Bates v. Kemp

Wright J. It is first objected that, upon the issue joined, under the testimony, the finding should have been for defendant. We are very clear, however, that the finding was right. Defendant admitted the execution- of the note, and set up that he had been released. Upon him was the burden of proof. So far from sustaining it, the weight of the testimony is in plaintiff’s favor. The -note in suit was made to Jonathan Lyon, or order, of date October 1, 1856, due in one year. Defendant, for further defense, sets up — 1. That Lyon by his bond agreed to convey to defendant certain real estate, on the payment of this note and another for the same amount, due October 1, 1858, given for the purchase money; that both notes were due at the time of the institution of this suit, and that no deed had been tendered. 2. After setting out the consideration as above, avers that Lyon conveyed said real estate to one Turner, and that it is out of his power to convey the same to defendant, according to the terms of [226] his bond, and that the note was assigned to plaintiff after maturity. A demurrer to both these pleas was sustained. When the cause was before us in June, 1861, the sufficiency of these defenses was not passed upon. When it was remanded, defendant claimed the right to introduce testimony to sustain these parts of his answer, to which plaintiff objected. The objection was sustained, and this ruling is now assigned for error. The District Court had previously sustained the demurrer to the whole answer, and defendant did not amend. This court did not interfere with that ruling, except as to the first clause. When the cause was remanded, therefore, defendant had no standing in the court below, except upon his first defense. As to the other two pleas, he was out of court. He claims, however, that the demurrer was improperly sustained as to these pleas, and asks their examination. We think this is his right, and therefore pass upon their sufficiency. A reference to a few facts, and the application of the principles of law governing, will be sufficient to show that the demurrer was properly sustained. It is not shown that the second note was due at the time of the assignment of the first one to plaintiff. Neither does it appear that, at the time of the'execution of the bond, or the transfer of this note to plaintiff, Lyon did not have a good title to- the property. It does appear, however, that Lyon had no title at the túne the deed was to be made by the terms of the bond. Now this note, maturing as it did before the conveyance was to be made, was independent of the covenant to convey. And if it be admitted that it was in Lyon’s hands at the time of the maturing of the bond, it- would be treated as dependent, in the same manner as the last note, this rule could not operate to defeat plaintiff’s action. At- the time he obtained the note there was no defense to it. The [227] payee at that time could have maintained an action upon it, and the holder by indorsement was clothed with the same right. And being thus clothed — there being at that time no equities in favor of the defendant — those subsequently arising could not avail him against the present holder. It yf-is true the note was overdue at the time of the negotiation/'' and plaintiff took it as a dishonored instrument, sub^Ji'' ject to any defenses then existing against it; but not subject* .. . to those that might subsequently arise. (Campbell v. Rusch, 9 Iowa, 337; Shipman v. Robbins, 10 Id., 208.) In the last case, this language is used: “Set-off is not like1 - payment, or a defense going to the want or failure of the consideration, or fraud in obtaining the note. These attach to the note itself, or the transaction out of which it arose, and control, qualify, or extinguish the plaintiff’s right to recover, and therefore are available against an indorsee taking it after maturity.” Without some qualification or explanation, this language might be deemed in conflict with the ruling now made, and therefore we refer to it. Properly understood, there is no conflict. A set-off is an equity, (not a defense,) between the parties to the paper arising out of other independent transactions. And therefore, when not governed by some statutory rule, it cannot avail the party taking the note by indorsement, though existing at the time of the negotiation. Fraud or a want of consideration attach to the note at its inception, and of course are available against the party taking it after maturity. A failure of consideration, while it in one sense attaches to the note itself, its availability depends upon the time of its occurrence. In the case of fraud, the payee could not maintain his action at the time of the transfer. So in case of a want of a consideration. In the case of a failure of consideration, he may or may not do so. If he could then his indorsee can, for he ought not to be affected by what may subsequently occur. [228] In this case, if the indorsee had, at the time of his purchase, gone to the defendant and made inquiry as to the validity of the note, he would have learned that at that time these defenses did not exist. It was his duty to do this, and he is presumed to have done so. He had made his two notes, one of which (that in suit) matured before he was entitled to a deed. If, subsequent to the transfer of the first note, (the transfer being after maturity,) his vendor places it out of his power to make a deed, the indorsee should not be the sufferer. The cases of Turners v. Gilchrist, 1 Sandf. Sup. C., 53, and Hedges v. Healy, 9 Barb., 214, are in principle like the one before us. In the first case the note was transferred before due, but the consideration was such that the indorsee took it subject to all the equities between the maker and the payee. In the second, the note was payable to “ order” — was not indoi’sed, but transferred by delivery only,— and it was held that the holder was not a bona fide indorsee, and that the note was open to any equitable defense which the maker had against it at the time of the transfer. In the first case it is said that the indorsee took it subject to the equities then existing, but not subsequent ones. These cases differ from this, only in the fact that here the note was indorsed after maturity. But in each the indorsee stands only in the place of the payee, at the time of the transfer. He is entitled to no greater protection, nor should he be subject to any greater burdens. Affirmed.