Northampton Bank v. Balliet

The opinion of the Court was delivered by Rogers, J. This was an action of debt to recover the amount due on a bond given by the defendants to the Northampton Bank, in the penalty of $1000, conditioned to pay $500 with interest on the 1st day of April 1843. The defendants plead payment and tender: replications and issues. The suit is brought for the use of John Swander, to whom the bond was assigned on the 5th of April 1842. But the defendants received no notice of the assignment until the 23d January 1843. The case may be viewed in two aspects: first, as between the Northampton Bank and the defendants ; and next, between the assignee and'the defendants. By the Act of defalcation it is enacted, that it shall be lawful for the defendant to plead payment, and give any bond, bill, receipt, account or bargain in evidence. In this State, therefore, in a suit on a bond, the plea of payment is not.viewed merely as a common law plea, in which only direct evidence of payment is admissible; but upon notice, according to the rules of court, the defendant may avail himself of set-off, or any equitable defence he may have against the plaintiff’s claim. But granting that it is a common law plea, the question arises, in the first place, whether payment into court, or a tender in the notes of the bank, between the bank itself and its debtors, is equivalent to payment or tender in specie. In other words, has the bank a right to insist on gold [316] and silver from its debtors, when they are willing and offer to discharge. their obligations in notes issued by the institution itself? In this State, although it is conceded to be different in Massachusetts and New Jersey (13 Mass. 235; 3 Halsted 172), the doctrine asserted by counsel has the merit of novelty; for the benefit of this principle, so far as my knowledge extends, has never been claimed by the banks, nor has it ever been supposed to exist by the public. If the law be as has been contended, it is time it should be known, as the citizens of this State have been labouring under a dangerous delusion; for it is notorious that the notes of insolvent banks have commanded a ready sale in market, for the simple reason that they can be used in payment of debts due the bank. This is the common understanding among the men of business throughout the State; and it would shock their ideas of common sense and common honesty, if they should now be told that it was not a matter of right, but depended entirely on the will of the institution (whether solvent or insolvent), who were at liberty to receive them or not, as they might think proper. Nor can the bank complain of injustice, if the law be adverse to this pretension, as it is of no consequence to them what price their debtors pay for their notes, whether par or their depreciated value, as the bank can lose nothing by the transaction. The argument is, that notes are not money, and that it is in opposition to that clause in the Constitution of the United States which prohibits the several States from making anything but gold and silver coin a legal tender in payment of debts. If the Legislature should so far forget their duty as to undertake to make bank notes or bills issued by themselves a legal tender generally, in payment of debts to third persons or to other institutions, the objection would be unanswerable; but between the bank itself, which is the creature of the Legislature, there is nothing in the Constitution to restrain their power to impose terms, whether directly or by necessary implication; nor is there anything to prevent them from imposing terms on themselves. Besides, in the case of a solvent bank, such a privilege would be unavailing; as all it would be necessary to do would be, when the bank refused to receive its notes as payment, to demand the specie for the notes, and then pay their debt in gold and silver drawn from their own vaults. It must be conceded that no part of the Constitution can be so construed as to prevent either individuals or banks from making their own contracts, and agreeing to receive payment either in notes issued by themselves or in any other manner they may stipulate for. This, in truth, is in the ordinary course of business, as, for example, contracting to pay in current notes or some marketable commodity; and no person ever supposed it was an infringement of the Constitution to compel the contracting parties to perform their agreement. These are cases of express contracts, it is true, but implied con [317] tracts create the same obligation and come within the same category. Of the latter description is this case. A bank is an incorporated institution, with peculiar privileges; among others, to issue or loan their own notes, which, in the common transactions of business, answer, and are so intended by the bank, all the purposes of money. They pass by delivery; and even when stolen, and transferred in the course of business, unlike choses in action or other property, they cannot be recovered from a bond fide holder. In Race v. Miller, where the principle was first decided, Lord Mansfield says, “ They are not goods, nor securities, nor documents for debts, but are treated as money, as cash, in the ordinary course and transactions of business, by the general consent of mankind, which gives them the credit and currency of money to all intents and purposes; they are as much money as guineas themselves are, or any other coin that is used in common payment as money or cash.” The same principles are recognised in Bayard v. Shunk (1 Watts & Serg. 92), where the whole matter is carefully examined by Chief Justice Gibson, who delivered the opinion of the court. If these principles be correct' — and they cannot be contested, either on reason or authority — how can the bank, which has issued and passed them as cash, refuse in good faith to receive them as cash ? They, at least, are estopped from denying they are cash, when offered in payment by their debtors. From the very nature of the transaction, there is an implied contract with them and the holders, that they will treat them, to all intents and purposes, as money. To adopt the language of Lord Mansfield, they are as much money as guineas themselves are, or any other coin that is used in common payment as money or cash. Having given them currency as money or cash, they shall not be at liberty afterwards to dispute it. It is cash so far as they are concerned, if to none others, and this upon the plainest principles of equity and justice. The furthest the banks in this State have ever ventured to go, was a denial by the branch bank to receive the notes of the parent bank, and the assignees of the United States Bank to receive the notes of the bank, which had depreciated in value, in payment of debts, which was promptly remedied by the Act of the 11th March and the 20th section of the Act of the 1st May 1841. In passing those remedial Acts, it was taken for granted that they would have no right to refuse to receive their own notes. If this case, therefore, rested between the Northampton Bank and the defendant, the payment into court would be a good payment, without regard to the time when they were procured by the defendants. There is a marked difference between such a case and a defence grounded on a set-off. But as the bond has been assigned, we must next consider the effect of the assignment. The case would seem to be this. John Swander, the assignee for whose use the suit is brought, was the holder of notes of the [318] Northampton Bank to the amount of $2000. This money he loaned to the bank, taking as a collateral security several bonds, of which the bond in suit was one. The bonds were assigned on the 5th April 1842, but the defendants had no notice of the assignment until the 23d January 1843. Although the agreement between Swander and the bank says but little for the solvency of that institution, yet we can perceive nothing in that contract that places Swander in a worse situation than any other assignees either from banks or individuals. - It must be governed by the same rules which apply to assignments under the Act of the Legislature. The bond is payable to the bank or its assigns ; it therefore goes into the hands of the assignee with all the incidents attached to other assignments of choses in action. From this it follows that after assignment of the bond and notice of it, no set-off afterwards accruing can avail the defendant; nor is the assignee bound to receive the notes of the bank in payment. In that particular the assignee stands in a different situation from the assignors. For although as between the defendants and the bank the notes may be treated as cash, yet between them and the assignee they cease to be such, and must be viewed in the ordinary light of a set-off merely. If, therefore, the defendant held the notes of the bank at the time he received notice of the assignment, the assignee would be bound to receive them as cash. But if afterwards, the assignee cannot be compelled to receive them, nor is there any defence against the plaintiff’s demand either as payment or set-off The important period to determine the rights of the assignee and the defendants is not the time of the assignment, but the time the defendants had notice of it, and this principle applies as well in the case of set-off as payment. The time the contract begins between the assignee and the obligor is when the latter has notice of the assignment. It is the duty of the assignee or the obligee to inform the obligor that he has parted with the bond, and if this is omitted they are in default, and not the obligor, who, until he is informed otherwise, has a right to suppose that the bond is still the property of the obligee, and to act and contract with the obligee or others under that reasonable supposition. These principles were first ruled in Wheeler, assignee of Baynton v. Hughes, (1 Dall. 23). The assignee takes the bond at his own peril, and stands in the same place as the obligee, so as to let in every defalcation which the obligor had against the obligee at the time of the assignment or notice of the assignment. This was the case of set-off, and has been repeatedly recognised since in cases cited at the bar. It is supposed, however, that all the earlier cases have been overruled in Hinkley v. Walters, (8 Watts 260), and same case, (9 Watts 183). A distinction has, it is said, been taken between payment and set-off; and to this effect, it must be confessed, is the reasoning of the learned Judge who delivered the opinion of the court. The court, however, never did [319] intend to overrule the earlier cases on this subject, none of which, be it remarked, would seem to have been cited either in the argument or in the opinion of the Judge. It must be observed that this point was not necessary to the decision, which turned on the Act of Limitations as applicable under special circumstances to a plea of set-off, grounded on an erroneous and mistaken principle said to be ruled by this court, that the statute of defalcation or set-oif perse applies the demand of one party to that of the other, so as to produce payment, satisfaction or extinguishment. As this case goes down for another trial, I will now briefly notice the bills of exception. If the agreement proved by the witness contained in the first / bill had been followed up with proof that the bank had obtained a re-assignment of the bond, it would be pertinent evidence. But this the defendant failed to do; it was therefore immaterial to the issue and improperly received. Of this the court were aware, and in the charge corrected the error by instructing the jury that it was no defence to the bond. For such an error I should be very reluctant to reverse the judgment, unless there was something in the case which induced a suspicion that it may have had an improper influence on the minds of the jury. . . . The court was right in admitting the evidence in the second bill, because although th.e liability of the bank was not complete when the defendant had notice of the assignment, yet the transaction out of which the defence arises commenced before he was informed of the transfer of the bond. As the time when the notes were received by the defendants may be very material, it is necessary for the defence to give proof of it. And for this purpose we cannot perceive that the fact that one of the debtors was a man of business and in the habit of taking Northampton Bank notes is any proof whatever. On the whole case, we think the judgment should be reversed, and a venire de novo awarded. Judgment reversed, and a venire de novo awarded.