Meggett v. Baum

Campbell, J., delivered the opinion of the court. The bill haying been accepted by Baum for the accommodation of Meggett, and to enable him to raise money by negotiating it, the transfer of the bill by Meggett to Murray, for value, invested Murray with the beneficial ownership of it, and entitled him to maintain an action in the name of Meg-gett for his use against Baum. There is no want of consideration available to Baum; for the value paid by Murray to Meggett for the paper supports the acceptance. It was for that it was made; viz., to enable Meggett to get money. He got it; and it does not absolve Baum from his acceptance that Meggett, when he delivered the paper to Murray for its price paid, did not indorse it. The negotiation effected its object, and the rights and liabilities of parties were fixed by the transaction. Murray became entitled to look to Baum for payment, and Baum was bound to pay according to his acceptance, and would thereby be entitled to his action against Meggett. The doctrine that the holder without indorsement of commercial paper, which requires indorsement to pass the legal title, stands in the shoes of the payee, has no application to the facts of this case. Under our statute, entitling parties to the same defences against paper in the hands of remote holders as were available against the payee, the indorsement of the bill of exchange would not have precluded any defence which is available against the bill unindorsed. In other words, in-dorsement would have made no difference as to the liability of the acceptor; and to permit him to avail himself of the fact that his acceptance was without consideration would be to declare that one cannot be held liable by his undertaking for [27] the accommodation of another. One who accepts for the accommodation of another, and thereby procures a benefit to such other, cannot refuse to meet his obligation to him who conferred such benefit because of want of consideration. Sect. 2228 of the Code does not embrace accommodation paper, which creates no obligation until some one parts with value for it, according to the purpose for which it is made, whereby it becomes operative. The negotiation of it, according to the intent of the parties, infuses life into it, and precludes the defence of want of consideration. The question whether an accommodation acceptor of a bill of exchange will be discharged by the act of the creditor in giving time to the drawer, with knowledge of the fact that the acceptance was for accommodation, is left by the authorities in great uncertainty. It has been hitherto undecided in this State. It is the established doctrine in this State that one of several makers of a promissory note, or a writing obligatory, is not precluded by the fact that he appears on the instrument to be a principal, and primarily bound, from averring and proving that he is a surety, and entitled to be discharged by the act of the creditor in so dealing with the principal as to discharge him as a surety ; and this is the constant practice in courts of law. It is in harmony with this to hold that the acceptor for the accommodation of the drawer sustains the relation of surety to him, and is entitled to all the rights of one occupying that position in any case. We can find no substantial reason for a distinction between co-makers of a promissory note, one of whom is a surety, and an accommodation acceptor. Both have assumed by their signatures a primary obligation. Both have made themselves principals. In the case of co-makers or co-obligors, one may show that while, by the form in which he bound himself, he is a principal, in truth, he is but a surety. The same reason exists for permitting an accommodation acceptor to show his suretyship for the drawer. The holder of the paper, having no knowledge except that imparted by it, may regard the parties to it as bound accordingly ; but, if he has knowledge of the actual relations between the parties, he has no greater right, in the one case than in the other, to deal with the real principal in such way as to discharge the surety. [28] The reason on which courts hold that the act of the creditor, in making a valid contract for forbearance with the principal, discharges the surety, applies as well in favor of an accommodation acceptor as in favor of a co-maker or co-obligor. The obligation upon the creditor to do nothing knowingly to the prejudice of the right of the surety is as applicable to the one ease as to the other. It is the knowledge of the creditor that the several parties sustain to each other the relation of principal and surety which makes it inequitable for him to so act towards the principal as to vary the rights of the real surety. It is, therefore, not the form of the instrument by which parties have bound themselves, but the fact that one is principal and the other surety, as between themselves, and that this is known to the creditor. Reversed and remanded.