
    JANUARY TERM, 1844.
    Thomas Allein et al. v. The Agricultural Bank.
    A payment by the maker of a note, without its delivery, in the absence of notice of its assignment, is good. • >
    A note made negotiable and payable at a bank, is subject, in the hands of an indorsee, to all the defences, of payments, sets-oif, &c., which could be made against it under our statute, if it had been made payable generally. The statute makes no exception in favor of notes negotiable at a bank.
    If a note, after it has been paid by the maker, be indorsed and passed for a valuable consideration, by a third party, to an innocent indorsee, the third party, who,thus indorsed'and passed it, will be held liable on the note, though the maker and prior indorsers will not.
    This was an action of assumpsit brought to the May term, 1840, of the Circuit Court of Jefferson county, by the President, Directors and Company of the Agricultural Bank of Mississippi, against Thomas Allein, James Wood, James. Payne, and Peter Little, as the maker and indorsers of a promissory note. The declaration was in the usual form. The defendant, Little, pleaded the general issue ; and the other defendants also pleaded the general issue, and three pleas of payment. The first, averring payment to the plaintiffs ; the second, to William Fauver, while the note was bona fide his property; and the third, to Fauver & Farnsworth. At the trial, the case was submitted on the following agreed statement of facts, to wit :
    “ It is admitted and agreed, by and between the parties aforesaid, by their attorneys, that the note sued on in this action was made by Thomas Allein, and indorsed by James Wood and James Payne, for his accommodation, and delivered to Fauver & Farnsworth on the day it bears date ; which note is a part of this agreement, and is in the words and figures following :
    “$3519. Jefferson county, 9th April, 1836.
    “ Four years after date, I promise to pay to the order of James Wood, three thousand five hundred and nineteen dollars, for value received, negotiable and payable at the Agricultural Bank of Mississippi. (Signed) Thomas Allein.
    “ Indorsed by
    
      “ James Wood, James Payne, Peter Little.
    
      “ That the said note was subsequently, and before the maturity thereof, indorsed by Peter Little, and discounted by the Agricultural Bank, plaintiffs, on the 25th day of February, A. D. 1839, to the credit of Peter Little. That when said note became due, to wit, on the 11th day of April, A. D. 1840, which was Saturday, said note, being in said bank, during the business hours of said bank, on said 11th day of April, 1840, was presented for payment at the said Agricultural Bank, at the closing of business hours, and payment thereof demanded, which was refused ; and due and legal notices of such .presentment, demand, and non-payment, were given to each of the indorsers of said note on the same day. That Fauver and Farnsworth were co-partners in the business of planting and merchandizing, from some time prior to the date of said note until William Fauver died, which happened in the summer or fall of 1835. That on the 2d of January, 183S, Farnsworth, in the name of Fauver & Farnsworth, entered into a written contract, in the words and figures following :
    “ Know all men by these presents :
    “ That we, Fauver & Farnsworth, are held and firmly bound unto Thos. Allein (all of Jefferson county and State of Mississippi) in the just sum of seven thousand dollars, for value received, under the following conditions : — The condition of the above obligation is such, that if the above bound Fauver & Farnsworth shall deliver to Thomas Allein, two notes drawn by him in favor of James Wood, and by Wood indorsed to James Payne, and by Payne to said Fauver & Farnsworth, for the sum of three thousand five hundred and nineteen dollars each, dated on the 9th day of April, 1836, and payable three years after date, then this obligation shall be void, as the said Allein has liquidated the above-mentioned two notes by a note drawn by Wm. Samuel and Osburn Scott, dated 1st January, 1837, due three years after date, for fifty-three hundred and fifty-five dollars, in favor of J. Allein, and a note drawn by said Allein in favor of James Wood, indorsed by said Wood and James Payne, payable-April 12th, 1840, for the sum of two thousand dollars. Witness our hands and seals this 2d day of January, 1838. Fauver & Farnsworth.
    “I hereby certify that the above signature is the signature of Fauver & Farnsworth, by Alva Farnsworth. William Ferriday.
    “ That, after the death of Fauver, the note was in the possession of his widow, and was taken without her consent, by Mr. Dumax, her brother-in-law, who gave it to Lorenzo A. Besancon ; and when Besancon was called on for the note, by an agent of Mrs. Fauver, he promised to return it to Mrs. Fauver at maturity. When the note was first seen in the possession of Mrs. Fauver, it was indorsed by James Wood and James Payne.”
    On this agreed statement of facts, the Court gave judgment against all the defendants, from which they appealed to this Court.
    
      Montgomery and Boyd, for appellants.
    For our defence we rely solely on the statute regulating the assignment of promissory notes ; which secures to the makers, &c. all defences against an assignee which could have been available against the party to whom it was payable. How. & Hutch. 373, s. 12.
    
    The equitable construction of the statute always has been, that a note made and indorsed as surety for the maker, should be considered as the joint note of the maker and indorser, and they should be allowed the same defence against a subsequent assignee which would have been available against the person to whom the note was first delivered. Any other construction would defeat the intention of the statute, which was enacted evidently to protect parties from imposition by assignment of notes, &c.
    We have been able, after a tolerably laborious search, to find but one authority against us on the point in controversy ; and that is the case of Mandeville v. Union , Bank of Georgetown, 9 .Crancb, R. 1. Mandeville made his note in favor of Nourse, negotiable at the Union Bank, Georgetown, dated 15th January, 1811, payable sixty days after date. The bank discounted the note on the same day for the use of Nourse.
    On the 30th January, Mandeville was informed of the discount of the note, made no objections, and said he had funds to meet it.
    On the day after the date of the note, Nourse gave Mandeville his note for $400 at sixty days. And on the 30th of the same month, became further indebted to Mandeville.
    On the 2d of February, Mandeville gave notice not to take the assignment of any notes made by him in favor of Nourse.
    Marshall, C. J. said, by making the note negotiable in .bank, the maker authorized the bank to advance on his credit, to the owner of the note, the sum expressed on its face,.
    It would-be a fraud on the bank to set up offsets against this note, in consequence of any transactions between the parties. These offsets are waived, and cannot, after the note is discounted, be again set up.
    The note was subject to the law of Virginia, which is the sam.e as ours.
    That case does not resemble the case now before the Court in any important feature. The note in this case was not such as are usually discounted by banks, it having several years to run to maturity. It was not offered for discount at the bank until long after its date ; and neither the maker, nor his accommodation-indorsers, ever assented to the discount of it by the bank ; and the defence set up existed at the time the note was discounted by the bank. All of which facts are contrary in Mandeville’s case.
    Besides, Mandeville’s case was decided without argument, to any extent, without authority, and without any analytical examination of the statute. It seems to have been decided, in fact, upon what appeared to be the intention of the parties ; and from all the circumstances, may be a very correct view of the law, except that the Chief Justice gives more weight to- the circumstance, that the note was negotiable at the bank, than it would seem to deserve. If making a note negotiable at a particular place, will authorize the assignment of it at that place, so as to defeat all defences existing at the time, it would appear but reasonable, that making a note negptia-. ble, generally, would enable the holder to assign it when he pleased, and thereby defeat the defence which might exist; and as all notes are negotiable by assignment, it would follow, that a. new assignment would deprive the maker of his defence ; which is in direct conflict with the statute, and is therefore absurd.
    This question has never fully engaged the attention of our courts of last resort, although the point was made in the case, Parham, et al. v. Randolph, et al. 4 How. R. 453, in which no, opinion is given.
    It would be difficult, indeed, to conceive of any reason why a bank should be exempt from the general rule. When it is understood, from all the circumstances of the case, that the parties, at the time of making á note, had it in contemplation to get it discounted at a bank, and it was in fact afterwards discounted at the bank, it would be equitably construed to be a contract direct with the bank, and no defence should be admitted on account of dealings between the parties. The transactions between the maker and indorsers should be regarded as inducements to become mutually bound to the bank ; but when it is plain the bank was selected as the place of negotiability of the note, without any view of transferring the note at the time, no such reason exists for so liberal a construction in favor of the bank.
    The special verdict fully shows, that the note was liquidated and satisfied before it was assigned to the bank, and was in fact assigned to the bank by a person having no right whatever to use it, and in fraud of the maker and the proper holder. For which reasons we think the judgment should be reversed.
    
      Eustis, for appellees.
    The English rule is, that a party taking a negotiable instrument before it' is due, receives it on its own intrinsic credit; nor is he bound to inquire into any circumstances existing between the assignor and any of the previous parties to the bill, as he will not be affected by them, unless, indeed, the circumstances under which the transferee takes the bill be such as would naturally have excited the suspicion of a prudent and careful man. Chitty on Bills, 242.
    Such person, notwithstanding he derived his interest through the person who stole it, may maintain an action against the parties to it. Ib. 277. •
    
    Our statute makes notes negotiable by assignment, as in the case of bills of exchange. But it is contended that the statute of set-off will cover the defence.
    This act provides, “ and in all actions commenced and sued upon, any such assigned bond, bill, &c. as aforesaid, the defendant shall be allowed the benefit of all want of lawful consideration, failure of consideration, payments, discounts and set-offs, made, had, or possessed against the same, previous to notice of the assignment, any law, usage or custom in anywise to the contrary,7’ &c. How. & Hutch, p. 373, s. 12.
    
    To this we reply —
    I. The record shows that, at the time of the settlement, Fauver & Farnsworth could not produce the note ; that the maker was apprized that he was incurring a risk in making the settlement ; and that he required and received an indemnity against that risk. He proceeded to make the settlement after his suspicions were aroused, and therein, if he was not acting mala fide, he was at all events not vigilant, and therefore is not within the statute as against an innocent third party. The statute must not be so construed as to authorize the commission of frauds, or the omission of common care and prudence. Here the party omitted to insist upon, the production of the note. This was gross negligence ; and if he has acted innocently, the present holder of the note is equally innocent.
    It may be laid down as a general principle, that, whenever one- of two innocent persons must suffer by the act of a third, he, who has enabled such third person to occasion the loss, must sustain it. Lickbarroio v. Mason, 2 Term R. 70.
    II. It has been established by repeated decisions, that a demand of payment, without producing the note, is not a sufficient demand of payment of that note to bind an indorser. By analogy, paying when the note is not produced, is not paying the note ; it is in fact only puting the payee in funds, and. relying upon him that he will pay the note. It is not a payment of the note, which is now in the hands of an innocent holder, without notice. And if it be urged as a set-off, we say that there is another fund out of which the amount of the set-off should be made, viz., the bond of indemnity. Set-off, having its origin in equity, must not be applied so as to operate inequitably. A. having two funds, B. having but one of them, A. must be confined to one, so as to leave the other for the benefit of B. 1 Story, Eq. 528, and cases cited ; Ratlelagh v. Hayes, 1 Verm. 90.
    III. The form of the note is a waiver in writing of the benefit of the statute of set-off. Making a note negotiable in a bank, is issuing a letter of credit to that bank to advance money in the note. Here the note was negotiable and payable in the Agricultural Bank. They discounted it, before it was due.' The record shows no publication by the parties against the note ; .no circumstance of any kind to arouse a suspicion, or anywise rebutting the authority given in the note, to the bank, to discount it. Mandeville v. Union Bank of Georgetown, 9 Cranch, 1 ; McMurran v. Soria, 4 How. R. 154; Parham v. Randolph, 4 How. R..435. For the Virginia statute, see Tait’s Digest,'173.
    IV. We deny the fact that Fauver & Farnsworth had the note at the time of “ liquidation.” The non-production of it at that time raises a presumption to the contrary. How is this presumption rebutted ? by showing that after the death of one of the partners, it was in the possession of his widow. This is long after the liquidation in point of time ; and even if it proved that Fauver bad the note at the time of his death (whichitdoes not), it by no means proves that Fauver & Farnsworth had the note in possession at the time of “liquidation.” In fact, by the rule that possession of a note is prima facie evidence of title to it, the note was the private property of Mrs. Fauver on the very day when the settlement was made by the maker with Fauver & Farnsworth.
    V. The fraudulent assignment by Besangon does not affect this action. Robertson v. Williams, 5 Munf. 381 ; McNeil v. Baird, 6 Munf. 316 ; Holy v. Lane, 2 Atk. 181 ; 1 Russ. 412.
    
      Quitman and McMurran, on the same side.
    The decision of the‘ Court below is founded on an agreed case. The suit was founded on a promissory note, and the Court on the facts gave judgment in favor of the plaintiffs below for the amount of the claim. The defendants have prosecuted their writ of error for the purpose of reversing the judgment. We insist that it shall be affirm'ed.
    1st. Because the note sued on is payable and negotiable at the Agricultural Bank of Mississippi ; and that bank having discounted it in good faith, and become the holders of iffor a valuable.consideration, they cannot be defeated in a recovery. Failure of consideration, or payment before the maturity of the note, to a third person, who may have once been the holder of it, cannot interfere with the right of the bank. This point has been so decided by the Supreme Court of the United States, in the case of Mandeville v. The Union Bank of Georgetown, 9 Cranch, 1, and was fully recognized by this Court in the case of McMurran v. Soria, et al., 4 Howard’s Rep. 154.
    Besides, the very fact of Fauver & Farnsworth giving an agree-' ment and indemnity to Allein against the note sued on, when they made the alleged arrangement with him, shows that they did not then hold or control the note, or it would have been delivered up to Allein. It bad then passed out of the hands of Fauver & Farns-worth, and never returned ; and a payment, under the circumstances, by Allein to Fauver & Farnsworth, .was no payment of the note ; and the taking of the agreement and indemnity to Allein, at the time, from them, shows that he so understood it.
    And this brings us to the second leading point upon which we rely. Allein has furnished himself with an indemnity, taken from Fauver & Farnsworth, against the payment of the note sued on, to the Agricultural Bank or any other owner of it. And with this indemnity, exhibited by himself, will he be allowed to resist the payment of this note to the bank, notwithstanding the indemnity ? Shall the bank lose her recourse against him and his indorsers on the note sued on, and thereby be deprived of their claim ? for they, or Peter Little, who • had the note discounted, must lose the debt, unless a recovery can be had in this case against Allein and his indorsers. And shall he and his indorsers be discharged in this action, when the indemnity was taken with reference -to such a 'recovery ? Our statute allowing offsets, failure of consideration, &c., to be pleaded against the indorsee of a note, previous to the maker’s notice of the transfer to the indorsee, cannot avail in this case upon the facts.
    In this case, the maker of the note entered into a settlement of it before it loas due, and when the persons with whom the settlement was made had not the note, or it would have been delivered up. Besides, he took an indemnity, and upon that he must rely ; it was an implied waiver of any offset of this kind to the note in' the hands of a third person. The plaintiffs being the bona fide holders of the note, the Court will not allow the defence set up in the Court below to avail against them, when Allein and his indorsers have Fauver & Farns-worth’s guarranty to protect them against this very judgment, which they are now seeking to reverse. 1 Vern. 190 ; 2 Atk. R. 181.
    As to the point that Besanqon, through Dumax, may have got the note improperly from, Mrs. Fauver, the holder of it, after Fauver & Farnsworth got it from Allein, these defendants, or plaintiffs in error, cannot avail themselves, as it was received by Little, the last indorser, and discounted by the bank in good faith, before its maturity. Chitty on Bills, 190, 191-; 7 Term R. 427 ; 4 Taunt. 114 ; Dougl. 611, 633 ; 1 Burr. 452 ; 4 Esp. 56.
    And our statute as to offsets, failure of consideration, &c., between the maker and remote indorser, does not touch or affect the position just taken and supported by authority.
   Mr. Justice Thacher

delivered the opinion of the Court.

This was an appeal from the judgment of the .Circuit Court of Jefferson county, upon an agreed special verdict. On the 9th day of April, 1836, Thomas Allein made his promissory note, negotiable and payable at the Agricultural Bank of Mississippi, four years aftér its date, which was, on the day of its date, indorsed by James Wood and James Payne, for the accommodation of the maker, and by him passed to Fauver & Farnsworth. On the 2d day of January, 1838,-Fauver & Farnsworth gave Allein an obligation, with a full penalty, to deliver up the note now in suit, acknowledging therein that the said note had been liquidated by him. Fauver deceased some time in the summer or fall of 1838, after which event the note was in the possession of his widow, indorsed by Wood and Payne, and was taken out of her possession without her consent. Subsequently, and before its maturity, the note was indorsed by Peter Little, and was discounted to his credit by the Agricultural Bank, on the 25th day of February, 1839. The note was regularly protested for non-payment, and due notice given to all the indorsers. Upon a finding of facts, of which the foregoing is an abstract, the Court below rendered a judgment for the Agricultural Bank, against all the parties to the note.

The appellants rely upon the statute regulating the assignment of promissory notes, &c., How. & Hutch. 373, s. 12, as affording them the benefit in this action^of the liquidation of the note, by the maker, with Fauver & Farnsworth. This payment was complete, although the note was not surrendered up at that time. A demand of payment, without a presentation of the note, is an insufficient demand ; but a payment of a note, without its delivery, but also in the absence of notice to its maker, of its assignment, is good, and is protected by the very operation of this statute. It does not appear that the note had been assigned at the time of the arrangement with Fauver & Farnsworth. The fact of its nondelivery, at that time, might possibly raise such a presumption ; but in a defence of the kind under consideration, the proof of notice to the maker of the assignment, is a matter requiring a higher degree of evidence than that of presumption. The obligation of the indemnity extended merely to a future delivery of the note. The fact of taking the indemnity, might be considered as a presumptive notice of assignment, but still of no higher grade of evidence than that which arises from the non-delivery of the note, and so far as it was intended as a protection against payment in the hands of other holders, was entirely unnecessary; because such payment could not be enforced by them, by the terms of the statute, without proof of notice of the assignment to them.

The statute in question allows the defendant in all actions upon such instruments, whether negotiable or not, the benefit of all want of lawful consideration, failure of consideration, payments, discounts, and set-offs, made, had, or possessed against the same, previous to notice of assignment. This has the effect to change the rule in many particulars, as established by the Law Merchant. The assignee takes the note, subject to all the objections and in-cumbrances that may appertain to it, of the kind described in the statute, up to the time of the notice of assignment.

The appellees rely chiefly upon the opinion of C. J. Marshall,, in the case of Mandeville v. The Union Bank of Georgetown, 9 Cranch, 1. It is there laid down, that by making a note negotiable in bank, the maker authorizes the bank to advance on his credit, to the owner of the note, the sum expressed on its face ; that it would be a fraud on the bank to set up offsets against this note, in consequence of any transactions between the parties, and that such offsets are waived, and cannot, after the. note has been discounted, be again set up. But, passing over the points of difference in the facts which seem to exist between that case and the one now under examination, the principle there established, although made in view of a statute similar to our own, appears to us totally irreconcilable with the spirit and object of the statute. And while the opinion expressed by this Court in the case of McMurran v. Soria, et al., 4 H. 154, does not amount to a recognition of that decision, it has already been seriously questioned in Parham, et al. v. Randolph, et al., 4 H. 435. The authority turns exclusively upon the position, that the maker of a note, by making it negotiable in bank, authorizes the bank to advance its amount upon his credit. Such is by ho means the custom in this State, where notes are made thus negotiable and payable, simply as a convenience to the maker in paying, and to the holder in receiving payment. On the other hand, the statute is express and without exception. There is no statutory exception to set-offs, existing under such circumstances, and the introduction of such exceptions by the courts, might entirely defeat the intent of the statute. _

Though the facts of this case, by virtue of this statute, afford a sufficient defence to Ailein, Wood, and Payne, they do not avail the indorser, Little. He did not become an indorser until subsequent to the arrangement made by Ailein with Fauver & Farns-worth ;' but as between him and the Agricultural Bank, the contract was new and separate, nor does anything appear which can prevent k recovery from him by the Agricultural Bank. Under the act of May, 1837, regulating actions founded upon bills of exchange and promissory notes, it is lawful to render a verdict against part of the defendants, when the evidence requires such a verdict.

The judgment, therefore, of the Court below, is reversed as to the defendants, Allein, Wood, and Payne, but affirmed as to the defendant Little ; and this Court, proceeding to pronounce the judgment which the Court below should have given, directs that a judgment be entered up in favor of the said defendants, Allein, Wood, and Payne.  