Ranger v. Cary

Dewey, J.

The instructions of the court of common pleas, to which exceptions were taken, embraced substantially he fol-owing propositions : 1. That the burden of proof was on the defendants to show that the note was transferred after it was due and when dishonored, if they would avail themselves of a defence only open to them as upon a dishonored note : 2. That unless the defendants satisfied the jury that the transfer of the note to the plaintiff was at least one month subsequent to its execution, it was not a dishonored note, and the proposed defence could not avail : 3. That the transfer of the note must be considered as made and completed, so as to vest the title in the plaintiff, at the time when she paid the consideration thereof and it was in fact delivered to her, though the indorsement of the name of the payee was not placed upon the note until long after-wards : 4. That the burden of proof still remained on the defendants to show that the note was dishonored, notwithstanding the testimony of Baxter Ayres, and the other evidence, as to the time of the indorsement.

1. Upon the first point, the law is very fully settled according to the rule stated by the judge at the trial. A negotiable note being offered in evidence, duly indorsed, the legal presumption is that such indorsement was made at the date of the note, or at least antecedently to its becoming due ; and if the defendant would avail himself of any defence that would be open to him only in case the note were negotiated after it was dishonored, it is incumbent on him to show that the indorsement was in fact' made after the note was overdue.

2. The second point raised presents a question often brought to the consideration of the court, and upon which no very well defined and precise rule of a general character has been adopted. The general doctrine is sufficiently well settled, that as to a promissory note payable on demand, payment is to be demanded in a reasonable time ; and if not demanded within such time, it is to be deemed overdue and dishonored. But what is a reasonable time, within which such demand must be made, can be said to have been ruled only in reference to particular cases, as they have occurred. The question has arisen in two classes of cases ; the one, as to what was a reasonable time to make such demand, in order to charge an indorser; and the other, like that in the case before us, as to the length of time in which a note, payable on demand and remaining unpaid, would be held to be dishonored and subject to those grounds of defence which would have been open to the maker in a suit by the payee.^*

The adjudicated cases in our own courts do not furnish any case approximating very closely to a period of time corresponding with the one under consideration. In Field v. Nickerson, 13 Mass. 131, the period of eight months was held not to be within a reasonable time to make a demand to charge the indorser ; and in Seaver v. Lincoln, 21 Pick. 267, where the demand was made in seven days after the date of the note, it was held to be within due time. In Sylvester v. Crapo, 15 Pick. 92, a note that had remained unpaid for eleven months before it was negotiated, was held to be dishonored ; and the shorter period of six months was, in Thompson v. Hale, 6 Pick. 259, held sufficient to subject it to the defence of a note overdue. On the other hand, a note indorsed seven days after its date was held, in Thurston v. McKown, 6 Mass. 428, to have been transferred in season to avoid any ground of defence arising from the equities between the original parties.

Without attempting to prescribe any precise limit beyond which such a note must be held to be dishonored, the court are of opinion that the term of one month, as stated in the instruction to the jury, was sufficiently restricted in point of time, and that if the note was transferred to the plaintiff within that period, 't was not a dishonored note.

3. Upon the instruction that the transfer of the note was to be considered as made and completed, so as to vest the title in the plaintiff when she paid the consideration therefor and it was in fact delivered to her, although the actual indorsement was made long afterwards, we have not thought it necessary to decide further than as respects its bearing and effect upon the case now before us. And in reference to the defence here relied upon, and the right to plead in offset such demands as might have been pleaded, if the action had been brought in the name of the payee, the court are of opinion that the indorsement, when made, should be regarded as relating back to the time when the plaintiff paid the consideration and the note was actually delivered to her ; inasmuch as whether the plaintiff had the legal title from the time of the delivery to her of the note, or the equitable title merely, from the time of the delivery, and the legal title by a subsequent indorsement, the defence here relied on must be equally unavailing. Here is no question of want or failure of consideration, of this note; no offer to prove payment of it; but the defendants rely upon an account filed in offset, in their favor against Baxter Ayres, the payee and indorser of the note, as their only ground of defence to a recovery by the plaintiff.

It was originally a question of much doubt whether, in any case, where an action was instituted on a dishonored negotiable note, in the name of the indorsee, the defendant could avail himself, by way of set-off, of distinct demands he might have held against the indorser — the suit being between other parties than those to the account offered in offset, and the statute, which allows set-off, in its terms embracing only demands between the parties to the suit. The English decisions restrict the defence to a dishonored note within a much narrower ground than that relied on in the present case ; holding the plaintiff, in such cases, liable only to the equities arising out of the note itself, or to the allowanc 3 of such demands due to the maker of the note as might be found by either express or implied understanding of the parties to have been agreed to be applied in discharge of the same. Burrough v. Moss, 10 Barn. & Cres. 558.

This court, however, after much consideration, in the case of Sargent v. Southgate, 5 Pick. 312, held that the statute of set-off was a remedial statute and ought to have a liberal construction ; and that, in an action by an indorsee against the maker of a negotiable note indorsed when overdue, the maker might file in offset demands he had against the indorser for money due. In that case, the note remained in the possession of the payee long after it was dishonored, and the case presented itself undei circumstances of equitable defence much stronger than in the case at bar. In Stockbridge v. Damon, 5 Pick. 223, where a note was transferred six years after it was due, and where the indorsement was obviously in fraud of the maker’s rights, the court also allowed the demands of the maker against the payee to be given in evidence to defeat a recovery on the note. But the construction of the right of set-off, thus liberal for the suppression of fraud, should not be extended so as to work injustice to a bona fide holder of a note, who became possessed thereof for a valuable consideration, before it was dishonored, and when by subsequent indorsement the legal interest has become vested in him, so that he may enforce the collection of it in his own name.

In the case of a note not negotiable, transferred to a third person, it is, from the very form and nature of the contract, a chose in action to be enforced solely in the name of the payee ; and until actual notice of transfer, the law requires that all payments and offsets, which may be properly applicable to the same, should be allowed. Not so in the case of a negotiable note, which by its very terms shows that the promise is the subject of transfer and sale, and whore no notice of transfer would have been required to be given to the maker, if there had been an actual indorsement before the note was overdue. It is true that in respect to such a note, if there were an attempt to enforce it without indorsement, and in the name of the payee, it might be defeated by an offset, if no notice had been given; but when, by indorsement, the equitable transfer has become a legal one, the case may present itself under a different aspect as to the legal rights of the parties.

If this note had remained in the possession and control of the payee until dishonored, or if it had been fraudulently indorsed to avoid the offset of the makers’ demands against the payee, we should have had no hesitation in applying the rule as stated in the cases above cited, and sustaining the defence. But this case shows a bona fide sale of the note before it was dishonored, lor a valuable consideration, and an actual delivery of the same to the plaintiff, and her possession thereof to this time, and her subsequent acquisition of the legal title by indorsement. If this indorsement had in form been made before the note was dishonored, no question could have been made as to the right of the plaintiff to recover. Having become possessed of the same, at the time and in the manner she did, and having, before the institution of her suit, acquired the legal title, and consequently the right to sue in her own name, the court are of opinion that the plaintiff does not hold this note subject to the demands filed in offset, and to which it would have been liable while in the hands of the payee ; and that, for this reason, the defence relied on cannot prevail.

4. In the view we have taken of this case, we perceive no objection to the ruling of the judge, that the burden of proof remained on the defendants, notwithstanding the evidence contained in the deposition of Ayres as to the time of the indorsement, taken with the other evidence in the case. The question .was, whether upon the whole evidence the defendants had shown that the transfer of the note to the plaintiff was made under such circumstances, that the demands of the defendants against the payee of the note were admissible in defence, in the present action. The evidence referred to discloses, in connexion with the time of the actual indorsement, the delivery of the note, for > a valuable consideration, to the plaintiff, at a period before the note was dishonored. The burden of proof being originally on the defendants, to show that the note was transferred under such circumstances as would authorize the proposed defence, we do not see that this burden was shifted upon the plaintiff, but think it remained on the defendants.

Exceptions overruled.

* By St. 1839, c. 121, § 1, in actions by indorsees against the makers of notea thereafter made, payable on demand, any matter shall be deemed a legal defence, and may be given in evidence accordingly, which would be a legal defence if the action were brought by tne promisee.