Lathrop v. Morris — 7 N.Y. Super. Ct. 7

Majority

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Francis S. Lathrop & Dwight Lathrop v. Martin Morris, Theodore A. Meyer & Edward Leon.

Headnote

A payee or endorsee of an accommodation Bill or Note is not bound, to prove that he parted with value as the consideration of its transfer.

He is entitled to recover against an accommodation maker, acceptor, or endorser,, in cases exempt from fraud, by proving that the paper was received by him either in satisfaction of an existing debt or as a collateral security for its payment.

(Before Duer, Mason, and Campbell, J. J.)

Jan. 8, 1851;

Jan. 24.

This was an action by the plaintiffs as endorsers against the: defendants as acceptors, by their partnership name of M. Morris & Co., of two inland bills of exchange. Each bill was drawn by J. Ereedlander upon the defendants, in favor of E. W. Bancroft; was payable 90 days after date,. and was endorsed by Bancroft -to the plaintiffs. The first was dated Oct. 12, 1847, and was for the sum of $324TYo ; the second' was dated Nov. 3, 1847, for the sum of $5326t2óV The defendants in their answer admitted the making, acceptance, and protest of the drafts, but set up as their defence that they, had accepted them, without consideration, for the sole accommodation of Freed-lander and Bancroft—that they were not transferred to the plaintiffs until after they became due, and that the only consideration for the transfer was a precedent debt. The facts, as they appeared in evidence upon the trial, were as follows :—

J. Ereedlander, the drawer of the bills, a merchant, residing at Charleston, S. C., being indebted to Bancroft, the payee, for merchandise sold, had .given him his promissory note for the debt, which fell due on the 3d Nov. 1847. Freedlander was unable to meet, and Bancroft refused to renew, the note or extend its payment, but consented to receive the acceptances of the defendants in satisfaction of the debt. The drafts in suit were accordingly made, accepted, and delivered to. him, and he gave up the note.. After the drafts were due Bancroft endorsed

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them to the plaintiffs, who gave him credit in account for the face of them. The Judge who tried the cause directed the jury to find a verdict for the defendants. The counsel for the plaintiffs excepted to his decision, and the cause was before the court upon an appeal from the judgment rendered upon the verdict.

E. Merrill for plaintiffs.

The payee of a draft who receives it before it becomes due, and pays full value for it to the drawer, is entitled to recover in an action against the acceptor, although there was no consideration for the draft as between the drawer and acceptor. In this case Bancroft paid full value by the surrender of Freed-lander’s note, and the plaintiffs, as the endorsees of Bancroft, have succeeded to all his rights. If he would have been entitled to recover, they must be. He cited, Brown v. Mott, 7 John. 361 ; Grant v. Ellicott, 7 Wend. R. 227 ; Commercial Bank v. Morton, 1 Hill 501 ; Chitty on Bills, p. 80, notes (ed. 1849).

H. E. Davies for defendants.

The surrender by Bancroft of Freedlander’s note' was not a parting with value, in the sense of the rule which in cases like the present makes it the duty of the plaintiff to prove a valuable consideration. Although the note was surrendered, the bill for which it was given remained, nor has it been yet extinguished, so that the drafts in the hands of Bancroft were nothing more than collateral security for its payment. The decision of the court of errors in Strother v. McDonald ( 6 Hill 93 ), has settled the law that when there is no consideration for a bill or note, as between the immediate parties, a precedent debt is not a valid consideration for its transfer, even when the debt is meant to be satisfied, á fortiori not when the transfer can only operate as a collateral security. As Bancroft, not being a holder for value, could not have maintained this action, the plaintiffs, to whom he transferred the drafts when over-due, must be equally barred. They must have been so, even had they paid value to Bancroft, which they did not.

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By the Court.

It is not pretended in this case that there was any fraud in putting the drafts in suit into circulation. On the contrary, it distinctly appears that they were applied to the very use for which they were intended by the parties. They were drawn and accepted for the sole purpose of talcing up the note held by Bancroft; hence the question whether they were received by him in satisfaction of his original debt, resulting from the sale of goods, or merely as a collateral security for its payment, is not at all necessary to be decided. It is wholly immaterial. It is fully settled that, where there is no fraud, the holder of an accommodation note or draft, which was delivered to him merely as a security for an antecedent debt, has the same title to maintain an action for its recovery against the accommodation drawer, acceptor, or endorser,- as if he had paid, in consideration of its transfer, its full amount in cash. It is not necessary that he'should have parted with value to render the transfer valid. It is sufficient that it was founded upon a good consideration, as between the parties, and this consideration is proved by proving the existence of a debt that was meant to be secured.

The cases of the Portland Bank v. Buck ( 5 Wend. 66 ) and Grandin v. Le Roy ( 2 Paige 509 ) are express, and we think decisive authorities^[1] , and the rule which they follow is stated by the text writers as the established law, and especially by those of the highest authority, Justices Bayley and Story. The case is not altered by the fact that the drafts, when taken by the plaintiffs, were over-due. The plaintiffs, doubtless, took them subject to any equities between Bancroft and the defendants. But no such equity has been shown to exist. For aught that appears, there could have been no defence to the suit had it been brought in the name of Bancroft.

The learned counsel for the defendants, we think, has misapprehended the import and effect of the decision of the Court of Errors in Strother v. McDonald. That case has no reference to accommodation paper, nor, in reference to any negotiable paper, does it establish the doctrine for which the learned counsel eon-

(a) (a) Vide also Hall v. Clark, 2 Sand. S. C. R. p. 105.

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-tended. Our own views as to its proper construction have been given in White v. Springfield Bank (3 Sand. p. 222), and to those we adhere.

The judgment at special term is reversed. There must be a new trial, with costs to abide the event.

Cases cited

Bank of Rutland v. Buck 5 Wend. 66 N.Y. Sup. Ct. p. 9