
    SPOFFORD ET AL. vs. BROWN ET AL.
    No. 9812.
    I. Where promissory notes are delivered by the makers in payment of an antecedent debt, it is not competent to prove by parol that the party to whom they were so delivered agreed to pay the same as they should respectively come to maturity.
    II. The principle is affirmed that parol evidence will not be received to vary or contradict a written contract.
    III. If a person takes a negotiable instrument for a valuable consideration before the same is due, and without notice of any equities existing between the original parties, his title is good; and in order to impeach that title, it must be proved that he had notice or knowledge of the facts constituting such equities at the time he obtained possession of the instrument.
    IV. A party who «eeks to avail himself of a collateral compromise agreement, by the terms of which the original contract is to be delivered up upon certain specified payments being made, must show that he has fulfilled the compromise in this respect, in order to defeat a remedy on such original contract.
    STATEMENT OE THE CASE.
    This action is brought upon five promissory notes, each for the sum of $2,267.38, made on January 8,1872, by S. P. Brown & Son, payable to the order of Austin P. Brown, esq., in one, two, three, four, and five months, respectively, after their date On the same date they were indorsed by the payee to the Philadelphia Coal Company, and were afterwards and before their maturity transferred by said company to the plaintiff.
    At the trial the plaintiff proved the signatures and indorsement .on said notes, and offered them in evidence. They also proved that the defendants, Samuel P. Brown and Austin P. Brown, composed the firm of S. P. Brown & Son, and there rested the case.
    The defendants then introduced evidence tending to show that for several years before the date of said notes there had been large and extended dealings between them and the said Philadelphia Coal Company, and that there arose a controversy as to the amount of the indebtedness of the defendants to the said coal company, and that on the day of the date of said notes the defendants and Henry L. Cake, president of said company, conferred in respect to said controversy, and they executed and delivered the notes aforesaid to said Cake, and at the same time said Cake signed and delivered to the defendants a paper, of which the following is a copy:
    “Washington, D. C.,
    
      January 8,1872.
    Received from S. P. Brown & Son the following notes in full settlement of their indebtedness to the Philadelphia Coal Company:
    One note, dated January 8, 1872, at one month... $2,267 33
    One note, dated January 8,1872, at two months. - 2,267 33
    One note, dated January 8,1872, at three months 2,267 33
    One note, dated January 8, 1872, at four months. 2,267 33
    One note, dated January 8,1872, at five months.. 2,267 33
    One note, dated January 8, 1872, at six months.. 2,267 33
    Amounting to........................... 13,603 98
    And in settlement of these notes I have agreed, upon behalf of the Philadelphia Coal Company, to receive an order on Edwin Stewart, paymaster of the United States Navy, and accepted by him, for five thousand five hundred dollars, ($5,500,) with interest from date, said order to be liquidated as follows: Two thousand dollars at three months from December 20, 1871; two thousand dollars at four months from December 20, 1871 $ and fifteen hundred dollars at’ five months from December 20, 1S71 — the whole amount with interest from December 20, 1871. Also Z. Jones’s indorsement on four notes, as follows: S. P. Brown & Son’s notes, to order on Z. Jones, dated January 8,1872, for twelve hundred and fifty dollars, respectively, at six, eight, ten, and twelve months, amounting to five thousand dollars — this sum of ten thousand five hundred dollars ($10,500) being in effect a compromise of the said indebtedness of $13,603.98, to be conclusive upon the payments bein g made at the times stated. And I further stipulate, on behalf of the Philadelphia Coal Company, that upon payment of the $5,500, withinterest, by the paymaster, within the time stated, the first, second, and third notes given by S. P. Brown & Son for the snm of $2,267.33, amounting to $6,801.99, shall be returned to S. P. Brown & Son as settled; and upon payment of the four notes at maturity indorsed by Z. Jones, the remaining three notes of S. P. Brown & Son, amounting to $6,801.97, shall be handed back to S. P. Brown & Son, being settled in full by the payment of said four notes indorsed by Z. Jones.
    H. L. CAKE,
    
      President Philadelphia Coal Company.
    
    Witness: A. B. Wolee.”
    The defendants also introduced evidence tending to show that when the company transferred the possession of the notes now in suit to the plaintiffs, the said company received in consideration therefor the promissory notes of said Spofford and Clark to precisely the same amount, and that no other consideration passed therefor; andthatsaid Spofford and Clark acted for said coal company in selling their coal on commission, and sometimes purchased coal on their own account from said company. And at the time of such transfer of the notes in suit to said plaintiff, said Cake assured them that they should incur no loss in respect of said transaction, and that he would indemnify and protect them against any such loss.
    The defendants then offered proof that at the time the said writing signed by H. L. Cake, as president of said company, was delivered to the defendants, and on the same day, after the same had been signed and delivered, it was agreed by and between said parties that as the said notes should respectively mature, the same should be taken up and paid by said company; but the court excluded said evidence, and this ruling is embodied in the first two bills of exceptions.
    The plaintiffs introduced evidence tending to prove that the reasons why the coal company sold the notes to Spofford and Clark and took their paper in return, was that Spofford and Clark were in good credit and the company could negotiate their notes and raise money on them, but could not do this on the notes of the defendants; and that the company was then greatly in need of funds, and that the notes were obtained from defendants for the purpose of enabling the company to obtain money upon them ; and that no part of the agreement had been fulfilled by them, and that if they had made the payments stipulated for in said agreement, defendants’ notes would have been taken up and delivered to them. There was no testimony in the case that Spofford and Clark had actual notice of the written agreement given by Cake to the defendants.
    The notes now in suit and the Jones notes mentioned in the compromise agreement were delivered at the same time to said Cake, as was also an acceptance of Paymaster Stewart by which he promised that whenever certain vouchers were received at his office payable to S. P. Brown he would pay out of them to said coal company the sum of $5,500, in the installments called for by said agreement. No portion of said installments were ever paid to said company, and the vouchers referred to were never received at the paymaster’s office, nor has anything ever been paid on the Jones notes mentioned in the said agreement.
    At the conclusion of the testimony the counsel for defendants asked the court to instruct the jury as follows :
    If the jury believe that the plaintiffs came into possession of the notes sued on without paying actual valuable consideration, or by paying only nominal consideration, or under circumstances which would have put a prudent man on inquiry concerning any agreement between the defendants and the Philadelphia Coal Company with respect to said notes, then the jury must consider the plaintiffs to be bound by such agreement. And under the agreement of January 8,1872, in evidence, the Philadelphia Coal Company was bound, among other things, to take up and hold those two of the notes sued on which first became due, and if the jury find from the evidence that they did not do so, but allowed them to go to protest, then the verdict of the jury should be for the defendants.
    But the court refused to give said instructions, to which ruling the defendants excepted, and the court did instruct the jury that if said notes were before maturity indorsed for a valuable consideration by the said coal company to the plaintiffs, then the plaintiffs were entitled to recover the full amount of said notes from defendants, and the said agreement between said company and defendants would not affect the rights of plaintiffs unless they had actual notice of said agreement before their purchase of said notes, and if the jury should find that plaintiffs had actual notice of such agreement, and should further find that it was not carried out by the defendants, the plaintiffs would be entitled to a verdict; and further that if the jury should find that the notes in suit were indorsed and delivered to plaintiffs before their maturity, and in the course of business, they are entitled to recover the face of them. And that they are not affected by any transactions between the original parties of which they had no notice when they received the paper.
    To all of which the defendants took several bills of exception, upon which the case now comes to the general term.
    
      Joseph Casey and R. Ross Perry, for plaintiffs, argued in their printed brief that—
    The notes given by the defendants to the coal company were contracts in writing by which Brown & Son engaged to pay the sums named in them respectively. The evidence excluded by the court was parol evidence to contradict and vary these writings by showing that the coal company was to pay them and not Brown & Son, as the written notes stipulated. This was a direct infraction of the rule that excludes parol evidence to vary and contradict a written contract. (1 Green Ev., § 281, and notes; Starkie on Ev., pp. 660, 661. See also the case of Allen vs. Furbish, 4 Gray R., p. 504.)
    As to the instruction asked for by defendants, there were in the first place no facts proved to justify the court in giving it. In the second place, there was nothing in the written agreement which would have justified the judge in giving to it the construction asked, to wit: that by its terms the Pennsylvania Coal Company was bound to take up and pay the notes as they matured.
    The point here raised in the instruction asked for, had been definitely and finally settled by the Supreme Court of the United States in Swift vs. Tyson, 16 Pet., 1; and espedaily by the later case of Goodman vs. Simonds, 20 How., 343.
    The exceptions to the instructions in the charge of the court all raise the same question, to wit:
    That irrespective of the negotiable character of the paper, and that whether the original payees or their indorsees were the holders or owners of the notes, or the plaintiffs in the action, the agreement of compromise was unavailable as a defense in the case.
    It was so because the defendant had failed to perform it, or to tender performance even at the trial. The notes were to be delivered up to the defendants upon payment at the times and in the manner set forth in the agreement. In this they had utterly failed. The payments through Stewart were to be made respectively on the 20th March, April, and May, 1872. Not a farthing was ever placed in his hands to meet this engagement. Not one movement, or effort, or offer to meet and fulfill this agreement of compromise in any respect, then or now. Nor any payment or offer to pay the Jones notes. It is, therefore, little less than absurd and preposterous to set up an offer or agreement of compromise which has not been availed of, accepted, or performed by the defendants.
    The facts of whether the notes were indorsed and delivered to the plaintiffs before maturity, whether this was in the course of commercial business, and whether it was without notice of any collateral agreements between the orginal parties, were all submitted-to the jury, and they were all found in favor of the plaintiffs. That being so, cut up the defendants’ case by the roots. It took away the foundation of their defense, and left them not an atom of ground upon which to stand.
    
      E. L. Stanton and A. S. Worthington for defendants. The following points are from their brief:
    1. The court erred in excluding evidence that at the time the writing above alluded to was signed and delivered to the defendants, and also after such signing and delivery, it was agreed between the company and the defendants that as the notes sued on should respectively mature, the same should be paid and taken up by the company. The testimony offered does not come within the rule that a written contract is not allowed to be varied by a verbal agreement made before or at the time of the written contract. Brown & Son were not required to pay, as they matured, both sets of securities — namely, on the one hand their own notes, indorsed by Austin P. Brown, and on. the other hand the installments of the order on the paymaster, and the notes indorsed by Jones. Payment of the latter set of securities was to relieve the defendants from payment of the former set, including the notes now sued on, which were all to be returned to them by the coal company.
    The evidence excluded would not have varied the writing, but in respect to payment of the notes as they mature it would have given the only explanation of the writing consistent with the written words. It was, therefore, admissible. (1 Greenleaf on Evidence, sec. 282 et seq.)
    
    2. The court erred in holding, in effect, that constructive notice of an agreement between the coal company and the defendants would not affect the right of the plaintiffs.
    3. The court erred in holding, in effect, that if the notes were delivered to plaintiffs before maturity, absence of notice at the time of receipt of notes would relieve the defendants from being affected by the transactions between the coal company and the defendants, notwithstanding that plaintiffs paid for their notes with their own paper, which paper was taken up by the coal company. “Payment on the note of the buyer is, consequently, not sufficient to defeat a prior equity, unless the instrument is negotiated, and renders the maker liable to a third person.” 2 Am. L. Cases, p. 228.
    4. The court erred in holding in effect that a compromise or settlement (including determining a sum to be paid and the times for its payment) to which the defendants were parties, could only be made available by them by proving that they had conformed to all the stipulations, notwithstanding antecedent violations of the agreement by the other party to the contract, which put the defendant in peril of having to pay more than twice the sum fixed upon.
   Mr. Justice MacArthur

delivered the, opinion of the court:

As to the first and second exceptions the court are of opinion, that it is not competent for the defendants to prove by parol that at the time they delivered the notes in suit to the Philadelphia Coal Company, there was an agreement by which the said company should take up and pay said notes as they should respectively come to maturity. Such evidence would have been inadmissible, even if the company had been plaintiffs instead of Spofford and Clark. It is an elementary principle that parol evidence will not be received, to vary or contradict a written contract, nor is 'there anything in this case to take it out of the operation of the general rule. The parol evidence was therefore properly excluded by the court from the consideration of the jury.

The instruction asked for by the defendant was properly refused. The exception to this ruling raises the question whether the plaintiffs were bound by the agreement of compromise between the defendants and the Philadelphia Coal Company entered into by them at the time the notes in suit were given. It is now settled that if a party takes a negotiable instrument for a v aluable consideration, before the same is due, and without notice of any equities existing between the original parties, his title is good, and any defense founded upon those equities cannot operate to defeat his recovery. In order to affect him by such defense it must be shown that he had notice or knowledge of the facts which go to impeach the title, at the time he obtained possession of the paper. Smith vs. Tyson, 16 Pet., 1; Goodman vs. Simonds, 20 How., 343. Besides, the instruction is open to the objection that it assumes the existence of facts which do not appear in the case.

The coal company was not bound by the agreement to take- up said notes which first became due, unless that purpose is to be inferred from their promise to return the said notes to the defendants when the agreement was complied with on their part, which they failed to do. Even if the coal company were bound to take up the notes, that circumstance would not affect the plaintiffs where they had no notice of such obligation. The instruction was properly rejected.

As to the exceptions to the charge of the court to the jury, the court here are of the opinion that they are not well taken. It is quite clear that the defendants have wholly failed to perform any part of the agreement upon which they rest their defense. The first three of the notes falling due were to be delivered up to defendants only upon the payment of the sum of $5,500 by Stewart to the company ; but it doe» not appear that Stewart was ever furnished with the vouchers out of which he promised to make the payments in the manner set out in the agreement. The remaining three notes were to be handed back to the defendants only upon payment of the four notes indorsed by Z. Jones, and it appears that these latter notes have been protested and still remain unpaid; so that even if the suit had been in the name of the Philadelphia Coal Company the agreement would not have been available as a defense, as there was neither performance nor tender of performance, either before or since the commencement of the action.

We think the rulings of the court entirely right, and the motion for a new trial must be denied and the judgment affirmed.  