Lincoln National Bank v. Butler

The action was upon a promissory note for $1,-000, made October 24, 1890, by Alfred

Upon appeal, the general term reversed the judgment, and ordered a new trial, holding' that, in the absence of proof that Butler’s indorsement was made for the purpose of enabling the maker to obtain credit with the payee, the plaintiff could not recover. The authorities sustaining this position are cases in. which the payee, who was, presumably, the first indorser, undertook to recover from one whose indorsement appeared upon the back of the note subsequent to his and who was, therefore, presumably, second indorser. Of course, it is necessary, in such cases, to allege and prove facts overcoming the presumption, by showing that the person sought to be charged indorsed for the benefit of the maker, to induce the payee to accept the security as'a valid obligation against the person indorsing. Moore v. Cross, 29 N. Y. 227 ; Phelps v. Vischer, 50 N. Y 69 ; Coulter v. Richmond, 59 N. Y. 478 ; Wyckoff v. Wilson, 30 St. Rep. 384 ; and 36 St. Rep. 35 ; Reed v. Photo-Gravure Co. (City Court N. Y.) 38 St. Rep. 467 ; Montgomery v. Schenck, 82 Hun, 24 ; 63 St. Rep. 336 ; Bornstein v. Kauffman, 4 Misc. Rep. 83 ; 53 St. Rep. 69 . The principles invoked are correct in their place, and the error into which the general term fell was in attempting to make them applicable to essentially different facts. There is nothing in the form of the instrument sued upon which required that the plaintiff should overcome any legal presumption before it could recover, and in this respect the case differs from those relied on by the 'general term.

It appears, here, that Casey, the payee, held a valid obligation against Taylor, the maker. C-asey, and not the maker, wanted the accommodation. Whereupon he induced Butler to assist him by a loan of his credit in the form of an indorsement, on the strength of which the note might be discounted. Upon the faith of all the names upon the instrument, the plaintiff did discount the note, and on the trial established its title as a bona fide holder for value by the production of the paper. Harger v. Worrall, 69 N. Y. 370 ; Bank v. Crow, 60 id. 85; Mechanics and Traders’ Bank v. Livingston, 6 Misc. Rep. 81 ; 55 St. Rep. 394 . There is nothing in Moore v. Cross, or any of the other cases before cited, which prevents a recovery by the plaintiff from any or all of the parties

It lias been long established that, “when a man writes his name, without anything more, on the back of a negotiable promissory note, he agress that he will pay the note to the holder on receiving due notice that the maker, on demand, made at the proper time, has neglected to pay it. * * * Proof that he put his name on the note for the purpose of giving credit to the maker, or enabling him to raise money on the paper, only shows that there is a special relation between him and the maker, not between him and thé holder. It does not change the nature of the contract of indorsement from what it would be had the note actually passed through his hands in the usual course of business and been indorsed for value.” Seabury v. Hungerford, 2 Hill, at page 82, approved in Hall v. Newcomb, 3 id., at page 234, and 7 Hill, at page 419; Richards v. Warring, 4 Abb. Dec. 53. As far back as Smith v. Knox, 3 Esp. 46, Lord Eldon held that, where a bill is given for the accommodation of a drawer or payee, and is sent into the world, it is no answer to an action upon it, against the acceptor, that he accepted it for the accommodation of the drawer, and that the fact was known to the holder. In such a case the holder, if he gave a bona fide consideration for it, is entitled to recover, though he had full knowledge of the transaction. It is sufficient, for the plaintiff, that the note was indorsed by Casey, and was also indorsed by Butler, who wrote his-name on the back, for the purpose of lending his credit thereto, for the accommodation of Casey, and that the note, so indorsed, came into the possession of the plaintiff, in the course of its business, for value, and before maturity. Benj. Chalm. Bills (2d Am. Ed.) 10 7.

In Pierson v. Boyd, 2 Duer, 33 , it appeared that one Davis made his promissory not for $1,259, payable to the order of John Crum, who first procured Boyd, the defendant, to indorse it, whereupon Crum indorsed and delivered the note to the plaintiff for value. It was claimed by Boyd that the plaintiff, having received the note from Crum, the payee, he could not recover from Boyd, a subsequent indorser. The court, in deciding against this contention, said:

“ As between Davis and Crum, the note was made on a good consideration;,, and Boyd, in the most favorable aspect of the case for him, was an indorser for the general accommodation of Davis, the maker. His indorsement has not been misapplied. The note was negotiated to the plaintiffs, before maturity, for full value. They are, therefore, entitled to recover against Boyd, as indorser.

-» * * Whether Boyd, as between Crura and himself, is to be regarded as first or second indorser, is of no consequence in this suit. One who indorses for the general accommodation of the maker or payee of a note is liable to a holder for value, taking it before maturity, though the holder knew, when the note was transferred to him, that the indorsement was an accommodation one.”

Applying the principle decided in the case last cited to the present controversy, it is apparent that Butler’s indorsement has not been misapplied. It was used, as he intended it should be, to raise money for Casey’s use, and Butler has, in consequence, become liable thereon to a bona fide holder for value. Whether, as between Casey and himself, he is to be regarded as first or second indorser, is of no consequence in this suit. That inquiry will become pertinent only after Casey or Butler pays the note, and seeks to enforce some claim upon it against the other. Then the doctrine of Moore v. Cross and kindred cases, relied on by the general term, will be more germane to the questions likely to come up for consideration.

In Bacon v. Burnham, 37 N. Y. 614 , it was held that, where a prior indorser cannot recover against a subsequent indorser, no person deriving title under such prior indorser, with knowledge of the facts, can do so. The plaintiff there became the holder of the after maturity—a circumstance which distinguishes that case from this—and the equities between the original parties were, therefore, open to investigation. There the holder took the place of the payee, succeeding to his rights and remedies—nothing more. But the equities could not be gone into here; for, the plaintiff being a bona fide holder, all the so-called equities were cut off,

It follows that the order of the general term must be reversed, and the judgment of the trial term affirmed, with costs.

All concur.