Miller v. . Tharel , 75 N.C. 148 ( 1876 )

When the contract for the sale of the land by Houston to Tharel was rescinded, and Tharel gave up to Houston the bond for title which Houston had made to him and received from Houston a paper which Houston said and Tharel believed was the note now sued on, and Tharel destroyed that paper, the liability of Tharel on the note was as much discharged as if he had paid it in money. The case is the same in effect as if he had received the note and put it in his pocket, from which it was afterwards stolen, and the same as if he had received and torn it in pieces and thrown them away, and the pieces had been afterwards picked up and so artfully put together that the tearing could not be detected. It must be concluded that at that time he was under no legal or equitable liability by virtue of the note to any one.

It then only remains to consider whether such liability subsequently arose by reason of the transfer of the note by Houston to the plaintiff, under the circumstances stated in the case. The note was under seal and was payable to Houston or bearer. Notwithstanding this it is to be regarded, so far as its negotiability is concerned, and its liability to be governed by the commercial law applicable to promissory notes, as if it were a promissory note under a seal, and payable to a payee or order. The act of Assembly, Rev. Code, ch. 13, sec. 1 (Bat. (151) Rev., ch. 10, sec. 1), enacts in substance: "All notes signed by any person . . . whereby such person . . . shall promise to pay any person . . . the money mentioned in such note, shall be construed to be by virtue thereof due and payable to such person . . . to whom the same is made payable, and the person . . . to whom such money is payable may maintain an action for the same as they might upon inland bills of exchange; and the same as likewise all bonds, bills and notes for money, with or without seal,and expressed or not to be payable to order, or for value received, maybe assignable over in like manner as inland bills of exchange are by customof merchants in England; and the person . . . to whom such promissory note, bill, bond or sealed note is assigned or endorsed may maintain an action against the person . . . who shall have signed such promissory note, etc., or any who shall have indorsed the same, as in cases of inland bills of exchange: Provided," etc.

It is conceded that Houston transferred the note to the plaintiff for a valuable consideration before its maturity, in the usual course of business, and without actual notice, or anything from which notice would be implied, or any defense to it. If Houston had endorsed the note to the plaintiff at the time of such transfer he would thereby have passed the legal title according to the law merchant, and the plaintiff's right would probably have been good against the maker by whose misfortune or negligence it had been permitted to remain in the hands of the payee after it had been paid. We say probably, because it is not necessary to decide the question. The note sued on was not endorsed to the plaintiff, but was assigned to him by an oral contract. It is true that under this assignment, by virtue of our recent legislation (C. C. P., sec. 55), the assignee may sue in our courts in his own name, as an equitable assignee or cestui que trust could formerly have done (152) in equity; but he does not acquire by such an assignment the peculiar rights by which the law merchant, founded on the policy of promoting the circulation of promissory notes, attach to an endorsee of each paper. All the authorities from Parsons on Bills and Notes, cited by the learned counsel for the plaintiff, to sustain the proposition that a holder of a promissory note, taken under the circumstances stated, can recover against the maker, notwithstanding any equitable or other defense, such as payment before maturity, he may have, apply only to holders who hold by an assignment recognized by the law merchant, viz., an endorsee. The distinction between a title by assignment and by endorsement is stated, but not as clearly as it might be, in 2 Pars. Notes and Bills, 52. It is also made in Thigpen v. Horne, 36 N.C. 20;Lindsay v. Wilson, 22 N.C. 85.

Whistler v. Forster, 14 C. B., 248; 108 E. C. L., which probably escaped the attention of Mr. Parsons, is in point and is decisive on the question. The defendant drew the check sued on before 3 October, and handed it to Griffiths without any other consideration than a promise to furnish funds to take it up, which he failed to perform. On 3 October Griffiths gave the check to plaintiff for value, but did not then endorse it. Afterwards he did. At the time the plaintiff received the check he had no notice of the way in which Griffiths had obtained it, but at the time of the endorsement he had. The judgment was for the defendant. The observations of Willis, J., are so clear that I extract from them:

"The general rule of law is undoubted that no one can transfer a better title than he himself possesses. Nemo dat quod non habet. To this there are some exceptions, one of which arises out of the law merchant as to negotiable instruments. . . . This rule, however, is only intended to favor transfers in the ordinary and usual manner whereby a title is acquired according to the law (153) merchant, and not to a transfer which is valid in equity according to the doctrine respecting the assignment of choses in action, now indeed recognized, and in many instances enforced by courts of law; and it is, therefore, clear that in order to acquire the benefit of this rule the holder of the bill must, if it be payable to order, obtain an endorsement, and that he is affected by notice of fraud received before he does so. Until he does so he is merely in the position of the assignee of an ordinary chose in action, and has no better right than his assignor." To the same effect is Haskill v. Mitchell, 53 Me. 468.

The right of the plaintiff to recover if it has any foundation at all, must stand not on his having the legal title, or any principle of mercantile law, but on his having some equity which makes it unconscientious in the defendant to refuse payment. It is said that such an equity arises out of the fact that the defendant, by his negligence, permitted the note to exist and to remain in the hands of Houston after it had been discharged by payment, and thus enabled Houston to commit a fraud on the plaintiff; and that the maxim applies that where one of two innocent persons must suffer by the fraud of another, he must be the victim whose negligence enabled that other to commit the fraud. The rule is not disputed, but probably it will be found to be confined in its application to cases in which the defendant is guilty of some complicity in the fraud, or where by his negligence, he has enabled the person committing the fraud to pass a legal right to the plaintiff. In this last case the maxim would apply that where equities are equal the legal title will prevail. But where no legal title passed the case would come under the maxim that where the equities are equal the prior equity prevails. The authorities to this effect are very numerous. InTurton v. Benson, 1 P. Wms., 496, the payee of an unnegotiable bond assigned it to one of his creditors as a security, and it was held (154) that the maker could avail himself of an equitable defense. The Master of the Rolls said: "Supposing a man should assign over a satisfied bond, the assignee could not set up this bond in equity, which, being satisfied before, could receive no new force from the assignment." On appeal Lord Chancellor Parker considered all the arguments which could be used by the plaintiff in this case, considering him as a mere assignee, and confirmed the decree.

See 2 vol., 2 part, Leading Cases in Eq.; Note to Royall v. Rowles, 218-36; Moody v. Sutton, 37 N.C. 382; King v. Lindsay, 38 N.C. 77;Mosteller v. Bost, 42 N.C. 39.

We think there was error in the judgment below.

PER CURIAM. Judgment reversed, and judgment that defendant go without day and recover his costs in this Court.

Cited: Fortune v. Watkins, 94 N.C. 315; Lewis v. Long, 102 N.C. 207;Jenkins v. Wilkinson, 113 N.C. 535; Christian v. Parrott, 114 N.C. 219;Breesee v. Crumpton, 121 N.C. 123; Tyson v. Joyner, 139 N.C. 73.

Dist.: Bank v. Mitchell, 96 N.C. 57.