Bramhall v. Beckett

Howard, J. The question presented by the statement of facts is, whether a negotiable note, given by the defendant for the accommodation of the payees, and indorsed by them in blank to the plaintiffs, before maturity, and without notice of a defence, as collateral security for a pre-existing debt due from the indorsers, is open to the equities existing between the original parties; or whether the plaintiffs are entitled to protection as holders for a valuable consideration, within the meaning and policy of the commercial law. It is now well settled that the want or failure of consideration will constitute a valid defence to an action on a hill or note, between the primary parties. So if one become a party to such instrument, merely for the accommodation of another, he may insist upon that fact, as a bar to an action thereon by any party, for whose accommodation the instrument was made. But if the instrument be negotiated bona fide, for a valuable consideration, to one who is not apprised of any facts, or circumstances which would discredit it, the accommodation party cannot be admitted to such defence. If an accommodation bill or note be fraudulently negotiated, and come to tbe holder fairly, and without a knowledge of the fraud, and be receive it in satisfaction, or extinguishment, wholly or partially, of a pre-existing debt, he must he considered a bona fide holder for a valuable consideration. These are doctrines of commercial law, upon which the authorities harmonize. But when the hill or note is token as collateral security only, for a precedent debt, it is contended that the creditor cannot be deemed the holder for a valuable consideration. On this point the authorities have recently been sripposed to be in conflict, and the law to be unsettled. No case has been found in their reports, presenting this precise question, upon which the courts in England have given a direct opinion. There are diverse dicta to he found, from which we may infer what might be the opinions of individual [208] Judges, if a case were presented for decision, involving the question. As in the cases Collins v. Martin, 1 Bos. and Pul. 650; Heywood v. Watson, 4 Bing. 496; De la Chaumette, v. the Bank of England, 9 Barn. & Cres. 209; Smith v. DeWitt, 6 Dowl. & Ryl. 120; Bramah v. Roberts, 1 Bing. New Cases, 469. In New York, the. chancellor, Kent, held in 1821, that, where the holder of negotiable notes had not received them in payment of any antecedent and existing debt, nor for cash or property advanced, debt created, or responsibility incurred on the strength and credit of the notes, but as security merely for such debt, he was not a holder for a valuable consideration, so as to give him any equitable right to detain them from the lawful owner, and that such negotiation was not in the usual course of business or trade. Bay v. Coddington, 5 Johns. Ch. 54; Coddington v. Bay, same case, 20 Johns. 637, in the Court of Errors, where the judgment of the chancellor was affirmed, in 1822. The cases of Wardell v. Howell,, 9 Wend. 170; Rosa v. Brotherson, 10 Wend. 85; Ontario Bank v. Worthington, 12 Wend. 593; Payne v. Cutler, 13 Wend. 605; Williams v. Smith, 2 Hill, 301; Bank of Salina v. Babcock & als., 21 Wend. 499; Bank of Sandusky v. Scoville & als., 24 Wend. 115, and Mohawk Bank v. Corey, 1 Hill, 513, are to the same effect, and follow the doctrines of Coddington v. Bay, 3 Kent’s Com. 81. Afterwards, in 1842, the Supreme Court of the United States, say, in Swift v. Tyson, 16 Peters, 19, “ Assuming it to be true, (which, however may well admit of some doubt from the generality of the language,) that the holder of' a negotiable instrument is unaffected with the equities between the antecedent parties, of which he has no notice', only where' he receives it in the usual course of trade and business for a valuable consideration, before it becomes due; we are prepared to say, that receiving it in payment of, or as security for a pre-existing debt, is according to the known usual course of trade and business.” Thus disagreeing with the courts [209] of New York, on the point now presented for our consideration. Though this point was not raised in that case, yet it was elaborately discussed, by Mr. Justice Story, and the leading English and American authorities extensively examined, and commented upon. Mr. Justice Catron concurred in the decision of the court, but dissented from the “ introduction, into the opinion of this court, of a doctrine aside from the case made by the record, or argued by the counsel, assuming to maintain, that a negotiable note or bill pledged as collateral security for a previous debt, is taken by the creditor in the due course of trade; and that he stands on the footing of him who purchases in the market for money, and takes the instrument in extinguishment of a previous debt.” Subsequently, in 1843, the case of Stalker v. McDonald, 6 Hill, 93, was carried to the Court of Errors, in New York, apparently to induce that court to overrule its decision in the case of Coddington v. Bay, and to conform to the opinion of Mr. Justice Story, in Swift v. Tyson. Chancellor Walworth, after a learned and elaborate review of the decisions of the courts in England, and in several of the United States, (more especially those cited by Mr. Justice Story, in his opinion referred to,) re-affirmed the doctrines of Coddington v. Bay, and disapproved of the conflicting doctrines advanced in Swift v. Tyson. The courts of New York aré, therefore, committed to the doctrines of Coddington v. Bay. And the Supreme Court of the United States do not appear to have maintained different doctrines, excepting as evinced by their assent to the opinion of Mr. Justice Story, referred to; and that, in a case where the point was not raised, and where the decision turned upon other considerations. In New Hampshire, the doctrines of Coddington v. Bay, are recognized and maintained. Jenness v. Bean, 10 N. H. 266; Williams v. Little, 11 N. H. 66. In Massachusetts, it would seem that the same doctrines are approved. Chicopee Bank v. Chapin, 8 Metc. 40; [210] Thompson v. Shepherd, 12 Metc. 311; Washington Bank v. Lewis, 22 Pick. 32. So in Connecticut, Brush v. Scribner, 11 Conn. 388, and in Pennsylvania, Petrie v. Clark, 11 Serg. & Rawle, 377; and by the Circuit Court of the United States, first circuit, Smith v. Babcock, 2 Woodbury & Minot, 288. In this State, the question now under consideration has never been directly presented for decision. In Homes v. Smyth, 16 Maine, 177, and Norton v. Waite, 20 Maine, 175, the opinions may be considered, as favoring the doctrines advanced in Coddington v. Bay. In Smith v. Hiscock, 14 Maine, 449, the opinion proceeds upon the ground that the plaintiff, having paid a valuable consideration, for the note, to Bachelder, “ a fair holder for value” before it fell due, was entitled to recover, although it was passed to him, after it became payable. The note was indorsed to Bachelder, by the payee, with authority to malee sale of it to pay a demand which he held, as deputy sheriff, against the payee. In pursuance of such authority it was sold to the plaintiff for that purpose, in good faith, and upon a full consideration paid, in conformity with an agreement made before, and executed after the note was payable. The learned author of Story on Promissory Notes, (§ 195,) re-asserts the doctrine advanced by him in Swift v. Tyson, and cites Chitty on Bills, ch. 3, p. 74, (11th edition,) and Bayley on Bills, ch. 12, p. 500, 501, in support of his position. But it is not perceived that they support his doctrine to the full extent. Mr. Chitty says, “if a bill or note be indorsed as collateral security, that is an adequate consideration to enable the party to sue thereon, though he advanced no new credit on the bill or noteand this is unquestionably correct, when no defence exists upon the merits. It is believed that, upon a careful examination of the English and American decisions, including those cited by these learned authors, it will be found that the doctrines of chancellors Kent and Walworth, to which reference has been made, are not impaired, but rather supported by the weight [211] of authorities, although it may be remarked that the editor of Smith’s Mercantile Law, (American edition, 1847,) in a note, p. 258, appears to have formed a different conclusion. Thus stand the authorities, so far as we have examined them. We hold, however, upon general principles, as well as upon authority, that the indorsee of an accommodation bill or note, who has given no consideration for it, and who does not claim through a party for value, is not entitled to protection against the equities of the accommodation maker, accepter, or indorser; but in the language of Eyre, C. J. (1 Bos. and Pul. 650,) “he is in privity with the first holder, and will be affected by every thing which would affect the first holder.” If he receive a bill or note as collateral security merely, for a pre-existing debt, without parting with any right, extending any forbearance, or giving any other consideration, the transaction will not constitute a commercial negotiation in the usual course of business and trade, and he cannot be regarded as the holder for a valuable consideration. If this suit were brought by the payees of the note, the defendant, as accommodation maker, might rely upon the want of consideration as a valid defence ; and when brought by the indorsee, who has neither given, nor forborne any thing for, or on account of it, and who, by legal effect, is prosecuting the suit for the benefit of the payees, the defence must be alike effective. If this note were paid, it would be for the benefit of the payees; if not collectable, and any loss result therefrom, it would be their loss. Their indebtment to the plaintiffs was not affected by the transfer. They obtained no credit thereby. Neither party assumed any new liabilities, or relinquished any present rights in the operation. It was not a commercial negotiation within the meaning, policy, and protection of the commercial law. Plaintiffs nonsuit.