National Bank v. Winslow
137 S.E. 320
N.C.
1927
Check Treatment
Brogden, J.

Three questions of law arise upon the evidence:

1. In an action between the holder and the maker of a negotiable instrument, is parol evidence admissible to establish an agreement between the maker and the payee creating a particular mode of payment?

2. If so, does an endorsee taking such note, with actual knowledge of the agreement, hold it subject to the maker’s equities arising on said agreement ?

3. What is the effect of the words “without offset” contained in the note in controversy ?

The reason for excluding parol evidence, tending to establish a collateral agreement, as a part of a negotiable instrument, is that such evidence would contradict or vary the written instrument. The law is firmly established that parol evidence is inadmissible to contradict or vary the terms of a negotiable instrument, but this rule does not apply •to a parol agreement made contemporaneously with the writing providing a mode of payment. This rule rests upon the theory that a contract may consist of both written and unwritten terms, and if the unwritten portion does not actually vary or contradict the written portion, the whole contract will be received in evidence. The rule is thus stated in Evans v. Freeman, 142 N. C., 62 : “The competency of such evidence for the purpose of establishing the other and unwritten part of the contract, or even of showing a collateral agreement made contemporaneously with the execution of the writing, has been thoroughly settled by the decisions of this Court. Indeed, it seems to us that the very question we are now considering has been passed upon by this Court several times. Applying the rule we have laid down, it has been adjudged competent *473 to show by oral evidence a collateral agreement as to how an instrument for the payment of money should in fact be paid, though the instrument is necessarily in writing and the promise it contains is to pay so many dollars.”

In Brown on Parol Evidence, sec. 117, it is held that “parol evidence is admissible to show an agreed mode of payment and discharge other than that specified in the bond.” And in Typewriter Co. v. Hardware Co., 143 N. C., 97, it was held that when a promissory note is given, payable in money, parol evidence may be received tending to establish as a part of the contract a contemporaneous agreement that a different method of payment should be accepted. Carrington v. Waff, 112 N. C., 116; Quinn v. Sexton, 125 N. C., 447; Martin v. Mask, 158 N. C., 436; Mfg. Co. v. Mfg. Co., 161 N. C., 431; Pierce v. Cobb, 161 N. C., 300; Hunter v. Sherron, 176 N. C., 226.

The jury has found from competent evidence that the plaintiff had “actual notice of said agreement at the time said note was endorsed to it by said Birdsong Storage Company.” Therefore, the plaintiff held the note subject to the terms of the agreement and equities therein created. Kerchner v. McRae, 80 N. C., 219; Carrington v. Waff, 112 N. C., 116; Evans v. Freeman, 142 N. C., 62.

The note in controversy contained the language “negotiable and payable without offset at the National Bant of Suffolk.” The plaintiff contends that the words “without offset” inserted in this instrument prevents the application of the rule declared in Evans v. Freeman, supra, for the reason that it amounted to a declaration by the maker, the defendant in. this action, that he would not plead a set-off or counterclaim to said note. It therefore becomes necessary to determine whether or not the defense interposed by the defendant is or constitutes an offset or a set-off as contemplated by law. Set-off has been defined to be “a mode of defense whereby the defendant acknowledges the justice of the plaintiff’s demand on the one hand, but on the other sets up a demand of his own to counter-balance it, either in whole or in paft. Technically speaking, a set-off is a counter-demand which the defendant holds against the plaintiff, arising out of a transaction extrinsic to the plaintiff’s cause of action.” Waterman on Set-off, Recoupment and Counter-claim, secs. 1 and 2.

The first case in our own State to define a set-off is McDowell v. Tate, 12 N. C., 249, and the definition is as follows: “A set-off is a mutual independent claim, which still continues to exist as such, and one which the parties d.id not intend should be appropriated to the satisfaction of an existing demand, but that each should have mutual causes of action, and of course mutual actions, if they pleased, against each other.”

*474 Again, in Hurst v. Everett, 91 N. C., 399, a set-off is thus defined: “A set-off, as originally provided by statute, was the right of a defendant when sued for a debt to counter-balance it, in whole or in part, by setting up as a defense a demand of his own against the plaintiff.”

As defined and interpreted by the decisions, a set-off applies only to-mutual independent claims between the parties, and must arise out of a transaction extrinsic to the cause of action asserted by the plaintiff. It is not such a demand as can be made the subject of affirmative relief, and this constitutes the distinction between a counter-claim proper and a set-off. Electric Co. v. Williams, 123 N. C., 51; Smith v. French, 141 N. C., 6; Sewing Machine Co. v. Burger, 181 N. C., 241; Williams v. Williams, 192 N. C., 405.

Applying the principles of law deduced from the authorities to the facts of this case, it would seem apparent that the collateral agreement relied upon by the defendant as a defense to the action cannot be deemed or considered an offset as defined by the courts. The defense, by a fair interpretation, partakes more of the nature of payment than of offset. “A payment is, by consent of the parties, either express or implied, appropriated to the discharge of a debt.” McDowell v. Tate, supra; Suggs v. Watson, 101 N. C., 188.

The jury has found that the agreement was made as alleged by the defendant; that the plaintiff had actual notice of the agreement, and that at the time the note in controversy was delivered to the plaintiff in accordance with the terms of the agreement that the Birdsong Storage Company had a sufficient amount of peanuts on hand belonging to the defendant to pay the note.

We therefore conclude that the case has been properly tried, and that the judgment as rendered should be affirmed.

No error.