69

from setting up usury in a note included in it." So, the allowance of a bill by an executor, without offset marked on it, is a waiver of existing set-offs as against a bona fide holder.70 The promise to pay must be unconditional; 71 or if there is a condition, its performance must be shown.72 And the promise must be made to the creditor or his agent.73 Thus, a new promise by the maker to the payee, even before transfer, will not estop him from setting up his discharge as an insolvent, as against a subsequent purchaser." It has been held, too, that the subsequent promise must be based on a good consideration." But the rule seems to be that no new consideration is necessary to a mere waiver of discharge in bankruptcy.70

75

Estoppel by Conduct.

74

§ 1872. A party may be estopped from setting up fraud by agreeing to an extension, with knowledge of the facts constituting the fraud, although he was ignorant of their legal effect." If the payee has an election to take collateral stock certificates in payment at the maturity of the note secured, and return the note, his transfer of the note before maturity will amount to an election to hold the certificates as collateral only.78 If the holder enters judgment for principal and interest, he cannot make any further claim for a higher rate of interest, although it was stipulated in the note."9

mere acknowledgment of the justice of the debt. Horner v. Speed, 2 Pat. & H. (Va.) 616. But see, as to a formal admission merging into a judgment on supplementary proceedings, Rice v. Jones, 103 N. C. 226, 9 S. E. 571.

69 Bullard v. Raynor, 30 N. Y. 197.

70 Selkirk v. McCormick, 33 Tex. 136.

71 Branch Bank at Mobile v. Boykin, 9 Ala. 320.

72 Wakeman v. Sherman, 9 N. Y. 85.

73 Wakeman v. Sherman, supra.

74 Depuy v. Swart, 3 Wend. (N. Y.) 135.

75 Henry v. Gilliland, 103 Ind. 177; Ray v. McMurtry, 20 Ind. 307. An extension is sufficient, Brown v. Bank, 115 Ind. 572, 18 N. E. 56; or the cancellation of a previous note which was about to become outlawed, Parsons v. Frost, 55 Mich. 230, 21 N. W. 303.

76 Way v. Sperry, 6 Cush. (Mass.) 238, or even without written memorandum, Hobaugh v. Murphy, 114 Pa. St. 358, 7 Atl. 139, and 11 East. Rep. 12.

77 Rindskopf v. Doman, 28 Ohio St. 516.

78 Oatman v. Taylor, 29 N. Y. 649.

79 McKay v. Fee, 20 U. C. Q. B. 268.

Where a note has been obtained from the maker by fraud, he may be estopped by afterwards going about with the payee to obtain additional signatures.80 So, on a note known to be forged, by making part payments in order to screen the forger.81 So, where the defendant's own action has prevented the performance of the plaintiff's contract, which was the condition of his acceptance,8 or the consideration for his note. 93 So, where he has transferred the paper in settlement of an open account, and treated it as valid until after the account was barred.$4

83

82

But, even where the making of a note is induced by fraud, the maker cannot avail himself of it without making or offering restitution of the consideration received for it.85 And retaining the consideration received is, in general, a complete estoppel against defenses which were otherwise available.s

86

If a mortgage is given to secure two notes for the purchase money of land conveyed by a warranty deed, and the maker pays off a prior incumbrance after the grantor's insolvency, he will be estopped from using such payment as a set-off against the first note in the hands of an indorsee, where he has already paid off the last note in the hands of another indorsee.87 So, it has been held that the maker of a note is estopped from availing himself of a set-off, of which he gave no notice to the purchaser, although he knew that

80 Yellow Medicine Co. Bank v. Wiger, 59 Minn. 384, 61 N. W. 452. 81 Buck v. Wood, 85 Me. 204, 27 Atl. 103.

82 Home Bank v. Drumgoole, 109 N. Y. 63, 15 N. E. 747. 83 Kolp v. Specht, 11 Tex. Civ. App. 685, 33 S. W. 714. 84 Carter v. Bolin, 11 Tex. Civ. App. 283, 32 S. W. 123.

85 Heaton v. Knowlton, 53 Ind. 357. So, he cannot resist payment of a note given for land because of the insufficiency of the deed, and not offer to reconvey and surrender possession, Kenworthy v. Merritt, 2 Wash. T. 155, 7 Pac. 62; or set up usury in a contract made by him as agent after having received credit from his principal for the entire amount, Drake v. Lowry, 14 Iowa, 125.

86 People's Bank v. National Bank, 101 U. S. 181; Hackettstown Nat. Bank v. Ming, 52 N. J. Eq. 157, 27 Atl. 920; German Nat. Bank v. Louisville Butchers' Hide & Tallow Co., 97 Ky. 34, 29 S. W. 882; Hawkins v. Bank (Ind. Sup.) 49 N. E. 957; Union Loan & Trust Co. v. Southern California Motor Road Co., 51 Fed. 840.

87 Doss v. Ditmars, 70 Ind. 451.

So, the stockholders of a corpora

89

the note was to be transferred.88 tion may be estopped from setting up that its bonds were ultra vires. by their laches in suffering them to be issued. So, a surety may waive his discharge by acquiescing by his conduct in an extension allowed by bank usage to the principal debtor.9°

91

92

On the other hand, a maker will not be estopped from setting up payment by authorizing the holder to retain the note after maturity as against the principal maker. So, a partner may set up in defense that the firm indorsement was made as an accommodation by another partner without his consent, although he knew of such partner's practice and had frequently protested against it. So, the maker may set up a breach of warranty in the deed, for which the note was given, notwithstanding a cross action brought by him for damages on the contract. So, his action will not be barred by the fact that he has brought suit on the note against another person as maker, unless the defendant has been prejudiced by it. And a defense will not be barred by the omission to plead it to other notes, given for the same consideration, and sued by other parties.95

93

Estoppel by Negligence.

§ 1873. Where a party signs a note under the belief that it is a different paper, although he is misled by the fraud of the payee or of some other party, he will be estopped from setting up the fraud against a bona fide purchaser before maturity, if he has been guilty of negligence in executing the paper.96 And he will not be

88 King v. Fowler, 16 Mass. 397; or on receiving notice of the transfer, Albee v. Little, 5 N. H. 277.

89 Tyrell v. Railroad Co., 7 Mo. App. 294.

90 Stratford Bank v. Crosby, 8 Me. 154.

91 Hardy v. Waddell, 58 N. H. 460. At the suit of an indorsee after maturity.

92 Smith v. Weston, 88 Hun, 25, 34 N. Y. Supp. 557. And see § 417, supra. 93 Applegarth v. Robertson, 65 Md. 493, 4 Atl. 896.

94 McClure v. Livermore, 78 Me. 390, 6 Atl. 11.

95 Davis v. Brown, 94 U. S. 423.

96 Chapman v. Rose, 56 N. Y. 137; Kellogg v. Curtis, 65 Me. 59; Carey v. Miller, 25 Hun (N. Y.) 28; Fenton v. Robinson, 4 Hun (N. Y.) 252; Citizens' Nat. Bank v. Smith, 55 N. H. 593; Fulford v. Block, 8 Ill. App. 284; Ross v. Doland, 29 Ohio St. 473; McDonald v. Bank, 27 Iowa, 319; Douglass v.

excused by mere inability to read without glasses, which were not

97

98

at hand; 7 or by his ignorance of the language; s or even by his

100

inability to read, where there were other persons present, who could have read the paper to him,99 and where he has made no effort whatever to ascertain what the instrument was. And where the maker of an instrument sets up such fraud as a defense, if he intended to make a note (although different in its terms), the burden is on him to show that he was not negligent.101 Negligence in such case is a question of fact for the jury to determine.102

Matting, 29 Iowa, 498; Wright v. Flinn, 33 Iowa, 159; Nebeker v. Cutsinger. 48 Ind. 436; Glenn v. Porter, 49 Ind. 500; Woollen v. Ulrich, 64 Ind. 120; Thomas v. Ruddell, 66 Ind. 326; Fisher v. Von Behren, 70 Ind. 19; Ruddell v. Fhalor, 72 Ind. 533; Williams v. Stoll, 79 Ind. 80; First Nat. Bank of Parkersburgh v. Johns, 22 W. Va. 520; Shirts v. Overjohn, 60 Mo. 305; Frederick v. Clemens, Id. 313; Ort v. Fowler, 31 Kan. 478, 2 Pac. 580; Goetter v. Pickett, 61 Ala. 387; Orr v. Sparkman (Ala.) 23 South. 829; Maxwell v. Morehart, 66 Ind. 301; Baldwin v. Bricker, 86 Ind. 221; Wickham v. Grant, 28 Kan. 517; Ward v. Johnson, 51 Minn. 480, 53 N. W. 766; Perkins v. White, 36 Ohio St. 530; Mackey v. Peterson, 29 Minn. 298, 13 N. W. 132; Kitchen v. Loudenback, 48 Ohio St. 177, 26 N. E. 979. So, as to fraud in general, Mosher v. Carpenter, 13 Hun (N. Y.) 602.

97 Bedell v. Herring, 77 Cal. 572, 20 Pac. 129; McCoy v. Gouvion (Ky.) 43 S. W. 699; Maxwell v. Morehart, 66 Ind. 301. But see, contra, after verdict, where the maker's children were present and could read. Griffiths v. Kellogg, 39 Wis. 290. See, too, Soper v. Peck, 51 Mich. 563, 17 N. W. 57.

98 In this case it did not appear that the note was read to him or misrepresented. Fisher v. Von Behren, 70 Ind. 19; Boagni v. Fouchy, 26 La. Ann. 594; Wickham v. Grant, 28 Kan. 517.

99 Baldwin v. Barrows, 86 Ind. 351. And see Perkins v. White, 36 Ohio St. 530.

100 Ruddell v. Dillman, 73 Ind. 518.

101 Fenton v. Robinson. 4 Hun (N. Y.) 252; Fayette Co. Sav. Bank v. Steffes, 54 Iowa, 214, 6 N. W. 267.

102 Baldwin v. Bricker, 86 Ind. 221; Webb v. Corbin, 78 Ind. 403; Homes v. Hale, 71 Ill. 552; Sim v. Pyle, 84 Ill. 271; Hopkins v. Insurance Co., 57 Iowa, 203, 10 N. W. 605; Leach v. Nichols, 55 Ill. 273; Yellow Medicine Co. Bank v. Wiger, 59 Minn. 384, 61 N. W. 452; Soper v. Peck, 51 Mich. 563, 17 N. W. 57; Dodd v. Dunne, 71 Wis. 582, 37 N. W. 430. But, if the facts are admitted, it is a question of law. Kellogg v. Curtis, 65 Me. 59. But it cannot be raised by demurrer. Munson v. Nichols, 62 Ill. 111. As to the duty of consulting other members of the family, if the maker is unable to read, see National Exch. Bank v. Ogden, 31 Hun (N. Y.) 452; Same v. Veneman, 43 Hun (N. Y.) 241.

§ 1874. But, where there has been no negligence on the maker's part, there is no estoppel in such case.103 And it is not of itself negligence that a maker, not knowing how to read, was induced to sign the paper by fraudulent representations leading him to believe it was a different contract; 104 or to sign a paper which was afterwards converted into a note.105 Neither is it negligence, necessarily, to trust the agent of the payee to read a note correctly.106 If the owner of a bill intrusts it with his blank indorsement to an agent, who makes a fraudulent disposition of it, he will be estopped from setting up the fraud against a bona fide holder.107 And where an acceptance is indorsed in blank by A., and delivered to his agent to pay to B., on a certain note made by A., and the agent by a fraudulent representation induces B.'s cashier to fill in the blank indorsement specially to him, and misappropriates the proceeds, B. will not be liable to A. for such fraud.1 108

The effect of negligence as an estoppel against other defenses, such as alteration, forgery, and want of delivery, has been considered already in treating of those special topics.

103 Kellogg v. Steiner, 29 Wis. 626; Walker v. Ebert, Id. 194; Martin v. Smylee, 55 Mo. 577. E. g. where after reading another contract was substituted by sleight of hand. Gibbs v. Linabury, 22 Mich. 479. And see § 181. supra. And mere illiteracy is not neglect, and does not require more than ordinary prudence. Sims v. Bice, 67 Ill. 88; Taylor v. Atchison, 54 Ill. 196. And a mistake in accepting a payment, due to such illiteracy, creates no estoppel as against the party who took advantage of it. Devine v. Bank, 91 Wis. 68, 64 N. W. 589.

104 Baldwin v. Bricker, 86 Ind. 221; Bowers v. Thomas, 62 Wis. 480, 22 N. W. 710; Richardson v. Schirtz, 59 Ill. 313. So, where the paper was fraudulently misread to him. Webb v. Corbin, 78 Ind. 403. There being no one within a quarter of a mile who could read. Yeagley v. Webb, 86 Ind. 424.

105 Puffer v. Smith, 57 Ill. 527. And see, as to the fraudulent alteration of a collateral agreement after transfer to a bona fide purchaser, Strough v. Gear, 48 Ind. 100.

106 Hopkins v. Insurance Co., 57 Iowa, 203, 10 N. W. 605.

107 Putnam v. Sullivan, 4 Mass. 45; Charles River Nat. Bank v. Davis, 100 Mass. 413; or as a ground for recovering the note from a bona fide holder, Connell v. Bliss, 52 Me. 476. And, as to the effect of neglect in signing blank instruments or leaving blanks, see §§ 181, 187, 1770, supra.

108 Weirick v. Bank, 16 Ohio St. 297. But leaving a rubber stamp for signature locked up in his safe, from which it was taken by an office boy, is not negligence. Robb v. Insurance Co. (Pa.) 40 Atl. 969.