Carroll v. Malone

STONE, J. The bill in this case was filed to obtain the benefit of an equitable set-off. The important points made by the pleadings and proofs are, that Carroll executed his notes to Clark T. Barton, for near $9,000, dated and due January 1, 1847; that when these notes were over due, viz., not earlier than February, nor later than April, 1847, Barton traded and endorsed said notes to Goodloe W. Malone, in part payment of a pre-existing debt, and soon after this, Goodloe W. Malone traded and endorsed them to John L. Malone, likewise in part payment of a pre-existing debt; that Carroll incurred liabilities, as accommodation endorser for Barton, on May 7, 1847, of over $5,000, and on July 13, 1847, of $2,000; and that on July 8, 1848, Carroll executed a mortgage to John L. Malone, securing the notes so transferred by Barton. [526] Two other questions of fact, raised by the pleadings and proof, are necessary to be here settled: first, was Barton insolvent, and when' did he become so; and, second, when did Carroll receive notice of the endorsement of his notes by Barton to Malone? We are fully satisfied that Mr. Barton was insolvent long anterior to May 7, 1847. It is insisted in argument, by the appellee, that the answers, where they deny that Carroll had notice, and aver that he (Carroll) did have notice of the assignment of the notes to Goodloe W. Malone, before May 7, 1847, are responsive to the bill, and are therefore evidence of the facts thus set up. In support of this position, we are referred to Brashear v. West, 7 Peters, 608. The citation sustains the argument, but we are not prepared to adopt the rule there laid down. No authorities are cited in support of it; and it is in direct conflict with'our decisions on the same point. — Walker v. Palmer, 24 Ala. R. 358, and authorities cited; McCauley v. State, 26 Ala. 135; Carpenter v. Devon, 6 Ala. 718. The complainant, Cai’roll, to make a case for relief, was compelled to aver, in substance, that he incurred the liabilities for Barton before he had any notice of the assignment of his notes. This he in effect did, when he stated that “ he unhesitatingly endorsed for Barton, knowing that he was indebted to him, and relied upon Ms indebtedness as protection against loss.” In another place the bill says, “ Now, after incurring the said several liabilities for said Barton by your orator, and when your orator had not yet been compelled to pay any of them, and learning that said Barton had transferred and traded away to Goodloe W. Malone, of said county, the two notes,” &c. The answers aver notice. To hold the answers, under such circumstances, to be proof of the affirmative fact, would be to establish the monstrous proposition, that the necessary averment of a negative in pleading imposes on the party thus pleading the necessity of proving that negative, when put in issue by the adverse party. Some slight circumstances are relied on, as tending to prove that Carroll had notice; but they are insufficient for the purpose. We are, therefore, unable to find from the proof that Carroll had notice of the assignment, until after he had Incurred the liabilities for Barton, [527] . It is further shown by the pleadings and proofs, that Carroll paid the two debts of $2,000 each, and half of the debt of $3,352, before he filed his bill. Two questions are presented: 1- Under these facts, is Carroll’s equity superior to Malone’s? 2. Is Carroll estopped from asserting his claim of set-off, by the mortgage he executed? The doctrine' of equitable set-off has been frequently before this court. In the case of the T. C. & D. R. R. Co. v. Rhodes, 8 Ala. 206, the question was elaborately considered; and, after being twice argued, the court allowed the set-off, in a case precisely like the present, with the exception, that in this case the legal title to the note or bond passed to Malone, while in that, the debt of Rhodes was unassignable, and Sherrod acquired only an equitable interest in it. In that case may be found a careful and labored collation of the authorities, English and American. The court declared the law to be, that Rhodes was entitled to the set-off claimed; but, if his debt had been assignable, and had been endorsed to Sherrod, the opinion asserts that the set-off would not have been allowed. The cases of Robertson v. Breedlove, 7 Porter, 543, and Donelson v. Posey, 13 Ala. 752, lay down the rule in substantially the same language. In the authorities from this court above quoted, all is mere dictum that speaks of a distinction between unassignable choses in action, and notes or bills endorsed after due; but the same distinction is observable in a strong array of authorities, some of which are noted on the briefs of counsel. Another distinction arose, early in the history of this question, which bears on the point in issue. It is said in the books, that assignees of bills or notes, who receive them after they are due, and thus dishonored, take them subject to all defences, both legal and equitable, which the promisor could assert against the payee. In the case of Brown v. Davis, 3 Term R. 80, the court uses the strong language, that under such circumstances, the party who receives the note.('«takes it on the credit of the person toho gives it to himf The qualification is, that the equities to which a bill or note, thus traded is subject, are those which arise out of the bill or note transaction itself A strong array of' authorities recognizes this distinction. Many of tlp^re tolleqted and reviewed in [528] Greene v. Darling, 5 Mason, 201; Burrough v. Moss, 10 B. & C. 558; Ord v. White, 3 Beav. 351; Ford v. Stuart, 19 Johns. 342; Tuttle v. Beebe, 8 ib. 152. On the other hand, many able decisions discard this distinction, and hold that, when chancery can rightfully take jurisdiction of the subject, it will give the maker of the bill or note the benefit of all the equities he may have, whether connected with the- transaction or not. — Mosteller v. Bost, 7 Iredell’s Eq. Cases, 39; Wathen’s Ex’r v. Chamberlain, 8 Dana, 164; Watkins v. Worthington, 2 Bland’s Ch. 509; Ainsworth v. Ainsworth, 2 Cush. (Miss.) Rep. 145; Blake v. Langdon, 19 Vt. 485; Gay v. Gay, 10 Paige, 369. Our own court, in the recent case of Wray’s Adm’r v. Furniss, 27 Ala. 471, hold the same doctrine. In the case last cited, the question was directly presented; and, although the bill was dismissed for another reason, the opinion still stands as an authority on the turning point of this case. From an authority so recent, we do not feel at liberty to depart, unless upon conviction of fundamental error. Is there any thing in the distinction asserted in the case of the T. C. & D. R. R. Co. v. Rhodes, supra? Will a departure from the dictum,' in that case, overthrow any great conservative principle of the commercial law? After giving this question a careful consideration, we are unable to perceive any solid foundation on which to rest the distinction asserted. The notes being transferred when over due, and consequently dishonored, the transferree stands affected with notice of all defences, legal and equitable, which the promisor could have maintained against the payee. The endorsement simply places .him in the legal and equitable position in which the payee stood before endorsement. He acquires the rights of the payee, but he takes them with their disabilities. No one will contend that the complainant in this case would not be entitled to relief against the notes, if still held by the payee. He is entitled to the same against the endorsee after dishonor. The insolvency of Barton raises an equity against him; the endorsement of the notes after they were due and dishonored, coupled with the insolvency of Barton before Carroll had-notice of the assignment, extend that equity, so as to embrace the endorsee within its remedial power. [529] We bold, therefore, that Carroll’s equity is paramount to Malone’s; or, in other words, that Malone has no other equity than than that which could have been asserted by Barton. This being the case, his legal title to the notes avails him nothing. The statute makes bonds, as well as bills and notes, assignable by endorsement. This destroys all distinction between them, affecting this case. — Clay’s Digest, p. 381, § 6. The mortgage executed by Carroll to Malone does not estop him from asserting his equitable right of set-off. See the authorities on the briefs of counsel. See, also, Clements v. Loggins, 2 Ala. 514; Griggs v. Woodruff, 14 Ala. 9; Taylor v. Bates, 5 Cow. 376; Finn & Dulaney v. Barclay, 15 Ala. 626; Ware v. Cowles, 24 Ala. 446. The decree of the chancellor, dismissing the bill, is reversed, and the cause remanded for further proceedings, not inconsistent with the principles here decided. Rice, C. J., concurs in this opinion.