Munn v. M'Donald

The opinion of the court was delivered by Sergeant, J. The use of the-term collateral security, when a debtor transfers to his creditor an article of-value, or an evidence of debt, is intended to express, that it is not received in payment of the principal debt, and that it is not an additional right, to which the creditor is absolutely entitled. It is merely a concurrent security for another debt, whether antecedent or newly created, and is designed to increase the means of the creditor to realize the principal debt which it is given to secure. It is subsidiary to the principal debt — running parallel with it — collateral to it — and when collected, is to go to the credit of the principal debt; or if the principal debt be paid off, the debtor is entitled to a restoration of the collateral security. But though a thing be given as collateral security, the rights of the.creditor in it, as against third persons, must depend on other considerations, and may vary with the circumstances of each particular case. If one delivers to his creditor,- as collateral security, a negotiable note, .already endorsed by several endorsers, there can be no other meaning, in such a transaction, than that- the creditor shall enjoy all the remedies on the note, which the law gives him.as holder, and the state of the parties to that note; is iri nowise' changed by its being taken as collateral security. Shell holder may recover from the last endorser,, as-well as the others, and such last endorser, in that case, may recover against a prior endorser, or the maker, free in either case from any defence on the [274] ground of want or failure of consideration between the maker and the payee. Now that was the case before us. The plaintiff received the note as collateral security for Gass’s note, bona fide and for a valuable consideration, paid or advanced at the time. He received it as endorsee, with two endorsements upon it, besides that of the payee; and it is even proved, that he looked mainly to the security of one of these endorsers, and that it was at his instance the suit was instituted against the maker. The jury would be warranted in inferring from the evidence, that Gass procured the endorsements for the purpose of delivering them to the plaintiffs, for the receipt of the plaintiff specially mentions the endorsements, as upon the note at the time he received it. The plaintiff must be considered as receiving the note, not as the immediate endorsee of Gass, but of the last endorser, and Gass as the agent to hand it over to the plaintiff. To allow the defendant to interpose the defence he sets up, would deprive the plaintiff of the security contemplated by him when he agreed to accept the note, with the endorsements then existing upon it. Although, therefore, the note was given and received expressly as collateral security, yet the plaintiff stands in the position of a holder for value, and without notice of an instrument of such a nature, that we are of opinion, he is entitled to recover against the maker, free from any equity between the original parties. The parol evidence does not go to contradict the terms of the receipt, but to show the circumstances under which it was given, aud that the defendant was liable, notwithstanding the note was transferred as collateral security. Judgment' affirmed.