United States National Bank v. Ewing — 38 N.Y. St. Rep. 777

Majority

p. 777

The United States National Bank, Resp’t, v. Thomas Ewing, App’lt.

(Supreme Court, General Term, First Department,

Filed May 15, 1891.)

Headnote

1. Bills and notes—Accommodation endorser—Antecedent debt.

One Madden was indebted to a bank. One Ewing endorsed a note for his accommodation. Madden delivered this to the bank as collateral security for his debt, and thereupon the bank extended the time of payment of said debt. Held, that the bank was a holder for value of the note.

2. Same—Diversion op paper.

Ewing made the endorsement upon Madden’s assurance that the note would be “negotiable at Louisville.”' Madden delivered the note to a bank in New York. Held, that this did not constitute a legal diversion of the note.

Appeal from an order denying motion of defendant, upon the minutes of the trial, to set aside a verdict rendered by direction of the court in favor of the plaintiff, and to grant a new trial upon the exceptions taken by defendant at said trial.

Ben. L. Fairchild, for app’lt; Butler, Stillman & Hubbard (John Notman, of counsel), for resp’t.

learned justice before whom this cause was tried, after having directed a verdict for the plaintiff, upon a motion for a new trial, rendered the following opinion:

In Grocers' Bank v. Penfield, 69 N. Y., 502 , it was said: “Whatever confusion may have existed upon the point, we think we may now safely say, in the language of Pro

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fessor Parsons (1 Parsons on Notes and Bills, 296), ‘ that it is universally conceded that the holder of an accommodation note, without restrictions as to the mode of using it, may transfer it either in payment or as collateral security for an antecedent debt.” And again (p. 505): “ It must be regarded as settled that an endorsee of a negotiable note made for the accommodation of the endorser, but without restriction as to its use, taking the note in good faith as collateral security for an antecedent debt, and without further consideration, is entitled to the position of a holder for value, and not affected by the defense of want of consideration to the maker.”

The undisputed evidence in this case shows that the note in suit, upon which the defendant was an accommodation endorser, was taken as collateral security for a debt, and on the strength of the acceptance of the note plaintiff extended the time of the payment of the original indebtedness.

Upon the authorities, therefore, the note is held for a sufficient, consideration. Mutual Life Ins. Co. v. Smith, 23 Hun, 535 . In this case, in which the authorities are collated, it was held that an agreement for specific time is not necessary if forbearance is in fact given.

In Freund v. Importers and Traders National Bank, 76 N. Y.,. 352 , it is held that the holder of an accommodation note, without, restriction upon him as to the mode of using it, may transfer it either in payment or as collateral for an antecedent debt, and that the maker will have no defense against it in the hands of an endorsee. The existing debt is a sufficient consideration for the transfer. A new and contemporaneous consideration need not be shown.

This leaves as the only remaining question in this case the one as to whether or not there was a diversion of the note. If there was, the defendant being an accommodation endorser, would not be liable; if it was not, then under the authorities cited the defendant would be liable.

The defendant claims that part of the arrangement under which the note was given was in writing and part verbal.

The written memorandum is as follows : * * *

“ Said Ewing has given me his endorsement of my note at four months, of this date for $1,000, payable to his order, which note I hereby agree to pay and hold him harmless on account thereof.* * * "

The verbal part of the arrangement under which the note was given is thus described by defendant: “ He said he wanted to use the note at Louisville, and gave me his strong and emphatic assurance that he would pay it at maturity. * * * I finally made the endorsement on his (Madden’s) assurance, and relying upon it that the note would be negotiable at Louisville, and that he would meet it at maturity.”

It will be noticed, therefore, that the diversion claimed is that Madden delivered the note to the plaintiff in the city of New York, instead of using the same in the city of Louisville. I do not think that this agreement between Madden and the defendant

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that the note should not be negotiable in New York, and only in Louisville constitutes a restriction upon the use sufficient to make out a case of a legal diversion. The part of the agreement between the defendant and Madden, which is in writing, shows that the endorsement was given without restrictions, and when we take this in connection with the whole of the defendant’s testimony, is it not apparent from the very language used that what substantially was said between the parties thereafter was a statement by Madden that he wanted to use that note in his Louisville bank and would negotiate it there, and by defendant that he did not want to endorse a paper that might be sued on anywhere, especially in New York ?

As was said in the case of Powell v. Waters, 17 Johns., 176 : “ It was of no consequence that the note which was endorsed with the understanding that it was to be discounted by a bank, was, in fact, discounted elsewhere; for it did not alter or increase the responsibility of the endorser.”

In Purchase v. Mattison 2 Robertson, 76, and in many other cases which might be cited, “ the law is laid down that the lender of accommodation paper, who has no interest in the use of its proceeds, cannot complain that it has been diverted, simply because it was not discounted by the person whom he was- led to believe would cash it, or because it was used in paying an antecedent debt, though the accommodation endorser expected it would be used to raise money.

“ The effect of these decisions seems to me to settle the law that, unless the accommodation endorser imposes some restriction upon the borrower to the use to be made of the proceeds, the latter may apply it to any purposes which he considers of advantage to himself, even though the purpose be different from that which the endorser contemplated.” See, also, Wheeler v. Allen, 59 How. Pr., 118 ; Daniel on Negotiable Instruments, §§ 792 and 794.

There is no doubt, therefore, that the intention between the parties was that Madden should have the use of the note for his own purposes, and any understanding or statement, or agreement, between the parties that the note was to be used in Louisville instead of New York did not increase the endorser’s responsibility, nor did it limit the use which the borrower could make of the proceeds; for it must be evident that, if not paid at maturity, the defendant being in the city of New York, that his liability to be enforced, no matter where the note was used, would be in this city.

Upon the whole case, therefore, I am clear that there was no legal diversion of the note, and the plaintiff holding the same for a sufficient consideration, the verdict directed for the plaintiff was correct, and the motion for a new trial should, therefore, be denied.

Our examination of the case satisfies us that the views expressed by the justice holding the circuit were correct as to the law upon the facts established by the evidence, and the order denying the motion for a new trial, as well as the judgment appealed from, should be affirmed, with costs and disbursements to the respondents.

Van Brunt, P. J., and Daniels, J., concur.