
    W. P. BRADY, GAMAN ET AL. v. JOHN S. McGEHEE.
    (S. C., Thomp. Cas., 220-225.)
    Jackson,
    April Term, 1860.
    1. NEGOTIABLE PAPER. Conflict of laws. Law of place of contract governs.
    Where a promissory note is made in one state and is payable there, the rights and liabilities of the parties must be governed by the law of that state, although it is afterwards sold, transferred, and indorsed in another state. So, in such case if the law of the state where such note is made allows the maker of a note the same defenses against an assignee as against the original x>ayee, such defense maybe made against the indorsee to whom the note was assigned in another state. Such defense may be in a third state where such note is sued on by the indorsee. [See McKissick v. McKissick, 6 Hum., 75; Lewis v. Woodfolk, 2 Bax., 25; Bank v. Railroad, 2 Lea, 676.]
    2. PROMISSORY NOTES. Defense to for insumbrances and defective title, if fraud or insolvency.
    Where in the sale of land, the vendor is guilty of fraud in concealing incumbrances and want of title, or is insolvent when the incumbrances and failure of title are discovered, of which the vendee had no lmowledg-e when he purchased, but trusted alone to the vendor for the title, the vendee may resist the payment of the purchase money'' notes to the extent of the incumbrances and the amount required to perfect the defective title, although he received a deed with covenants of general warranty, entered into possession and has not been evicted. [See notes 110, 114, 117, and 118 under sec. 3142 of the Code.]
   This is an attachment bill filed in the chancery side of the common law and chancery court of the city of Memphis. The indebtedness charged is upon a promissory note in these words:

“On or before the first day of January, 1857, I promise to pay James "W. Jones, or order, five thousand dollars, for value received. John S. McGehee.
“Witness: Ohas. F. Dandridge.”

This note was indorsed by the payee to the complainants in New Orleans, La., on the 12th day of January, 1856, in consideration of their letter of credit, authorizing Jones, the indorser, to draw on them for the same account, which he did, and they paid the draft.

The consideration for this note, and another for the same amount and due at an earlier date, was 400 acres of land in Coahoma county, in the State of Mississippi, which the payee conveyed to the maker of the notes by deed with a covenant of general warranty of title, dated 24th of June, 1855. The notes were made and the deed executed in the State of Mississippi, which was the residence of both parties.

It turned out that 160 acres of the land was incumbered to the amount of about $3,700, and to another park of 160 acres Jones had no title. The incumbrance was evidenced by a lien retained in the deed by Sandsford and wife to Jones for the same land, which was of record. McGehee received possession of the land and sold it, and his vendee still holds the possession, but he has paid the note of $5,000, first due; and more than the amount of the note now sued on to clear the incumbrances and perfect his title; and it is very clearly proven that Jones was, at the time the incumbrance and defect of title were discovered, insolvent. And we think it is also proven that Jones fraudulently suppressed the truth as to the condition of his title to the land. McGehee resided in Panola county, and Jones resided upon the land, in Coahoma county. McGehee, with the witness, Handridge, went to Coahoma county to buy land; the witness does not know that McGehee examined Jones; asked McGehee if he had not better go and examine the records, and he said that Mr. Jones’ face was sufficient guarantee on that subject.

Here a confidence is expressed in Jones, and he ought then to have spoken out and disclosed the condition of his title. His silence was as effectual to deceive as a suggestion of falsehood would have been, and it appears very satisfactory from the testimony of this witness that McGehee did not, in fact, examine the records or see his (Jones’) title, and, on the contrary, there is no evidence that he did see his title papers.

Now, the question to be determined is, whether or not this state of facts constitutes in McGehee a good defense to the note as against these complainants.

The note was made in the State of Mississippi, and the rights and liabilities of the parties must be governed by the law of that state. See Story on Conflict of Laws (3d edition), secs. 296, 317; Story on Promissory Notes (2d edition), 155, 168.

The statute of Mississippi has this provision: “All bonds, obligations, bills single, promissory notes, and all other writings for the payment of money or any other thing, shall and may be assigned by indorsement, whether the same be made payable to the order or assigns of the obligee or payee or not.......That in all actions commenced and sued upon and such assignee’s bond, obligation, bill single, promissory note or other writing as aforesaid, the defendants shall be allowed the benefit of all want of lawful consideration, payments, discounts, and set-offs, made, had, or promised against the same previous to notice of the defendant, any law, usage or custom in anywise to the contrary notwithstanding, in the same manner as if tbe same had been, sued and prosecuted by the obligee or payee therein.”

This statute and the construction given to it by the judicial tribunals of the State of Mississippi, to which we have been referred, change the rule of the commercial law in regard to the rights of indorsers and assignees, and lets in all defenses as against them which would be available to the maker against the payee. But it is insisted for the complainants with much zeal and ability that McGehee could not defend against this note, if he was sued by the payee, for reason that he took covenants of warranty from Jones as security for his title, and that he has not been evicted, and until there is an eviction, he cannot resist the payment of the purchase money.

Such is the general rule of law, but it does not prevail when the vendor is guilty of a fraud in the sale, or is insolvent, and both exist in this case. It is urged that McGehee could not have been defrauded, because the title of Jones, the vendor, was of record, and he is presumed to have notice of its character, and that the incumbrance and defects of the title could be seen by an inspection of the records. This presumption arises where there is no evidence that the party did not inspect the record, and in the absence of positive fraud or concealment, which we find to exist in this case.

In the court below there was reference to the clerk and master, who reported that McGehee had paid to clear the land of incumbrances and to perfect the title, more than the amount due on the note, and there were no exceptions to the report, and thereupon the chancellor dismissed the bill. We think he did right, and affirm the decree.

Judges Caruthers and McKinney concurred in the result announced in the foregoing opinion.

Decree affirmed.  