Best v. Crall

The opinion of the court was delivered by Brewer, J.: This was an action and judgment on a promissory note, dated March 24,1873, and due in eighteen months, [485] executed by defendants to one George Lamberson, jr., and by him indorsed to Grail, the plaintiff. The note was in form an ordinary negotiable note. On the 24th of April, 1873, Crall sold to said Lamberson, jr., a buggy and harness, for $290, which, by the terms of the contract (which was in writing), might be paid for in hay at a stipulated price, which hay was to be delivered by Lamberson, jr., from time to time, up to March 1st, 1874. As security to Crall that Lamberson, jr., should perform his part of the contract and deliver the hay, or otherwise pay for the buggy and harness as per their written contract, Lamberson, jr., agreed with Crall in their written agreement that Lamberson, jr., should deposit certain notes at the Exchange bank of Wm. Hetherington & Son, in the city of Atchison, as collateral security for the faithful performance of the contract. This part of the agreement reads as follows, viz.: “It is agreed that the said George Lamberson, jr., shall deposit certain notes as collateral security for the faithful performance of his obligation in this contract, which notes are to be deposited at the Exchange bank of Wm. Hetherington & Son, and so to remain for the benefit and security of the said Crall until the fulfillment of this contract; and in the event of failure by said Lamberson, the said Crall may and shall have the right to collect the same to the amount that may be due him in the premises. In witness whereof, the said parties,” etc. In pursuance of this agreement, as shown by Crall’s evidence, the notes with the written agreement were inclosed in an.envelope, sealed up, and deposited in Hetherington & Son’s bank, on the 24th day of April, 1873; and among other notes so deposited were two notes sued on in this action, upon one of which the defendant in error, Crall, obtained this judgment which the plaintiffs in error seek to reverse. The statute of limitations defeated the claim in the other note. The defense interposed was payment to Lamberson, made before the maturity of this note, and without knowledge of any transfer. The court refused to permit evidence of such payment, and this presents the question for our consideration. [486] We think the ruling of the court correct. There is no question but that the note was indorsed at the time it was placed in the bank as collateral, and none that the payee failed to deliver the hay, except about three tons, or make other payment; so that Crall had a valid claim for much more than the amount of this note, and for which this note was indorsed and transferred as collateral security. The notes were afterward, by consent of Lamberson and Crall, taken from the bank, and left with Crall. There is some little uncertainty as to the time when this was done, but we think this immaterial, and that the ruling would have been correct even if the notes had remained in Hetherington’s bank up to the time of suit. By the indorsement, the legal title was transferred, and Crall was by the contract given the right to collect up to the amount due him for the buggy and harness. In 1 Daniel on Negotiable Instruments, § 824, the author says: “ When the note or bill of a third party, payable to order, is indorsed as collateral security for a debt contracted at the time of such indorsement, the indorsee is a bona fide holder for value in the usual course of business, and is entitled to protection against equities, offsets, and other defenses available between antecedent parties, provided, of course, that the bill or note transferred as collateral security is itself, at the time, not overdue.” There is no pretense that Lamberson had the note at the time of payment to him, or that he was authorized by Crall to receive the money. Crall had done nothing to mislead the makers, nothing upon which to base any estoppel against him. Now a maker of a negotiable note who before its maturity pays the payee' the amount thereof without a surrender of the note, does so at his peril. If the payee is no longer the holder, or entitled to receive the money, the payment in no manner discharges the paper, or prevents the real holder from recovering upon it. The case of Davis v. Miller, 14 Gratt. 13, is still stronger. In that case, the indorsement was after maturity and protest for non-payment. After transfer, payment was made to the indorser, and receipt taken. The maker had no notice of the transfer till after the payment. [487] It was held that the payment was no defense. In the opinion, Moncure, J., uses this language: . “On the other hand, however, it may be answered that no •case can be found in which it has been'decided, or even said, that payment to an indorser after an indorsement is a good defense against the indorsee. That no decision can he found the other way, is well accounted.for by the fact that the payment of a negotiable note is very rarely made without taking in the note, or having the payment, if partial, indorsed thereon; and no occasion has therefore occurred for a decision of the question. That no such occasion has occurred, is in itself an argument in favor of the defendant in error. . . . There is at least as much reason in holding the maker of a note responsible for want of caution in making a payment, as for holding a purchaser responsible for want of caution in making a purchase. Indeed, there is more, for due caution will always protect the former against an improper payment, while the greatest caution may not protect the latter against an improper purchase. The former is always safe in making payment to the legal holder of the note, which he may thereupon require to be produced and surrendered to him, while the latter is often deceived by a false possession, and must at his peril look to the title, which may be separate from the possession.” (See also Coffman v. Bank, 41 Miss. 212. The case of McCrum v. Corby, 11 Kas. 464, is notin point, for in that there was no indorsement. Here the paper was regularly indorsed. Nor is this indorsement one which simply constituted the holder, agent of the indorser, such an indorsement as is spoken of in 1 Daniel on Neg. Inst., §822, to which we are referred by counsel. For this transfer was irrevocable. The indorser had no control of the paper, could acquire none except by payment of the debt for which the paper was pledged. Whether the legal title passed directly to Crall, or to the bank as trustee for his benefit, is immaterial. It had passed away from Lamberson, and he held neither legal title nor equitable right to the proceeds. Therefore payment to him was to one without actual right to receive it, and without .possession of any evidence of title or right to receive payment. Conceding, as counsel contend, that the indorsement is to be construed along with the agreement as really one [488] transaction and one instrument, yet such an indorsement passes title, and, except as limited by the restriction, cuts off all equities. The note was indorsed as security for Lamberson’s debt to Crall, a debt contracted at the time of the indorsement. That debt is unpaid, and Crall has a right to-recover. The judgment will be affirmed. All the Justices concurring.