The bank received the Barth note from Barker as early as May 29, 1893, as a pledge for moneys previously obtained, without endorsement. This note was taken by Mr. Odell, president of the Union National Bank, with other paper, the other paper being endorsed. This note was not endorsed, and there was no agreement that it should not be endorsed and no express agreement that it should be. Barth bought the Barker note June 5 or 6, 1893, for $750. He had no notice of the bank having the Barth note until after May 4, 1895. The Barker note was dated March 16,1893, due June 16,1893. Suit was brought May 16, 1895. As the bank only took an equitable title to the Barth note, it was its duty to give notice to Barth to protect itself against payment or after-acquired cross-demands against Barker, and having failed in this, Barth was entitled to his set-off.

Plaintiff in error insists that defendant was not entitled to credit on account of the Barker note in excess of $750,—the amount paid by Barth for the note. The holder of a note regularly endorsed is presumed, in law, prima facie a holder for value, and this presumption continues until fraud is shown in the procurement of the signature or execution of the note. Then a purchase for value must be proven. Barth is shown to have given value for the note. There is no evidence showing the note was obtained from the maker by fraud, or that he had any defense to it had it been sued upon by the payees. It is true, a plea of partial failure of consideration was insisted upon; but the trial and Appellate Courts found adversely to the plaintiff as to that, and we must accept the finding. “Negotiable securities once put in circulation for value may be transferred for less than their face, but the maker and those claiming under him cannot limit the right of a subsequent holder to a recovery of what he may have paid therefor.” Wade v. Chicago, Springfield and St. Louis Railroad Co. 149 U. S. 327.

Barth purchased this note before maturity, for value and without notice of the equities of the plaintiff, and is entitled to the benefit of his bargain. The bank having taken the note by mere delivery, and without any agreement that it should be endorsed, it could have no equity superior to that of Barth until he had notice that the bank had and claimed to own the note.

This suit was broug'ht May 16, 1895, and while pending, in June, 1896, a chancery suit was brought by the bank against Barth relative to the stock that was assigned as collateral to the note held by the bank, praying for a sale of the stock pledged to pay the note sued on here. Plaintiff then moved to dismiss this suit and urged the pendency of the chancery suit brought by the bank as ground therefor. A plea of set-off had been filed by defendant and the court properly overruled the motion to dismiss.

It is insisted by the plaintiff that this case should be reversed because the court sustained a demurrer to two replications to defendant’s plea of set-off to the first count of the declaration. ' The declaration did not count upon an endorsed note within the statute, but upon an assigned note or chose in action, as at common law. The lang'uage used is, “assigned, transferred and delivered the same to said Union National Bank.” If the note had been endorsed the declaration would have so alleged, and the suit would have run in the name of the bank, as plaintiff. Upon the face of the declaration, then, this note was subject to equities and defenses between the original parties existing at the time of the assignment, or arising after the assignment and before Barth had notice of the assignment. Barth pleaded as set-off the note of Barker obtained by him by endorsement for value before the bringing of the suit. Plaintiff replied, first, that defend-' ant obtained the note described in his plea after he had notice that his note had been assigned by Barker to the bank for value; second, that defendant obtained the note described in his plea after maturity and after the Barth note had been assigned to the bank for value. The first replication above was good, and the demurrer should have been overruled. The demurrer was properly sustained to the second replication. The Barker note was negotiable by endorsement, and the allegation that it was due would only let in defenses existing against it in favor of Barker, the maker, at the time of the endorsement. Such allegation would not let in defenses in favor of the mere holder by assignment, whether obtained before or after the endorsement, unless Barth had notice.

If this suit had been brought by Barker alone, for his own benefit, no one can question but that Barth would have had the right to set off Barker’s note set up in the plea. Being sued by Barker, for the use of the bank, did not deprive Barth of his right of set-off, unless Barth had notice at the time he took the note of the bank’s equities. The second replication did not allege notice, and was bad.

The Barker note in the hands of the bank without endorsement or any agreement to endorse, was no more than a simple chose in action held by assignment, and the debtor, in such case, can set off existing or after-acquired demands against the payee obtained before notice. “And this appears to be the true distinction between the endorsement of a note over-due and the assignment of a chose in action. In the latter case, notice of the assignment must be given by the assignee to the debtor to prevent him from making payment to the assignor. * * * The assignee takes an equitable interest, only, which must be enforced in the name of the assignor, and until notice he has no equity against the debtor which can be recognized and protected by a court of law or equity. The endorsee of a note over-due takes a legal title, but he takes it with notice on its face that it is discredited, and therefore subject to all payments and off-sets in the nature of payments.” (Baxter v. Little, 7 Metc. 7; 39 Ain. Dec. 707.) Neither payment nor anything in the nature of payment was being insisted upon by these replications, but an equity arising out of another note in a third party whose duty it was to give notice.

The question still remains, should the case be reversed for the error in sustaining the demurrer to the first replication to the plea of set-off above discussed? Courts of appeal do not reverse cases that have been tried upon their merits simply for the correction of pleadings. Unless the plaintiff has been prejudiced in his defense against the plea of set-off by the ruling of the court in this respect the judgment should not for that reason be disturbed. The court will look into the pleadings and evidence to determine such matters. There is no claim that any other note than the one described in the second count was held by the bank or sought to be collected in this suit. It will be observed that in the second count of the narr., after averring the assignment and delivery of the Barth note by Barker to the bank on May 1, 1892, the further allegation, “of which assignment so made as aforesaid said defendant * * * on the same day and year had notice,” is contained. Defendant replied that he obtained the Barker note by endorsement from McElwee & Carney, for value, before maturity and before he had any notice or knowledge that the note sued on was assigned to the Union National Bank. Thus the only proper issue tendered by the replication to which the demurrer was sustained was presented and the plaintiff given the benefit on the trial.

We have carefully examined the refused instructions and find no error in their refusal.

The judgment of the Appellate Court is affirmed.

Judgment affirmed.