Muirhead v. Kirkpatrick

The opinion of the Court was delivered, by

Woodward, J.

— On the 17th day of June, 1839, William Kirkpatrick and Ephraim Kirkpatrick made their promissory note to Jno. Capron & Co., or order, for $500, at 90 days, which was transferred to Wm. Muirhead, by the endorsement of Capron & Co. #

# On the 11th day of March, 1842, William Muirhead sent his •agent, Geo. W. Houseal, to present this note to the Kirkpatricks, and demand payment. The agent found Wm. Kirkpatrick only ■at 'home, and their interview resulted in Houseal’s giving up the ■■$500 note,-and taking two others therefor, one at 30 days, and the •other at 60 days for $186.22, which is the note .now in suit. Both these notes were made payable to Wm. Muirhead, and .were .signed by Wm. Kirkpatrick alone. The mote at 30 days has been paid, but when suit was brought on .the present mote, the defendant -relied on a.set-off, which, after several trials, failed him, for reasons which may be seen in 5 W. $ Ser. 506, and.2 Barr 425, where .the case is twice reported. He then changed 'the ground of his •defence, and set up a failure of the .consideration of the $500 -note, and claimed that it was an available defence against the present note, 1st, because both notes were .founded on'the .same consideration; and, .2d,’because the original .note was not transferred .in due course of business, but pledged merely as collateral security for liabilities which the .plaintiff had assumed for Capron & Co. The Court of Common Pleas, however, conceiving that this note was founded on a new and distinct consideration from that of the $500 note, rejected the defendant’s evidence, and directed a verdict for the plaintiff. .This Court .reversed that judgment, and the case is reported the third time in 4 Harris’ State II. 117.

Two principal.propositions of law were ruled on that .occasion, neither of which it is our intention to disturb.

1st. That though the holder of a negotiable instrument, received .in payment of a pre-existing debt, before maturity, cannot be subjected to equities existing between the original parties, and o.f which he had no notice, yet if the paper be taken as collateral security merely, for the payment of a debt, or for protection against previously assumed liabilities, the defendant may aver any .ground of defence which would have been • competent between the . antecedent parties to the bill or note.

■ 2d. That it was error in the Common Pleas to reject the defendant’s testimony, and to assume that the note in suit .rested on a new and distinct consideration from that which was given up— this being a question for the jury, rather than the Court.

When the cause went down for re-trial under this ruling, it is manifest that the first of the above propositions involved an important inquiry of fact, to wit, the character and purpose of the transfer of the $500 note. If transferred before maturity and for value, the. consideration of it was not subject to scrutiny, nor .of course the consideration of the notes which replaced it. But . if pledged as , collateral security merely, the title .remained in ...Capron-•& Co„ and the consideration would be open to inquiry; and then if the jury should be satisfied that the new notes were .founded in no new consideration, but were only renewals of the original note, the defence set up would be as applicable to one of the new notes as it would have been to the original note. This inquiry became thus a vital question on the last trial, and out of the evidence offered in regard to it, bills of exception resulted, which may be properly noticed at this place.

The defendant offered his brother, Ephraim Kirkpatrick, as a witness, having first released him from all liability over, on account of his signature to the $500 note, and the Court admitted him. We dismiss the plaintiff’s complaint of this with the remark, that the competency of this witness was fully discussed and decided when the record was last here: 4 Harris 127, et seq.

The plaintiff then offered Jonathan Muirhead to prove that the transfer of the note was not as a collateral, but in payment of existing liabilities. The Court rejected him, and this is the plaintiff’s sixth assignment of error.

Had the action been on the original note, Jonathan Muirhead would have come within the rule of policy recognised in many modern cases, which excludes a party to negotiable paper from testifying between other parties to the paper; but though the partner of Capron, he was never a party to this note in suit. The note which Capron & Co. had endorsed, had been given up by the holder without the knowledge or assent of the endorsers, and the note in suit had been taken in lieu of it. This discharged the liability of the endorsers beyond a doubt. But that note was assigned as a collateral security merely, says the defendant, and the money recovered in this action will go to the benefit of the owners of the collateral, and therefore the witness had a direct interest in the event of this suit. Whether assigned as a collateral or not, is, as we have seen, an open question in the cause, but for the purposes of this objection we must assume that it was. William Muirhead, then, as the holder of a collateral, was bound to preserve it or collect it, and apply it for the benefit of the assignor. He might not waste it, or exchange it for an inferior security, and doing either, he made himself accountable for it. A bond, or chose, which is transferred as collateral security, is put under the dominion of the creditor, to make his claim out of it. It is not in the nature of, or subject to the incidents of a pawn, or pledge: Ins. Co. v. Smith, 1 Jones 127, by Coulter, J. His duties in respect to it are active. He is to employ reasonable diligence in collecting the money on the security, and applying it to the principal debt, and a conversion of it into a less security is such misuse as makes him accountable to the debtor. When William Muirhead gave up the $500 note, and took notes for it against William Kirkpatrick alone, he not only released Capron & Co. from liability to him as endorsers, but he incurred liability to them for releasing Ephraim Kirkpatrick from the paper. From that moment he was bound to account to Capron & Co. for their note. How, then, was Jonathan Muirhead interested in the event of this suit? If the plaintiff recovered, the argument is, he would have to account to Jonathan as a member of the firm of Capron & Co. The answer is, he had fixed upon himself a liability to account, whether he recovered in this action or not, and therefore the witness was not interested in his recovery. Never having been a party to the note in suit, and not interested in the event of the action, we hold that Jonathan Muirhead was a competent witness,1 and that the Court erred in rejecting him.

These are the only bills of exception to evidence which it is necessary to notice, but we think the plaintiff in error has reason to complain of a portion of the charge.

The question as to the character of the transfer of the original note was sufficiently submitted to the jury; but the question as to the consideration of the note in suit was not. I do not overlook the fact that the judge, in answering the plaintiff’s points, particularly the third and the ninth, submitted to the jury the question of a new consideration, so far as the extension of time would be a new consideration; but this was only one of the elements of the alleged new consideration; and the language quoted from the reported case was a very emphatic intimation that the Supreme Court considered the extension of time, even in connection with the giving up Ephraim Kirkpatrick, no new consideration whatever. It is difficult, indeed, to doubt that the jury must have considered the whole subject of consideration settled by the language with which the charge concludes, and yet that language, so far as it was borrowed from this Court, consisted of obiter dicta, which were predicated of a hypothesis that the learned judge who indulged it, intimated might be unfounded. The consideration of the new note, in its nature, and by express authority, a question for the jury, was thus virtually withdrawn from them, and ruled against the plaintiff, almost as distinctly as on the former trial it was ruled against the defendant. The testimony of Houseal is the only evidence on the record that touches the transaction of the 11th March, 1842; and the jury should have been instructed, that if he was believed, a new and independent consideration had been shown.

Consideration is the motive or price of a contract. A valuable consideration is one that is either a benefit to the party promising, or some trouble or prejudice to the party to whom the promise is made: 4 Kent’s Com. 465.

On the 11th March, 1842, the Kirkpatricks were liable to be sued, at once, on the note in Muirhead’s hands: and stipulated forbearance to sue, or extension of time, has always been recognised as a valuable consideration. The giving of time, said Gibson, C. J., in Petrie v. Clarke, 11 Ser. & R. 383, would be a present and a valuable consideration; and a pledge on these terms would be tbe same as a pledge for money paid down. Again, on the 11th of March, 1842, there was a pending doubt (not yet solved indeed) whether the $500 note was transferred in payment of, or as collateral security for existing liabilities; and important legal consequences depended on this question. Here was a fit subject of compromise, and the compromise of a doubtful claim is a sufficient consideration to support a promise: Brown v. Sloan, 6 Watts 421; Clement v. Reppard, 3 Harris 112.

Still, again, in releasing Ephraim Kirkpatrick as a drawer, and Capron & Co. as endorsers, as well as in incurring a liability to account to them for a collateral changed into a less security, if a collateral it was, Muirhead yielded advantages, and submitted himself to inconveniences that are in the very nature of considerations: Hind v. Holdship, 2 Watts 104; Mercer v. Lancaster, 5 Barr 162; Esling v. Zantzinger, 1 Harris 53.

All these grounds for a new consideration are developed fronr the circumstances of the parties at the date of the note in suit, and from the testimony, of Houseal. If, therefore, on the next trial these circumstances shall appear as they now do on this record, and if Houseal, who is corroborated by the admitted facts, that the old note was given up and two new ones taken in its stead, shall be believed by the jury, they will be bound to say, that the note in suit was founded on a valuable consideration, independent of that on which the original note was founded, and therefore that a failure of the consideration of that note is no defence against the plaintiff’s right to recover in this action.

It is believed that an application of the principles herein stated, to the next trial of the cause, will put an end to this protracted litigation, a consummation devoutly to be wished.

The judgment is reversed and a venire de novo awarded.