29 N.J.L. 521 | N.J. | 1862
The errors assigned, and the points made by the plaintiffs in error, present two questions, viz.:
1. Did the burthen of proving that the plaintiff gave a valuable consideration for the notes in question rest- upon the plaintiffs, or was it thrown upon them by the evidence offered upon the part of the defendant ?
2. If the burthen was upon the plaintiffs, was the issue upon their part sustained by proof that they gave a valuable consideration for the notes ?
The action was by the endorsers against the maker-of
The defendant, upon the trial, offered evidence to prove, by way of defence—
1. That the notes, in their inception, were mere accommodation paper; that they were given by Gilbert to Rowland to be discounted for the accommodation of the payee.
2. That the notes were misappropriated by Rowland, and were unlawfully endorsed to the plaintiff in fraud of the maker’s rights.
3. That they were assigned to the plaintiffs as collateral security for future advances to be made by the plaintiffs to Rowland, the endorsee.
Were these facts established upon trial ? and if so, did they shift the onus, and throw upon the plaintiffs the burthen of proving that they paid a valuable consideration for the notes ?
It is clear that the mere fact that a note, in its inception, was accommodation paper, and that no consideration was given for it by the payee to the maker, does not affect its validity in the hands of a third party, although the fact of its being accommodation paper was known to the endorsee at the time of the endorsement. When no other proof is given in defence, the holder is not bound to prove that he gave value for the note. Collins v. Martin, 1 Bos. & Pul. 651; Charles v. Marsden, 1 Taunt. 224; Grant v. Ellicott, 7 Wend. 227; Ross v. Bedell, 5 Duer 467; Knight v. Pugh, 4 Watts & Serg. 445.
As between the original parties to accommodation paper, it is of no value and can never be enforced. Its sole purpose is to raise money, or procure credit upon it by
2. But where a defendant, who is sued as the maker or endorser of negotiable paper, proves that it was obtained from him by fraud, or that it was fraudulently put in circulation, the plaintiff must prove, in order to recover, that he bought it before maturity bona fide and for value. Bailey v. Bidwell, 13 Mees. & W. 73; Smith v. Braine, 16 Ad. & El. (N. S.) 244; Harvey v. Tower, 6 Excheq. 656; Fulton Bank v. Phoenix Bank, 1 Hall S. C. R. 562; Munroe v. Cooper, 5 Pickering R. 412; Catlin v. Hansen, 1 Duer 309.
It becomes, then, a material inquiry whether the notes in question were fraudulently put into circulation.
The facts, as shown by the evidence, are that the notes were borrowed by Rowland from Gilbert, with the understanding that they should be discounted at the Grocers’ Bank and Artisans’ Bank, in the city of New York, for Rowland’s benefit. Gilbert had no personal interest in the manner in which the moneys obtained by the discounts should be used. The notes, instead of being discounted, were deposited by Rowland, as collateral, with Duncan, Sherman & Co.,'under an agreement with them (made at the time of obtaining the letter of credit) to keep deposited with them bills receivable to the amount of £2000 sterling. It seems to have been assumed, in the opinion of the court below, that this was a misappropriation of the paper, and the opinion proceeds upon that ground.
In Edwards on Promissory Notes 316, it is said that where an endorsement is made to enable the maker of a note to obtain a discount at a particular bank, or to raise money in a given way to pay a certain draft, the maker has no right to use the note in any other way. The statement is inaccurate, and calculated to mislead. It creates the im
The notes in question were made exclusively for the accommodation of Rowland, and they were applied to that object. That the accommodation was not effected in the precise manner contemplated; that Rowland, instead of having the notes discounted at bank, obtained credit for himself by depositing them in the hands of bankers, in the absence of all evidence of fraud or prejudice to the interest of the drawer, constitutes no misappropriation of the paper.
There was also evidence before the jury, on the part of the defendant, tending to show that the $1464 note (one of the notes sued for) was drawn and deposited with the plaintiffs in order to take up the other note for $918, and this not having been done, it is urged constituted a misappropriation of the larger note. But this clearly consti
A question was also made, upon the trial, whether the $1464 was made and deposited to take up the note for $918, or another note of the same character, for $1140. The question was submitted to the jury, with instruction that if the $1464 note was deposited with the plaintiffs to redeem the $1140, the plaintiffs were entitled to recover upon both notes for which the action was brought. The jury so found, and they must therefore have believed, upon the evidence, that the plaintiffs’ witness was mistaken in saying that the first note was made and deposited to take up the $918, but that in fact it was made and deposited to take up the $1140 note, to which purpose it was applied.
There was, then, in point of fact, no fraudulent misappropriation of either of the notes in question. On that ground, the plaintiffs were not required to prove that they gave value for them.
3. In the third place, it is urged that the notes in question were assigned to the plaintiffs as collateral security for future advances to be made by the plaintiffs to Rowland, the endorser; that the plaintiffs, therefore, were not holders for valuable consideration; that they can recover no more than the sums actually advanced, and that the burthen of showing what advances were made rested on the plaintiffs.
It is certainly true that the holders of accommodation paper, assigned as collateral security, can recover against the accommodation maker and eudorser no more than the
In Edwards v. Jones, 7 Car. & Payne 633, which was an action upon a note for £400 by the endorsee against the maker, the defendant pleaded that it was accommodation paper, and that the plaintiff gave no consideration for the endorsement. The plaintiff replied, as to a part of the consideration, he paid £49 2s. Id. and as to the balance of the note, he entered a nolle prosequi. Issue was taken on, the replication. At the trial, Alderson, Baron, said this issue lies on the defendant, and as he offers no evidence there must be a verdict. The case is very strong to show that the legal presumption is that the bona fide holder of a note paid full value; or if he admits that he paid but part value, the presumption is still in his favor that he paid the amount alleged to have been paid, and if the defendant claims that he paid less, he must prove it. Such clearly is the law of this state touching the point in controversy.
On the 30th of March, 185.6, the plaintiffs issued their mercantile letter of credit to Rowland for £2000 sterling. By this letter, Rowland was authorized to draw on Peabody & Co., in London, for. account of himself, for any sums not exceeding in all £2000 sterling running at any one time uncovered by remittances in the hands of tha drawers, and the plaintiffs agreed with the drawers, endorsers, and bona fide holders of all bills drawn underand in compliance with the terms of the credit, that the same
On the trial, evidence was admitted, on the part of the plaintiffs to prove that the note for $1464 was not given to take up the note for $918, as alleged by the defendant, but another note of Gilbert, for $1140.20, which matured on the 18th of June, 1857. The admission of parol evidence of the contents of the last note, without proof of its loss or destruction, was assigned for error in the Supreme Court, by whom the ruling of the judge at the circuit was sustained. It is now urged that the ruling of both courts upon this point was erroneous, and that upon this ground the judgment of the Circuit Court should be reversed.
The existence of the note, the contents' of which were thus permitted to be proved, was not disputed, nor was its genuineness or its contents at all material to the issue between the parties. They were collateral to the question in issue. The evidence was offered for the mere purpose of identifying the note which was agreed to be given up to the defendant, and of distinguishing it from another note, which the witness on the part of the defendant testified was to have been given up. The contents of the note were no more material to the question in issue than were the style of the writing or the color of the paper upon which it was written. It was, therefore, just as competent for the witness to testify that the note to be exchanged was for $1160.20, and matured on the 18th of June, as it would have been to prove that it was written
There is no error in the record of the judgment of the Circuit Court. The judgment of the Supreme Court should be reversed, and the record remitted to that court, to the end that the judgment of the circuit may be there affirmed, with the costs of affirmance in that court, in like manner as if the judgment of affirmance had been there entered upon the hearing of the writ of error to the circuit.
Brown, J. The notes on which this suit was brought were made by the defendant, Gilbert, for the accommodation of one Rowland. It is insisted that he, in transferring them to the plaintiffs, fraudulently diverted them from the use prescribed by the defendant; and that the plaintiffs have therefore upon them the onus of showing that they received them for a valuable consideration. It appears that Gilbert was in the habit of lending notes to Rowland, with the understanding that they were to be used in certain banks in New York for Rowland’s benefit. This understanding does not limit the use of them to those banks, so as to make any other use of them a fraud upon Gilbert. He had no interest in the proceeds, nor, so far as it appears, did it make any difference to him what disposition Rowland made of them. But it is further insisted that one of the notes was given to take up the other, and that Rowland, instead of doing this, left both outstanding against Gilbert. If this was so, it was a misappropriation, and a fraud upon Gilbert. The fact, however, was controverted upon the trial. Gouge, the clerk of Rowland, testified that he obtained the note for ($1464) one thousand four hundred and sixty-four dollars from
Leet testifies that there was a third note given by Gilbert to Rowland, and deposited with the plaintiffs, for one thousand one hundred and-forty ($1140) dollars; that the fourteen hundred and sixty-four ($1464) dollar note was brought to him to take it up; that he told Gouge it was away — that he would get and return it, and did so. Upon this testimony the jury may have found, and rightly, that Gouge was mistaken in his testimony on this subject; that he had forgotten the ($1140) eleven hundred and forty dollar note, and that Leet’s statement was true. Any fact that the jury could properly find from the testimony must be assumed. Taking Leet’s testimony as true, and that of Gouge to be a mistake, there was no misappropriation of either of these notes by Rowland proved, and the plaintiffs must be considered as holding them for a valuable consideration, till the contrary appears.
But, assuming that the notes were fraudulently misappropriated by Rowland, without the knowledge of the plaintiffs, the question is, whether they were passed by Rowland to the plaintiffs for a valuable consideration. If such proof appears by the case, it is, of course, not material upon which part lay the onus probandi.
The plaintiffs, at the trial, having proved their partnership, and the execution and endorsements of the notes being admitted, rested. The defendant proved the issue of a letter of credit by the plaintiffs to Rowland, authorizing him, or any one else by his order, to draw on George Peabody and Company, London, for any sums not exceeding two thousand pounds (£2000) running at one time, to be used in the purchase of goods for import into the
Rowland was called as a witness for defendant, and testified that the notes in suit were transferred to the plaintiffs before maturity, under an agreement, made at the same time with the letter of credit, to keep deposited with them bills receivable to the amount of it — new notes to be substituted as the old ones matured.
There was no evidence that the credit was revoked, nor that it had been used. The presumption is, therefore, that the credit continues, and that nothing has been drawn under it.
It is admitted that the contract and notes were made in New York, and that the case is to be decided according to the law of that state.
The leading case is Bay v. Coddington, 20 J. R. 638, and the rule, as established in it, is stated in 3 Kent’s Commentaries 81, as follows : “ That if the paper be not negotiated in the usual course of business, nor in payment of any antecedent or existing debt, nor for cash or property advanced upon it, nor for any debt created or responsibility incurred upon the credit of the note, but was taken from the agent of the owner after he had stopped payment, and as security against contingent responsibilities previously incurred, the rights of the true owner are not barred.”
In the same case Woodward, J., remarks, after stating the equities in favor of the real owner: “ It is enough if the holder be secure when he advances his funds, or makes himself liable on the credit of the paper he receives.”
Again, in the same case, in commenting on the opinion of Ch. J. Eyre, in Collins v. Martin, 1 Bos. & Pul. 648, he says: “ The language of the court cannot be mistaken — something must have been paid in money or property, or some existing debt satisfied thereby, or some new responsibility incurred in consequence of the transfer. This would be paying value, and making out a good consideration within the meaning of the rule.”
' In the cases now referred to, and in most if not all the other cases cited from New York, the question ' was, whether the transfer of notes as security for the payment of antecedent debts would be supported when in fraud of the prior owners; and it must be considered as settled in that state, that a note made for the accommodation of the payee, as these were for Rowland, and fraudulently diverted from the use prescribed by the maker; as is now assumed, cannot be transferred by the payee so as to be held as collateral security for the payment of an ante
But this rule does not apply to the case now under consideration. Here, in effect, is a promise by the plaintiffs to maintain a credit for Rowland in London, and by Rowland to return the avails of that credit in New York, and to make the plaintiffs safe from loss by the pledge of securities to the amount of the credit. The agreement so to indemnify the plaintiffs has for its consideration the guarantee of the plaintiffs, that George Peabody & Co. will honor Rowland’s bills on presentation. The legal effect in this suit, of these promises, is the same as if the plaintiffs had agreed to pay Rowland’s drafts to the amount of two thousand (£2000) pounds at their counter in New York, in consideration of a promise by Rowland that he would pledge to them and keep in pledge with them, securities to the same amount.
The promise of Rowland to return the avails of his London credit in New York is not an antecedent obligation within the meaning of the rule. By antecedent, in this cenneetion, is meant not only prior in point of time, but distinct in point of consideration. If the consideration has been exhausted in raising the obligation, without requiring security, the obligation is antecedent to the pledge of security for its performance; as if the consideration has raised a promise to pay, and no more, the debt is antecedent, and is not in New York a sufficient consideration for the transfer of such notes as collateral security; they can only be used in discharge of the debt. But if the consideration has produced more, not only the debt, but a promise to secure it, then with reference to that promise the debt is not antecedent but concurrent; the provision for security is one of the terms of the contract, and rests upon the same consideration as that to which it is ancillary.
In this case the main obligation of Rowland was to pay in New York the amount of his drafts on Peabody &
Nor was either promise collateral to (he other, but both original, not only within the meaning of this rule, but also that settled in questions arising under the 4th section of the statute of frauds. It is true that in one sense all securities by way of pledge are collateral to a principal obligation. If the principal obligation is performed the pledge is released ; but in the sense of these rules, a promise or security is not collateral where it is given pursuant to the contract and upon the same consideration. If it be one of the terms of the contract it is original, although it may be ancillary to its principal object.
It follows^ supposing these notes to have been transferred after the issue of the letter of credit, that they were not pledged as collateral to an antecedent obligation, but in direct performance of a present obligation. The obligation was, that Rowland would give the plaintiff’s securities to cover the amount of the credit if required, and responding to this obligation, the notes were given. This, like paying a debt or performing a covenant, is the execution of an agreement, the rendering one of the agreed equivalents for the consideration enjoyed or to be enjoyed-.
In the case of Fenley and Johnson v. Pritchards, 2 Sand. S. C. R. 151, this question was considered. One Mills had in his possession notes made by Pritchard, which he had paid, and for which Mills gave no consideration. Mills bought flour of Fenley and Johnson, and was to give for it his note at thirty days and collateral security by notes. The flour was delivered, and four or five days after, Mills gave his note, and after that a few days the collateral notes, among others those of Pritchard. Fenley and Johnson sued upon the notes. The defence was, (hat
These notes were not transferred to secure an antecedent obligation! but the question remains to be considered, whether the transfer is supported by a valuable consideration, as understood in New York,
It has been seen in the citations made that any responsibility incurred upon the credit of the notes is sufficient to protect the holder against the equitable defences of the owner. This idea is clearly stated by Chief Justice Savage in several cases like the present. In Rosa v. Brotherton, 10 Wend. 88, he says, “He (the plaintiff) gave
When the letter of credit is revoked the day of settlement will have arrived. The question then will be, how much has been drawn? what remains unpaid? And the securities will be held or surrendered as the result may show debts due or nothing due. Until that time no general account of debts and credits between the plaintiffs and Rowland need be stated for any purpose, certainly not for the purpose of ascertaining what amount of securities the plaintiffs may hold. That is fixed in the contract at two thousand pounds.
Taking the New York doctrine more broadly, perhaps, than it obtains, the test, as stated by Senator Vielie, in Bay v. Coddington, 20 Johns. Rep. 656, that when the
Again, the test, as stated by Woodworth, J., in the same case, have they paid value for the notes, or made any new engagement as the consideration of the transfer?
In this test the word new may properly be emphasized in cases where the notes are pledged as collateral to an antecedent obligation, to an obligation arising from a past and executed consideration, not connected by the contract with the pledge to be giveu. But no new consideration is needful to support the transfer when one of the terms for passing the original consideration to the endorser is such transfer. This binds the transfer to the original consideration, and if that is valuable, as has been shown, it supports all the promises based upon it and the performance of them.
As to the other exceptions, the opinion expressed by the Chief Justice in the Supreme Court appears to me to be very clear and conclusive.
Judgment reversed.
For affirmance — None.
For reversal — The Chancellor, and Judges Brown, Elmer, Vredenburgh, Combs, Cornelison, Kennedy, and Wood.
Cited in Holcomb v. Wyckoff, 6 Vr. 36, 38; Eaton v. Eaton, 6 Vr. 294; Chaddock v. Vanness, 6 Vr. 520; Knapp v. Hoboken, 10 Vr. 397; Savage v. Ball, 2 C. E. Gr. 144.