Flint v. Schomberg — 1 Hilt. 532

Majority

p. 532

David B. Flint and William H. Kent v. Theodore G. Schomberg.

Headnote

The plaintiffs, for a commission of two and a half per cent., -which was paid to them by the owners of a promissory note, made payable to the maker's own order, and indorsed by him in blank, indorsed the note to enable tho holders to get it discounted. It was discounted by a bank, and, having been protested for non-payment, it was paid by the plaintiffs to the bank, and taken up by them.

Held, that by paying and taking up tho note, tho plaintiffs became subrogated to the rights of the bank, and were not subject to equities between tho maker and the parties to whom ho delivered the note, and consequently that a claim of maker against such parties was no defence to an action upon the note by the plaintiffs.

The indorsement of the noto by the plaintiffs for a commission of two and a lialf^cr(| cent,, paid to them by tho holders, was not a usurious transaction.

Appeal from an order at special term denying a motion for a commission. This ivas an action upon a promissory note, made by the defendant, payable to bis own order, indorsed by liim, and bald bv tbe plaintiffs. From tbe answer and moving affidavit of tbe defendant, it appeared that the note was made by him and delivered to tbe firm of James Porter & Co. That James Porter & Co. procured the plaintiffs to indorse it., for the purpose'of enabling them to raise money thereon, and they paid for tbo endorsement a commission of two and a half per cent, on tbe face of tbe note. It was then discounted at bank. When it became due it was protested for non-payment, and was taken up by tbo plaintiffs from bank after protest. The defendant set up a counter-claim against Porter & Co., and moved for a commission to examine witnesses abroad, to prove tbe facts out of which, the alleged counter-claim arose. The motion was denied at special term, on tbe ground that tbe plaintiffs were entitled to be subrogated to the rights of the bank, and were therefore to be regarded as bona fide holders for value, and not subject to equities between tbe original parties. Tbe defendant appealed.

p. 533

J. N. Bdlestier, for the appellant.

After careful examination, I have not been able to find any authority bearing directly upon this case. But upon principle it is apparent that the plaintiffs took the note subject to all the equities existing against Porter & Co.

First. The plaintiffs are not bona fide holders, as they toot the note after it became due.

Second. The fact that the plaintiffs indorsed the note for hire, and afterwards, in consequence of such indorsement, were compelled to take it up, does not constitute them bona fide holders, nor entitle them to subrogation; for the note was never negotiated by or through them, and there is no privity of contract between them and the previous holders.

Third. The plaintiffs could not recover against Porter^; Co. because their indorsement was for a usurious consideration. The usury would therefore avoid the note as between Schomberg and the plaintiffs. Steele v. Whipple, 21 Wend. 103 .

Benedict, Burr & Benedict, for the respondents.

The facts set up in the defendant’s affidavit are no defence to the action.

The plaintiffs indorsed the note before maturity. It must, then, have been transferred to them, and they must have been the holders of the note. In what way they became the holders of it can make no difference. Their payment of it as indorsers gives them the absolute right to recover the amount of all precedent parties. Their contract, when they indorsed the note, was, that they should have this right of recourse.

But if the contrary view is taken, and the statement of the defendant’s affidavit is true, that “ they took the note a week after it fell due,” still the plaintiffs’ right to recover is undoubted. They would, in that case, be subrogated to the rights of the bank, who had discounted it, and held it when it became due. Chitty on Bills, 141, 142; Williams v. Mathews, 3 Cowen, 260; Edwards on Bills, 258; Ketchum v. Barber, 4 Hill, 234 .

So far as the facts can be collected

p. 534

from tbe affidavit of tbe defendant, it would appear that be made tbe note to tbe order of Porter & Co.; that Porter & Co. .procured tbe plaintiffs to indorse it for a commission of two and •a half per cent., to enable them to get it discounted; that it was discounted by a bank, and that the maker and payees having ■failed to pay it, tbe plaintiffs, after it was protested, paid it to tbe bank, and now bring action upon it against tbe defendant, .the maker.

Upon such a state of facts, it is, I think, very clear, that tbe claim which it is averred in the answer that tbe maker has, against the payees, is no defence to tbe action. Tbe plaintiffs, having paid tbe note, were subrogated to tbe rights of tbe bank. Tbe bank, when the note fell due, were holders for value. There couli^be no doubt but that they could recover against tbe maker, and that bis claim against the payees would be no defence to their action, and it is equally no defence to tbe plaintiffs’ action, they having succeeded to whatever rights the bank bad,.as holders, when the note fell due.

The transaction between Porter & Co., the payees and the plaintiffs, is wholly immaterial in this action. If the plaintiffs ■bad loaned Porter & Co. the money on the note, the case of Steele v. Whipple ( 21 Wend. 103 ) might have been in point, (Ketchum v. Barber, 4 Hill, 234 ); but the fact that they put their name upon the note for a commission of two and a half per cent. ,-to enable Porter & Co. to get it discounted by somebody else, which would appear to have been tbe transaction, was not, as between them and Porter & Co., a usurious agreement. The .motion for- a commission was therefore properly denied, as it appeared by the defendant’s affidavit that he had no available defence against the plaintiffs’ action.

Order of special term affirmed.

Cases cited

Steele v. Whipple 21 Wend. 103 N.Y. Sup. Ct. p. 533, p. 534