T. H. & J. M. Allen & Co. v. Bratton

Peyton, C. J.: On the 10th day of November, 1860, Archibald S. Dobbins, sold to Samuel E. Bratton, a certain tract of land, situated in Coahoma county, containing about 1,180 acres, for the sum of $30,000, of which $8,000 were paid at the time of the sale, and for the balance the said Bratton executed his three promissory notes to the said Dobbins, of that date, for $7,333.33 each, payable one, two, and three years thereafter, with 6 per cent interest per annum. And at the same time, the said Dobbins delivered to said Bratton a bond to make him a title to said land when said notes were paid. The said Archibald S. Dobbins being indebted to T. H. & J. M. Allen & Co., indorsed and delivered one of said notes to said T. H. & J. M. Allen & Co. as collateral security for said antecedent indebtedness, the date of which is not disclosed by the record. It also appears that the Crescent City Bank of Lousiana became the owner of another one of said notes, on [128] the 2nd day of May, 1866, by purchase, in the city of New Orleans, as commercial paper. After a variety of pleadings, by bills and answers, the cause was finally disposed of in the court below, upon the bill of Samuel E. Bratton to rescind the contract of sale, on the ground of fraud in obtaining it, and for want of title to a large portion of the land, and on the answers of T. H. & J. M. Allen & Co., and of the Crescent City Bank of Louisiana, the exhibits and proofs. The court decree a rescission of the contract, and that the bond for title, and the said notes, given for the land as aforesaid, be canceled and annulled, and that an account be taken of the amount paid by said Bratton to said Dobbins, which is declared to be a lien on said land, and if not paid by said Dobbins, the said lands, or so much as may be necessary, to be sold to pay the amount that may be due the, complainant Bratton, hence the case came to this court by appeal. This decree is believed to be unimpeachable, unless T. H. & J. M. Allen & Co., and the Crescent City Bank occupy such a position under the Law Merchant, as holders of two of these notes, as will protect them against the equities existing between the original parties thereto. And to the consideration of this interesting question we will now address ourselves. T. H. & J. M. Allen & Co., in their answer to the bill of complaint, allege that the said Archibald S. Dobbins, being largely indebted to them, indorsed and delivered to them one of said notes, due in November, 1862, as collateral security for such indebtedness. But when that was done we are not informed, whether it was before or after the maturity of this note. This circumstance, however, can make no difference in their case under the law of Tennessee, where said notes were dated and made payable. Bor if the note was indorsed and delivered to them after its maturity, they took it, under the general commercial law, subject to the equi [129] ties existing between tbe original parties, and if they received it before its maturity, and held-it as collateral security for an antecedent debt, they stand in no better situation than the payee, and would be subject to all the defences which might be made against it in the hands of the payee. As the notes were executed and to be paid in Tennessee, they are to be governed by the laws of that state, and upon questions connected with commercial paper, it is there well settled that the suspension or satisfaction of a precedent debt is not a sufficient consideration to give the assignee or indorsee of a bill or note the position of a bona fide purchaser, as against prior equities. The reason given is, that where a party receives a note or bill for a pre-existing debt, due from the person only who assigns the note or bill, he parts with nothing. He has given for it neither his money, goods nor credits, nor has he, on account of it, sustained a loss or incurred any liability. Rhea v. Allison, 3 Head, 179. In that case the court admits that a different rule is laid down in most of the states, and by the supreme court of the United States, in the case of Swift v. Tyson, 16 Pet. 1. In the case of Valterlain v. Howell, 5 Sneed, 443, it was held that if a note is taken in payment of or as collateral security for a pre-existing debt, it is not negotiated in due course of trade, and the holder would stand in no better situation than the payee, and would be subject to all the equities existing between the original parties. Nichols v. Hill, 10 Yerg. 429 ; Ingham v. Vaden, 3 Humph. 51 ; Ingram v. Morgan, 4 ib. 66. The note held by the Crescent City Bank was due in November, 1863, and was purchased by said bank in New Orleans, on the 2d day of May, 1866. It thus appears that the note was overdue when purchased by the bank, which took it with notice on its face that it. was discredited, and therefore subject to all the equi [130] ties existing between the original parties. ' There can be no doubt that, at common law, the holder of a negotiable bill or note, who receives it from the payee after it falls due, takes it subject to all defences which attach to the note or bill in hands of the indorser. It was at first doubted whether a bill or note, overdue, could be so negotiated as to enable the indorsee to sue on it in his own name. But, upon the opinion of merchants, the court of king’s bench decided such action would lie. Mitford v. Wallicot, 1 Salk. 129. But in Brown v. Davies, 3 T. R. 80, and Tayler v. Mathew, ib. 84, it was expressly decided that the indorsee in such case takes the bill or note subject to all defenses. This is the well settled doctrine of the common law, and the recent American cases hold substantially the same doctrine. Barlow v. Scott, 12 Iowa, 63 ; 10 ib. 208. All defences, as between the original parties, so far as the note is concerned, are equally available against the indorsee, who receives the paper when overdue. Bates v. Kemp, 12 Iowa, 99. In the case under consideration we think the fraud of the vendor in respect to the overflow and title to a valuable part of the land, together with the insolvency of the debtor, entitles the vendee to a rescission of the contract of sale, and to a repayment of the money advanced upon it. Misrepresentation in obtaining a bargain is, in equity, a ground for setting aside a conveyance by which it was consummated. McAllister v. Barry, 2 Hayw. 190 ; Boyce’s Executors v. Grundy, 3 Pet. 210. In the case of a purchase of land, where the title in part fails, the court of chancery will decree a return of the purchase money, even after the purchase has been carried completely into execution, by the delivery of the deed and payment of the money, provided there had been a fraudulent misrepresentation as to the title. Edwards v. McLeag, Cooper’s Eq. 308 ; Fenton v. [131] Brown, 14 Vesey, 144 ; 2 Kent, 610, top page. But in ease the vendor be perfectly solvent, and there be no ingredient of fraud, and the purchaser is not evicted, the insolvency of the title is no ground for relief against a security given for the purchase money, or for rescinding the purchase, and claiming restitution of the money. The party is remitted to his remedies at law, upon the covenants in his deeds. 2 Kent, 620, top page. Upon the whole we can perceive no error in the action af the court below. The decree will, therefore, he affirmed.