
    *Shepherd et al. v. Anderson.
    January Term, 1856,
    Richmond.
    Absent, Gilmer, J., and Field, P. — (The latter decided the case in the court below.)
    1. Negotiable Paper — Transfer as Collateral Security— Rights of Holder. — The holder of a negotiable note, ■which has "been transferred to him, as collateral security for a debt, by a person who could not have recovered in an action on the note against the maker, cannot recover in an action of debt on the note against the maker, more than the amount of the debt for which the note was taken as security.
    2. Pleading and Practice — Special Plea Provable under General Issue — When Rejection Ground for Reversal of Judgment. — Although the rejection of a special plea, which contained matter which would have been a good defence if offered under the general issue, was proper, because the matter thereof should have been offered in evidence under the general issue, and because it was offered too late ; yet where the court, in rejecting the plea, stated,, as the reason for so doing, that itdid not set forth a legal defence to the action, and thereby prevented the defendant from offering the matter thereof in evidence under the general issue ; it was held to be error, for which the j udgment was reversed.
    William Anderson, jr., brought an action of debt in the Circuit Court for the countj, of Fluvanna, upon a negotiable note for $1,000, of which Albert G. Shepherd and Robert E). Nelson, partners, under the firm of Shepherd & Nelson, were the makers, and Martin Tutwiler and J. J. Faris & Co., a firm consisting'of J. J. Faris, Peter C. Hogg and Abraham Whitmore, were endorsers. The suit abated as to J. J. Faris & Co., by a return of “no inhabitants and Shepherd & Nelson and Martin Tut-wiler were arrested, appeared, and pleaded to the action. On the 4th of September, 1848, a verdict was rendered in favor of Martin Tutwiler and against Shepherd & Nelson, upon a plea of nil debet, and judgment was entered up in accordance with said verdict. During the progress of the cause, Shepherd *& Nelson offered a special plea, in which they alleged that, prior to the making of the note in suit, .they (Shepherd & Nelson) had executed a certain other note for $1,000, negotiable and payable at the Bank of Virginia, to the order of Martin Tutwiler, which note the said Tutwiler endorsed to J. J. Faris & Co. That about the time said note became due, they made the note then in suit payable, in like manner, to Martin Tutwiler, and it was endorsed and delivered by him to J. J. Faris, the acting member of the said firm of J. J. Faris & Co., for the purpose, as was well understood by them and the said Tutwiler and Faris, of retiring the first executed note, and for no other purpose whatever; but the said Faris, instead of using it for that purpose, fraudulently, and without the knowledge of Shepherd Nelson, or of Tutwiler, or of his co-partners, Hogg and Whitmore, endorsed the said note in the partnership name of J. J. Faris & Co., and delivered it to the plaintiff, William Anderson, jr., as collateral security for the sum of $400, due from the said Faris or J. J. Faris & Co. to the said Anderson, but of which sum $50 was afterwards paid, leaving only $350 due. And they prayed judgment, whether the plaintiff ought to recover more than $350, with interest and the costs of protest against them; but the court refused to allow the said plea to be filed, “upon the ground that it set forth no legal defence to-the action, no valid objection being made as to the time of tendering said plea.”
    Shepherd & Nelson appealed from the judgment of the circuit court, upon the verdict found upon the issue of nil debet.
    Randolph, for the appellants,
    submittedl the case upon the petition of appeal.
    In the petition it was urged, that the holder of negotiable paper, who took it as collateral security, holds it subject to all the equities of the maker against the party from whom the holder received it. Prentice v. Zane, 2 Grat. 262. And conse-. ’ quently that Shepherd & Nelson *had the same defence against Anderson, as against Faris & Co. The latter could not recover, because of the fraudulent misapplication of the note by J. J. Faris, and, therefore, Anderson had no right to recover.
    Gilmer, for the appellee,
    submitted the cause without argument.
    
      
      Negotiable Paper. — See monographic note on “Bills, Notes and Checks” appended to Archer v. Ward, 9 Gratt. 622.
    
   THOMPSON, J.

The court is of opinion, that the court below erred in rejecting the special plea tendered by the plaintiffs, although the matter of defence set forth and relied on might have been given in evidence under the general issue of nil debet; because the plea, according to the bill of exceptions containing the reasons of the court for its rejection, was rejected, not because the matter of defence set 'forth should be given in evidence, and availed of under the general issue, nor because of the time when the plea was tendered; but, upon the ground that it set forth no legal defence to the action, whereby the defendants were virtually precluded from availing themselves of the defence which this court holds to be a good one, by way of evidence under the general issue. Therefore, the judgment is reversed with costs, and the cause remanded for further proceedings, with instructions to the court below, either to receive the special plea, which was rejected, if again tendered, and not objected to for defect of form, or because the matter of the' plea should be given in evidence, and taken advantage of under the general issue; or to allow the defendants to give it in evidence to the jury upon the general issue of nil debet; and moreover to receive anj other proper special plea, which the defendants may be advised to tender, unless the matter thereof should be more properly availed of, by way of defence, under the general issue.

Judgment reversed.  