Burton v. Stewart

62 Barb. 194 | N.Y. Sup. Ct. | 1862

By the Court.

Mullin, J.

This court has held, more than once, that the corporation known as the Onondaga Fine Salt Manufacturing Company was organized for an illegal .purpose, and that all contracts entered into with it, for ¡giving-effect to the illegal purposes of the corporation, are illegal and void.

This question is not, therefore, open for discussion in this case.

The note made by the defendant, bearing date the 12th of July, 1858, was given to the corporation upon a settlement between it and the defendant of dealings growing out of the illegal operations of said corporation, and as between the original parties to that note, it was unquestionably illegal and void. The plaintiff was the president of the corporation. He became the payee and indorser of the note, without any request, and indeed without the knowledge of the defendant. As agent of the corporation, the plaintiff’ settled with the defendant, and had knowledge of the consideration of the note. As between the defendant and the plaintiff, it seems to me quite clear that the note was without any legal consideration to support it.

When, however, that note was transferred to the Syracuse City Bank, and by it discounted, before maturity, and without notice, for .value paid, the note becomes, in its hands, valid and operative against all the parties to it. While in the hands of the bank or of any other parties deriving title by, through or under it, the defendant could not avail himself of the defense which, as against the plaintiff or other holder not bona fide, he unquestionably had to the note.

Had the plaintiff taken up that note, at maturity, he could not have recovered on it, against the defendant. In that case the plaintiff would have held the note clothed with the sanie rights he had at the time of the transfer to the bank, and the defendant would have been, entitled to the same defense he had before it was transferred to the bank. (Leonard v. Barker, 5 Denio, 220.)

It is argued by the plaintiff’s counsel that the first note (that of July 12, 1858,) is not tainted with the illegality arising from the illegal purposes and proceedings -of the corporation, because it was not given in furtherance of such illegal objects, but is entirely collateral thereto.

The Supreme Court of the United States, in Armstrong v. Toler, (11 Wheat. 258,).held that when a contract grows immediately out of, and is connected with, an illegal or immoral act, a court of justice will not lend its aid to enforce it. So if the contract be in part only connected with the illegal consideration, and growing immediately out of it, though it be in fact a new contract, it is equally tainted by it. But if the promise be entirely disconnected with the illegal act, and founded on a new consideration, it is not affected by the act, although it was known to the party to whom the' promise was made, and although he was the contriver and conductor of the act. (Faikney v. Reynous, 4 Burr. 2069. Peters v. Hanney, 3D. & E. 418.)

The note of July 12, had no consideration except that which grew out of the illegal acts and proceedings of the salt company. It grew out of, and was directly connected with, such acts and proceedings, and within the principles of the case of Armstrong v. Toler, it was void.

When the first note matured, the defendant was liable ■ thereon for the full amount of it and interest. The debt was perfectly valid against all the parties to the paper. Under these circumstances, the new note was made, to pay the former one. As between the bank and the parties to the new note, there vas a perfectly good consideration.

The defendant participated in giving the new note. The plaintiff was the payee of the new as well as of the old. Personally he had no interest in either. When, therefore, the new note was indorsed by him, he became an accommodation indorser for the, defendant. It is true that no request from the defendant to the plaintiff to become indorser on the second note is found by the referee; but it is quite clear, from the evidence in the case, that the defendant was the principal debtor, to the bank, and that the plaintiff' was surety not only in his character as indorser, but because he was indorser without any personal interest in the note or its consideration, except so far as he was a member of the corporation. The renewal, then, was for the benefit of the principal debtor. In the absence of any proof that the plaintiff became indorser at the request of some one else, it seems to me we must presume that the plaintiff became such at the request of the defendant. It is true, for all purposes of a legal remedy, on the paper, the law assumes the note to have been made upon a consideration moving between the maker and payee, and that the payee receives it in the regular ' course of business, and transfers it, by his indorsement, on a consideration moving between him and his indorsee. But the law permits this presumption to be overcome and the true relations of the parties to be ascertained.

It would not be contended, I apprehend, that the plaintiff would not have been entitled to recover if it were shown that the note was renewed at the request of the defendant, and that the plaintiff indorsed it at his request, for his accommodation. Such evidence would bring the case within the principle asserted in Armstrong v. Toler, that although the note grew out of an illegal transaction, yet, inasmuch as it rested on a new consideration, it was not affected by such illegal consideration. But aside from this principle, it seems to me, the parties occupy entirely new relations to the second note, and that the plaintiff became, as to the note, a' surety for the defendant, while, as to the former note, he became indorser for the benefit of the corporation, and he had none of the rights of an indorser for the accommodation of the defendant, nor was he clothed with any of the rights of the bank, which was a hona fide holder.

It was optional with the plaintiff to sue on the note, or for the money paid upon it. Had he sued on the note, he could have recovered no more than the face of the note, with interest; whereas, by suing for the money, he becomes entitled not only to the amount of the note and interest, but also to the costs paid by him in .the suit upon it.

It is said in Edwards on Bills, (293,) that an accommodation indorser stands, in the relation of surety towards the party for whose accommodation the indorsement is made, and may recover against him the costs to which he has been subjected; but he does not thereby lose the character as indorser towards the holder of the note.

[Onondaga General Term, April 1, 1862.

Morgan, Mullin and Bacon, Justices.]

I am therefore of the opinion that the judgment ought to be affirmed.