Carlisle v. Wishart.

debt does constitute a valuable consideration, in the sense of the general rule already stated, as applicable to negotiable instruments."

And again: "It is for the benefit and convenience of the commercial world to give as wide an extent as practicable to the credit and circulation of negotiable paper, that it may pass, not only as security for new purchases and advantages, made upon the transfer thereof, but also in payment of, and as security for, pre-existing debts. The creditor is thereby enabled to realize, or to secure his debt, and thus may safely give a prolonged credit, or forbear from taking any legal steps to enforce his rights. The debtor, also, has the advantage of making his negotiable securities of equivalent value to cash. But establish the opposite conclusion, that negotiable paper can not be applied in payment of, or as security for, a pre-existing debt, without letting in all the equities between the original and antecedent parties, and the value and ́ circulation of such securities must be essentially diminished, and the debtor driven to the embarrassment of making a sale thereof, often at a ruinous discount, to some third person, and then, by circuity, to apply the proceeds to the payment of his debts."

The very question, in this case, has been, as above, fully settled by a respectable state court, and by the Supreme Court of [181 the United States. Inasmuch as the Supreme Court follows the state courts in the decision of all local questions, it is but right, so far as the general principles of the common law are concerned,. especially commercial law, that the state courts should be governed by the Supreme Court; and this should be done, if not as a matter of absolute authority, at least good policy would require it. Otherwise, we will have the same question decided differently in the different courts, in the same state, and it will lead to various shifts and devices to sue in that court which will give the most favorable judgment. This would lead to injustice and confusion.

And where can we look for the rule of decision on such questions, with the same satisfaction, as to the Supreme Court of our own country? Good policy would require this, but does this question rest upon that ground alone? I think not.

At this time, bills of exchange and notes, in some form, constitute, in a great measure, the currency of the country, and, in various ways, represent the wealth of the land. Those instruments being indispensable in trade, ought not to be embarrassed in any

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respect; and, so long as the present mode of doing business is continued, it seems to me, that the negotiable paper, in the usual course of business, should pass as freely as bank notes, and, whether taken for a past debt, or a present consideration, should make no difference, or be inquired into. The object of such instruments is to supply the place of money, and that can not be carried out fully only by putting them on the same footing.

The only real argument attempted to be set up for the rule, as laid down in Coddington v. Bay, is this: that the party, taking the paper for a pre-existing debt, loses nothing if he fails, and makes that a clear gain if he succeeds; and this reasoning assumes, that the original cause of action remains, in every respect, unaffected; and that the party may, and can, proceed upon that in the same manner as though he håd not taken the new paper. 182] *We can suppose a case of that sort, but would it be the ordinary kind of case? I presume not; if taken in payment, the original debt is satisfied, at least until the security fails; if taken in payment, or renewal of an old debt, the old note is generally given up or canceled; and this last is the ordinary case of such paper.

Undoubtedly there will be some hard cases; but it is better that some imprudent men, who put it in the power of any one else to appear to be the owner of paper, who, in fact, is not eutitled to it, should suffer, than that the whole system of bills and notes should be embarrassed by exceptions in their favor. Besides, the consideration of paying an old debt it seems to me, ought to be as much favored as the contracting a new debt, or submitting to the operation of having the paper shaved.

Will the court undertake to say, that it is not in the ordinary course of business to pay an old debt? It is well observed, by the counsel for the plaintiff, in Swift v. Tyson, "that it was once the ordinary course of trade to pay debts, and should be yet."

Taking the weight of authority into the account, and the ground on which it rests, I think that this court should not hesitate to follow the rule laid down by the Supreme Court of the United States. In doing this, no one is injured, for it is only enforcing a good rule, that has, in some instances, been departed from; it is not adopting any rule which is to change any rights of property; and if it has a tendency to prevent one from parting

Carlisle v. Wishart.

with his name in a negotiable shape, it might, in that respect, operate beneficially.

If the rule, as contended for, as laid down in Coddington v. Bay, be established by this court, where will the effect of it cease? If the holder of a negotiable bill or note can be met with the same defense that could be made to the original payee, from whom he received it, what becomes of all that class of bills and notes made for the accommodation of some of the parties? None of the original parties to such paper could maintain any action on it.

*SHANNON & ALEXANDER, and THOMAS ALEXANDER, for de- [183 fendant:

The question arising in this case is whether the indorsement of a negotiable note, before due, and without notice, but on account of a precedent debt, will subject the indorsee to all the equities existing between the original parties.

It is not denied that, as between indorser and indorsce, a prece dent debt is a valid consideration; nor is it urged that the fact of the taking a negotiable note, by indorsement, for a precedent debt, constitutes a defense for the maker, at the suit of the indorsee; but it is claimed that this circumstance throws the indorsee back on the title of the indorser, and affects him by all the equitable circumstances existing between maker and payce.

"The liabilities of parties to negotiable paper have been fixed on certain principles which are," or at least have been supposed to be, "essential to the credit and circulation of such paper, and these principles originated in the convenience of commercial transactions." 6 Pet. 59.

The law was founded on commercial policy, and the liabilities of the parties on the law.

It was supposed to be necessary, for the advancement of trade, that the most free circulation should be given to bills and notes, and by protecting third persons, who might receive such evidences of debt for a valuable consideration, and without notice, that free circulation was to be obtained. Then, going on the hypothesis that the foregoing principles are true, it is thought that the following propositions can be amply sustained:

1. That the indorsement of a negotiable promissory note, before maturity, without notice, but on account of a precedent debt, is not

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such a transfer as ought to be favored in law, on the grounds of commercial policy.

2. That such a transfer is not a taking for a valuable consideration, and in the usual course of trade, within the meaning of those terms, as applicable to this class of cases.

184] *The rule of law is, that an indorsee, who receives a negotiable note, bona fide, before due, without notice, and for a valua ble consideration, shall not be affected by the equities existing between the original parties to the note.

The reason of this rule, as all the authorities agree, is, that the indorsee, in such case, having parted with his property, or money, on the faith of the maker's promise to pay, and having incurred loss thereby, is entitled to protection; and, when one of two innocent persons must suffer, by the fraud of a third person, it is but just that he should sustain the loss who gave his name to the negotiable security, and permitted it to go into circulation. Chitty on Bills, 90 (9 Am. ed).

In this case, tested by the reason and spirit of the rule, it can not be difficult to come to a just conclusion, and we would have supposed that, were it not for some recent dicta of courts, the case would be plainly with the defendant in error.

In the case of De La Chaumette v. Bank of England, 9 B. & C. 208, the plaintiff brought trover for a bank note, which had been presented to the bank, and by it detained, on the ground that it had been stolen. The court held, that the bank, having proven the note to have been stolen, it was incumbent on the plaintiff to prove that he gave full value for it.

The principle on which this case was decided can be seen at a glance. Suppose the plaintiff to have been the thief, it is very evident, is it not, that he could not recover under any circumstances? Well, suppose him to have been the indorsee of the thief, and that he had not given a valuable consideration for the bill, the question then turns on the equities of the parties, and the question, "Did the indorsee part with his money or his property, and did he incur loss, or create new responsibility?" naturally arises, and is determined in the negative; and, from this state of facts, it is adjudged that the plaintiff can not recover. Thus, the plaintiff was thrown back on the title of the indorser, as it were, and the onus probandi lay on the plaintiff to prove a full value paid; and unless he done so, that he had no superior equity. Then, it

Carlisle v. Wishart.

may be asked, has the plaintiff in error proved that he paid full value for this *note? If he took the note for a precedent debt, [185 he has paid no value. He has parted with no money, or other prop. erty; and, it was no discharge of the precedent debt, unless the note was not only taken in its payment, but at the time it was expressly agreed between him and Benham that it should be an absolute discharge of the debt. The taking of this note, then, leaving the precedent debt precisely as it stood before, so far as the record shows, the plaintiff in error is not within the reason or protection of the rule of law in question.

A bill of exchange, or promissory note, either of the debtor or any other person, is not payment of any precedent debt, unless it be so expressly agreed. 5 Johns. 68; 7 Johns. 311; 9 Johns. 310; 8 Johns. 389; 11 Johns. 513; 12 Johns. 409; 6 Cranch, 264; 12 Pet. 57; 1 Salk. 124; 8 Ohio, 528; 8 Conn. 472.

The record in this case shows no such agreement, therefore the plaintiff in error is not an indorsee for a valuable consideration, within the reason of the rule; and we wish it to be borne in mind by the court, that a note in such case, according to the authorities, although taken in payment of a precedent debt, is not payment unless so expressly agreed at the time, and then only on the principle that an individual has a right to "discharge his debtor without any consideration." 6 Cranch, 254.

"A distinction is also taken between a third person, who takes a note or bill from another, and has actually advanced goods or money on the credit of the bill or note, and where he has not done so, but is merely a creditor on a former account. In the latter case, he is frequently to be considered merely as an agent, and not a holder for value, and must therefore prove his debtor's right to the security, where it has been unduly obtained, or lost or stolen." Chit. Bills, 92, 9 Am. ed.

The jury having found that the note in question was fraudulently obtained, is not the last quotation from Chitty directly in point? It most certainly is, if law ought to settle this question, for [186 this is the identical kind of a case contemplated by the learned author.

The statute (Swan's Stat. 589) enacts, "that no bill of exchange, or promissory note, that shall be drawn or made after the passing of this act, shall, though it may have been given for a usurious consideration, or upon a usurious contract, be void in the hands.