Downing v. Gibson

Rothrock, J.

1. promtsIsSgiiment counterclaim, -WThe evidence shows beyond controversy that the plaintiff purchased the note in suit of O. B. .Gibson after it became due. It also conclusively appears that the defendant purchased the note set up in the answer before he had any notice of the transfer. of the note in suit to the plaintiff. . The question to be determined is this: In an action by the assignee of a negotiable note; transferred after due, may the defendant set up as a counter claim or cause of action a note executed by the assignor of the note sued upon by plaintiff, which was assigned to defendant before -notice of the transfer of his note to plaintiff? The question involves a construction of § 2516 of the Code, which is as follows: “In case of the assignment of a thing in action, the action by the assignee shall be without prejudice to any counter claim, defense or cause of action, whether matured' or not, if matured when plead, existing in ■favor of the defendant and against the assignor before notice of the assignment; but this section shall .not apply to negotiable instruments transferred in good faith and upon valuable consideration before due.”

It seems to- us that the purpose and intent of this section is-to include all things or choses in action, except negotiable *519 instruments transferred in good faith, and upon valuable consideration -before due, and that it applies to the assignment' or transfer of- dishonored negotiable notes to the same extent as to any other chose in action, such as accounts, non-negotiable paper, and -the like. That such was the understanding of the Code Commissioners appeal’s from the following note, explanatory of the section under consideration: “Parties may have claims against each other, but not connected, with or growing out of the same transaction. One may assign and become insolvent; in an action by the assignee the other party cannot bring in his claim as a defense. The substitute provides a remedy, and will do much to prevent the transfer of any but negotiable paper before due. None other should be protected.”

Section 2760 of the Eevision provided that: “In case of an assignment of a thing in action, the action by the assignee shall be without prejudice to any set-off or other defense existing before notice of the assignment; but this section shall not apply to negotiable instruments transferred in good faith and upon valuable consideration before due.”

It was held under this section in Richards v. Daily, 34 Iowa, 427 , that in an action by the indorsee of a promissory note received after maturity the maker cannot plead a set-off existing in his favor against the payee and growing out of a transaction not connected with the note, and that the holder in such case tabes the note discharged of all independent matters, and subject to such equities only as inhere in, or are connected with, the note itself.

Without entering iiito a discussion of the soundness of the reasoning of that opinion or the correctness of its conclusion, it is sufficient to say that § 2546 of tire Code is widely different from § 2760 of the Eevision of 1860. By the 'latter a set-off or other defense was allowed; by the former the defendant is permitted to set up “ any counter claim, defense or cause of action, whether matured or not, if matured when plead, existing in favor of the defendant and against the *520 assignor, before notice of tbe assignment.” Tbe claim set up by tbe defendant never was a set-off beld by kina against tbe assignor of tbe plaintiff, nor a defense thereto. Tbe plaintiffs’ assignor at the time the defendant became tbe owner of the note set up by him as a cause of action had transferred tbe note in tbe petition described to the plaintiff. Tbe defendant, therefore, never in any sense held a set-off against tbe plaintiff’s assignor, but be beld a cause of action against him, and acquired it before notice of tbe transfer of tbe note to tbe plaintiff, and bis cause of action is within tbe very terms of § 2546 of tbe Code.

We think no importance should be attached to tbe use of tbe word “ assignment ” instead of “ indorsement ” in tbe statute under consideration. An assignment of a thing in action may be by parol or in writing. Switzer v. Smith & McGowan, 35 Iowa, 269 ; Conyngham v. Smith, 16 Id., 47 L. That a promissory note is a thing in action need not be discussed. Tbe rule requiring a. party who purchases dishonored commercial paper to make inquiry of tbe maker is a wholesome one, and in no sense impairs tbe value of negotiable instruments, in tbe bands of an innocent holder who acquires them for value and before maturity. ' We. think under tbe evidence in this case tbe cause of action set up by tbe defendant should have been set off against tbe note upon which tbe action is founded.

Reversed.