Clement v. Leverett

Parker, C. J. We have held, that where a promissory note is indorsed, and transferred in pledge, merely as collateral security, the general property remaining in the indorser, the holder takes it like a chose in action not negotiable, sub [319] ject to any defence that might be made to it, in the hands of the indorser, arising prior to the time when notice is given of the indorsement. Williams vs. Little (11 N. H. Rep. 60;) Jenness vs. Bean, (10 N. H. Rep. 266.) It makes no difference whether it is indorsed as security for an existing debt, or for value received at the time. In the cases just cited, no question arose respecting the rights of parties who deal with one who is in fact an agent, but who is trusted, and enabled to hold himself out, and actually makes a transfer, as if he was the owner. The question arising in those cases was, merely, whether the rule, that an indorsee taking before due, without notice, takes the paper exonerated from defences which might have been made against it in the hands of the indorser, was to be applied in cases where the indorsee had not taken the bill or note as his own property, but held it as a security, the general property remaining in the indorser. We were of opinion that the de-fence might be made, notwithstanding the indorsement, because of the general ownership which remained in the in-dorser. A recovery upon the instrument was for his benefit in fact, although if he were insolvent it -would also be for the benefit of the indorsee. Some of the reasons existing in those cases are applicable here ; but there is another principle, of earlier application, and of paramount influence in this case. The defendants entrusted Burley with these bills, accepted by them, and thereby enabled him to hold himself out as the owner of them, and the defendants as the debtors of himself, or any one else to whom he might transfer them. The acceptance was an admission that they had funds of Burley in their hands, or that they were indebted to him to that amount. 3 D. & E. 182, Vere vs. Lewis; 21 Wend. R. 502, Griffith vs. Reed; 15 Maine R. 131, Kendall vs. Galvin; 2 Wheat. R. 389, Raborg vs. Peyton. It does not perhaps appear, affirmatively, from the case, that the money raised upon the pledge of the bills has not [320] come to the hands of the defendants — that the transaction was not, in effect, as has been argued, a discounting of the bills to the amount of $2200, with a pledge of the personal liability of Burley, and his surety, as security for the discount. But assuming that Burley abused the confidence reposed in him, the defendants, who entrusted him with these negotiable evidences of debts against themselves, must bear the loss, if there is any, and not the plaintiff, who dealt with him in the character which the defendants had expressly enabled him to assume. The plaintiff is a bona fide holder without notice. 1 Livermore on Agency 304; 1 B. & Pul. 648, Collins vs. Martin; 22 Pick. R. 274, Washington Bank vs. Lewis; Story on Agency 221. And see, also, 22 Wend. R. 348, Commercial Bank of Buffalo vs. Kortright; 17 Pick. R. 159, Lime Rock Bank vs. Plympton; 15 East 38; Ditto 400; 7 N. H. Rep. 452; (11 N. H. Rep. 403, Beard vs. Kirk ;) Despatch Line of Packets vs. Bellamy Man. Co. & Trustees, ante 205. And it makes no difference, in this view of the case, that the plaintiff has the note of Burley, with a surety, who by the collection of the bills will be exonerated. He relied, it seems, upon the validity of the bills, as evidence of debt against the defendants, and upon Burley’s unlimited right to dispose of them, when he became surety. There is no ecprity, therefore, which should compel the plaintiff to resort to him. Verdict set aside, and judgment for the plaintiff.