§ 1463. Even where a note secured by mortgage is transferred to an indorsee with notice of the mortgage, if the maker afterwards pays off the mortgage to the payee and has it canceled, such payment will be no defense against a bona fide holder, although made without notice of the transfer of the note.198 So, payment of a note, after its maturity, to the payee, is no defense against a bona fide purchaser.199 So, a payment to the payee's agent made without surrender of the note after it had been fraudulently transferred by the agent to a bona fide holder.200

It will not be sufficient to make payment to the payee after indorsement by him, although an employé in the indorsee's bank told the maker to see the payee about it.201 And payment to the payee, after transfer without notice to the maker, will not throw upon a purchaser before maturity the burden of proving himself a holder for value.202 On the other hand, if a payee receives payment after indorsing the note "without any recourse whatever," he will not become liable on his indorsement to his indorsee, because the latter pays the note to a subsequent holder upon his defeat by the maker by reason of such payment to the payee.2

203

If the maker pays a bill or note to the payee after notice of its transfer, the payment will be of no effect.204 But if he pays a nonnegotiable instrument to the assignor, after it has been transferred, but before notice of the transfer, it will be sufficient." It is a question for the jury whether the maker had notice of the trans

198 Blumenthal v. Jassoy, 29 Minn. 177, 12 N. W. 517.

199 Lathrop v. Donaldson, 22 Iowa, 234.

200 McClelland v. Bartlett, 13 Ill. App. 236.

201 City Bank v. Taylor, 60 Iowa, 66, 14 N. W. 128.

202 Emanuel v. White, 34 Miss. 56.

203 Welch v. Lindo, 7 Cranch, 159.

205

204 Sawyer v. Moran, 3 Tenn. Ch. 35. So, by statute in COLORADO (1 Mills' Ann. St. § 246); ILLINOIS (Hurd's Rev. St. c. 98, § 6). So, too, although the suit is in the name of the payee. Jones v. Witter, 13 Mass. 304. So, a renewal given to the payee after notice of attachment will not bind the attaching creditor. Leslie v. Merrill, 58 Ala. 322.

205 Bury v. Hartman, 4 Serg. & R. (Pa.) 175. So, as to notes which (it was held) were rendered nonnegotiable by indorsement without recourse, Warren v. Gruwell, 5 Kan. App. 523, 48 Pac. 205; or by assignment without indorsement, Vann v. Marbury, 100 Ala. 438, 14 South. 273. But see, as to indorsement for collection, Barnett v. Ringgold, 80 Ky. 289.

fer. 206 But where a duebill has been indorsed by the payee, and demand is made by the indorsee without showing the paper, and the maker said he would pay the bill in New York, and afterwards paid the payee there, such facts were held not to amount to notice of assignment, and the payment was held to be sufficient. 207 On the other hand, where a nonnegotiable note was assigned as collateral security by a special assignment indorsed on it by the payee, and was afterwards taken by the payee to sell on condition of securing the assignee, the assignment was held to carry notice of the assignee's rights, and payment to a later purchaser was held to be insufficient.208 In Iowa, provision is made by statute for payment into court in the absence of the holder, where the maker has no notice of a transfer of the note.20

§ 1464. If payment is made to the payee of a negotiable bill or note before any transfer, but before maturity, and without surrender of the paper, it will be no defense against a later purchaser for value before maturity.210 This is true, also, of a part payment made before maturity or transfer, but not indicated on the paper, or otherwise brought to the purchaser's knowledge.211 But a payment made before maturity, on the payee's receipt, is admissible as a defense against a subsequent purchaser with notice.212 And in Massachusetts, by statute, a payment made on a demand note, which is afterwards transferred by the payee without applying the payment as directed, may be set up against the purchaser, and the maker will not be confined for redress to his action against the payee on the agreement.213

206 Knebelcamp v. Smith, 3 Ill. App. 243.

207 Meghan v. Mills, 9 Johns. 64.

208 Pier v. Bullis, 48 Wis. 429, 4 N. W. 381.

209 IOWA (Code, § 3060).

210 Grant v. Kidwell, 30 Mo. 455; Swall v. Clarke, 51 Cal. 227; Burbridge v. Manners, 3 Camp. 193; nor would a secret release to him before maturity protect him, Dod v. Edwards, 2 Car. & P. 602. And see 680, supra. But payment of a nonnegotiable order to the drawer, holding it as collecting agent for the payee, will defeat an action brought by a subsequent purchaser of the order without notice of payment. Stevens v. Parker, 5 Allen (Mass.) 333.

211 Mobley v. Ryan, 14 Ill. 51.

212 White V. Kibling, 11 Johns. (N. Y.) 128. So, payment of a demand note Roberts v. Eden, 1 Bos. & P. 398.

to the payee by a credit in account.

213 Sacket v. Loomis, 4 Gray, 148;

demand notes being subject in Massa

214

If a note is not indorsed until after maturity, the maker may set up a payment made to the payee before such transfer,2 or before notice of the transfer.215 But, if the indorsee had no notice of the payment, the burden is on the maker to show that the payment was made before transfer, although the transfer was after maturity.216 If the indorser of a note takes it up at maturity, and transfers it again, a payment, afterwards made to him by the maker without knowledge of the transfer, will not be available against such indorsee.217

Payment to one after notice of transfer to another is of course bad. And this is true of a note transferred after maturity by one of two administrators, and paid to the other after notice of the transfer.218

Payment to Pledgor-Pledgee.

§ 1465. A note or bill may be paid to the payee, although it is at the time in the hands of a collecting agent.219 But payment cannot be made to the payee, after he has transferred the note before maturity, as collateral, without proof of his authority to receive payment.220 And payment made to him, with notice of the pledge by him, is no defense against the pledgee.221 And if the bill or note

chusetts to any defense arising before notice of transfer, Pub. St. 1882, c. 77, § 14.

214 Brown v. Davies, 3 Term R. 80; Lewis v. Lyster, 2 Cromp. M. & R. 704, 1 Gale, 320; Topeka Bank & Sav. Inst. v. Jilz, 3 Mo. App. 598; Merrick v. Butler, 2 Lans. (N. Y.) 103. And see § 678, supra.

215 Bank of Stockton v. Jones, 65 Cal. 437, 4 Pac. 418; Vatterlien v. Howell, 5 Sneed (Tenn.) 44; Haywood v. Seeber, 61 Iowa, 574, 16 N. W. 727. And see IOWA (Code, § 3461).

216 Wilbour v. Turner, 5 Pick. (Mass.) 226. But see, contra, Capps v. Gorham, 14 Ill. 198.

217 Davis v. Miller, 14 Grat. (Va.) 1; Smith v. Lawson, 18 W. Va. 212. 218 Mackay v. St. Mary's Church, 15 R. I. 121, 23 Atl. 108.

219 Payne v. Flournoy, 29 Ark. 500; subject, however, to the lien of the collecting bank for advances, Williams v. Jones, 77 Ala. 294.

220 City Bank v. Taylor, 60 Iowa, 66, 14 N. W. 128; State Sav. Ass'n v. Hunt, 17 Kan. 533; Best v. Crall, 23 Kan. 482; Williams v. Bank, 72 Md. 441, 20 Atl. 191; Gosling v. Griffin, 85 Tenn. 737, 3 S. W. 642.

221 Fennell v. McGowan, 58 Miss. 261; but is valid against a pledgee whose debt is paid, Bank of the University v. Tuck, 96 Ga. 456, 23 S. E. 467.

has been transferred as collateral, although the transfer is not known to the maker, he cannot set up against the pledgee a subsequent payment before maturity to the payee.222 On the other hand, where the maker of a demand note has paid it to the payee on his receipt and promise "to give it up when called for," the note being then in the hands of a pledgee, such payment will be good as against another holder, to whom it was transferred by the payee as collateral more than eight months after its date.223 And if the transfer is made as collateral for a usurious debt, and is therefore void, the maker may set up a payment made to the assignor before notice of such transfer. 224

One who holds a note as collateral is thereby authorized to collect it after the debt to him becomes due.225 And a valid recovery may be had by such pledgee, although the debt secured by the transfer has been paid, the recovery being in such case for the use of the pledgor.226 And if the maker pays the pledgee the amount of his debt, while he holds the note as security, the payment will be a good defense against the payee to that extent on a retransfer to him.2 227 But payment of the whole amount due on the note to a pledgee, after notice that the note had been taken in execution against the payee, will not be valid, as against the execution cred

222 Griswold v. Davis, 31 Vt. 390; Best v. Crall, 23 Kan. 482. In this case, the maker took the payee's receipt for the payment. So, too, in Davis v. Miller, 14 Grat. (Va.) 1. So, in New York, although a holder of collateral may not be a bona fide holder for value, in the commercial sense of the term. Manhattan Co. v. Reynolds, 2 Hill, 140. And such payment will not defeat foreclosure of a collateral mortgage by the indorsee. Mead v. Leavitt, 59 N. H. 476.

223 American Bank v. Jenness, 2 Metc. (Mass.) 288; the maker not having called for it for eight months and the payee being then bankrupt. So, in general, as against a pledgee after maturity, Bank of Stockton v. Jones, 65 Cal. 437, 4 Pac. 418; or against a pledgee to whom the payment was sent by the pledgor, Butts v. Whitney, 96 Ga. 445, 23 S. E. 397.

224 Caswell v. Railroad Co., 50 Ga. 70.

225 Huyler v. Dahoney, 48 Tex. 234; Lapice v. Clifton, 17 La. 152. And the pledgee will be entitled to payment, notwithstanding a subsequent agreement by the payee's authorized agent to transfer the note to another person. Sawyer v. Cutting, 23 Vt. 486. But a pledgee cannot take Confederate currency in payment. Ransom v. Alexander, 31 Tex. 443.

226 Logan v. Cassell, SS Pa. St. 288. And see $795, supra.

227 Jones v. Hawkins, 17 Ind. 550.

itor, except to the amount due the pledgee.228 And, in general, the maker of a note should only pay the pledgee the amount of his debt, and should pay the balance to the owner of the note." 229

Payment to Attaching Creditor.

§ 1466. Where the debt represented by a bill or note is subject to process of attachment, a valid payment may often be made to the attaching creditor.230 Thus, if the maker of a nonnegotiable note pays it, without notice of any transfer, to an attaching creditor of the payee, it will be good as against his assignee.231 So, if a note is attached after it becomes due, it may be paid to the plaintiff in attachment, after judgment rendered against the payee, without waiting for judgment to be rendered against the maker as garnishee.232 But in Louisiana payment made to an attaching creditor will not amount to a defense against an indorsee, unless the note was in the payee's possession at the time of the attachment.233

Where payment to an attaching creditor is sufficient, such payment is admissible under the plea of general issue.234 But the holder will not be bound by payment made to an attaching creditor of the payee in a proceeding which attacks the good faith of the transfer without making him a party, although he had notice of the proceeding and of the payment made in it.235 But the maker may set up payment to an attaching creditor of the payee upon a judgment in his favor, after transfer of the note, issue being taken on the fact whether the maker had notice of the assignment before payment.236 Where the payee brings suit on a nonnegotiable note, and neglects to aver that it was for the benefit of an assignee, who purchased it for value and gave the maker notice of assignment before it was attached, the maker may plead payment under at

228 Mower v. Stickney, 5 Minn. 397 (Gil. 321).

229 Wofford v. Ashcraft, 47 Miss. 641.

230 See § 811 et seq.

231 Weinwick v. Bender, 33 Mo. 80.

232 Somers v. Losey, 48 Mich. 294, 12 N. W. 188.

233 Denham v. Pogue, 20 La. Ann. 195.

234 Clark v. Yale, 12 Wend. (N. Y.) 470. In this case the jury had found against the good faith of the plaintiff.

235 Holland v. Smit, 11 Mo. App. 6.

236 Newman v. Manning, 79 Ind. 218.