De Mott v. Starkey

The Chancellor. The assistant vice chancellor arrived at a correct conclusion in this case, not only as to the matters of" fact, but also: as-to the legal and1 equitable rights of-the parlies; The evidence fully establishes the fact that the $700'note in controversy was not-given upon a loan made to De Mott; but was merely a security for the return of the amount, with interest, in case the arrangement should not: be consummated' so as to have the- $700 applied as a payment on Starkey’s bond and mortgage, upon its being assigned to the complainant inpayment of Montgomery’s prior mortgage, Starkey having gone into the actual possession of the farm, and occupied it for two seasons without paying any 'part of his purchase money, and [406] the farm being then of less value than the principal and interest due upon his bond and mortgage, the selling of the $700 note to a third person, so as- to secure the repayment of that amount to himself, instead of having it applied upon the bond and mortgage according to his agreement, was an attempt to defraud Dé Mott out of that amount. And Semans, the appellant, xyas not authorized to hold and collect the note, as against the right of the maker thereof to have it applied upon the bond and mortgage, according to the agreement of Starkey, unless he could establish a state of facts entitling him to the character of a bona fide purchaser and holder of the note for a valuable consideration, and without notice of the complainant’s rights. And the appellant xvholly failed to establish such a defence in this case. It is now the settled laxv, both here and in England, that the purchaser of a negotiable note or bill of exchange, not payable upon demand but at a specified time, is not in a situation to sustain the character of a bona fide holder thereof without notice, if he became such purchaser after the bill or note had become due and xvas dishonored. In other xvords, the purchaser of a bill or note xvhich has become due and payable, according to the terms thereof, takes it subject to all equities, or legal or equitable defences, which existed against it in the hands of the person from xvhom he received it. (Bayly on Bills, 2d Am. ed. 134, 544. Chilly on Bills, Barb. ed. 244. 5 John. Rep. 118. 8 Idem, 454.) Here, by the terms of the note, it had been due and payable more than txvelve months before Semans became the purchaser thereof. He should therefore have inquired and ascertained from' De Mott whether it was actually due, and xvas to be paid by him; before he purchased it of Starkey. And having neglected to do so, he took it subject to the right of De Mott to have the amount applied in part payment of the bond and mortgage of Starkey in case he should cancel his oxvn bond and mortgage and take an assignment of Starkey’s bond and mortgage to Montgomery, in lieu thereof. Again ;,to entitle a parly to the character of a bona fide purchaser xvithout notice of a prior right or equity, such party must [407] not only have obtained the legal title to the property, or the negotiable security, but he must have paid the purchase money, or some part thereof at least, or have parted with something of value upon the faith of such purchase, before he had notice of such prior right or equity. And Semans, long before he made any payment to Starkey on account of the purchase of this $700 note, not only had notice of De Mott’s rights under the agreement with Starkey, but had been formally called on to surrender up the note to De Mott’s agent, and to have th amount thereof endorsed upon the bond and mortgage. The payment of any part of the purchase money of the note, after what had then taken place, was a payment in his own wrong; and was an attempt to assist Starkey in defrauding the complainant. The assistant vice chancellor, therefore, properly charged the appellant, as well as Starkey, with the extra costs occasioned by their unconscientious defence in this case. No part of the decree appealed from was erroneous, and it must be affirmed with costs.