Homes v. Smyth , 16 Me. 177 ( 1839 )

The opinion of the Court was by

Shepley J.

These notes were transferred to the plaintiffs before maturity, and without any notice of a defence, in payment of a pre-existing debt, due to them from the second indorser. And the question is, whether the same defence may be made, as if they were in the hands of the promisee. If the plaintiffs are holders for a valuable consideration, paid in the usual course of trade, they are entitled to recover. What is to bo regarded as such a consideration, has been frequently discussed; and Eyre C. J. in the case of Collins v. Martin, 1 B. & P. 648, states the rule, “if it can be proved, that the holder gave no value for the bill, then indeed he is in privity with the first holder, and affected by all that will affect him.” In the case of Coddington v. Bay, 20 Johns. R. 637, Woodworth J. says, “ the reason of such a rule would seem to be, that the innocent holder, having incurred loss by giving credit to the paper, and having paid a fair equivalent, is entitled to protection.” And that in every case, “it appeared that the holder gave credit to the paper, received it in the way of business, and gave money or property in exchange.” And that the true question is, “ have they paid value for the notes, or made any new engagements, as the consideration of the transfer.” Spencer C. J. in the same case, says, the principle is, that when the holder has given credit to the appearances of ownership of the person in possession, and “ has been induced to part with his money or property, bona fide, and that, as between him and the real owner, there must be loss on one side or the other, the law will not divest him of fruits he has honestly acquired, without the possibility of remuneration. In other words, the equities of the parties being equal, the law leaves him in possession, who already has it.” These extracts are made, for the purpose of exhibiting the principle upon which the New-Yorlc cases are based. And this is done, because, as the law is received in this and some of the other states, in relation to the effect of negotiable paper, taken for a pre-existing debt, there will be found expressions in the New-Yorlc cases apparently contradicting the principles set forth in them. While those expressions may not be liable to any just objection there, they would be likely to lead one into error, who does not take into consideration the difference in effect, in that state and this, of negotiable paper taken for a pre-existing debt. In the case of Rosa v. Brotherson,

10 Wend. 85, relied upon in the defence, in the statement of the case, it is said, “ the action is against the maker of a promissory note, transferred by the payee to the plaintiff, in payment of a precedent debt,” and in good faith and without notice. And Savage C. J. says, he must have made advances, or incurred responsibilities upon the credit of the paper. If the holder has done neither, but has taken it for a previous claim, his condition is improved, if he recovers, but he loses nothing, if he fails; his equity is not superior to the owner.” And Spencer C. J. says, in Coddington v. Bay, he must “ take them in his business, and as payment of a debt contracted at the time.” The English doctrine was, that a bill of exchange or negotiable note, whether of the debtor or of a third person, taken for a pre-existing debt, was not payment. Ward v. Evans, 2 Ld. Raym. 928. And this appears to be the law there still, with the qualification introduced by the statute of 3 and 4 Anne, c. 9, sec. 7, which provides, that it shall be payment, if the holder does not take due course to obtain payment of the bill so received. In New-York, a bill or note so taken is not payment, Tobey v. Barber, 5 Johns. R. 68; Johnson v. Weed, 9 Johns. R. 309, unless expressly agreed to be received in payment. New-York State Bank v. Fletcher, 5 Wend. 85. The law of this, and of some of the other states, is known to be different, and negotiable paper, received for a pre-existing debt, is payment of it, unless the contrary be made to appear. While, therefore, in New-York, the taking of such paper, if not collected, would occasion no loss, in this state, it would cause the loss of the whole debt. They are deciding in accordance with the principles admitted in all the cases, when they hold, that in the hands of an indorsee, who takes it for a pre-existing debt, the same defence may be made as between the original parties. While, to adopt the same rule here, in the state of our law, would be to violate those principles. A note so taken there, is, in effect, taken, not in payment, but as collateral security only; and if so taken here, our decisions would accord with theirs. In the state of our law, to yield to their rule, would not only violate principle, but would throw the loss upon the party in possession for value innocently paid, instead of upon the party, who has not an equal but a less equity, having parted with his paper in a manner to enable another to use it to their injury and loss, unless they are entitled to recover. Upon principle and upon authority, as our law is, the equity is with the plaintiffs, and they are entitled to recover.

It is not necessary to decide, whether as between the original parties, the defence would be good. Whenever there may be a re-examination of the question, it will be found, that the tendency of the later decisions has been to allow a total failure or "want of consideration to be a good defence, especially where the contract was for land and there has been an eviction. And in some of the states a partial failure is allowed to be a good defence pro tanto, while there are very strong authorities against it. But the moro carefully the English and American cases are examined, the more clearly will one perceive the truth of the remark of Kent, that “ the cases are in opposition to each other and they leave the question how far and to what extent a failure of title be a good de-fence, as between the original parties, to an action for the consideration money, on a contract of sale, in a state of painful uncertainty.” 4 Kent, 473. In this case, there lias been but a partial failure in consequence of an incumbrance, and no eviction.

Judgment on the verdict.