Opinion
1813.
A negotiable instrument, which is transferred merely by delivery, although for a valuable consideration and before due, is liable in the hands of the holder to all the equities to which it would have been in the hands of the payee. [See Hill v. Crosby, 2 Hum., 545; Ingram v. Morgan, 4 Hum., 66.]
Thus, where a note under seal was given for a land warrant to which the payee had no title, and which was appropriated by the rightful owner, a judgment recovered on the note by the holder was perpetually enjoined in equity.
The complainant states that the defendant, Lurry, represented himself entitled to a land warrant issued to one Parr, and contracted to sell it to the complainant, in consideration of which he executed his bill single for the sum of eighty-six dollars; that upon this bill single, a suit had been brought and a judgment recovered in the name of Lurry, though for the benefit of Sneed, to whom it had been sold, though not assigned, by the agent of Lurry. The bill further states that Lurry had no sort of title to the land warrant, but that, in fact, it belonged to one Armstead Stubblefield, who had already appropriated it; that after a suit had been brought on the bill single, he saw Lurry, who agreed to have the suit dismissed, and then actually gave the complainant a release. The agreement was not complied with, and, of course, a judgment was recovered. The bill charges a knowledge of the fraud on the part of Sneed.
The bill was taken for confessed against Lurry. The answer of Sneed denied all knowledge of the fraud, and claimed protection upon the ground that he was a bona fide purchaser, without notice of the fraud practised by Lurry, and that he purchased the bill single before it was due. He charged that the release procured by Smith from Lurry was with a view to defraud him, Sneed.
The proof in the cause sufficiently showed the fraud as stated in the bill. It also appeared that Sneed had given a valuable consideration for the bill single before it was payable and it did not appear that he had notice of the imposit on practised by Lurry.
Cooke for the complainant. The fraud on the part of Lurry being established it is a matter of no consequence that Sneed was conusant of it before he bargained for the claim. The obligation being fraudulent and vicious in its creation can not be rendered otherwise by the mere act of transfer, for the original impurity will follow it into the hands of the transferee. 2 Wash. 233-248.
But the most fatal objection to the right of recovery on the part of Sneed is the absence of such an assignment as is contemplated by the act of Assembly. To vest the purchaser of a note or bond with a legal title there must be an actual assignment. Unless this is done, the purchaser has only an equitable right to demand the contents of the paper. In those cases at common law where a subsequent purchaser, without notice, and for a valuable consideration, is protected against a prior equity, there must be a legal title or actual conveyance. 3 Atk. 377. If this requisite has not been complied with, the prior equity will prevail upon the principles of a well known maxim, applying to rights merely equitable, "He who is first in point of time is best in point of right."
This being a negotiable paper, can not change the question unless it be actually negotiated. That is the only way of conferring upon the purchaser a legal title; and if it be not done, he must stand in the same situation as if he were the mere equitable holder of a paper not negotiable; in which case he is subject to all the equity to which the original holder was liable. 1 Har. Chy. 18.
Dickinson, for the defendant. The defendant, Sneed, does not ask for the aid of this Court. If he did, the principle assumed on the other side and the facts of this case might prevent him from recovering. He only asks to be let alone. If he has no legal right to the contents of the obligation, it is clear he can not enforce the collection of it; and if he has a legal right, he, having purchased before the bond was payable, can not be affected by any equity existing as to Lurry. In either event, Sneed must succeed; for, if the first position be true, he ought not to have been made a defendant. It occurs to me that the principles which should govern this case are essentially different from those which apply to the sale of real estates. But even if they are not, in one point of view they will show the impropriety of making Sneed a party to this suit. The ground of coming into a court of equity is to set aside a legal title which has been obtained by a subsequent purchaser; but if the subsequent purchaser possesses an interest merely equitable, there can be no cause of complaint against him; and if he were made a party, the bill as to him would be dismissed.
I differ, however, from the counsel for the complainant with respect to the kind of right which is possessed by Sneed. The act of Assembly has expressly made this paper negotiable; and being so, it can make no kind of difference whether it has been negotiated or not. The real reason why the assignee of a bond or note is protected against an equity which might attach to it in the hands of the obligee is that the paper is negotiable, and not that it has been negotiated.
The substance of this case is that Lurry, representing that he had a right so to do, sold the complainant a land warrant, and to secure the payment of the consideration thereof the complainant executed to Lurry his bill single.
Lurry put this into the hands of one M'Clendan, with authority to sell it or receive the money. M'Clendan sold and delivered, but did not assign the bill single to Sneed, one of the defendants. Sneed caused a suit to be commenced on the bill single, in the name of Lurry, for his use. After the suit was at issue, Lurry gave the complainant a release against the bill, which he wished to plead, and the court of law would not permit him; and it now satisfactorily established that Lurry had no right to the land warrant, nor had he any authority to dispose of the same. The suit at law was prosecuted to judgment and the object of this bill is to enjoin the defendants from collecting the amount.
In this case, as against Lurry, it is clear the complainant would be entitled to relief.
This bill single, by our laws, being a negotiable paper, in like manner as a bill of exchange, if it had in fact been assigned to Sneed for a valuable consideration, before it was due, and without any notice of the consideration for which it was given, it is conceived that Sneed would have been entitled to receive its contents in equity as well as in law. But in this case it was not in fact assigned. Lurry's name was still to be used at law for its collection, and it ought not now to be viewed in this Court in a different situation from a paper not negotiable, but which had in truth been assigned. In such a case the instrument in the hands of an assignee is liable to every equity which it would have been subject to in the hands of the obligee.
To exempt an instrument of writing in the hands of a third person from the equity to which it would have been liable in the hands of the payee, it ought to appear not only that it was negotiable in its nature, but likewise that it had been negotiated in the manner prescribed by law, so as to enable the holder of it, in all respects, to treat it as his own.
It would therefore seem that the defendant, Lurry, and all concerned claiming under him, should be perpetually enjoined from collecting this judgment, and that Lurry should pay all the costs, both at law and in this Court; but as it is not certain that those costs can be collected from Lurry, let the complainant pay them in the first instance, and have them reimbursed from Lurry if he can find any property.