If one to whom a piece of negotiable paper has been confided for a special use or limited purpose, should, in breach of the trust reposed in him, attempt to pervert the paper to a different use or purpose, it is quite within the competence of a court of equity, upon proper application, to enjoin him from doing any act, though it were the carrying on of a suit at law, which he made the means or instrument of his bad faith. They who purchase the paper, from the party intrusted with it, under circumstances deemed sufficient to apprise them that there is something wrong about his title to, or mode of using it, as, by purchasing or advancing upon it after it is overdue, are of course subject to the same equities, and may be prevented in the same way from misapplying it. The note, against the misapplication of which our aid is invoked in this cause, is payable on demand with interest, and was received for value by the defendants, Tredick, Stokes Co., as they aver and admit in their answer, about thirteen months after its issue and date. In England, it would seem, such a note, indicating, it is said, on its face, a permanent loan or credit, is not deemed to be overdue during the period of legal limitation, without some evidence that payment has been demanded and refused. Byles on Bills, 131, 164, 165. This is not, however, the law of this country; but such a note is here held to be overdue when it has run a reasonable time from its issue or date; so that if it be negotiated after that time, the maker is let into proof of any equities in defence to an action of the indorsee upon it, of which he might have availed himself against the original payee. Ayer v. Hutchins, 4 Mass. 370; Thurston v. McKown, 6 Ib. 428; Hemmenway v. Stone, 7 Ib. 58; Field v. Nickerson, 13 Ib. 131, 137, 138; Stockbridge v. Damon, 5 Pick. 223; Thompson v. Hale. 6 Ib. 259; Sylvester v.Crapo, 15 Ib. 92; Stevens v. Bruce, 21 Ib. 193; Ranger v.Cary, 1 Met. 369; American Bank v. Jenness, 2 Ib. 288;Knowles v. Parker, 7 Ib. 31; Tucker v. Smith, 4 Greenl. 415; Dennett v. Wyman et al. 13 Verm. 485; Camp v. Clark,Trustee, 14 Ib. *Page 180 287; Nevins v. Townsend, 6 Conn. 5; Wetley v. Andrews, 3 Hill, (N.Y.) R. 582; Carll v. Brown, 2 Mich. 401.
There is no case in this country which has gone so far as to hold such a note, when negotiated by the payee upwards of a year after its date, to be free from these equities, in the hands of the holder; and indeed, with regard to the note in question, when, as is proved, it was known to the defendants, Tredick, Stokes Co., at the time they advanced upon it, to be a note, given so long before by a manufacturing corporation to one of its stockholders, it was not unreasonable for them to presume, that it was sent abroad to be drawn against, because it was not available at home. A similar relation between the maker and payee of such a note, when negotiated, as security for money borrowed, before half this time had elapsed from its date, has been held by the supreme court of Massachusetts to put the indorsee upon inquiry, and to subject him to the equities existing between the original parties to the note. Thompson v. Hale, 6 Pick. 259, 261.
The defendants, Tredick, Stokes Co., must be deemed, therefore, to have taken this note when overdue, and subject to all the equities in relation to it which existed between the plaintiffs and the firm of Hill, Carpenter Co.
The only question which remains, is, whether the plaintiffs have satisfactorily proved, as stated in their bill, that upon obtaining the transfer of one hundred and thirteen shares of James's stock in the De Laine mill from his assignee in full settlement of all their claims and the claims of their stockholders upon both, it was arranged and agreed between the stockholders, that about one half of this stock, free from the lien of the company, should be held by it in trust for the stockholders, each to be entitled thereto in proportion to the balance due to him for his advances to James; and that, as no stock certificates had been then issued on account of the embarrassments of the company with James, their treasurer should issue the demand notes of the company on interest, for no other purpose than to represent the relative proportions in which the stockholders were to receive the trust stock, when it should be thought fit for the company to issue stock certificates. *Page 181
Considering that this stock was the property of, and acquired from James, through his assignee, upon the settlement of the competing claims of the company and of the stockholders against him and the assigned property, and that these claims were very nearly equal in amount, there is nothing so improbable in such an arrangement, as to make it difficult of proof. Nor, on the other hand, would it have been strange, under the circumstances, if this matter had been adjusted between the company and the stockholders, in the mode in which the defendants aver that it was; for, inasmuch as the stockholders made their advances to James for the benefit of the company, and merely because the company could not, under their charter, hold a meeting to sanction advances to him within the time requisite to make them available for his purposes, it might be said to be no more than reasonable that the company should assume the advances made by the stockholders, and issue their notes on demand for them, taking to themselves the whole stock obtained from the assignee of James upon settlement, In either case, the form of the papers made at the time to carry out the arrangement, though in strictness more appropriate to that supposed by the defendants, would not, amongst business men, under the circumstances, be singularly improper. Demand notes, on interest, are not available for ordinary business purposes; and, as we have before said, when issued by a mercantile or manufacturing company to its copartners or corporators, especially if they have been outstanding for some time, seem to carry with them an implication that they were given to be used as evidence, merely, in some future adjustment of the joint concern. Very little, too, if anything, can be inferred from the from in which the trustee stated his accounts with hiscestuis, transcripts of which were enclosed by him to Hill, Carpenter Co., along with the six months' note and the demand note of the company, which, according to the statement, balanced their claim for advances to James. It is true that the demand note, as well as the six months' note of the company, is, in the account stated with Hill, Carpenter Co., charged to them against their advances; but what more proper than this, without reference to the terms and conditions upon which they had *Page 182 agreed to hold the company's demand note, in an account designed merely to exhibit to them the mode in which the trustee, in his discharge, accounted for advances which he had disbursed and attended to for them? There is, in truth, no other mode of stating the account, known amongst accountants; whose practice, we had almost said instinct, leads them, in such statements, by every possible contrivance, to seek and obtain a balance. It is evident, however, that some arrangement, consequent upon the transfer of James's stock to the company, had been made between the stockholders and the company, with regard to the closing up of the trust accounts, and the receipt by each stockholder, for the balance of his advances to James, of the notes on demand of the company; and it is fairly inferable, that this arrangement, whatever it was, was something special and different from what applied to the six months' notes of the company, enclosed to each along with the demand note, and different from what the face of the latter note implied. In his contemporaneous letter to Hill, Carpenter Co. of the date of April 23, 1853, enclosing the statement of his general account as trustee, and his account as trustee with them, along with the six months' note and the demand note of the company which balanced their account, the trustee, who was also treasurer of the company, thus writes to them: —
"The first note," which was the six months' note, "is your share of money received, but not before distributed;" as if to say, that from the very nature of the case, it would be paid at maturity. "The other," which was the demand note, "is according to the arrangement made at the time of the settlement with Mr. Frieze;" as if it were to be treated in a mode different from the other note, specially arranged on the occasion to which he refers, and different from what the note, presently payable, on its face imported. Now Chapin, who, as trustee of the stockholders and treasurer of the company, kept or superintended the keeping of the accounts of both, and as the man relied upon by both to attend to and carry out any arrangement which might have been made in this matter, was in a position to know and to recollect it, swears positively, and distinctly, that the arrangement referred to by him in this letter to Hill, Carpenter *Page 183 Co., and which had been previously assented to by all the stockholders, was, that the demand notes were to be held by them as representing only their proportionate interest in the trust stock, in lieu of stock certificates; and that the company was not to be called upon to respond to them, except by a transfer to each of his proportionate share of the trust stock when it got ready to issue stock certificates. In this, as well as in his other testimony with regard to the assent of Hill, Carpenter Co. to this arrangement, he is confirmed by the testimony of Lea and of Hoyt, and with great minuteness and exactitude of statement by the former, so as to leave no refuge for him or for them against the guilt of perjury, if they have not sworn to the truth. On the other hand, of the witnesses opposed to these, which witnesses are members of the firm of Hill, Carpenter Co., Carpenter, the active partner of the firm, was out of the country at the time of the arrangement made with regard to these demand notes, and could have known what that arrangement was only from subsequent report. Cross, another member of that firm, does not seem to have been present at any meeting, either of the stockholders or directors of the company, and swears, upon this subject, only to what he understood from Chapin; and Hill, the senior partner of the firm, swears, in substance, that he has no knowledge of any such arrangement, and "was always under animpression that the De Laine Company assumed the payment of thebalance due from James." It is impossible to give equal weight to such testimony, with that of the positive and detailed statements of Chapin and Lea, confirmed by the more general testimony of Hoyt; all of whom were in a position to know the facts about which they swear, and the former of whom, as the trusted agent of both the company and stockholders, and acting in the transaction for both, could not possibly have been mistaken with regard to the character of it. In comparing the testimony of these defendants with the testimony of the witnesses on the part of the plaintiffs, and especially as to what was said by Chapin to Cross when he called upon him about the closing up of the trust account, it is easy to see how reconcilable it is, without imputing perjury to either, upon the supposition that *Page 184 the former, from a confusion of memory, not very strange, now attributes to the demand notes, what the latter agrees that he said, or might have said, with regard to the six months' notes. Indeed, in excuse for the non-recollection by the members of the firm of Hill, Carpenter Co. of what agreement was entered into by them with regard to this demand note, and for the disposition which they subsequently made of it in breach of that agreement, some allowance must be made on account of the harassing position in which they were placed, ending in their failure on the 13th of December, 1854, a hint of which we have in what was said by Carpenter to Chapin in their excuse for pledging this note: "We never expected to be in this fix."
It adds something to the relative weight of the testimony of the plaintiffs, that these demand notes, including the one in question, have been so long outstanding, and have all, with the exception of this, been surrendered by the stockholders to the company upon receiving from it a transfer of their proportion of the trust stock. The suggestion, in answer to this, that the surrender of these notes took place subsequently to the failure of Hill, Carpenter Co., and to protect the company against the payment of this note, and indeed that the arrangement itself, now pretended, was never thought of until the 9th of December, 1854, when the failure of that firm was imminent, can find credence only upon the theory, that, to shield the De Laine Company from its liability to pay this note, the stockholders of that company have deliberately planned a fraud, which three of the principal of them are endeavoring to carry out by the rankest perjury. There is nothing in this case, and nothing made known to us concerning these stockholders and witnesses, which would justify us in seriously attending, for a single moment, to such a suggestion; which, however, we must entertain, as true, if we do not believe their testimony.
In fine, our conclusion is, that the evidence adduced in support of this bill is sufficient to overcome the technical force of the answer and the moral weight of the evidence adduced to confirm it, and to establish the right of the plaintiffs to the relief which they have prayed.
Let a decree be entered, perpetually enjoining the defendants, *Page 185 Tredick, Stokes Co., from further prosecuting against the plaintiffs their suit upon the note in the pleadings mentioned; and that the said note be surrendered by said Tredick, Stokes Co. to the plaintiffs, upon the delivery by the latter to the former of a proper transfer of fourteen shares of the capital stock of the Atlantic De Laine Company, in security for the debt due from the late firm of Hill, Carpenter Co. to said Tredick, Stokes Co.; and that, in the event of such surrender, no costs of this suit be taxed against the defendants, members of said firm of Tredick, Stokes Co., but only against the defendants, members of the late firm of Hill, Carpenter Co.; but in the event that such surrender be not made upon a tender of such transfer, then that the plaintiffs have and recover full costs of this suit against all the defendants.