Appleton v. Donaldson

Rogers, J. This is an action on the case on a promissory note, in which the defendant, William Donaldson, was the maker, and the firm of Edwards & Yerree, the payees. The note, which is in the usual form, was.put in the hands of the plaintiff as a collateral security for the sum of $600, loaned to Edwards & Yerree at the time the note was deposited, as the defendant says, and as the plaintiff avers, to secure the payment of an antecedent debt, or for security of an antecedent debt, and money advanced at the time. If I understand the charge, the court was under the impression, and so instructed the jury, that if the note was pledged for the payment of an antecedent debt, inasmuch as it was an accommodation note, and consequently no consideration passed between the maker and payee, the — 386 — plaintiff was not entitled to recover; that the endorsee stands in the place of the payees, and as they could not recover, the plaintiff cannot, the note being pledged for a past, and not a new or present consideration. 'The effect of the decision is, that the payee of accommodation paper may use it for every purpose, except as. a pledge or collateral security for a pre-existing debt. He may sell or discount it, or pledge it for money advanced at the time, or where there is a new consideration ; but he is absolutely prohibited from pledging it for a debt already contracted, although the pledgee had no notice whatever, either on the face of the paper or otherwise, that it was accommodation paper, but took it on the faith of its being, as between the original parties, a note for value. In this decision we do not concur. We think that when a person gives another an accommodation note, it contains an authority to use it in the payment of an existing debt, to sell or discount it; or if more to his interest, to pledge it as a collateral • security for money advanced at the time, or before advanced, or on a running account between the parties, for money advanced before, at the time, or afterward. In short, that he has the complete control to use it, as the name imports, for his own benefit or accommodation, in any manner he may judge best calculated to advance his own interest. If he can prevent a suit against him, by pledging the note intentionally drawn in the usual commercial form, and intended to be used without restriction, and by this means preserve his credit and save himself from utter ruin; there is nothing that I can see either in law or morals to prevent him. Of what consequence is it to the maker whether he sells the note, gives it as a collateral security for a debt already contracted, or for money advanced at the time of the transaction? Accommodation paper, I take it, is a loan of the credit of the maker to the extent of the value of the note for the benefit of the payee without restriction. And this is the light in which accommodation paper is received by the whole commercial world. The dictum of the court is based on the case of Petrie v. Clark, 11 Serg. & Rawle, 238, and Depau v. Waddington, 6 Whart. 20—cases which, in several essential particulars, are very unlike the present. In Petrie v. Clark, it. is decided that a person cannot pledge property which does not belong to him, for an antecedent debt of his own; and therefore an executor cannot so pledge the assets of his testator, although it be to a person ignorant of misappropriation of the funds. The case was this. A promissory note endorsed in blank, was given to executors for goods purchased of them as executors; and one of the executors without — 387 — the knowledge of the other, being indebted to the plaintiff on his own promissory note of nearly the same amount, after his note became due, made an arrangement with the plaintiff, by which his own note was taken up by a new note, which had been received by the executors for the goods of the testator, was handed over with the blank endorsement of the payee as a collateral security for the payment of the debt: the plaintiff being entirely ignorant of the circumstances under which the latter note came into the hands of the executor. On this state of facts it was held, that the plaintiff not being a holder for a valuable consideration, was not entitled to recover the amount of the note. That unless there was a new distinct consideration, as if time was given, &c., the same equities existed between them as between the original parties to the note. The case of Petrie v. Clark, as to the general principle,' is affirmed in Depau v. Waddington, 6 Whart. 284, with the expression of regret, that the negotiability of commercial paper should have been restrained, so as to prevent it from being pledged as a security for a debt. That it shall be still farther extended, is now the question. Petrie v. Clark was the case of a misapplication of funds, which the executor held as trustee for the benefit of creditors and legatees; and for this reason, the latter were permitted to interpose a defence as against a person who, in legal parlance, had not paid value for it. The same equities were supposed to exist between them as the original parties. But that case differs from this in this essential particular, that in Petrie v. Clark the executor was not the owner of the note pledged; here the payee is the legal and equitable owner; the note is put into the hands of the payee, by the maker, for the express purpose of using it in any manner which will best promote his interest. In Petrie v. Clark the equitable owner of the note, viz., the creditors and legatees, did not consent to the breach of trust; here the maker did assent to the use afterwards made of it, and therefore has no right to complain: in truth, there is no breach of trust or misapplication of the note by the payee, whatsoever. He has done nothing that he was not authorized to do. As far as any legal question is concerned, it is of no sort of consequence whether the note was taken as a collateral security for an antecedent debt, or money advanced at the time the note was received on pledge; as in either case the plaintiff is entitled to recover, unless there is some other defence. From the best view I have been ablé to take, it seems to be clear, that this case resolves itself into questions of fact; and whether the plaintiff is entitled to recover, will depend upon the solution by jury of some points, which I will now proceed to state. In — 388 — the first place, the jury must determine whether the note in suit was an accommodation note. Second, was it collateral security to the plaintiff, and for what was it pledged; that is to say, was it pledged for an antecedent debt, for money advanced at the time, or for both, and for what amount? Thirdly, was the pledge or collateral security redeemed, or in other words, was the amount for which it was pledged paid, or, which in law is the same thing, was there an offer by Edwards & Verree to pay it, and a refusal by Lawrence, as is alleged, to receive the money due ? The vital importance of these inquiries appears in this. If the holder of the note received it as collateral security, whether for an antecedent debt, or otherwise, he is not bound to surrender it until the whole demand for which it is pledged is paid, or there is an offer to pay, and refusal to receive; and consequently, if the facts be so, the plaintiff has a right to recover, at least to that extent, and to apply the proceeds to the extinguishment of the debt of Edwards and Verree. But if, on the other hand, Edwards and Verree have paid the amount for which it was pledged, or have offered to pay it, then, by operation of law, the title to the note is revested in Edwards and Verree, and the plaintiff cannot recover. A payment, or offer to pay, a part will not have this effect; it must be co-extensive with the whole amount for which it is a collateral security. In this aspect, I perceive no difference between a negotiable note and a chattel, as for example a piece of plate, a watch, or a horse. If either of the latter were pledged, either for an antecedent debt, or money advanced, it will hardly admit of question that payment of the money, or a tender of payment, would revest the title in the owner, so as to entitle him to maintain trover, or replevin, or detinue, for the article pawned. There would be this difference in a suit brought by Edwards and Verree, and this suit. As between Edwards and Verree and the holder, they would be bound to pay the money due, although there had been a tender; but as to the latter, as he is in some respects a security by a refusal to receive what was due, the holder would be in default, and the defendant would be altogether discharged. In that case, the equitable principle operates as a shield to the maker; for when the creditor has the means of payment in his hands from the principal by tender or otherwise, and refuses to accept or receive the payment from the principal, the surety is discharged. As this case goes down to another trial, it becomes necessary to give an opinion on the several bills of exception as to the admission and rej ection of testimony, much of which deserves only a passing glance. — 389 — There is nothing exceptionable in the first, second, third, and fifth bills. The evidence in the first, second, and fifth bills were pertinent to the issue, because it proves thaf Donaldson, the maker, received no value for the note; that it was accommodation paper. And there is little in the objection, that there is no mention of this defence in the notice of special matter. It is certain to a common intent, which is all that is required. The defendant expressly avers, that the note in suit was obtained by Edwards and Verree from the defendant without consideration. Of this the testimony offered was strong, if not conclusive evidence. You are bound to give notice of the facts of defence; but you are not required to set out the evidence, by which you intend to support it. To require the latter, would be in many cases impracticable, and consequently would do great injustice. If it is manifest, that a party is surprised by the introduction of unexpected testimony, the court have a discretionary power to prevent wrong, by withdrawing a juror. It must also be observed, that the record of the suit in the District Court of the city and county of Philadelphia, Lawrence v. Donaldson, was properly admitted, because it shows that Lawrence is made to play a double part of both party and witness. The testimony contained in the seventh, eighth, and ninth bills, was properly admitted, because it tends to corroborate the evidence of Edwards, as to the tender. In the fourth bill, the defendant offers to prove, by William C. Edwards, one of the firm of Edwards & Yerree, that the note in question was deposited with John Lawrence, as collateral security for the payment of a check of $600 on one of the banks in Philadelphia, payable in ten days after the date of said check; and that the whole amount of $600 was tendered to J. Lawrence in specie, at, and before the expiration of the ten days, and the check demanded, and also the note; but that Lawrence refused to give up either. After what has been said, there is no doubt as to the relevancy of the testimony, and its importance on the trial; but the objection is to the medium of proof. The plaintiff contends, that Edwards, who is a party to the note, cannot impeach it. If there is any point settled in Pennsylvania, it is that a party to a note, which is strictly negotiable, and has been actually negotiated, cannot be a witness to impeach it. He cannot be permitted to show, that, in its concoction, it was unavailable, as between the payee and the maker. But for matters which transpire afterwards, as for example, that the note has been paid, he is a competent witness. In the case of the Harrisburg Bank v. Forster, it is ruled that whe — 390 — ther an endorser is a competent witness, depends on the character of the evidence which he is to give. That although he is incompetent to establish a want of consideration to the note, he is competent to prove a direct payment of it, by the maker. Here the evidence, as between these parties, is tantamount to payment, and comes within the same principle, and for that reason was properly received. In conclusion, it is only necessary to observe, that we adopt the charge of the court, as to what constitutes a legal and sufficient tender in this case. Judgment reversed, and a venire de novo awarded.