But a set-off against the husband alone is admissible, where the note to the wife has been merged in a judgment recovered in the husband's name.474 In an action, however, on a check, an account due from the payee to the drawer's wife is not admissible as a set-off. 475

A set-off is not, in general, available against the state, as a suit would not lie against it.478

Set-Off Affected by Collateral-Judgment.

477

§ 1865. The fact that the defendant holds collateral is no bar to the admissibility of a set-off.1 And a note secured by collateral may be set off, without a surrender of the collateral.478 In California, however, the statute restricts the creditor's remedy in such case to foreclosure of the mortgage, and the note is not available as a set-off, without proof that the mortgage has no value.*79

If the collateral has been converted by rehypothecation or otherwise, the damages resulting have been held to constitute a good setoff in an action upon the note; 480 although a tender of the amount of the note has been held not to be available as a set-off, in an action of trover brought for the conversion.481

The right to set-off is not waived by a verdict,482 or even by a judg ment and execution 483 recovered against the plaintiff in a former action; nor by its having been offered as a set-off in another suit against another party, without further proof of facts constituting a bar. 484

The admissibility of release and set-off as defenses against an indorsee or assignee is considered in the next chapter.

474 Gilmore v. Baily, 12 La. Ann. 562.

475 Dolph v. Rice, 21 Wis. 590.

476 Chevallier's Adm'r v. State, 10 Tex. 315.

477 McKinnon v. Armstrong, 2 App. Cas. 531.

478 Wallace v. Finnegan, 14 Mich. 170.

479 McKean v. Bank, 118 Cal. 334, 50 Pac. 656.

480 Richardson v. Ashby, 132 Mo. 238, 33 S. W. 806.

481 Empire Dairy Feed Co. v. Chatham Nat. Bank (Sup.) 51 N. Y. Supp. 659. 482 Baskerville v. Brown, 2 Burrows, 1229.

483 Byles, Bills, 368; Peacock v. Jeffery, 1 Taunt. 426.

484 Smith v. Myler, 22 Pa. St. 36.

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I. ESTOPPEL.

II. BONA FIDE HOLDER.

III. PAROL EVIDENCE.

CHAPTER XLVII.

EXCLUSION OF DEFENSES.

I. ESTOPPEL.

§ 1866. Estoppel by Contract or Relation of Parties.

By Signature, Acceptance, etc.

By Representations or Recitals.

By Representations-Subsequent-By Others.
By Bill or Note.

1867.

1868.

1869.

1870.

Estoppel by Contract or Relation of Parties.

§ 1866. The contract itself, by its very nature, or by the relation of the parties and their implied obligations to one another, often excludes a defense that would be otherwise admissible. Thus, an indorser cannot deny that the indorsement was made with his authority, where it has been used to take up an undisputed note of his own.1 So, a partnership cannot show that a partner was not authorized to execute a guaranty after the dissolution of the firm, where the firm was previously bound to give such guaranty. So, if a note is given in a corporate name by a corporation, which was not properly incorporated, it cannot deny the note after being regularly incorporated by another name.3 So, a bank which has drawn a bill in express violation of its charter cannot set this up against the payee, who received the bill from the bank in payment of its debt; or that notes issued by it were void, as exceeding the statutory limit of

1 Main v. Hilton, 54 Cal. 110.

2 Star Wagon Co. v. Swezy, 59 Iowa, 609, 13 N. W. 749. Empire Mfg. Co. v. Stuart, 46 Mich. 482, 9 N. W. 527. Davis v. Bank, 4 McLean, 387, Fed. Cas. No. 3,626.

4

debt. On the other hand, one who takes a note secured by collateral mortgage is not thereby estopped from contesting the validity of another note secured by the same mortgage."

9

In general, the maker cannot set up want of legal capacity in the payee to make the loan; or to take the note, either directly or by purchase; or to transfer it.10 Nor can the maker set up the payee's failure to take security on the loan, as required by law; 11 or to make proper entries in its discount book.1 So, it cannot set up that the corporation holding the note is liable to forfeit its charter on other grounds; e. g. on the ground of having suspended payment.13

12

5 Weber v. Bank, 12 C. C. A. 93, 64 Fed. 208, reversing 50 Fed. 735. • Coleman v. Witherspoon, 76 Ind. 285.

7 Poock v. Association, 71 Ind. 357; Little v. Obrien, 9 Mass. 423; Pleasant Val. Dist. Tp. v. Calvin, 59 Iowa, 189, 13 N. W. 80; Wyman v. Bank, 29 Fed. 734. And see §§ 244, 333, supra.

8 As a public officer, Miltenberger v. Cooke, 18 Wall. 421; or as a corporation legally constituted, Brickley v. Edwards, 131 Ind. 3, 30 N. E. 708; Bair v. Bank, 27 Neb. 577, 43 N. W. 347; Bank of Port Jefferson v. Darling, 91 Hun, 236, 36 N. Y. Supp. 153; Reynolds v. Roth, 61 Ark. 317, 33 S. W. 105. And see § 331, supra. Or legally authorized to take the note, Gorrell v. Insurance Co., 11 C. C. A. 240, 63 Fed. 371; or as a foreign corporation authorized to do business in the state, City Bank of Hartford v. Press Co., 56 Fed. 260, affirmed in 7 C. C. A. 248, 58 Fed. 321; Lauter v. Trust Co., 29 C. C. A. 473, 85 Fed. 894; or as a married woman, Castor v. Peterson, 2 Wash. St. 204, 26 Pac. 223. And see § 294, supra. So, he cannot set up, in defense to his note given for stock, that the bank took it in violation of its charter, requiring stock to be paid for in cash. Pine River Bank v. Hodsdon, 46 N. H. 114. Nor can he set up against an indorsee that the payee was a mere agent, and not authorized to take a note payable to himself. Wells v. Sutton, 85 Ind. 70. Nor, a fortiori, against a bona fide holder for value. Winship v. Bank, 42 Ark. 22.

9 Attleborough Nat. Bank v. Rogers, 125 Mass. 339; Ehrman v. Union Cent. Life Ins. Co., 35 Ohio St. 324; Merchants' Nat. Bank v. Hanson, 33 Minn. 40, 21 N. W. 849, overruling First Nat. Bank of Rochester v. Pierson, 24 Minn. 140.

10 Nelson v. Eaton, 26 N. Y. 410; Ehrman v. Union Cent. Life Ins. Co., 35 Ohio St. 324; Housum v. Rogers, 40 Pa. St. 190; Wolke v. Kuhne, 109 Ind. 313, 10 N. E. 116.

11 Union Gold Min. Co. v. Rocky Mountain Nat. Bank, 2 Colo. 248, affirming 1 Colo. 532.

12 Moseby v. Bank (Pa. Sup.) 8 Atl. 166.

13 Farmers' Bank v. Garten, 34 Mo. 119. Or that it had indorsed the note

Estoppel by Signature-Acceptance-Indorsement.

§ 1867. The maker's signature does not estop him from setting up fraud as a defense.1 And he may show, at suit of the payee, that the note was given by their joint fraud to impose upon the bank examiner by way of apparent assets.15 But he cannot set up his own fraud to aid the payee in hindering his creditors.16 understanding, however, that the intention was to use the note for another illegal purpose, will not estop him from setting up the defense of fraud.17 But one who signs a note as co-maker after its delivery to the payee for the purpose of procuring its discount by the plaintiff cannot set up that he executed the note without consideration.18

The acceptance of a bill admits the consideration between drawer and acceptor, and want of such consideration cannot afterwards be set up by the acceptor against the payee.19 So, the acceptor of a bill, drawn and indorsed by an agent in the same handwriting. cannot deny his authority as to either signature, 20 although he guaranties, in general, only the signature of the drawer. 21 An indorsement, or even a transfer without indorsement, often creates an

(which it afterwards took up and now sues on) for an illegal consideration. National Bank of Gloversville v. Burr, 27 Hun (N. Y.) 109.

14 Glazier v. Streamer, 57 Ill. 91.

15 Lime Rock Bank v. Hewett, 50 Me. 267. But see, contra, Winton v. Freeman, 102 Pa. St. 366, as against an indorsee with notice of a fraud on creditors. So, as against a bank from which as payee a discount was procured for use in stock speculations of its cashier and teller, Mead v. Bank, 89 Hun, 102, 34 N. Y. Supp. 1054.

16 Butler v. Moore, 73 Me. 151; or to the prejudice of the sureties on payee's bond as a public officer, Longuine v. Fain, 89 Tenn. 393, 18 S. W. 70.

17 American Nat. Bank v. Cruger (Tex. Sup.) 44 S. W. 278. So, the maker of a note may set up that the note was given for a conveyance of land in fraud of the grantor's creditors, although this was known to the grantee when he made the note. Davis v. Sittig, 65 Tex. 497.

18 Rudulph v. Brewer, 96 Ala. 189, 11 South. 314.

19 Law v. Brinker, 6 Colo. 555. Especially where the consideration is particularized in the bill, § 561, supra.

20 Jones v. Turnour, 4 Car. & P. 204.

21 As to warranty of genuineness implied by acceptance, see § 629, supra, and by certifying a check, § 646, supra.

estoppel, in like manner, as to the genuineness of prior signatures, validity, etc.22

Estoppel by Representations or Recitals.

24

§ 1868. Where the maker of a note represents to the purchaser that it is good, and thereby induces the purchase of the note, he is estopped from afterwards denying its validity.23 And he may be estopped by a like representation as to the priority of collateral mortgages, or to the effect that the note was business paper.25 And where, at the time of transfer, the purchaser relies on the maker's promise to pay the note, he cannot afterwards set up that it was already paid.26 A maker may, however, set up fraud notwithstanding his representation that it was good, if he had no knowledge of the fraud at that time.27 Or he may set up the worthlessness of the consideration, which he did not ascertain until afterwards; 28 or the subsequent failure of the consideration.29 It has even been held in a recent case that an accommodation indorser, as against his immediate indorsee (who knew of the accommodation), may set up usury, although he gave a written certificate that the

22 See 8748 et seq., supra.

23 Davison v. Franklin, 1 Barn. & Adol. 142; Tobey v. Chipman, 13 Allen (Mass.) 123; Rose v. Teeple, 16 Ind. 37; Rose v. Hurley, 39 Ind. 77; Vanderpool v. Brake, 28 Ind. 130; Henry v. McAllister, 99 Ga. 557, 26 S. E. 469; Plummer v. Bank, 90 Ind. 386; Shipley v. Reasoner, 87 Iowa, 555, 54 N. W. 470; Blades v. Newman (Ky.) 43 S. W. 176; Nye v. Chace, 139 Mass. 379, 31 N. E. 736; Sutton v. Beckwith, 68 Mich. 303, 36 N. W. 79; Fleischmann v. Stern, 90 N. Y. 110; Brooks v. Martin, 43 Ala. 360; Wilkinson v. Searcy, 74 Ala. 243. And such representation will be binding on the receiver appointed for the maker. Armstrong v. Bank, 133 U. S. 433, 10 Sup. Ct. 450. As to estoppels against a defense of coverture, see § 282, supra.

24 Dodge v. Pope, 93 Ind. 480.

25 Fleischmann v. Stern, 90 N. Y. 110. Although the purchaser took the note at a large discount. Lynch v. Kennedy, 34 N. Y. 151; Reedy v. Brunner, 60 Ga. 107. And see § 561, supra.

26 Davis' Adm'r v. Thomas, 5 Leigh (Va.) 1.

27 Sackett v. Kellar, 22 Ohio St. 554.

28 Allum v. Perry, 68 Me. 232.

29 Cloud v. Whiting, 38 Ala. 57, although such defense would be barred by a promise to the purchaser to pay the note.

RAND.C.P.-164

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