
    [Philadelphia,
    Saturday, January 4, 1812.]
    *Evans against Smith.
    A drew a foreign hill of exchange in favor of B, and with his blank indorsement on it, handed it over to C as a security for an unascertained balance supposed to be due from Ato C—C delivered the bill to D to be remitted to the drawee for acceptance and payment, taking from him a memorandum acknowledging the receipt of the bill, and promising to pay C the amount deducting a certain discount, when advice should be received of its payment. Shortly afterwards C assigned over the memorandum to E as a security. The bill was protested, and on its return was delivered to E who brought an action against the indorser.
    
      Held that E did not take the bill in the usual course of trade, but subject to every equity that there was between the original parties ; and therefore that he could recover no more upon the bill than the balance due from A to C.
    This was an action of assumpsit against the defendant .as the indorser of a foreign bill of exchange. The cause had been referred under the act of 1705 ; and upon exceptions to the report of referees, who found the amount of the bill, but without damages, in favor of the plaintiff, the case appeared to be thus:
    On the 8th of May 1810, Richard Dennis of Philadelphia drew a bill of exchange on Barber and Co. merchants of Liverpool for 500i. sterling, payable at sixty days’ sight to the defendant or his order. Smith indorsed the bill in blank ; and in this situation it was handed over by Dennis to George Eddy and Co. to secure a balance supposed to be due by him to them. Eddy did not pass the amount of the bill to the credit of Dennis, but delivered it, without the indorsement of his house, to William Chancellor to be sent on for collection, and took from him a written memorandum, by which he acknowledged the receipt of the bill, and promised to pay Eddy and Co. the amount, deducting five per cent, upon advice of its being accepted. Eddy and Co. on the 6th of August following, in consideration of a debt due by them to the plaintiff, assigned this memorandum or receipt inter alia, to the plaintiff, who knew nothing of the original transaction between the parties. The bill then returned dishonored, and was delivered up to the plaintiff who brought the present suit.
    The referees stated, that two of them were of opinion that the bill was not taken in the usual course of business, and was liable to the same equity in his hands, as it would have been in the hands of Eddy and Co.; and of course that the plaintiff’s right to recover depended upon there being a balance due to that house by Dennis. The third was of opinion that the bill was taken in the usual course, and therefore that the balance was immaterial. They all however signed the award without accurately examining the accounts between Eddy and Co., and Dennis, the majority seeming *to think that any balance was sufficient to carry the whole bill.
    The exceptions were founded upon their error in law, in not ascertaining the balance, and making their award commensurate with it.
    
      J. H. Ingersoll for the defendant.
    This bill was handed to Eddy and Co. as a mere security. They gave Dennis no credit for it in their books, but considered every thing open until payment, which resembles it to the case of Chapman v. Steinmetz, 1 Dall. 261. Precisely as they took it, so did the plaintiff. The bill was not indorsed in the regular or usual course of business. It was delivered to Chancellor, and a receipt substituted, which was afterwards assigned to the plaintiff. This was wholly out of the usual course, and should have put the plaintiff upon inquiry. So indeed a majority of the referees thought. They have gone a part of the way right, by refusing the twenty per cent, damages; but they have not followed up their own principle by making the balance due from Dennis the sole measure of the plaintiff’s right. The state of these accounts should have been the only question.
    
      Gondyiov the plaintiff.
    The bill was indorsed in blank by the defendant, and of course passed from hand to hand without in any degree visiting the original transaction upon the bona fide holder. Even though a bill of exchange be noted for non-acceptance, when indorsed over in blank, the indorsee is not bound to inquire into the history of the bill; Wilkinson v. Nicklin, 2 Dall. 396. This bill was negotiable by delivery merely. It was in the hands of an agent for collection, and therefore could not be actually delivered. But there was a complete legal delivery and transfer by handing over the receipt which was its substitute, and this was the same as though the bill itself had been transferred. The receipt did not prompt to any inquiry as to the original transaction, but only as to the agreement with Chancellor, which is a common every day agreement among merchants. Inasmuch therefore as at least what the referees have found is due to the plaintiff, the court will not set the award aside, at the ^defendant’s instance, because they have not found damages, nor made their report upon strictly legal grounds.
   Tilghman C. J.

Bichard Dennis, the drawer of the bill of exchange which was indorsed by the defendant, being indebted on account to George Eddy and Co., put into their hands the bill with the defendant’s indorsement on it. Eddy and Co. directed their clerk not to enter any credit in their books to Dennis on account of this bill. They afterwards delivered the bill to Chancellor and Co., without their own indorsement, and took his written receipt and promise to pay them the amount, deducting five per cent, discount, upon advice of the acceptance of the bill. It was afterwards protested for non-acceptance and non-payment; but before advice of its fate was received, Eddy assigned the receipt of Chancellor, together with other property, to the plaintiff, as security for the payment of a debt of near 10,000 dollars due to the plaintiff' from Eddy and Co. A majority of the arbitrators were of opinion, that under these circumstances, the plaintiff did not receive the bill in the usual course of business, and was to be considered as standing in the place of Eddy and Co. and of course subject to any matter of defence, which the defendant might have set up, if the suit had been brought by Eddy and Co. against him. They were also of opinion, that Eddy and Co. did not take the bill as a •payment, but only for the purpose of receiving the money from the drawers and then placing it to the credit of Dennis. I cannot say that the arbitrators were wrong in this view of the matter, because at the time the plaintiff received his assignment from Eddy and Co. the bill was in the hands of Chancellor, and from the nature of the case, it never could come into the hands of the plaintiff- till after it was dishonored. The arbitrators were also of opinion, that if there had been no balance of account due from Dennis to Eddy and Co., the award ought to be in favor of the defendant. But yet they declined entering into the account so minutely as to ascertain the exact balance, which the defendant wished them to do : but because it appeared in general, that there was some balance due, they made an award for the full amount of the bill of exchange. It appears to me in this *resPe°t they acted manifestly in contradiction to the principles they had before established. If the consideration of a bill may be inquired into, it is proper to inquire not only whether it fails in whole, but in part. The award in this case ought not to have been for the whole bill, unless the amount of the whole bill was due from Dennis to Eddy and Co. This could not be known without settling the account between them. As that was not done, there is no good foundation for the award. I am therefore of opinion that it should be set aside.

Yeates J.

(After stating the case.)

The only question which can arise in the case is, whether the bill passed from Eddy and Co. to the plaintiff in the common and ordinary course of trade? Because if it so passsed, the consideration of it is not inquirable into, from the nature of such negotiable paper and commercial usage. It is true the plaintiff does not appear to have known the grounds on which the bill was drawn, nor the original transaction between the parties. But it is equally true, that when the assignment was made to him, he knew from the terms of the receipt, that a conditional contract had been entered into with Chancellor and Co. respecting it, and that Eddy and Co. had not the absolute power over it, under these circumstances. They did not indorse the bill; they could not indorse it, as it had been delivered to Chancellor and Co., who had remitted it to England. The bill therefore did not go into the hands of the plaintiff in the usual course of business; and seems to me analogous to the case of a promissory note negotiated after it becomes due, which passes into the hands of the indorsee, subject to all the equity which subsisted between the original parties. The plaintiff then stands precisely on the same footing with Eddy, and is only entitled to the real balance as it stood between the latter and the drawer of the bill. By the express orders of Eddy, the bill was not credited in his books; and inasmuch as it had not been ascertained by the referees that Dennis is indebted to Eddy to the extent of the sum found due to the plaintiff, I am of opinion that their report should be set aside.

*Brackenridge J.

The truth of this case seems to be, as appears from the examination of the referees, that accounts existed between Dennis and Eddy; and Dennis admitting that there might be a balance due to Eddy, gave him this bill payable in London, which might be honored, or might not; but if honored,was to be passed to the credit of Dennis. With this understanding of the parties, it was indorsed by Smith pro forma, in order to give it the appearance of negotiability; and doubtless had it been indorsed by Eddy to a party having no knowledge of this understanding, such an indorsee could not have been affected by it. But it was not in the hand of Eddy when assigned'to Evans the plaintiff inter alia; and the only evidence of his interest in it was a receipt from a third person (Chancellor,) for the bill, who was to collect payment of it at a commission, and which receipt purported the possibility that it might not be honored. This was therefore notice that it might be protested, inducing a presumption of what was the truth of the case, that it had been put into the hand of Eddy, and indorsed to him by Smith, as but a contingent acceptance and payment.

Under these circumstances I would consider the bill in the hand of the assignee the plaintiff, as subject to the same equity to which it was liable in the hands of Eddy himself, aud this was to any set-off of account with Dennis; which the referees have erred in not admitting. Let the report be therefore set aside.

Report set aside.

[Cited in 1 R,. 442.]  