By the Court, Gridley, J.
In 1835, William Jackson and seven others purchased a farm of land, known as lot 203 of the Onondaga Salt Springs Reservation, of Aaron Burt, and executed their joint bond and mortgage to Burt for $14,000, the purchase price. Prior to the making the notes which are the subject matter of this suit, the bond and mortgage had been assigned to the defendant Colvin, who had obtained a judgment [309] on the bond, against the obligors. It is alleged in the complainants’ bill that, after the rendition of this judgment an arrangement was proposed and consummated between Colvin on the one part, and the obligors of the bond and defendants in the judgment on the other, that each obligor should secure his separate share of the judgment; and be discharged from his joint liability for the residue thereof; and that it was an express condition of the said arrangement that all of the said obligors should give such security; and that unless all did give such security the agreement should be void. It is then further alleged, that in pursuance of, and in order, on his part, to comply with this agreement, the said Jackson, with Mickles as his surety, made, and the complainant Bradley endorsed, three notes payable at one, two and three years, at the Onondaga County Bank, for the said Jackson’s share of the said judgment, in the aggregate amounting to $2715,17; which notes were deposited with P. Outwater, Esq., Colvin’s attorney and agent, as escrows upon the condition aforesaid. These notes were given in December, 1839 ; and in July, 1840, the complainant gave notice to Mr. Outwater that the condition had failed, and forbade his delivering the notes to Colvin, and demanded that they should be delivered up to be cancelled. The bill then goes on to state that Outwater, having been indemnified by Colvin, had delivered up the notes to him, and that on one of them a suit had been commenced in the name of the defendant Earll, but really for Colvin’s benefit; who was alleged to be the actual owner of the note. The bill then prayed that the notes might be delivered up to be cancelled, and, in the meantime, that the defendant should be enjoined from transferring and prosecuting the same.
Colvin, who answered without oath, denied the alleged agreement, and also that the notes were deposited under any such condition, claiming them as absolute owner, except that which had been transferred to Earll. Earll answered on oath, and denied all fraud, and any notice of the facts set up to avoid the notes, and alleged a bona fide purchase of the note before it fell due.
[310] Much testimony was given on the subject of the alleged agree-, ment, and on the subject of the delivery of the notes to Outwater. But in our judgment .the testimony falls short of establishing either the existence of such, an agreement, or that the notes were deposited by Jackson, with Mr. Outwater, upon the condition alleged in the bill. It does not appear that the proposition ever ripened into an agreement. On the contrary, long before the notes were executed, Wood (if not others of the obligors) had declared his inability to give the requisite security for his share; with which fact Jackson was well acquainted. It is difficult, therefore, to conceive that Jackson could have left the notes with Outwater with the expectation that the arrangement would ever be carried out. And Mr. Outwater testifies that Jackson declared the delivery to be unconditional, at the very moment of receiving the notes from his hand. This declaration was a part of the res gestee, and made the act of delivery absolute. *
Unfortunately, however, for the defendant Colvin, this was not enough to make him the owner of the notes. The bill, at folio 13, avers that the notes were signed by Mickles and endorsed by Bradley on the express representation and condition that they were not to take effect until the aforesaid arrangement should be consummated by all the parties, and a release given of the joint liability, for all but the amount secured by the notes. And the witness Jackson, at the 8th folio of his testimony, substantially proves that allegation to be true. Now if this be true, the absolute delivery of the notes by Jackson, was an unlawful diversion of them from the purpose for which they were made and endorsed ; and Colvin got no title to them, unless he was a bona fide purchaser, without notice, and for value paid. (See 9 Wend. 170; 6 Hill, 93.) We do not think that he was a bona fide purchaser, within the authorities. He. received' the notes either.in part payment or in part security for a precedent debt, viz. an existing judgment—which has neither been satisfied nor cancelled. The old security (the judgment) has not been surrendered, nor in any manner affected, by the deposit of the notes with Mr. Outwater. (21 Wend. 499.)
[311] It is, however, urged by the counsel for the defendants, that there is great reason to believe that the deposit of the notes by Jackson was a fraudulent act, done with a view to prevent the issuing of an execution against the goods in Mickles’ store or the filing of a creditor’s bill; and ultimately, after the deposit had served its purpose, to insist that the notes were mere escrows, and the sureties not liable on them; and that Mickles was a party to this fraudulent conspiracy. This suggestion may be true. That Mickles had, on a previous occasion, taken of Jackson a fraudulent judgment and assignment to protect the property of the latter against his lawful creditors, is proved by Jackson himself; and his relations with Jackson were so intimate and confidential as to authorize a fair conjecture that he was not ignorant of Jackson’s purpose. Yet we think that the evidence is not sufficiently strong to warrant us in finding Mickles guilty of this particular fraud. It is a case not free from suspicion ; but is not established by such proof as to form a safe foundation for a decree. We are of opinion, therefore, that the vice chancellor’s decree, as to the two notes still in the possession of Colvin, must be affirmed.
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By the Court, Gridley, J.
In 1835, William Jackson and seven others purchased a farm of land, known as lot 203 of the Onondaga Salt Springs Reservation, of Aaron Burt, and executed their joint bond and mortgage to Burt for $14,000, the purchase price. Prior to the making the notes which are the subject matter of this suit, the bond and mortgage had been assigned to the defendant Colvin, who had obtained a judgment [309] on the bond, against the obligors. It is alleged in the complainants’ bill that, after the rendition of this judgment an arrangement was proposed and consummated between Colvin on the one part, and the obligors of the bond and defendants in the judgment on the other, that each obligor should secure his separate share of the judgment; and be discharged from his joint liability for the residue thereof; and that it was an express condition of the said arrangement that all of the said obligors should give such security; and that unless all did give such security the agreement should be void. It is then further alleged, that in pursuance of, and in order, on his part, to comply with this agreement, the said Jackson, with Mickles as his surety, made, and the complainant Bradley endorsed, three notes payable at one, two and three years, at the Onondaga County Bank, for the said Jackson’s share of the said judgment, in the aggregate amounting to $2715,17; which notes were deposited with P. Outwater, Esq., Colvin’s attorney and agent, as escrows upon the condition aforesaid. These notes were given in December, 1839 ; and in July, 1840, the complainant gave notice to Mr. Outwater that the condition had failed, and forbade his delivering the notes to Colvin, and demanded that they should be delivered up to be cancelled. The bill then goes on to state that Outwater, having been indemnified by Colvin, had delivered up the notes to him, and that on one of them a suit had been commenced in the name of the defendant Earll, but really for Colvin’s benefit; who was alleged to be the actual owner of the note. The bill then prayed that the notes might be delivered up to be cancelled, and, in the meantime, that the defendant should be enjoined from transferring and prosecuting the same.
Colvin, who answered without oath, denied the alleged agreement, and also that the notes were deposited under any such condition, claiming them as absolute owner, except that which had been transferred to Earll. Earll answered on oath, and denied all fraud, and any notice of the facts set up to avoid the notes, and alleged a bona fide purchase of the note before it fell due.
[310] Much testimony was given on the subject of the alleged agree-, ment, and on the subject of the delivery of the notes to Outwater. But in our judgment .the testimony falls short of establishing either the existence of such, an agreement, or that the notes were deposited by Jackson, with Mr. Outwater, upon the condition alleged in the bill. It does not appear that the proposition ever ripened into an agreement. On the contrary, long before the notes were executed, Wood (if not others of the obligors) had declared his inability to give the requisite security for his share; with which fact Jackson was well acquainted. It is difficult, therefore, to conceive that Jackson could have left the notes with Outwater with the expectation that the arrangement would ever be carried out. And Mr. Outwater testifies that Jackson declared the delivery to be unconditional, at the very moment of receiving the notes from his hand. This declaration was a part of the res gestee, and made the act of delivery absolute. *
Unfortunately, however, for the defendant Colvin, this was not enough to make him the owner of the notes. The bill, at folio 13, avers that the notes were signed by Mickles and endorsed by Bradley on the express representation and condition that they were not to take effect until the aforesaid arrangement should be consummated by all the parties, and a release given of the joint liability, for all but the amount secured by the notes. And the witness Jackson, at the 8th folio of his testimony, substantially proves that allegation to be true. Now if this be true, the absolute delivery of the notes by Jackson, was an unlawful diversion of them from the purpose for which they were made and endorsed ; and Colvin got no title to them, unless he was a bona fide purchaser, without notice, and for value paid. (See 9 Wend. 170; 6 Hill, 93.) We do not think that he was a bona fide purchaser, within the authorities. He. received' the notes either.in part payment or in part security for a precedent debt, viz. an existing judgment—which has neither been satisfied nor cancelled. The old security (the judgment) has not been surrendered, nor in any manner affected, by the deposit of the notes with Mr. Outwater. (21 Wend. 499.)
[311] It is, however, urged by the counsel for the defendants, that there is great reason to believe that the deposit of the notes by Jackson was a fraudulent act, done with a view to prevent the issuing of an execution against the goods in Mickles’ store or the filing of a creditor’s bill; and ultimately, after the deposit had served its purpose, to insist that the notes were mere escrows, and the sureties not liable on them; and that Mickles was a party to this fraudulent conspiracy. This suggestion may be true. That Mickles had, on a previous occasion, taken of Jackson a fraudulent judgment and assignment to protect the property of the latter against his lawful creditors, is proved by Jackson himself; and his relations with Jackson were so intimate and confidential as to authorize a fair conjecture that he was not ignorant of Jackson’s purpose. Yet we think that the evidence is not sufficiently strong to warrant us in finding Mickles guilty of this particular fraud. It is a case not free from suspicion ; but is not established by such proof as to form a safe foundation for a decree. We are of opinion, therefore, that the vice chancellor’s decree, as to the two notes still in the possession of Colvin, must be affirmed.
A very different question arises as to the note transferred to Earll, and on which he has brought a suit. The bill charges that Earll is a mere nominal party, Colvin being the beneficial owner of the note; or if not so, that he purchased the note with notice, or took it for a precedent debt, and is not a bona fide holder, and calls for an answer on oath on all those points. The answer, explicitly denies all the charges in the bill, in relation to the alleged mala fides of the transfer and holding of the note, and alleges a consideration in an exchange of notes. It is not denied that this answer is responsive. It is so, upon the authorities. (See the cases cited in Cowen & Hill’s Notes, 285, 286.) Being responsive, and being uncontradicted, it is conclusive, unless it has stated some fact which is incompatible with the bona fides of the transfer of the note. The fact that seems to have struck the vice chancellor with considerable force, was the consideration of the transfer, viz. the note of Earll payable in six months. It is true that- the defendant did not, in his [312] answer, explain how it happened that the exchange was made. But while the case is susceptible of an explanation, consistent with the perfect bona tides of the transaction, we have no right to disregard the positive allegations of the answer. Nothing short of the testimony of two witnesses, or what is equal to the testimony of two witnesses, can countervail the effect of these allegations. It is to be borne in mind that the prima facie presumption, arising from the possession of the note, is in favor of the bona tides of the transfer; and that the allegations in the answer were as full and particular as the charges in the bill required them to be, and until disproved, we think they must be taken as true.
Again. Colvin was sworn for the defendant Earll, under an objection, and whether that objection was well taken or not, it was waived on the argument, and the testimony is to be regarded as properly before the court. The exchange of notes is a good consideration between the parties. It has even been decided that when two persons exchange their notes, payable to each other, with the view of raising money on them, the property in the notes respectively passes by the exchange and delivery, so that the subsequent sale of the notes at a discpunt is not usurious. (Rice v. Mather, 3 Wend. 62.) Colvin then became the actual owner of Earll’s note, and Earll the actual owner of the note in question. Now were the circumstances such as to render the exchange, for the reason alleged by Colvin, a fair and probable transaction ? or rather, does the explanation of Colvin disclose a fact which overthrows the allegations of the answer 1 It seems to us that the explanation of Colvin not only does not tend to impair the credit of the answer, but, on the contrary, shows that the taking of the note by Earll was a very natural transaction. He was told, and had reason to believe, that on the note he received, which was payable at a bank shortly thereafter, he would be able to receive the money which he was endeavoring to raise; and we do not perceive that be had any ground to suspect Colvin of misstating the facts in relation to the note; nor that the transaction was such as to charge him with notice of . the circumstances that constitute the [313] defence to the note, within the authorities cited from 10 Com. Law Rep. 154, and 12 Id. 95, 98. We think, therefore, that Earll must be regarded as a bona fide holder of the note in question. That character attached when he received the note without notice, and for a valuable consideration; and no subsequent notice can affect the character of the paper in his hands.
It is said that the release executed by Earll to Colvin, to make him a witness in the progress of this cause, has discharged the other parties to the note, and that such release is available to the complainants and fatal to the defendant Earll in this suit. We are not called on to express an opinion of the effect of proof of this fact under a proper issue in the suit at law; but it is sufficient to say that it is not within the issue presented by the pleadings in this case, and cannot, for that reason alone, be made the ground of a decree against the defendant. (See 6 John. 5,43, 559, 565; 1 John. Ch. Rep. 117; 16 Wheat. 189; 1 Barbour's Ch. Pr. 339.)
Again. We are asked, (in the event of our finding the transfer to Earll bona fide,) to modify the decree of the vice chancellor, so as to make Colvin chargeable with the amount of the note which he has transferred in fraud of the complainants’ rights. A conclusive objection to this relief is that there are no appropriate allegations in the bill to warrant such a decree. The bill is not framed with a double aspect; it positively asserts Earll to be a mala fide holder of the note in question, and does not allege that it was in fraud of the rights of the complainants, assigned to Earll so as to vest the title in him; and thus claim relief against Colvin, founded on that state of facts. Such an allegation we deem indispensable, so long as a party is bound to recover, if at all, according to his allegations as well as his proofs.
The decree of the vice chancellor must therefore be modified as respects Earll and the note transferred to him; so as to declare him a bona fide holder of the note, and dismissing the bill, as to him, for that cause.
[314] This is a joint appeal by both defendants from the entire decree, and therefore no costs are given upon the appeal, to either party. We also think that no costs should be allowed to either party in the court below.