Ordiorne v. Woodman , 39 N.H. 541 ( 1859 )

Bell, C. J.

The first question arising in the case relates to the set-off.

The general principle of the mercantile law is, that the holder or indorsee of a negotiable note, who acquires it by virtue of a transfer or indorsement made after it is overdue, and consequently discredited, takes it subject to every defence and to every equity to which it would be subject if it had remained in the hands of the payee. Ch. Bills 216, 222; Bayley Bills 118; Hall v. Boardman, 14 N. H. 41; Odiorne v. Howard, 10 N. H. 346.

Under this general rule it has been contended that the assignee or indorsee of a discredited note, takes it subject to any set-off to which it would be liable, in the hands of the assignor or indorser, at the time of the assignment. But this application of the rule has not been universally admitted. It has been contended that at common law a set-off is neither a defence nor an equity, but that it is rather of the nature of a cross action, and that it is available only in the cases where it is expressly authorized by statute, which speaks of mutual debts and demands only; that is, counter-claims existing between the parties to the action.

"We do not propose to discuss either of these positions, merely remarking that, in the ordinary use of language, any thing which protects a man against an unjust claim is a defence, and that the benefits of a set-off have not been restricted to the cases of claims of a strictly mutual character.

In this State it has been decided that in a suit upon a negotiable promissory note, in the name of the indorsee, to whom it has been transferred bond fide and for a valuable consideration, a demand in favor of the maker against the indorser is not admissible as a set-off, although the note may have been a discredited note when the indorsee took it. Chandler v. Drew, 6 N. H. 469.

This decision was pronounced contrary to the first impression of the court, as stated in the case (page 472), and against a contrary opinion in Woods v. Carlisle (page 28 of the same volume), where the same judge says: “We are inclined to think when a man takes a discredited note, and sues in his own name, when the defendant bas a set-off against the indorser, that the indorser must be considered the plaintiff, within the meaning of the statute. The indorsee stands in the place of the indorser. In both these cases authorities are cited favoring these views.

In the case of McDuffie v. Dame, 11 N. H. 244, the case of Chandler v. Drew is spoken of as being opposed to the prevailing doctrine as to set-off in other States; but the court were not disposed to doubt the propriety of that decision. It was said, however, it should not be extended beyond the precise limitations of the case. There the note had been indorsed bond fide and on a good consideration, and this was regarded as an essential point in the decision.

An indorsed discredited note, it was said, should be liable to set-off, unless there has been an actual transfer of the interest in the note. A transfer which is merely nominal, should be regarded in the light of a fraud on the payee where there is a set-off and a transfer is made to avoid it; and it has been held that in an action by the indorsee against the maker, if the defendant files a set-off’ against the note, and introduces evidence that the note was not indorsed until discredited, he will be admitted to sustain his set-off, unless the plaintiff shows that he took the note bond fide, for a valuable consideration.

The last branch of this decision is in accordance with the ease of Eaton v. Brown, cited in Ross v. Knight, 4 N. H. 237; Woods v. Carlisle, 6 N. H. 28, where the same case is cited; and Bellows v. Smith, 9 N. H. 285. Chandler v. Drew is approved in Jenness v. Bean, 10 N. H. 267, and Williams v. Little, 11 N. H. 72.

The decision in McDuffie v. Dame has stood undisturbed till the present time, and may be regarded as the law of the State. It being clear that the note was overdue when indorsed, and both the good faith and the consideration of the transfer being left in doubt, the note was liable to any set-off which the defendant could establish against the indorser.

Nothing being found by the auditor upon the private dealings of the parties from the plaintiff to the defendant, the only question remaining relates to the set-off' founded upon the dealings of the indorser Martin and the defendant Woodman, with the firm of which they were members.

The evidence tends to show that the note in question was given for money loaned to the defendant some months before the partnership commenced, and that it originally rvas entirely unconnected Avith the partnership. Its connection, if any, with the business of the firm, is left in uncertainty.

It is well settled that the demand proposed to he set off must constitute a debt or claim for which an action ex contractu might be maintained by the defendant against the plaintiff. The debt must be due when the action is commenced, and at the time of the trial. 2 Leigh N. P. 154; 2 Saund. Pl. & Ev. 790; Esp. N. P. 238; Varney v. Brewster, 14 N. H. 49; Toppan v. Jenness, 21 N. H. 232; Hardy v. Corliss, 21 N. H. 356.

The question, therefore, is, whether the claim attempted to be set off here is such that the defendant could maintain an action of contract upon it.

It is well settled here as well as elsewhere, that during the continuance of a partnership, and while its concerns are unadjusted, there is at common law no implied promise by one partner to pay any thing to the other on a partnership transaction, and no action lies by either in such case, unless the transaction upon which the right of action is based has been settled between the parties, and a promise of payment made. Gibson v. Moore, 6 N. H. 547, and authorities; Wright v. Cobleigh, 21 N. H. 342; Harris v. Harris, ante 45.

This case strongly illustrates the wisdom and policy of these rules. The attempt here is to set off the share or proportion of the defendant in the balance of two accounts, the one in favor of the defendant against the firm, of which it is assumed that the plaintiff is bound to pay one half to the defendant; the other in favor of the firm against the plaintiff, of which it is assumed the plaintiff owes half to the defendant. But the assumption is not well founded in either case. These claims constitute only a part of the partnership dealings. The balance due from one of these partners to the other can only be ascertained by a settlement of the whole accounts of the firm, including their assets on hand, and their debts payable and receivable to and from all with, whom they have had dealings. It may be that the accounts considered by the auditor include all these, but it is not probable, and is not so stated. If not, it by no means follows that the balances found are due to the defendant, since they may be balanced by other claims connected with the partnership.

However this may be, the claims offered in set-off were clearly inadmissible, because they do not constitute a debt upon which an action at law may be maintained.

The set-off being disallowed, there must be judgment for the plaintiff on the note.

Judgment for the plaintiff.