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Reports of cases adjudged in the Supreme court of Pennsylvania, in the Eastern district [Dec. term, 1835 - Mar. term, 1841] (Volume 6) online

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of his answers to the second interrogatory in chief, it was the duty
of the defendant, if he meant to contest his liability to the plaintiffs
on this note, to give them notice of his intention so to do, and he
incurred a similar obligation when the note was exhibited to him
by the notary, with the plaintiffs' endorsement upon it. If the
defendant did not give the plaintiffs such notice, within a reasona-
ble period after the occurrence of the earliest in point of time of
these circumstances, but suffered the plaintiffs to remain in the
belief that he was liable on the note until this action was brought,
it is against law and equity that he should now insist upon the
present matter of defence.

10. The burden of proof of such notice is on the defendant;
and in the absence of such, proof the presumption is, that none was
given."

The learned judge charged the jury in substance, as follows :
"The plaintiffs claim the balance of $700 with interest, for
which they say this note was pledged to them. The defendant has
shown what would undoubtedly defeat any claim upon this note, on
the part of Robinson & Smith, from whom the plaintiffs received
it. This has put the plaintiffs on the proof of the manner in which
they got the note; and on the proof under this head, the case will
depend. Robinson & Smith owed the plaintiffs $1500 for money
lent. They held a bond of one Miller, as a collateral security for
this debt. This bond they say they gave to Robinson & Smith,
for a particular purpose, viz., that of getting it discounted and
their debt paid out of the proceeds, and that Robinson & Smith,



1840.] OF PENNSYLVANIA. 226

[Depeau v. Waddington.]

having thus received the bond, did not either return them the bond,
or pay them the proceeds of it. They say that they never gave up
their claim to this bond, or the proceeds of it, until they received
from Robinson & Smith $800, and the note of the defendant now
in suit, and that on receiving the $800 and note, they did surren-
der it. The defendant on the other hand says, that when the plain-
tiff's first parted with the possession of the bond to Robinson & Smith,
they gave up their right to it, that is to say, surrendered it, both
as to property and possession ; and he then puts the case on the
ground that the subsequent receipt of the note was merely as a
security for the previous debt or the balance of it. Now if the



plaintiffs *did take this note merely as a collateral security



[*227



for a pre-existing debt without more, the law would be in
favor of the defendant on this point. If however a debt is given
up or a security parted with ; if any security is surrendered in
consideration of receiving a note, the consideration is sufficient to
give a property in the note to the party receiving it." This part
of the case was left to the jury. The judge then said, " If you
adopt the latter view of the case, I charge you, that parting with a
security at the time of receiving the note is a sufficient consideration
to remove the objection which the defendant has taken to the
plaintiffs' recovery. A previous temporary parting with the mere
possession of the bond for the particular purpose of having it dis-
counted for the plaintiffs' use, would not constitute a parting with
the plaintiffs' property in their portion of the proceeds of it, when
disposed of, so as to render it impossible for them afterwards to
surrender their property in it in consideration or part consideration
of the receipt of this note. If the jury think the bond was only
loaned to Robinson & Smith for a particular purpose, such lending
did not divest the plaintiffs' property in the bond, or in the pro-
ceeds of it. If the bond was discounted, and the money raised
upon it, the plaintiffs had a specific interest in the proceeds, as they
before had in the bond. A mere parting with the possession of
the bond does not necessarily imply that the plaintiffs intended to
give up their claim to it. If, however, when the bond was first
handed over to Robinson & Smith, the plaintiffs really surrendered
all their right in it, then the defence is sustained. If on the con-
trary, the parting with the possession of the bond was merely for
the particular purpose of having it discounted, and the proceeds
paid over to themselves, the parting with the possession of it was
no surrender of their property in it, or in the proceeds, after it
should be disposed of."

The judge then said that he had answered all the points except
the ninth; that he did not think this had an important bearing on
the cause ; but while he declined answering it as proposed, he would
remark, that if the defendant slept upon the knowledge that the

6 WHAETON 15



227 SUPREME COURT [Dec. Term,

[Depeau v. Waddington.]

plaintiffs held the note in question, and did not immediately give
them notice that he had received no value for the note, it would be
a circumstance for the consideration of the jury in reference to the
defendant's liability.

The judge also stated, that as he was about to deliver his charge
to the jury, the defendant's counsel had handed him a paper con-
taining five points to be charged on : That the general charge first
given, had covered all the grounds taken in the argument, and
irom the opportunity afforded of examining the points, he was not
aware that anything in them had not been sufficiently noticed ; he
desired, however, if the counsel for the defendant wished any more
*2281 8 P ec ifi c answer, that a designation should be made of the por-
J tions of the *points which had not been embraced in the
remarks already submitted to the jury.

The counsel for the defendant then referred the judge to the
fourth and fifth points ; whereupon the judge said that, as to the
fifth point, no difference between the law of New York and the law
of Pennsylvania had been shown, and therefore the point did not
arise ; but that the law of this case for the government of the jury
was, as has already been stated by the court.

As to the fourth point, the judge said that it appeared to be
complicated of law and fact ; and believing it to have been an-
swered by the general charge, so far as the defendant was entitled
to have it answered, he had no further reply to give to it. The
judge, however, then requested the counsel for the defendant to
specify as to what particular case the fourth point had not been
answered ; and the counsel not presenting any such specification,
no further answer was made by the judge.

The jury found for the plaintiff, and this writ of error was taken,
and the following errors assigned.

1. Because the judge erred in charging the jury that a parting
with the possession of the bond for the purpose of a sale of it, was
no surrender of the property in it : and the parting with the pos-
session did not imply that the plaintiffs intended to give up their
claim to it.

2. Because the judge erred in charging, that if the defendant
slept upon the knowledge that the plaintiffs held the note and did
not immediately give them notice that no value had been received
for it, it was a circumstance for the consideration of the jury in
reference to his liability.

3. Because the judge did not answer the defendant's points at
all; and he misdirected the jury as to the law arising from the
evidence.

Mr. Norria, for the plaintiff in error.

1. The learned judge below erred in saying that the plaintiffs



1840.] OF PENNSYLVANIA. 228

[Depeau v. Waddington.]

did not surrender the property in the bond by parting with the
possession of it under the circumstances. The plaintiffs could not
have brought trover, or any other action, for the bond while it was
in the hands of a third person who had given value for it. 1 Bos.
& Pul. 546. In New York a bond passes by delivery like a bill
of exchange. Delivery is necessary to part with the property in a
bill, bond, &c. The King v. Lambton, 5 Price 442 ; 2 Eng. Exch.
Rep. 276. The property in an exchequer bill passes by delivery
only. Wookey v. Pole, 4 Barn. & Aid. 1 ; 6 Eng. Com. Law R.
323. The King of Prussia's bonds were held to pass by delivery
*only, Gorgier v. Melville, 3 Barn. & Cresw. 45 ; 10 Eng. r*ooQ
Com. Law Rep. 16 ; Hornblower v. Proud, 2 Barn. & *-
Aid. 327.

2. The defendant was not bound to prove notice. If the plain-
tiffs gave no consideration, they cannot be in a better situation than
the party from whom they got the note.

3. This note was not received in the regular course of business,
and therefore the defence was available. In Coddington v. Bay,
20 Johns. 651, C. J. Spencer says, "I understand by the usual
course of trade not that the holder shall receive the bills or notes
as securities for antecedent debts, but that he shall take them in
his business, and as payment for a debt contracted at the time."
To bring the transaction within the rule laid down in other cases,
the surrender of the bond and receipt of the note, ought to have
been simultaneous. There must be a present consideration. Payne
v. Cutler, 13 Wend. 606. There must be an advance of money,
or debt contracted, or liability incurred at the time. Here the
delivery of the bond was a week prior to getting the note. Smith
v. Van Loan, 16 Wend. 661, repeats the doctrine that value must
be paid, or property parted with, or credit given, on the faith of
the note at the time of the security. Taking in payment of a pre-
cedent debt would not create a greater equity than that subsisting
between the original parties. Petrie v. Clark, 11 S. & R. 388 ;
Wardell v. Howell, 9 Wend. 170 ; Rosa v. Brotherson, 10 Id. 85.
Here the plaintiffs are not in a worse situation, if the defence
prevails, than they were after parting with the bond.

4. The defendant was entitled to an explicit answer to all his
propositions and points. Smith v. Thompson, 2 S. & R. 51 ;
Bellas v. Hays, 5 Id. 445; Simpson v. Wray, 7 Id. 340;
Bailey v. Fairplay, 6 Binn. 455 ; Slaymaker u. St. John, 5
Watts 27.

Mr. Biddle and Mr. Cadwalader, for the defendants in error.

The doctrine contended for on the other side is, that, by giving
up the bond, the plaintiffs gave up their right to the proceeds of it.
But the jury have found that they did not. Robinson got the bond



229 SUPREME COURT Dee. Term,

[Depeau v. Waddington.]

as their factor or servant. We don't deny that the plaintiffs could
not claim the bond from a bona fide purchaser; but we contend
that they had a specific lien on the proceeds. It is a case of
exchange of securities. The plaintiffs gave up the bond, (or what is
the same thing, their claim to the proceeds of it), for the note. In
Taylor v. Plumer, 3 Maule & Selwyn 562, it was held that a
creditor was entitled to follow stock and bullion, which his broker
had got with the creditor's money, instead of exchequer bills.
Coddington v. Bay, 20 Johns 639 ; Wolf v. Eichelberger, 2 P. &
W. 348, and Petrie v. Clark, 11 S. & R. 388, all show that part-
ing with a security forms a valuable consideration. So is giving
time. Our law is the same as that in England and New York.
930*1 Walker v - *Geisse, 4 Whart. 258; Smith v. Van Loan, 16
J Wend. 661, in effect overrules Rosa v. Brotherson, 10 Wend.
85. In Morton v. Rogers, 14 Wend. 575, two judges expressly
dissented from the doctrine in Rosa v. Brotherson.

Mr. Haly, in reply.

The money obtained on the bond had no ear-mark. It was indis-
tinguishable from other money of Robinson. The burden of prov-
ing that the bond was converted into specific property, lies on the
other side. The case of Taylor v. Plumer makes the distinction
expressly between money in specie and money merged in other
money. Here no security was parted with on the faith of the note.
What is called on the other side "the proceeds of the bond," was
a mere right of action against Robinson for a breach of trust ; if
there was any trust in the case. The plaintiffs neither released the
debt nor gave time.

The opinion of the court was delivered by

ROGERS, J. This was an action of assumpsit on a promissory
note, drawn by the defendant, Depeau, in favor of Robinson &
Smith, or order, and by them endorsed to the plaintiff. The
plaintiffs lent Robinson & Smith fifteen hundred dollars on a note ;
and as a collateral security, the latter firm placed in the hands of
the former a bond for twenty-three or twenty-four hundred dollars,
of a certain Edward Miller to Thomas S. Smith, one of the part-
ners of Robinson & Smith. Some time after, Robinson called on
the plaintiffs, and stated that he wanted to take the bond away,
and to get it discounted. Robinson & Smith, a week or so after
the delivery of the bond, paid to Ogden & Co. eight hundred dol-
lars, and transferred the note in suit to them as collateral security,
for the amount yet remaining due. The plaintiffs gave up their
claim upon the bond for the note, and the eight hundred dollars.
It seems that the note of Robinson & Smith to the plaintiffs was
protested ; that one of that firm came to the plaintiffs, and stated



1840.] OF PENNSYLVANIA. 230

[Depeau v. Waddington.]

that (if) they would lend him the bond for a day, he had an oppor-
tunity of getting the money upon it, and would then pay the fifteen
hundred dollars. The bond was delivered to him for that purpose;
but the bond was neither re-delivered to the plaintiffs, nor was the
amount due on the note paid according to the understanding
between them ; but some time afterwards how soon is not recol-
lected, nor is it material eight hundred dollars in cash were paid,
and the note in suit was transferred to the plaintiffs, in lieu of the
bond, and as a collateral security for the note. It may be inferred
from the evidence, although no direct proof is given of it, that the
bond was assigned for a valuable consideration, or paid by the
obligor : that the money was received by Smith, one of the obligees;
and that eight hundred dollars were paid of the proceeds, r^o-i
* Robinson, of the house of Robinson & Smith, says, that *
the bond was delivered to the deponent's firm on payment of part
of the fifteen hundred dollars, upon the understanding, that the
deponents would immediately pay them the balance of the amount
due ; that the object of the firm in getting the bond was to have it
discounted, and pay the plaintiffs at once ; the bond being for a
considerable larger sum than was due. He does not recollect
whether the plaintiffs afterwards asked his firm for other security,
although they may have done so. He thinks the note in suit was,
a few days after the bond was delivered up by the plaintiffs, prof-
fered to them, as collateral security for the balance due. They
handed over the note about a week after the bond was delivered up,
but after they had secured the bond ; that is, as I understand it,
after they had received the money for it. No other, or new con-
sideration was given by the plaintiffs for the note. The under-
standing was, that the deponent's firm was to pay the plaintiffs
immediately the balance due them ; that the bond was to be dis-
counted at once for that purpose. Nothing was stipulated about
the security, because the balance was to be immediately paid in
cash. The note in suit was given for the purpose of being dis-
counted for the sole accommodation of Depeau.

The defendant alleges that there was no consideration for the
note in suit; that the transfer of it to the plaintiffs was in fraud
of his rights ; that it was placed in the hands of the plaintiffs as
collateral security, and that consequently there is the same equity
existing as between the maker and payee. The plaintiffs admit
that there was no consideration between the original parties; that
the payee could not recover, and that if pledged as a collateral
security, without more, for a pre-existing debt, they would be in
no better situation than the first holder ; but they contend that
there was an exchange of securities in substitution of the note for
the bond, or the proceeds of the bond, and that they were innocent
holders for value.



231 SUPREME COURT [Dec. Term,

[Depeau v. Waddington.]

Several exceptions have been taken to the charge of the court,
none of which have been sustained. The charge is clear and pre-
cise, and substantially answers all the points which were made, and
is as favorable to the defendants as he had any right to expect.
The court leave the facts to the jury, and if there be any error, it
is the application of the evidence to the points ruled. In the
investigation of the case it becomes material to ascertain what are
the facts found by the jury, and to which their attention was
directed by the court. They are in substance, these. That placing
the bond in the hands of Robinson & Smith, who acted as the agent
of the plaintiffs, was for a particular and special purpose, viz., that
they would immediately dispose of the bond; which they did; and
that they would pay over a portion of the money to them ; and that in
the meanwhile, the proceeds would be held by them as a pledge or
security for the amount due on the note ; that the money raised by

*'2321 * ne sa ^ e * or P avmen k f tne bond was a substitute for the
J bond ; that as the bond was a collateral security, so was the
money arising therefrom. That at the time they stood in the rela-
tion of principal and agent, the parties came to an arrangement, and
in consideration that the plaintiffs would relinquish all claim to the
money, whether lien or otherwise, they agreed to transfer, in lieu
of the bond or the proceeds thereof (which the jury have found to
be the same thing), the note now in suit, as a collateral security
for the original debt. The only question therefore, is, are the
plaintiffs innocent holders for value. As between the maker and
payee, it is granted, there was no consideration, and the failure and
absence of this would be a good defence to the maker. But between
other parties, as here between the plaintiffs and defendant, two dis-
tinct considerations come in question ; first, that which the defendant
received for his liability ; and secondly, that which the plaintiffs
gave for their title. If the defendant can show that he has an
equity not to be charged, as if he can prove, as has been done here,
that he received no consideration for his liability, or that his signa-
ture was obtained by force or fraud, he may, after giving due notice,
require the plaintiff to show that he gave a valuable consideration
for the note or bill, and that the plaintiff has no equity to recover.
But actions between remote parties will not fail unless in case of
absence or failure of both these considerations. It is conceded here,
that as between the maker and payee, there is no consideration
whatever ; that the plaintiffs are required to prove that they gave
a valuable consideration for the note, and that if the note is held
merely as a collateral security for a pre-existing debt, without more,
it is not such a consideration as will prevent the defendant from
availing himself of the equity as between the maker and payee. In
Rosa t;. Brotherson, 10 Wend. 85, it is decided, that when the
creditor receives the transfer of a negotiable note, in payment of a



1840.] OF PENNSYLVANIA. 232

[Depeau v. Waddington.]

pre-existing debt, he takes it, although transferred to him before
maturity, subject to all existing equities between the original par-
ties. But that case was not well considered, and has been subse-
quently overruled. But although this is so, it has been repeatedly
held that a collateral security for a pre-existing debt, without more,
is not such a consideration as will give title to the holder ; yet, if
there is a new and distinct consideration, the holder is a purchaser
for value, and, as such, protected from a defence which would have
been available between the original parties. It seems to me there
would be no great difficulty in proving that it would have been
better not to have restrained the negotiability of paper bona fide
pledged as a collateral security for a debt ; but on this point the law
is settled. Without making a parade of learning and research by
the citation of numerous authorities, foreign and domestic, ancient
and modern, it is sufficient to refer to Petrie v. Clark, 11 S. & R.
377, where both points are ruled. It is there held that the transfer
of negotiable paper as collateral security for *a pre-existing r*oqo
debt, does not constitute a person a holder for a valuable "-
consideration. But where there is a new consideration, as where it
can be shown that time was given in consideration of obtaining the
note as a security for the debt, it would be otherwise. The court,
after stating the general principle adverted to, add, that it might
be shown on the other side that the plaintiffs had a right to recover,
provided they were able to prove that time was given in considera-
tion of obtaining the note as security for the debt, and that in
consequence the debt was lost. The giving of time would be a
present and a valuable consideration ; and a pledge in these terms
would be the same as a pledge for money paid down. Here the
principle is plainly announced ; for the case put is but an illustra-
tion of the principle, and applies with great force to the case in
hand. Where the holder of a note or bill has not paid value for it,
he is in privity with the first holder, and will be affected by any-
thing that would affect the first holder. Collins u. Martin, 1 Bos.
& Pul. 651. But no evidence of want of consideration, or other
ground, to impeach the apparent value received, was ever admitted
in a case between an acceptor, a drawer, or maker, and the person
holding the bill or note for value. There is no evidence that the
plaintiffs were aware of the nature of the transaction between the
maker and payee. There was a pre-existing debt between the
plaintiffs and the payee, for which they had a collateral security
amply sufficient for their entire indemnity. One of the firm obtains
possession of the bond for the particular purpose of reducing it
into cash, and with the proceeds paying the amount due on the note.
The money was raised by them, and instead of paying it over, as
was the understanding, and their duty, in lieu thereof they assign
to them the note DOW in suit. Now in what situation did Robinson



233 SUPREME COURT [Dc. Term,

[Depeau v. Waddington.]

and Smith, at the time of the transfer, stand to the plaintiffs?
Clearly in the light of agents, with the money of the principals in
their hands, recoverable by action of assumpsit for money had and
received, and which might have been followed by them into any
specific property into which they may have converted it. As, for
instance, if they had purchased stock, it would have been subject
to their claim. 3 Maule & Selw. 562. The proceeds of the bond,
to the amount of the lien, were theirs, and there is no evidence-
but the reverse may be inferred that the parties intended to con-
vert the transaction into a mere personal contract between them.
And if this had been the effect, it is far from clear, that if the
right to a special action in the case had been relinquished, it would
not have been a valuable consideration. The consideration is
everything the amount of it nothing, unless it is a colorable con-
sideration. But be this as it may, the plaintiffs are holders for
value. For what is this but an exchange of securities ? and this,
if it needed authority, has been ruled to be a sufficient consider-
ation, in Hornblower v. Proud, 1 Barn. & Aid. 333. But it is
*9341 sa ^' ^ ^ s * ne excnan g e f *one collateral security for another
' collateral security and this is true ; but may not the former
have been of more value than the latter, as it undoubtedly was here,
although that is an immaterial circumstance, so far as the legal point
is involved. It is very plain, that had the plaintiffs retained their
original security, they would have had no difficulty whatever. It
has been produced solely by the exchange of securities. The same
general rules which apply to the nature of the consideration for
other simple contracts are applicable here. If a man give his
acceptance to another, that will be a good consideration for a promise
on another bill, though such acceptance is unpaid. And cross-
acceptances, far mutual accommodation, are respectively considera-
tions for each other. Rose v. Sims, 1 Bar. & Ad. 521 ; Cowles v.
Dunlap, 7 T. R. 565 ; Buckler v. Buttevant, 3 East 72. In Bosan-
quet v. Dudman, 1 Stark. 1, it was held, that when a banker's



Online LibraryPennsylvania. Supreme CourtReports of cases adjudged in the Supreme court of Pennsylvania, in the Eastern district [Dec. term, 1835 - Mar. term, 1841] (Volume 6) → online text (page 26 of 75)