CASTLE v. HUTCHINSON.

(Circuit Court, D. Indiana. November 10, 1885.)

1. CROSS-COMPLAINT-ACTION AT LAW.

A cross-complaint is not permissible in a common-law action.

2. CONSTITUTIONAL LAW-STATUTE REGULATING FORM OF NOTE GIVEN FOR PATENT-RIGHT.

A state statute providing that any person who may take any obligation in writing for which any patent-right, or right claimed to be a patent-right, shall form the whole or any part of the consideration, shall, before it is signed by the maker, insert in the body thereof, above his signature, the words "given for a patent-right," is unconstitutional.

At Law. Motion to strike out cross-complaint and parts of an

swer.

Byfield & Howland and Ward & Davis, for plaintiff.

T. H. Nelson, for defendant.

WOODS, J. A cross-complaint is not permissible in a common-law action. The second paragraph of answer contains a clause to the effect that the notes in suit were made in Indiana, were given for a patent-right, and do not contain in their body the words "given for a patent-right," as required by law. The statute referred to is section 6055, Rev. St. Ind., 1881, which reads as follows:

"Any person who may take any obligation in writing for which any patent-right, or right claimed by him or her to be a patent-right, shall form the whole or any part of the consideration, shall, before it is signed by the maker or makers, insert in the body of said written obligation, above the signature of said maker or makers, in legible writing or print, the words given for a patent-right.""

This law is, I think, clearly unconstitutional. It was so held, in respect to similar laws, in Helm v. First Nat. Bank, 43 Ind. 167, following the decision in Ex parte Robinson, 2 Biss. 309. See, also, Grover & Baker S. M. Co. v. Butler, 53 Ind. 454; Fry v. State, 63 Ind. 552; Toledo Agr. Works v. Work, 70 Ind. 253.

It is claimed that these cases are inconsistent with the opinion of the supreme court of the United States in Patterson v. Kentucky, 97 U. S. 501. But that case has reference to local restrictions upon the sale or use of tangible property; and, notwithstanding the property was manufactured or produced under letters patent, it was held that the enforcement of the statute of the state interfered with no right conferred by the letters patent. The case manifestly has no application here; the notes in suit having been given, not for tangible property, but for a right in letters patent, in respect to which the states can impose no restrictions. Motion sustained.

HILL v. SCOTLAND CO.1

MELLEN V. SAME.

FIRST NAT. BANK OF WArsaw v. SamE.

(Circuit Court, E. D. Missouri. October 14, 1885.)

COUNTY BONDS-NEGOTIABLE INSTRUMENTS-NOTICE.

Where negotiable county bonds authorized to be issued and delivered to A., upon the performance by A. of a condition precedent, were unlawfully issued, duly signed and sealed by the presiding justice of the county court and the county clerk, to B., as trustee, and were unlawfully delivered by B. before the performance of said condition in order to avoid the effect of a suit then about to be brought, and which was thereafter brought, against him to restrain the delivery of the bonds, and have them declared void; and where said bonds were .placed upon the market and sold: held, (1) that they could not be enforced against the county by an original purchaser with notice either of their infirmity or of said suit, or of their delivery in anticipation of said suit; (2) that they could be enforced by purchasers for value and without notice even where purchased from a party who had purchased with notice; (3) that after passing through the hands of one or more innocent purchasers for value, and without notice, they could be enforced by a subsequent purchaser for value with notice.

At Law.

Suits upon coupons detached from bonds of Scotland county, Missouri. The answer states that the bonds to which the coupons in suit were originally attached were authorized to be issued to the Missouri, Iowa & Nebraska Railway Company conditionally; that the condition has never been complied with; and that they were unlawfully issued by the presiding justice of the county court and the clerk of said county to one Mety, as trustee, and were by him unlawfully delivered to said company. The case was tried by a jury. The defendant asked the court to give the following among other instructions, viz.:

"The court declares the law to be that, under the pleadings herein, plaintiff cannot recover upon any coupon declared upon in the second count of his petition, unless he has first established affirmatively to the satisfaction of the jury that such coupon was the act and deed of Scotland county, Missouri. It is not sufficient that plaintiff may have shown that the signatures of the persons purporting to have executed the several bonds are those of the presiding .judge of the county court of Scotland county, and of the clerk of said court, and that said bonds are sealed with the seal of said county court. It is incumbent upon plaintiff further to show that the county court, by an order upon its records made, empowered said persons to execute said bonds; that the county court of Scotland county aforesaid had authority to make such order; and that the coupons aforesaid were detached from said bonds of the county court aforesaid. Plaintiff has nevertheless failed to offer competent evidence of such fact, and the jury must find for the defendant."

The court refused to charge as requested, and charged the jury as follows:

Baker & Hughes and Hough, Overall & Judson, for plaintiffs.

1 Reported by Benj. F. Rex, Esq., of the St. Louis bar.

H. A. Cunningham for defendant.

TREAT, J., (charging jury.) There are three cases submitted to you, and they depend essentially upon the same propositions of law. The court has reduced to writing the views which must control these cases. The court declares the law to be that the plaintiff in each case is entitled to recover on all such obligations sued on, respectively, as he has proved were executed and delivered in manner and form as stated; that is, duly signed by Dawson, the presiding justice of the county court of Scotland county, and Sterling McDonald, clerk of said county, and counter-signed by Charles Mety, under said seal of said county. Concerning the signatures there seems to be no dispute. There are some questions of law connected there with which have been presented, as to which you need not be troubled. Exceptions have been 'saved by counsel. But the court instructs you that these bonds purport to be signed by Dawson, the presiding justice, by Sterling McDonald, the clerk, and counter-signed by Charles Mety. I suppose there is, as to said signatures, no dispute as a matter of fact. Now, producing those bonds, which are negotiable in their character, together with the coupons attached, the plaintiffs, respectively, will be entitled to recover, unless it has been proved that the plaintiff, and each of the persons through whom he derived title to said obligations, had actual notice of the pendency of the suit of Wagner v. Meety, 69 Mo. 150, the record of which has been introduced in evidence.

You understand, gentlemen, that there was a suit instituted by Levi J. Wagner and others to test the validity of these bonds, with a view of determining whether they were valid or invalid. The result of that suit was in favor of the county, to-wit, that the bonds were void and should be delivered up to be canceled; but those bonds that were in the hands of bona fide holders for value, they knowing nothing about the suit or invalidity of the bonds, would not be concluded thereby; hence, under the rules of law governing negotiable paper of this character, though a party may know of the infirmity of the paper, if he derives title thereto through a person who knows nothing about it, he holds the paper as if valid; in other words, if this were not so, and either of you receives negotiable paper through an innocent party, and that paper is found invalid afterwards, as between the original parties, you might go back on the innocent party to reimburse you, and thus, through the ordinary course of transfers, suits might run indefinitely through a series of transactions; but to give sanctity to commercial paper, the law is that if one innocent party, in the course of the transaction, holds the paper for value, all behind him stand in his shoes, and are as if equally innocent parties. I have gone a step further than the ruling which was specifically before the supreme court. I say that this paper is valid in the hands of a party who received it for value, without actual notice of the pendency of the suit of Wagner and others; but if he and each intermediate party from the first delivery of these bonds and coupons also had notice of such

suit or other infirmity, then no recovery can be, had. Actual notice that the bonds and warrants were delivered by said Mety for the purpose of avoiding a proceeding in equity for the cancellation of said. bonds and coupons, which contemplated proceeding was known to said Mety to be about to be instituted, and which was soon thereafter instituted, the same being the case above mentioned, would, if said actual notice existed, as to the plaintiff and each intermediate party, prevent plaintiff's recovery herein. By that is meant simply this: that if actual notice existed, so far as all the intermediate parties. were concerned in the transfer of this paper from one to the other, of the actual pendency of that suit, or of a contrivance by Mety, through this indemnity bond, to escape the injunction, the same rule obtains. If the obligations sued on were duly executed as above mentioned, and delivered by said Mety, and were thereafter purchased for value by the plaintiff from persons who had acquired the same for value without notice of said suit, or of any fraud in the execution and delivery of the same as above stated, then as to such obligations the plaintiff is entitled to recover. On the other hand, if the plaintiff, and each of the persons through whom he derived title, had actual notice of said Wagner suit, or of the delivery of said obligations by Mety to escape said suit, known to be about to be instituted, then, as to such of said obligations, there can be no recovery.

In other words, in order to defeat the plaintiffs' rights in this case, it is necessary to trace from the original delivery by Mety of those bonds, through all the various parties in the course of the transfers, an actual notice of that pending suit, or of the fraud mentioned; and in the light of the testimony it seems that there is no need of going any further. One link broken in the chain breaks the chain.

Mr. Cunningham. I desire to be understood as formally repeating the exceptions which I have heretofore made.

The Court. That is understood. I will only state, in order that the jury may understand this, in a condensed form, that where negotiable paper is put upon the open market, and a purchaser knows nothing. of its infirmity, and pays value for it, although the person from whom he purchases knew there was an infirmity in the paper, yet he is not charged with notice of what others knew, and if that paper passes through the hands of one or more innocent parties, and finally comes back to him, and he doubts the validity or infirmity of the paper, he is protected by the innocent parties who stand behind him. That is all that means. Otherwise negotiable paper would be set afloat in the community which might be valueless; so that nothing remains for you but to find a verdict for the plaintiff for the sum stated, unless actual notice, as stated, is traced through all the transferees of the paper. This raises a very important question for the supreme court of the United States to pass upon, in the light of its recent decision, in the principal case.

SNYDER V. PHARO.

(Circuit Court, D. Delaware. October 6, 1885.)

1. SET-OFF-LAW AND EQUITY.

Under the distinction required to be maintained in the courts of the United States between actions at law and suits in equity, in remedies, pleading, and practice, a plea of set-off which contains a purely equitable defense to an action on a promissory note, cannot be admitted, although such defense would be allowed in the state where the note was made.

2. ACCORD AND SATISFACTION.

Satisfaction of a debt by the hands of a stranger is good when made by the authority of or subsequently ratified by the defendant; and the fact of pleading it will be sufficient evidence of ratification.

3. REPUGNANCY IN PLEADING.

The defendant having filed with a plea of accord and satisfaction a bill of particulars, from which it appeared that the lumber, which it is alleged in the plea was delivered by the late firm of A. R. P. & Son to and received and accepted by the plaintiff in satisfaction of the defendant's note, was charged to the plaintiff on the books of the firm, and that the account showed no credits, but still remained open and unsettled, held, that the plea and the bill of particulars being taken and construed together, the statements set forth in them were contradictory and repugnant, and did not sustain the plea.

At Law. Demurrers.

J. H. Hoffecker, Jr., and John B. Uhle, for plaintiff.
John Biggs, for defendant.

WALES, J. This is an action by the payee against the maker of a promissory note for $1,062, dated at Philadelphia, January 1, 1876, payable to the order of the plaintiff three years after date, and signed by the defendant. Among other defenses, the defendant has pleaded set-off and accord and satisfaction, and filed the same bill of particulars with each plea. The plaintiff has demurred generally to both pleas. The plea of set-off states that before and at the time of bringing the action the plaintiff was and still is indebted in a very large sum of money to the said defendant and George B. Pharo, lately trading as A. R. Pharo & Son, "out of which said sums of money so due and owing from the said plaintiff to the said defendant, the said Horatio W. Pharo and George B. Pharo, lately trading as A. R. Pharo & Son, are ready and willing, and hereby offer, to set off and allow to the said plaintiff the full amount of the said damages," etc. The bill of particulars is a copy from the books of the late firm, containing itemized charges against the plaintiff for lumber sold and delivered between March 8, 1876, and August 16, 1877, inclusive, amounting in all to $9,286.49, with interest from January 1, 1878. It is objected to this plea that it sets up an equitable defense to an action at law. On the other hand it is contended that, as the note was executed in the city of Philadelphia, (though no place of payment is named,) the lex loci contractus should govern the question of the validity of the plea, and that the defense now made, having been uniformly recognized and allowed by the courts of Pennsylvania, in the construction