Madison Square Bank v. Pierce

Daniels, J. The judgment which has been recovered is for the full amount of a promissory note made by the defendant to the order of himself for the sum of $1,000, payable at the Madison Square Bank, in six months from the 23d day of January, 1889. This note was indorsed by him and transferred to the L. M. Bates Company, which company before the maturity of the note, and for value, indorsed and delivered it to the plaintiff. After that the L. M. Bates Company became insolvent, and a receiver of its property and effects was appointed, and duly qualified, and took possession of all the assets of the company. The note, together with other claims, was presented to the receiver, and, under orders made by the court, he paid to the plaintiff 73J per cent, of the amount due upon the note; and that payment was relied upon by the defendant as a defense to the extent to which it had [271] been made. But this defense was overruled, and the amount of the note was held to be recoverable by the plaintiff. Whether this was a correct application of the law to the facts of this case, upon principle, certainly admits of some doubt; for, by the payments which the receiver made, a right of action vested in him to recover from the maker of the note this sum of 73J per cent. It was a right of action entirely independent of the plaintiff, and capable of being enforced by him against the defendant; and this view was adopted and followed by early cases decided by the English courts. Bacon v. Searles, 1 H. Bl. 88; Hemming v. Brook, 1 Car. & M. 57; Pierson v. Dunlop, Cowp. 571; and Walwyn v. St. Quintin, 1 Bos. & P. 652,—which, however, is not a decisive authority in support of this position. These cases, and the others bearing upon the same point, were fully considered in Jones v. Broadhurst, 9 Man. G. & S. 173; and the conclusion was there maintained, in view of all the preceding decisions, that a defense of this nature was not available to the maker of a note or the acceptor of a bill of exchange; but that, notwithstanding the payment, the holder of the paper was still entitled to proceed against the principal debtor, and recover the full amount for which the obligation had been created; and, as a result of that recovery, the plaintiff would hold the excess, beyond that due upon the paper, as a trustee for the benefit of the indorser by whom the payment had been made. The principle is somewhat arbitrary, it is true, but it was considered to be the fair result of the authorities applicable to this subject; and it was not disaffirmed in Thornton v. Maynard, 10 L. R. C. P. 695. The circumstances in that case were peculiar, and the court there held the plea to be good as an equitable defense on account of the equities which had vested in the defendant. In Goodwin v. Cremer, 16 Eng. Law & Eq. 90, the same principle is applied. But in that case the question was disposed of more as a matter of pleading than otherwise; and it was followed in Kemp v. Balls, 28 Eng. Law & Eq. 498, where, however, the suggestion was made in the course of the discussion that the amount paid might be proved by way of mitigation of damages; and this it was also held might have been proved in Wattles v. Laird, 9 Johns. 326; but that was in favor of a surety in an action upon a bond given on the arrest of the debtor, and for that reason it has no special application to this controversy; and Bank v. Leighton, L. R. 2 Exch. 56, so far as it extends, is in the same direction; and a quite similar view of the law was expressed in President, etc., v. Hazard, 13 Johns. 352. The existence of this legal principle followed at the trial has also been assumed in 2 Pars. Notes & B. 218, where the author has collected the cases bearing upon it in a note to the statement of it; and a like conclusion of the law has been stated in 2 Daniel, Neg. Inst. § 1237; and the authority, although not without conflict, appears now to be sufficient to entitle the holder of commercial paper to collect the entire amount against the principal debtor, although a part payment may have previously been made by an indorser to the holder. And this right is not inconsistent with section 449 of the Code of Civil Procedure, requiring every action to be prosecuted in the name of the real party in interest; for the exception to that requirement has been made that a trustee of an express trust may sue without joining the person for whose benefit the action is prosecuted; and a person with whom or in whose name a contract is made for the benefit of another is a trustee of an express trust, within the meaning of this section, and that appears to include this obligation; for the contract of the defendant held by and under the circumstances made with the plaintiff was not only for its own benefit, but also for the benefit of the indorser by whose indorsement the paper was transferred to the plaintiff. The judgment in the action, therefore, appears to be sustained by the law, and it should be affirmed. Van Brunt, P. J., concurs.