
    Ingham vs. Vaden et als.
    
    1. A negotiation of a note in the due course of trade, is where the holder has given for the note, his money, goods or credit at the time of receiving it, or has on account of it sustained some loss, or incurred some liability. Bay vs. Coddington, 20 John. 637: 10 Yerger, 417, 429.
    2. Where a note is assigned in payment of a pre-existing debt, it is not negotiated in the due course of trade, and, therefore, subject to be defeated in the hands of the as-signee upon proof of failure of consideration, Wormley vs. Lowry, 1 Hum. 468.
    3. Vaden deposited his cotton with Morgan & Co., commission and forwarding merchants, to be shipped or held subject to the order of owner. Morgan & Co., without authority, sold the cotton and appropriated the proceeds to their own use. Vaden took an assignment of ¿he note of Ingham, not due, in discharge of the claim: Held, that this note was negotiated in due course of trade. Vaden parted with his property in the cotton when he took an assignment of Ingham’s note and not before. It was not, therefore, assigned in payment of a pre-existing debt.
    4. Where an individual takes an assignment of a note in discharge of a pre-existing debt, upon the faith of a declaration of the maker, that he would pay it, or after he has taken such assignment, relies upon such declaration and fails to get other indemnity, which he might have got: Held, that the maker is estopped under such circumstances from setting up any equitable defence.
    Vaden deposited his crop of cotton in the hands of H. S. Morgan & Co., commission and forwarding merchants, in Memphis, to be shipped or held subject to his order.
    H. S. Morgan & Co. sold the cotton and appropriated the proceeds. Vaden applied for the proceeds of his crop, and did not succeed in his demand, and fearing the insolvency of the commission house, on a second application took an assignment of Ingham’s note for the sum of $1652, in part payment of hiá claim for the appropriated cotton. This note was not due at the time of the assignment. Vaden gave notice to Ing-ham that he had the note, and Ingham sent him word that it was just and he had no set off against it, and begged delay.
    Ingham had previous to this time purchased a tract of land of Morgan & Co. Morgan & Co. had executed a deed to Ingham for the land, with covenant of warranty, and had taken his notes for the payment of the purchase money. It appeared after the notice given to Ingham, that Morgan & Co. had only a bond for title from John Rivers, and that Rivers had not the power to make him a title. The consideration money ($4952) had been paid by Morgan & Co. to Rivers, with the exception of about the sum of $1000. Morgan & Co. had become insolvent.
    Vaden sued Ingham on the note in the circuit court of Fay-ette county, and recovered a judgment against him, and thereupon Ingham filed this bill in the chancery court at Sommer-ville, for the purpose of having the enforcement of said judgment enjoined. The defendants answered, replications were filed, and proof being taken, disclosing the above state of facts, it came on to be heard before chancellor McCambell at the May term, 1841. He awarded a perpetual injunction in favor of Ingham, and ordered an account as between the Morgans and Vaden. The defendant Vaden appealed.
    
      H. G. Smith, for the complainant.
    The complainant’s note, though endorsed before due and without notice, was endorsed as collateral security for the payment of a precedent debt owing by the Morgans to Vaden, and is therefore in Vaden’s hands afiected by the same equities which would affect it in the hands of the Morgans. 1 Hum. 468: Bay vs. Coddington, 20 Johnson.
    The equities affecting the Morgans, are the defect of their title to the land, their knowledge of this defect, and fraudulent omission to disclose it to Ingham at the time of the sale, and their insolvency.
    Fraud entitles the vendee, before eviction, to relief against the payment of the purchase money. 2 J. C. R. 519: 21 Wend. 181: 2 Keijt Com. 471.
    
      Knowledge of defect of title, and omission to disclose it to the vendee, ignorant of it, is fraud on the part of the vendor. 1 Sto. Eq. Ju. 218: .2 Swans. R. 287; cited 2 Chit. Eq. Dig. 1331.
    It was known to the Morgans that a large portion of the purchase money was unpaid, and that this was an incumbrance on the land, which they did not disclose at the time of sale. This was fraud.
    Executing a deed of conveyance to Ingham with full covenants for title, when they held only a bond for title from Rivers, and owed a large portion of the purchase money, are circumstances sustaining the charge of fraud.
    Purchaser discovering an incumbrance, may retain in his hands so much of the money as will answer it. 1 Ves. Sr. 88: 2 J. C. R. 522 and 525.
    Here is an admitted, and clear defect of title; an admitted incumbrance; the adverse title asserted, and the vendors are insolvent. Is it equitable, that the complainant shall pay the balance of the purchase money? 2 J. C. Rep. 546.
    
      Stanton, for Vaden.
    1st. The complainant having received a deed for the land, cannot resist the payment of the purchase money, unless there was fraud in the sale; at all events, not until eviction, and his only remedy, even then, is perhaps upon the covenants in his deed. 'Whitney vs. Lewis, 21 Wend. 131: 2 John. Ch. Rep. 519, and the cases there cited. Meadows vs. Hopkins, Meigs, 181: Green-leaf vs. Cook, 2 Wheat. 13: 2 Kent, 471.
    2d. The cases above named, sustain the position, that, to sell land without title, is not of itself a fraud, independent of misrepresentation, &c.
    3d. The endorsement to Vaden was not in payment of a precedent debt. The Morgans had sold his cotton without authority. He might have reclaimed it from the purchaser. In receiving the note, he was selling the cotton; he was “parting with a security,” within the exceptions admitted in the cases. Nichol vs. Hill and Bates, 10 Yerg. 429: Wormley vs. Lowry, 1 Hum. 470.
    
      4th. The Morgans were failing. After taking the note, Va-cien inquired of the complainant if he had any defence; complainant replied that he had not, but would pay. Had Vaden not been thus misled, diligence might have secured his claim. Foster vs. Newland, 21 Wend. 94: Petrie vs. Fleeter, 21 Wend. 172: Watson’s ex'rs. vs. McLaren, 19 Wend. 563.
   GseeN, J.

delivered the opinion of the court.

The complainant, in September 1836, purchased a tract of land from J. H. & H. S. Morgan for the sum of ¿£4952, and executed his three several notes for the purchase money, the last one due in April 1839, for $1652.

In 1838, Vaden sent his cotton to the house of H. S. Morgan & Co. to be shipped by them, or to be held subject to his order. When Vaden called on them for his cotton, he found it had been sent to New Orleans and sold, and the proceeds applied to the credit of H. S. Morgan & Co. Vaden then called on Morgan for payment, which Morgan failing to make, Vaden became uneasy, and upon a second application agreed to take notes on other men in payment. Morgan, thereupon, transferred to Vaden, in part payment for his cotton, the above note on the complainant of $1652.

Soon after Vaden obtained the said note on complainant, he sent an agent to enquire if Ingham had any defence against the note. Ingham said the note was just and correct, and he hoped Mr. Vaden would not push on the note when due, as his cotton crop was unpromising, and he thought it likely that he would" not be able to meet it when due, but that he had no offset against the note.

At the time Vaden obtained the said note, the Morgans were pressed for money, and soon after became in failing circumstances, and finally wholly insolvent. It turns out, that they had no title to the land sold to Ingham, for part payment of which, the note in question was given; and this bill is filed to enjoin the collection of the note in the hands of Vaden.

It is insisted for the complainant, that this note was taken by the defendant Vaden, in payment of a pre-existing debt, and, therefore, not in the due course of trade. Wormley vs Lowry, 1 Hum. Rep. 470: Bay vs. Coddingion, 20 John. Rep. 637. It may be doubted whether the facts of this case justify such a conclusion. Vaden had stored his cotton with the Morgans to be shipped, or held subject to his order. They had sold his cotton, and applied it to their own use, without authority. They were not his debtors; for no contract, by which a debt was created, had ever been made. He had a right of action against them, to be sure, for the money they had received to his use, but it was not a debt until he agreed to consider it such, and receive this note in payment. It may well be doubted, therefore, whether the contract may not be regarded as a sale of the cotton by Vaden to the Morgans, at the time the note was transfer-ed to him; and if so, the complainant’s equity against the Morgans could not effect the note in the hands of Vaden; for in that case he would have received it in the due course of trade.

But if it be assumed, that Vaden received this note in payment of a pre-existing debt, whereby all the equities existing against the Morgans, follow it in the hands of Vaden, yet the declaration of Ingham, after the note was received, to the agent of Vaden, must repel him from setting up his equity.

When enquiry was made of him by Vaden, he said the note was just and correct, and that he had no offset against it. In cases where a note is taken in payment of a pre-existing debt, the matter of equity against the payee of the note, when allowed against the endorsee, by way of defence, stands upon a consideration of the equities existing between the parties. The court holds, that as the endorsee parted with nothing, there is no equity in permitting him to recover money against which the defendant has a good* defence, but for the endorsement. But this very consideration of the equities between the parties, turns the case against the maker, when by his act he induces the plaintiff, to take the paper, or, which is the same thing in principle, by his declaration, causes him to rely upon it after it has been received, and thereby prevents him from seeking other indemnity. The Morgans at that time were in a condition to give such indemnity, but before the note fell due they became insolvent.

To permit this defence now, would be the grossest injustice to Yaden, and would sanction in many cases that might exist, the sheerest fraud. Foster vs. Newland, 21 Wend. Rep. 94: Petrie vs. Fleeter, 21 Wend. Rep. 172: Watson’s ex’rs. vs. McLaren, 19 Wend. Rep. 563.

The decree must be reversed, the injunction dissolved, and the bill dismissed with costs.  