Franklin Bank v. Raymond

By the Court, Marcy, J.

The note given by the defendants to Bailey had not been transferred by him according to the custom of merchants. The holders of it could not therefore maintain an action upon it in their name; but Bailey had assigned it without endorsement, for a valuable consideration, to the Hoboken Bank. He had therefore parted with all his property in it, and the bank had aquired what interest he possessed in it. The holders stood in the relation of assignees of a chose in action, and not endorsees, and held the note subject to the equities existing between the original parties. ( 13 Mass. R. 305 .) While thus situated, the defendants, under the belief that Bailey had negociated the note, paid it to the assignees, or, which is the same thing, to *72 their agents, the plaintiffs in this suit. After payment, the no(e was delivered to them, and they then discovered that it had not been negotiated, and that consequently, in the hands of the holders, it was subject at the time of the payment to a set off to the full amount of it. They did what they could to recall the payment. They offered to restore the note, and gave immediate notice to the plaintiffs that they should not recognize the application of the money to it. If the payment was recalled, or never took effect, the amount paid was a demand that ought to be set off in this action.

It is said the defendants had a right to apply the payment to the demand for which this suit is brought. A person paying money has undoubtedly a right to apply it as he pleases ; but if he does not give express direction, or the circumstances are not such as to imply a direction, the person receiving it may 'make the application. In this case, however, the money was applied. It was sent to the bank expressly to take up the note given by the defendants to Bailey, and for that purpose it was received. No question can properly arise as to the right of mailing the application by either the payees or the receivers.

The money was paid by the defendants in ignorance of their rights. Does this circumstance, connected with the acts of the defendants to rescind or disaffirm the payment when they found the note had not been negociated, actually rescind the payment, and leave the money in the hands of the plaintiffs to be set off in this action? or, to state,the question in other words, perhaps more clearly, could the defendants, after disaffirming the payment, have maintained an action against the plaintiffs for the money thus paid ? The general principle of law is indisputable, that if a party pays money under a mistake of the real facts, without any negligence imputable to him for not knowing them, he may recover back such money. What sort of facts are meant ? Such facts, I apprehend, as shew that the demand on which the money was paid did not actually exist against the- person paying at the time the money was paid. The cases collected, by Comyn, (2 Comyn on Contr. 35, 41,) and those referred to by Saunders, in his Treatise on Pleadings and Evidence, *73 675, are of this character. The case which, in my opinion, goes the farthest towards sustaining the position contended for by the defendants, is that of Milnes v. Duncan, (6 Barnw. & Cress. 671.) A bill oí exchange was drawn in Ireland, on a stamp less in amount than is required for such a bill drawn in England; but there was nothing on the face of the bill to shew where it was drawn. The acceptor became a bankrupt, and the holder applied to the endorser from whom he received it, to pay; but he refused, on the ground that the holder had not given notice, and had made it his own by his laches. The holder then threatened to sue for the amount he had paid the endorser for the bill, on the ground that he had passed to him a void bill, by reason of its not having the stamp required for a bill of that description. Believing that such was the fact, the endorser paid the bill, but he soon discovered that it had been drawn in Ireland, and that the stamp was sufficient, and brought his action for the sum he had paid, and recovered it. In that case it was clear that the plaintiff was wholly' discharged from all liability as endorser on the bill, by the neglect of the defendant to give him notice; and that the money was paid after his liability had in fact ceased, but while he supposed it to exist, in consequence of his ignorance of the place where the bill was drawn.

The case before us is not only different, but so essentially different as to exclude, in my opinion, the application of the principle which permits money paid in ignorance of facts to be recovered back. The debt paid by the defendants was one that subsisted against them at the time of payment The fact of which they were ignorant, did not shew that there'was no debt existing at the time; it only shewed that they were in a situation which enabled them to set-off against the demand they had paid, a demand due to them from Bailey. 1 do not find any case where money paid on a substituting demand has been recovered back on the ground that the person making the payment has subsequently discovered facts that shew he had a set-off against the demand. It may be thought that this note having been transferred without endorsement, was open to be impeached in the same manner as if it had remained in the hands of Bailey ; and as the note *74 which Bailey gave for it had not been paid, it was void for want 0f consideration; and therefore there was not in fact a subsisting debt against the defendants at the time the money was paid. The facts do not warrant this position, Cunmngnam s ¡note, endorsed by Bailey, was a good consideration for the note executed by the defendants. One promise is a sufficient consideration for another. According to the principles laid down by Lord Mansfield, in Price v. Neal, (3 Burr. 1354,) money paid by mistake or ignorance of facts, can never be recovered unless it be against conscience for -the defendant to retain it. The operation of this principle destroys the defence in this case; for it will scarcely be contended .that it is against conscience for the Hoboken Bank to retain the money. The defendants gave the note to Bailey, not doubting that he would negotiate it; and on the reasonable supposition that he had done so, they paid it. The Hoboken Bank paid the amount of the note when it was transferred to them by Bailey, intending it should be, and believing Jit had been duly negotiated to them. By mistake it was not, and by ignorance of this mistake the note was paid. It was by a mere accident that the .defendants were in a situation to avail themselves of their set-off at the time the note became due; and it was because ignorant of this accident that they failed to avail themselves of this advantage. To retain the money paid under these circumstances cannot be against conscience. I am therefore of opinion that the check was in fact applied, and was properly applicable to the note given by the .defendants to Bailey, and left at the Franklin Bank for collection, and is not money in the possession of the bank for the defendant’s use, to be set-off against the demand for which this action is brought. There must be therefore, a new trial.

New trial granted.