#### WILFORD TURNER vs. ANDREW BEGGARLY & AL.

Where a note or bona is assigned after it is due, the assignee holds it subject to all the set-offs and payments to which it was subject in the hands of the payee.

Otherwise, when the note or bond is assigned before it is due, unless the payments are endorsed on the instrument.

The case of Haywood v. McNair, 3 Dev. 231. and 2 Dev. Eat..283, cited cited and approved.

Appeal from the Superior Court of Law of Iredell County, at the Fail Term IS49, his Honor Judge Caldwell presiding.

The defendant, Beggarly, gave to Isbam Gaither his bond for $173 50, dated February 19th, 1847, and payable at twelve months. On the 29th of July 1847, Gaither deposited the bond with the plaintiff, and they executed an agreement in writing, that it was so deposited “to make the said Turner safe for the amount said Gaither is due him and also as his surety in all cases; and whenever said Gaither shall pay said Turner and release him as the surety of said Gaither, the above bond is to be said Gai-ther’s, and, otherwise, to be the said Turner’s.” On the Istof October 1S47,Gaither inclosed the bondto the plain, tiff and, soon after it fell due, this action of debt was brought on it, and the defendant pleaded payment, and the set off of certain sums, which Gaither owed to him, Beggarly. In support of those pleas, the defendant offered to give in evidence the following notes made by Gaither: One dated in 1846 and payable to Beggarly one day after date ; another dated September 1st, 1847, and payable to Beggarly, one day after date ; one payable to one Gray, *332September 2nd, 1846, and endorsed by Gray to Beggarly, July 19th, 1847.. The counsel for the plaintiff objected to. receiving them in. evidence, but the Court admitted them.. Evidence was then given on the part of the defendant, that, shortly after giving the bond which is sued on,, the plaintiff applied to the defendant to take up certain debts, which Gaither — then and during the year 1849, in the defendant’s employment at wages of $20 a month — owed to the plaintiff, which the defendant refused, telling the plaintiff “the-thing is nearly up;” and also that, between the ?'th and 42th of September 1,847, the defendant applied to,the plaintiff to.Iefcbiro,see the-bond and the written agreement of the 2.9th of: J.uly, 1847, in his possession, and that the plaintiff then showed them to the defendant, asking him. if he wished to pay the bond, and the defendant replied, "I am ready to pay according to my contract with Gaither, and it is about paid off to Gaither.”

The Court instructed the jury, that, although the bond was assigned to the plaintiff before it was due, it was liable to all defences by the obligor, which he could set up against the obligee, provided the plaintiff had notice o-f those defences at the time of the assignment, or such-information a.s would put a prudent man upon enquiry ; and, therefore, that in this case, if they believed that Turner had such information, they should allow, as set offs, all the debts to the defendant up to the 1st of October, 1,847.. The counsel for the defendant then moved the Court, to instruct the jury, that the defendant was not entitled to, claim, as a set off, any, of the said debts, which, arose to the-defendant after he. had notice of the deposit of his-bond with the plaintiff, upon, the agreement of the 2;9i:h'of July 1*847. But the Court refused, and then told the jury, that the deposit and separate written transfer ip.a^é no difference, whether the defendant knew of them or not, and that, up to October 1st, 1847, the plaintiff Si&odun Gaither’s shoes, provided he had notice of. the al*333leged payments and set offs. The jury thereon found payments for $152 29, and that, after deducting the same, a balance of $21 21 was due for principal money on the bond declared on and assessed the damages for interest té $2. After judgment the plaintiff appealed.

Osborne and Thompson, for the plaintiff.

Craig and Boyden, for the defendant.

Ruffist, C. J.

Notes over due are deemed dishonored, and, one, who takes them in that state, is considered, at this day, as taking them upon the credit of his endorser,, and is to stand in the place of the holders at or since its maturity. It is commonly said in such a case, that the bill or note is affected in the hands of the endorsee by all the equities between the original parties. That form of expression is proper and strictly true, in relation to such, defences as the maker could set up in a Court of Equity against the payee, for, whenever the debtor, in the view1 of the Court of Equity, ought to be relieved from the payment of the debt, either because of some original vice in the contract or because of a counter-demand, or other sufficient reason, it is against conscience in the holder of a security of this kind, to attempt, to defeat the debtor of the benefit of such an equitable defence, by making an assignment of it. Therefore, an assignee after maturity is, in equity, held to take the note, as his assignor had it. But, if the defences of the debtor be equitable in their nature, that is, cognizable in the Court of Equity and not in a Court of Law, as between the original parties, the jurisdiction is not changed in respect of such defences by the fact of the¡security being endorsed. It is- true, the samé form of expression, that an over due note is liable after endorsement to all equities, is often used in Courts of Law, and in books, which treat of the legal rights of the as-signee and debtor. But, it is not in reference to the legal *334rights of those parties, an accurate mode of speaking, for, as Chief Justice HenoeksoN said in Haywood v. McNair, 3 Dev. 231, “The equities of the parties which attach to a contract of this kind, can no more be examined in a Court of law, than any other equities. Therefore, de-fences founded on mere equities must be made in equity ; and the law takes notice only of such defences as are of a legal nature. The meaning then, of thus speaking in a Court of law is, that a note, transferred under dishonor, is subject to the legal exceptions to its payment in the hands of the assignee, to which it was liable in the hands of the payee.” Accordingly, in that case, the Court declined entering into mere equities between the parties, but held the defendant entitled to the same legal defences against the note in the hands of Haywood, to which it was subject in the hands of Barnes at the time of the assignment by him to Haywood. Upon the strength of the case of Barrough v. Moss, 10 B. & C. 558, just then reported in this country, a second action was brought by Haywood, and the questions before decided were re-examined by the Court, and the opinions before given were again affirmed. It was held, that if the debtor had a right to a deduction or set off against the plaintiff, at the time of the assignment, he should, although the set off or deduction did not attach to the particular note or bond, have the same right after the assignment, and that he might have the benefit of such right upon the general issue, if sued in assumpsit or by special plea, if sued in debt on a bond,: but that the defence, thus set up, must be one for the original debtor, if sued by the obligee at law, and not one which would be merely a ground for relief in equity. Haywood v. McNair, 2d Dev. & Bat. 283. The utmost extent, then, to which, at law, this doctrine, that an assignee is affected by the liabilities of his assignor, has been carried,-is, that he shall be thus affected in respect of such liabilities, as existed at the time *335of the assignment and constituted a demand, which was then available, as a defence at law. The proposition, thus stated, obviously excluded from its operation, notes and bonds endorsed before due. There may be a few cases of bills, perhaps, which might be admitted as exceptions : as if a bill were noted for non-acceptance, and then wrongfully endorsed by one, who held it for the ber_. efit of the drawer orthe like; then the instrument carries its dishonor on its face, though not due; but. in respect to notes or bonds, not at maturity, it is not seen, how any defences arising out of counter-demauds between the original parties can be let in. They were not available at the time of the assignment. Indeed, in Burbridge v. Manners, 3d Camp. 192, Lord Ellenbokough, admitting that payment at maturity extinguished a bill or note and that it could not be roissned, declared distinctly, that payment meant a payment in due course, and not in anticipation, and therefore, that a subsequent assignee tor value before a maturity could recover on the security.— For. as Mr. Justice Bulle» said in Brown v. Davis, 3 T. R. 80, a transfer of a note, before it is due, carries no suspicion with it, and the assignee receives it on its intrinsic credit: and, as Mr. Chitty adds, he is not bound to en-quire into circumstances, existing between his assignor and any of the previous parties to the paper, as he will not be affected by them. Chitty on Bills, 14 Story’s Edit. 1819. It would clog in an inconvenient and dangerous manner the circulation of negotiable paper, if such prepayments could affect its validity, when left in existence, with no note of the fact on it; much less can it be affected by a counter demand of the maker or the payee — at least-at law. Under what form of pleading could the defence be presented'? There was clearly no payment here. It is not a set off of a debt against the indorsee: nor a set off of a debt of the assignor, available at the , time of the assignment, since at that time there could be *336no action by any one on the assigned instrument. If there were any equities, which tied up the hands of the payee from justly parting from the paper, another tribunal may give relief against the assignee on the ground of them, if they can be brought home to him ; as if he had agreed to apply these demands to the debt; then being insolvent^ endorsed it with notice. But in such a case, on the other hand, a Court of Equity would not coniine its enquiry to the effect of the legal assignment, by endorsement, but would have regard to an assignment, as a security or by a separate agreement in any form, which constitutes a contract of assignment in that court. We do not propose, however, entering into those considerations, taking notice of them only to show, that they present points peculiarly belonging to the Court ofEquity and which cannot be acted on at law, without danger of doing injustice to one or both of the parties. Here, the plaintiff took the bond by endorsement; at a time when the defendant could make no defence against it, and it was not questioned on the trial, that he gave value for it and holds it for himself. It is impossible for juries du* iy to estimate the circumstances, which ought to put a person on enquiry, and thus affect him with notice of a counter demand or other equity, and the attempt to do so would often work great injustice. It is safest, therefore, to rely upon the broad distinction, founded upon the time of transfer, that is, before and after the maturity of the paper — in the latter case, allowing to the debtor all the defences he could have had against the obligee, if sued at law by him : but in the former, passing the paper effectually at law, according to its tenor in its face or mem< orandum on it, and leaving the debtor to such relief in equity, as by the rules of that court affect the conscience of the assignee.

*337Pearson, J.

I think there was error in both of the-grounds, assumed as the basis of the decision,in the court below.

There was error in the legal effect given to the agreement, as to the mode in which the note was to be paid. That agreement did not have the effect of a paj-ment, or any other legal defence ; it was a confidence in trust, or understanding,, that the debtor should be at liberty, when the note became due, to make payment in such debts or demands against the creditor, as the former should pay off for the latter i it was a trust or agreement, which Equity would prevent the creditor from defeating, and to which, it would subject a purchaser; who acquired the legal title, provided his conscience could be affected by-proof of notice; i» the same way. asoné, who takes the legal estate in land from, a trustee, is required to perform/ the trust, provided he had notice, on the ground that he was particep® eriminis in the breach of (fust. But this is a principle which does not obtain at law. There,, the legal title prevails, and, under the statute, the plain-tiffin this ease became the legal owner by the endorsement..

I confess, it is difficult for me to conceive, how there-can be a payment or any legal defence (other than such as avoids it «6 initio) to a debt, before it is due; but make the supposition, there was also error- in- the idea, that, in* a Court of Law, it was admissible to- show, that the era-«fo-rsee had notice before the endorsement, and upon the-ground of such notice, defeat his legal title-. A Court of Equity assumes, that the title passes, and! the remedy proceeds on the ground, that the purchaser ©r endorsee, should, be declared a trustee, by reason of his being affected' with notice. This- mode of giving relief never has been attempted in a court of law.

If money be accepted, as a payment, before the note falls due and it is-endorsed: as such on the note, the legal *338effect is, to extinguish the note to that amount ; its existence only continues as to the balance due, which is all that can pass by the endorsement. The effect is the same, as if the first note had been cancelled and a new note given ; in other words, when payments are endorsed, the endorsee takes the note in its “ then state and condition,” and acquires title only to such part,, as in law has an existence.

But if money be accepted as a payment before the note falls due, its legal effect is not to operate as a payment., so as to make an extinguishment to that amount. It isa mere agreement, trust or confidence ; that it shall be applied as a payment, when the debt is due ; it is a thing not done, but only agreed to be done, and, if the note is endorsed, the whole legal title passes, and the party can only have relief by commuting the purchaser into a trustee. A contrary rule would subvert the whole system of the negotiability of notes, which it has been the policy of our Statutes to extend

The doctrine, in reference to notes endorsed after maturity, is fully discussed and settled in Haywood v. McNair, 3 Dev 231, — same case 2 Dev. & Bat. 283, and in the opinion of the Chief Justice in this case, in which I fully concur.

Per Curiam Judgment reversed and venire de novo.