Howard v. Ames

44 Mass. 308

• Court: Massachusetts Supreme Judicial Court
• Decided: October 15, 1841
• Status: Published

Opinion

Shaw, C. J.

Assumpsit by an indorsee against the promisor, to recover a balance alleged to be due on a promissory note. The note having been indorsed to the plaintiff after it became due, it is subject to the same legal or equitable defence, which might be made, if the suit were brought by the promisee ' or prior indorsee.

It appears, that at the time when the note was given to Dan Wilrnarth, it was accompanied by a mortgage, containing, in addition to the usual provisions of a mortgage, a power authorizing the mortgagee, or his assignee, to sell and dispose of the mortgaged property upon certain terms, and apply the proceeds to the payment of the note. Wilrnarth indorsed the note and assigned the mortgage to Cyrus Lothrop, who sold the property. The action is brought to recover the balance due on the note, after applying the whole of the proceeds of the sale of the prop erty.

The defence was, and the defendant offered to prove, that said Howard, the plaintiff, was a nominal party, prosecuting this action for the use and benefit of Lothrop, who was in truth the assignee of the note and mortgage, at the time of the sale ; that said Lothrop fraudulently and corruptly managed the sale, and sold the property under its value, in order to obtain a title to it himself at an under value ; and that if the sale had been made bona fide, the property would have sold for cash for more than enough to pay this note and all interest due upon it.

For the purpose of taking the opinion of the court upon the question whether such facts, if proved, would have constituted a good defence, the evidence was rejected, and the question comes before us in the same manner as if these facts had been proved.

The general tendency of modern decisions has been, to allow matters to be given in evidence in defence, which constitute a substantial answer to the plaintiff’s action, which do not amount, technically, to payment or set-off, and where the defendant might have a cross action. This is done to avoid circuity of action. In Parish v. Stone, 14 Pick. 198, in an action on a promissory note, it was held that want of consideration or failure of consideration might be given in evidence, as a defence pro tanto. In Harrington v. Stratton, 22 Pick. 510, in an action on a promissory note, given as the consideration for the sale of a horse, it was held, on great deliberation, that fraud in the sale might be given in evidence in reduction of the damages, without rescinding the contract. "The same doctrine was recognized in Perley v. Balch, 23 Pick. 283.

Where property, real or personal, is conveyed by a debtor to his creditor, with a power to sell and dispose of it, and apply the proceeds to the payment of the debt, the creditor, in executing such power, becomes the trustee of the debtor, and is bound to act bond fide, and to adopt all reasonable modes of proceeding, in order to render the sale most beneficial to the debtor; like any other agent, factor, or trustee to sell. Like other trustees, he cannot himself directly become the purchaser, or do the same thing through the agency of another. Downes v. Grazebrook, 3 Meriv. 200. The specific property, in such a case, is appropriated to the payment of the specific debt, so that the money to be realized from the sale would operate, ipso facto, as payment of that debt, without any further act or agreement of the parties. If then an action is brought against the debtor for the balance of that specific debt, it seems to us that it is a good answer, to show that if the pledged property had been fairly managed, and properly sold, it would have been sufficient to pay the whole debt, and that there would have been no balance due; and that this answer shall have its legal effect as a defence to an action by the creditor to whom such mismanagement is justly imputable, and to any other person, standing in his place. It shows that it is the plaintiff’s own fault that the debt is not fully paid. In Porter v. Blood, 5 Pick. 54, it was held by Parker, C. J. at Nisi Prius, and the decision was not called in question, that where personal property had been pledged as collateral security for a debt, with power to sell, it was the duty of the creditor to sell within reasonable time, and if he failed so to sell it, he should be held to account for the value of the property, at the rate at which it might have been sold, if sold when it should have been. The court are of opinion that this evidence ought to have been admitted ; and that if the facts were proved as stated, the jury should be instructed that they would make out a good defence.

Verdict set aside, and a new trial ordered.