Schaeffer v. Fowler

Mr. Justice Gordon delivered the opinion of the court, February 1st, 1886. The facts of this case are few, and easy of comprehension. On the 24th o'f February, 1877, Christian Sharer entered into a written agreement with George H. Arms and John H. Schaeffer to sell, and upon full payment of the purchase money convey, by a good and sufficient deed to the said Arms and Schaffer a certain tract of land therein described. It also appears from the evidence that John T. Fowler, the plaintiff below, held certain judgments against Sharer which were a lien on the land embraced in the above mentioned agreement. By an arrangement between Sharer and Fowler the latter agreed to accept an order on Arms & Schaeffer, and apply the proceeds to the judgments. Accordingly an order was drawn by Sharer in favor of Fowler, in the sum of five hundred and twenty-two dollars and ninety-one cents, and accepted by George H. Arms for Arms & Schaeffer. This acceptance is the subject of the present suit. There is no dispute as to the fact that this order was drawn on account of the purchase money due from the acceptors to the drawer, and the question now is as to the power of Arms to accept for Schaeffer. It was a mistake in the court below to assume that the joint purchase of the land made the defendants partners in the legal acceptation of that term, or that this fact gave the one power to indorse for both. There was some evidence that they were partners in the mining operation conducted on the property, but as to the land itself they were but tenants in common, and their status as such was conclusively fixed by the articles of agreement. It follows, that since the order was for purchase money, the power of Arms to accept as he did should have been proved by some evidence of a direct warrant, whether in writing or parol, from Schaeffer, and the [459] jury ought not to have been permitted to infer such power on the hypothesis of a partnership. Again: if this paper was taken by Fowler, not as payment on his judgment, but merely as collateral, and to be applied only when collected, it was subject to all the equities that existed between the drawer and the acceptors at the time it was drawn. Under circumstances.such as here stated the order must be regarded only as a pledge or deposit for the security of an antecedent debt, and must, under our Pennsylvania authorities, be regarded as having.passed to the holder without consideration, hence subject to any lawful set-off or defence to which Arms & Schaeffer were entitled as against Sharer at the time it was accepted. The Pennsylvania cases cited by the defendant in error, as opposed to what is here stated, are not in point. They will be found on examination to support a rule about which there is no dispute, and one having no applicability to the case in hand; that is, that the maker of accommodation paper cannot set up want of consideration as a defence against it in the hands of one to whom it has been pledged as collateral security for an antecedent debt. But the- reason given for this doctrine is stated by Mr. Chief Justice Black, in Lord v. The Ocean Bank, 8 Har., 324, to be because accommodation paper is a loan of the maker’s credit without restriction as to the manner of its use. In this very case, however, we have from this same learned Chief Justice the following statement: “ It has been ruled in several cases that one to whom a negotiable instrument has been indorsed for a preexisting debt, who has given no other consideration for it, is not a holder for value. The maker, it is said, may aver any ground of defence against the indorsee of such note which would have been competent against the payee.” The order before us was not accepted as a matter of accommodation, but in consideration of what was then supposed to be a debt due to Sharer, and if by reason of the worthlessness of his title to the land which he covenanted to convey to the acceptors the consideration has failed, that order is as worthless in the hands of the plaintiff'as if it were still in the possession of Sharer. By reason of the mistakes thus pointed out, we feel ourselves constrained to sustain the several assignments of error, and send the case back for a re-trial. The judgment of the court below is reversed, and a venire de novo awarded.