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Spencer v. Sloan.

that of the payee, and as to that class of indorsements many exceptions to the general rule announced were recognized. So far as we are advised, so strict a rule has never been applied to indorsements upon a note or bill by the payee.

It is true that where the law attaches a definite meaning to an indorsement upon a note or bill, parol evidence will not be admitted to qualify or contradict the contract of indorsement, but this rule for the exclusion of parol evidence does not extend to evidence offered to attack the validity of the contract itself for want of consideration, or on account of fraud, or because the consideration has failed; so the fact that it would be inequitable or fraudulent to enforce the contract of indorsement, as that the indorser was an agent, or that the note was indorsed for a special purpose, such as the creation of a trust, or for collection,, or for the accommodation of the indorsee, may be proved by parol. Edwards Bills and Notes, §§ 393, 399, 400, 442; 3 Kent Com. 80.

In the case of Smythe v. Scott, 106 Ind. 245, it was said that "Where an indorsement is made by the payee without consideration, or upon some trust arising out of an antecedent transaction, or to accomplish some special purpose, the facts which go to show the transaction may be shown. This, for the purpose of showing the equities between the parties, and to determine the consideration upon which the indorsement was made."

From what has been said, the inference would seem to be plain that the defendant was entitled to show that when he put his name on the back of the note, it had already been paid, and that his name had been so put on the note at the request of the plaintiff as evidence of such payment. It follows that there was no error in overruling the demurrers to the third and seventh paragraphs of the answer. Dan. Neg. Inst., §§ 710, 711.

In support of the sufficiency of the fifth paragraph of the reply, it is further claimed that the pre-existing debt of Milton Spencer did not afford a sufficient consideration for the delivery of the railroad bond to the defendant as collateral security for payment of the note; that for that reason the defendant had no lawful right to retain the bond, and therefore, when he surrendered it to the plaintiff, it was simply a return of the bond to its lawful owner without any incumbrance upon it.

Whether a previous debt is sufficient to constitute a holding for value of collateral paper is a question upon which there has been a

Spencer v. Sloan.

very sharp conflict of authority in this country ever since the case of Bay v. Coddington, 5 Johns. Ch. 54; s. c., 9 Am. Dec. 268, was decided by Chancellor Kent. That case, in effect, declared that a previously existing debt did not constitute a sufficient consideration, for such a holding of collateral paper, and the doctrine of that case has obtained full recognition in a large number of the States. But the Supreme Court of the United States has uniformly held a contrary doctrine. In the case of Swift v. Tyson, 16 Peters, 1, this latter court declined to follow the case of Bay v. Coddington, supra, and has ever since continued to dissent from the rule recognized in that case. See Jones Pledges, § 107 et seq.; also Bank of the Metropolis v. New England Bank, 1 How. 234; Goodman v. Simonds, 20 How. 343; McCarty v. Roots, 21 How. 432; Oates V. Nat'l Bank, 100 U. S. 239; Railroad Co. v. Nat'l Bank, 102 U. S. 14.

It may therefore be now regarded as an established legal proposition in the Supreme Court of the United States, that an existing debt affords a sufficient consideration for the pledge of collaterals as security for its payment, and that seems to be in accord with the English decisions on the same subject. See again Jones Pledges, § 111, and authorities cited.

This court in the case of Straughan v. Fairchild, 80 Ind. 598, accepted the rule of construction thus established by the Supreme Court of the United States as the correct rule under the laws of this State, and still adhering to that rule as being more in the interest of commerce and of fair dealing than the contrary doctrine, we are brought to the conclusion that the court below at Special Term did. not err in sustaining a demurrer to the fifth paragraph of the reply. The judgment at General Term is affirmed, with costs.

Judgment affirmed.

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A State statute requiring the vendor of a patent right to file with the county clerk copies of the letters-patent, and to make an affidavit that the letters are genuine and unrevoked, and that he has authority to sell, and that the words "given for a patent right" shall be inserted in any obligation taken therefor, is valid as to promissory notes, and a promissory note taken by the vendor of a patent right who has not complied with the statute, which does not contain those words, is inoperative as between the parties, and as to a purchaser with notice, unless he shows that his indorser was a good purchaser in good faith.

A

CTION on a promissory note. The opinion states the case. The defendant had judgment below.

From the Hamilton Circuit Court.

B. F. Davis, J. Brownfield, T. J. Kane and T. P. Davis, for appellant.

R. R. Stephenson and W. R. Fertig, for appellee.

ELLIOTT, C. J. The complaint of the appellant is based on a promissory note written in the usual form, payable in a bank of this State, and payable to bearer.

The answer alleges that the note was executed in consideration of the sale and transfer to the appellee of the right to use, and sell for use, in a designated part of the State, an agricultural boiler and steam feeder, for which Puntan, to whom the note was executed, had obtained letters-patent; that the sale and transfer of the patent took place in Hamilton county in this State, on the 10th day of June, 1884; that Puntan had not then filed with the clerk of the court of that county a copy of his letters-patent, nor had he filed an affidavit that the letters were genuine and had not been revoked, and that he had authority to barter or sell the right to use the patented article; nor was there any clause in the note stating that it was "given for a patent right." It is also averred that the appellant knew that the note was given in payment for a patent right before she purchased it.

New v. Walker.

We have had occasion to consider the validity of our statute imposing certain duties upon the vendors of patent rights. and have expressly decided that in so far as it requires an affidavit from the vendor of his authority and charges him with the duty of filing a copy of the letters-patent, it is not in conflict with the Federal Constitution. Brechbill v. Randall, 102 Ind. 528; s. c., 52 Am. Rep. 695. The reasoning of other cases decided by this court carries the doctrine somewhat further, and they lay down a principle that would, if carried to its logical conclusion, sustain the entire statute. Fry v. State, 63 Ind. 552; Toledo Agr'l Works v. Work, 70 Ind. 253; Central Union Tel. Co. v. Bradbury, 106 Ind. 1; Hockett v. State, 105 Ind. 250; s. c., 55 Am. Rep. 201.

We accept as correct the conclusion to which the reasoning of these cases leads, and affirm that our entire statute is valid, and that it neither usurps any powers of the Federal government nor encroaches upon the National Constitution nor violates any law of Congress. This conclusion is fully supported by the decision of the Supreme Court of the United States in Potterson v. Kentucky, 97 U. S. 501, and by other decided cases. Tod v. Wick, 36 Ohio St. 370; Haskell v. Jones, 86 Penn. St. 173.

There are, as we know, cases which assert a different doctrine, but they are all based on the decision in Ex parte Robinson, 2 Biss. 309, and as that decision has been overthrown, the cases based upon it must fall. Toledo Agr'l Works v. Work, supra; Fry v. State, supra; Brechbill v. Randall, supra.

In imposing upon vendors of patent rights the duty of filing affidavits and copies of letters-patent, no powers vested in the Federal government are usurped, nor are the provisions of the National Constitution trenched upon, for nothing more is done than to prescribe a system of procedure for the protection of our citizens against imposition and fraud. No more is done by that part of the statute which requires affidavits and copies of letters patent to be filed, than to establish regulations for the government of the sale and transfer of a peculiar species of intangible property, which in its very nature is so essentially different from other property that it must necessarily be transferred in a different manner. The regulations established by our legislature are in the nature of police regulations, their purpose being to protect our people from being imposed upon by men who have either no authority to sell patent rights or no patent rights to sell. It has been directly decided by VOL. LVIII — 6

New v. Walker.

the Supreme Court of the United States, as well as by this court, that the National Congress cannot make police regulations for the protection of the people of the States. United States v. Dewitt, 9 Wall. 41; United States v. Reese, 92 U. S. 214; West. Un. Tel. Co. v. Pendleton, 95 Ind. 12; s. c., 48 Am. Rep. 692; Brechbill v. Randall, supra; Hockett v. State, supra.

As the Federal legislature cannot enact police regulations which will yield the citizen of the State just protection, it must be that the State legislature may enact such regulations, or the citizens be left without protection. We are unwilling to declare that vendors of patent rights cannot be restrained by reasonable police regulations, and we do therefore declare that the provisions of the statute under immediate mention, being in the nature of police regulations, are constitutional and valid.

The provision requiring the insertion of the clause, “given for a patent right," in promissory notes, we think, is also in the nature of a police regulation; but independent of this consideration, we regard that provision of the statute as valid, because it simply prescribes what shall be written in a promissory note given for a particular class of property. For more than half a century we have had statutes governing promissory notes, and making peculiar regulations concerning them, and during all those years their validity has remained unchallenged. To us it seems quite clear that such statutes are valid, and that the statute under discussion belongs to that class. This view of the subject finds strong support in the well reasoned case of Tod v. Wick, supra, where it was said: "The right to regulate the form and prescribe the effect of paper taken in commercial transactions has always been regarded as belonging to the States." In this view of the subject we concur, and our ultimate conclusion on this branch of the case is that the statute is valid in all its parts.

Where the assumed owner of personal property undertakes to transfer it in a method forbidden by statute, he can take no benefit from his illegal act. A patent right is property, and the States may regulate the method of its transfer, as they may any other property which is brought within its jurisdiction, provided, of course, no essential right in the property is taken away, and there is no encroachment upon the powers of the Federal Government. Tod v. Wick, supra; Ames Iron Works v. Warren, 76 Ind. 512; 8. C., 40 Am. Rep. 258.

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