Prentiss v. Graves

[624] By the Court, Campbell, J. The request on the part of the defendants, that the justice at the circuit should hold and decide that a part of the answer set up a counter-claim, was properly denied. The defendants needed no affirmative relief, and really sought none. The facts pleaded were set up as a complete defense at law. In the case of The Xenia Bank v. Lee, (2 Bosw. 694,) Lee not only claimed in his defense that he was the owner of the notes, but by way of counter-claim demanded that the plaintiff- should pay to him the amount thereof, seeking to charge the plaintiff as indorser. In this case the defendants do not claim to be the owners of the note in suit. They simply deny their liability as accommodation indorsers. A judicial determination in their favor, upon that point, is all that is required. The concluding part of their answer, that the note be given up to be canceled, is mere surplusage. At all events a reply was wholly unnecessary. Ho new issue whatever was raised thereby. The material facts, however, set up in the answer of the defendants, and others relied upon on the trial, are established by the uncontradicted evidence in the case, namely, that the defendants were accommodation indorsers; that they indorsed the note at the request of the maker, solely upon the condition that it was to be used to take up a draft then overdue and held by the plaintiff, and upon which the maker of the note was liable as drawer and was then -threatened with prosecution; and that the note was delivered to the plaintiff for the purpose of taking up such draft, but was not accepted by the plaintiff in payment, but on the contrary was retained and held as collateral security to said draft; that the plaintiff gave no new consideration, nor parted with any property, nor gave up any other security, or agreed to extend the time of payment of the draft. Upon that state of facts was the plaintiff entitled to judgment as ordered at the circuit ? I think the cases of Coddington v. Bay, (20 John. 637,) and Stalker v. McDonald, (6 Hill, 93,) answer the question in the negative. The note of Mr. Hill in the latter case, is that [625] an innocent holder of negotiable paper will not be protected against the claim of the true owner, “where it appears that the paper was received as security for an antecedent debt due from the person who made the unauthorized transfer, and the holder neither parted with value on the credit of it, nor relinquished any previous security.” In the case of Ooddington v. Bay, Senator Yiele said, and-his language is quoted approvingly in Stalker v. McDonald, by Senator Lott, now a justice of this court: “ The true test I take to be that when the holder is left in as good a condition after a retransfer as he would have' been had no transfer taken- place, then the title of the owner shall prevail.” The language of the plaintiff’s cashier in this case was, “we did not advance any money nor pay any thing for the note.” “ Springstead came to the bank with the note in question. He said he wanted to take up the $350 draft of Mr. Rhines, with the note. He said he brought the note for that purpose, and left the note at the bank. I refused to take the note in payment of the draft. I told him I would take the note only as collateral security for the payment of the draft. We did not receive the note in payment of the draft, or give up the draft. I told him we should hold on to the draft. We did retain the draft, and afterwards commenced a suit upon it, against Mr. Rhines, the maker of it.” Springstead was not examined as a witness, and there is no further evidence that even he acquiesced in the application which the bank made of the note. As he was indorser on the draft, failing to get it up, he left the note; thus tacitly allowing the bank to apply it in its own way. But it is seen that no money was paid, no security given up, and should the plaintiff fail to collect this note, it would be left in as good condition as before the transfer. The defendants were but accommodation indorsers. The rule of strictissimi juris applies to them. They had the right to make their own terms, and they indorsed only upon an agreement, on the part of the maker of the note, that it should be applied to take up the draft held by the plaintiff. That agreement [626] or condition was not fulfilled; and the plaintiff having taken the note only as collateral security for a precedent debt, is not a bona fide holder for value, and cannot enforce it as against the defendants, In the case of The Bank of Sandusky v. Scoville and others, (24 Wend. 115,) the note had heen discounted by the bank, and the proceeds applied to extinguish a debt, and Bronson, J. says: “It is not the case of a note received in security for a precedent debt without parting with any thing at the time.” The case of The Ypsilanti Bank v. Martin, referred to in Bank of Sandusky v. Scoville, is like the present. The case of Bank of Salina v. Babcock, (21 Wend. 499,) was one where the note was discounted, and securities held by the bank canceled and destroyed. This was the case also in White v. Springfield Bank, (3 Sand. S. C. Rep. 222,) in which this whole subject is fully discussed by the late Chief Justice Duer. All the casós hold that there must be value paid at the time, or something done, such as giving up or cancelling other securities, to entitle the party to claim as a bona fide holder. The conditions in this case on which the note was indorsed, were not fulfilled. The draft was not given up, nor canceled. The maker of the note still remained liable to the threatened arrest for obtaining money by false pretenses; for his relief alone the note was indorsed. The defendant Graves alone has appealed; as to him the judgment must he reversed, and a, new trial ordered, costs to abide the event. [Broome General Term, May 8, 1860. Mason, Balcom, Campbell and Parker, Justices.]