80 N.Y.S. 504 | N.Y. App. Div. | 1903
This action was brought to recover upon a promissory note made by the defendant Deshong, upon which the appellants were accommodation indorsers. It appeared upon the hearing of the motion that the defendant Palleske was indebted to the appellants upon a promissory note for the sum of $1,000; that as such note was about falling due, and on the 15th day of April, 1902, Palleske requested the appellants to accept in payment of such note the promissory note executed by Deshong, set forth in the complaint in the action; that they refused so to accept the same unless Palleske could procure it to be discounted, and would deliver the proceeds thereof to the appellants, and for such purpose the appellants indorsed said note in their firm name, and the defendant Palleske took the same, and agreed to return the proceeds thereof to the appellants. Instead of, discounting the note, Palleske transferred the same to the plaintiff in the action, who paid thereon the sum of $150 cash, and, as further consideration, took and held the same as collateral security for an indebtedness then due and owing by Palleske to the plaintiff in a sum exceeding $3,000, the whole of which still remains due and’Unpaid. This action was brought by the plaintiff to enforce the note. All of the defendants made default in answering. Judgment was thereupon entered by the plaintiff for the full amount secured to be paid by the note, with interest. Thereafter the accommodation indorsers, the appellants herein, made a motion to open the default, and for leave to serve an answer. The court denied such motion upon the ground that the answer which accompanied the motion papers, and which was proposed to be served as a defense to the note, was insufficient for such purpose, in that it failed to aver the fraudulent diversion of the note in suit, and for this reason the motion was denied. It is clear that the court made a correct disposition of such motion, and placed the denial upon a proper ground. There was no statement in the answer which raised any issue of a fraudulent diversion. Consequently the plaintiff would have been entitled to judgment thereunder. The fraudulent diversion of the note constituted an affirmative defense, and the defendants, in order to avail themselves of it, were required to plead the same. M.t. Nat. Bank v. Loyd, 90 N. Y. 530; Grant v. Walsh, 145 N. Y. 502, 40 N. E. 209, 45 Am. St. Rep. 626. Thereupon, without obtaining
The motion to vacate or reduce the judgment was an entirely different motion from the one made to open the default. That was based solely upon the fraudulent diversion of the note, and upon an insufficient answer to raise - such question. The present facts were wholly unknown to the appellants at the time when the motion was made-. The present motion is for an entirely different purpose, viz., to set aside the judgment, based upon a state of facts, showing that the plaintiff was only entitled to enforce the páyment of the note to the extent to which he had parted with value therefor, .and, upon the conceded facts, he was not entitled to the judgment, which had been entered, unless entitled 'to enforce the note for the full amount. These facts did not before appear, and were unknown to the moving party. This application was accompanied by a verified answer setting up these facts. It is evident, therefore, that, the motion was entirely different from the first motion, made for entirely different relief, and was based upon papers which fully and completely set forth the appellants’ defense. It was therefore properly made, and the former motion was no bar to the court’s entertaining the same. It is said, however, that the negotiable instrument law has changed the rule in respect to what constitutes consideration for a promissory note; it being claimed that a pre-existing indebtedness is a good consideration, and renders the holder thereof a holder for value of a note taken as security therefor, as against accommodation indorsers, even though the note has been fraudulently diverted from the purpose for which it was given, and the indorsers have received no value. Since 1822, when Coddington v. Bay, 20 Johns. 636, 11 Am; Dec. 342, was decided, it has been the settled law of this state that accommodation makers or indorsers of negotiable paper were not liable to a holder thereof, where the same had been fraudulently diverted from the purpose for which it was made, or the indorsement given, and the holder had received it solely as collateral security for an antecedent debt. Comstock v. Hier, 73 N. Y. 269, 29 Am.
“Value Is any consideration sufficient to support a simple contract. An antecedent or pre-existing debt constitutes value; and is deemed such whether the instrument is payable on demand or at a future time.”
Standing alone, this provision has not changed the existing law. It was always the law of this state that a consideration sufficient to support a simple contract constituted a good consideration for the instrument. This declaration, therefore, upon this subject, added nothing whatever to the law as it existed and had existed from time immemorial. So, also, an antecedent or pre-existing debt constituted value, and was sufficient in consideration of an instrument, either negotiable or otherwise, as between the parties thereto. Moreover, it was always the law that the actual payment and discharge of a pre-existing debt constituted the same a valuable consideration for the transfer of commercial paper, and shut off prior equities existing against it. Such was the rule announced in Coddington v. Bay, supra, and has since been enforced by the courts of this state. Mayer v. Heidelbach, 123 N. Y. 332, 25 N. E. 416, 9 L. R. A. 850; Spring Brook Chem. Co. v. Dunn, 39 App. Div. 130, 57 N. Y. Supp. 100; Blair v. Hagemeyer, 26 App. Div. 219, 49 N. Y. Supp. 965. There is nothing contained in this enactment, therefore, which has changed the rule of law respecting the consideration of commercial paper, as it had previously existed; and the language of the statute is quite insufficient to annul the rule which has obtained with respect to the fraudulent diversion of commercial paper, as against accommodation indorsers thereon. Such rule, therefore, cannot be considered as .changed, unless it be by virtue of the other provisions of the statute, showing that such defense is cut off, and indicating a clear intent to change the rule.
Section 52 of .the negotiable instruments law defines what constitutes a holder for value:
“Where value has at any time been given for the instrument, the holder is deemed a holder for value in respect to all parties who became such prior to that time.”
And by section 55 an accommodation party is made liable on the instrument to a holder for value, although such holder at the time of taking the instrument knew him to be .only an accommodation party. Section 91 defines a holder in due course to be a person who has taken the instrument under the following conditions:
“(1) That it is complete and regular upon its face; (2) that he became the holder of it before it was overdue, and without notice that it had been pre*508 viously dishonored, it such was the tact; (3) that he took it in good faith and for value; (4) that at the time it was negotiated to him he had no notice of any infirmity in the instrument or defect in the title of the person negotiating it.”
Section 94 defines when the title is defective in the person who has negotiated the instrument as follows:
“When he obtained the instrument, or any signature thereto, by fraud, duress or force and fear, or other unlawful means, or for an illegal consideration, or when he negotiates it in breach of faith, or under such circumstances as amount to a fraud.”
Section 95 provides that the holder must have “actual knowledge of the infirmity or defect, or knowledge of such facts that his action in taking the instrument amounted to bad faith.” By section 96 the rights of a holder in due course are defined to be:
“A holder in due course holds the instrument free from any defect of title •of prior parties and free from defenses available to prior parties among themselves, and may enforce payment of the instrument for the full amount thereof against all parties liable thereon.”
By section 98 it is provided:
“Every holder is deemed prima facie to be a holder in due course; but when it is shown that the title of any person who has negotiated the instrument was defective, the burden is on the holder to prove that he or some person under whom he claims acquired .the title as a holder in due course.”
It is evident from these provisions that the Legislature did not intend to wipe out the defenses to a promissory note where the same had been procured from the maker by fraud, or where the indorsement has been given for a specific purpose, and a fraudulent diversion of the paper has been had. If the holder took the same with notice of such facts or circumstances as charged him with notice, or if he parted with no value, it constitutes a good defense to such note. As the definition of value for a promissory note has not added anything to the law upon that subject beyond such as was previously recognized, we ought not to conclude that the Legislature intended to change the rule with respect thereto, nor to permit frauds to be perpetrated thereunder. When the Legislature defines a defective title, it states in express terms that a fraudulent diversion is such. All of these sections can be harmonized, in their entirety, without any .subtle refinement of reasoning, by construing section 51 to mean that, to constitute an antecedent or pre-existing debt a valuable consideration in support of a promissory note that has been fraudulently diverted, as valid in the hands of a bona fide holder, the latter must have canceled, and, in legal effect, paid and discharged, the antecedent or pre-existing debt. By still holding the debt, he in fact parts with no value. It was not intended thereby that where a debt continued to remain in existence, and enforceable as such, and the note is taken as collateral security for its payment, such debt, undischarged, constitutes a valuable consideration, or the holder of the note one in due course,, as against the accommodation maker or indorser who has been defrauded by the negotiation of the instrument. We are not to impute to the Legislature an intent to change a rule •of law which has existed in uniform course of enforcement for over ■•three-quarters of a century, without a clear and unequivocal ex
If these views be correct, it follows that the order should be reversed, and the judgment set aside, upon payment, of costs and disbursements of the action, and $10 costs of the motion, to the respondent, and defendants allowed to answer. As the defendant appellants, however, admit liability to the extent of $150 interest and costs, the plaintiff in the action may, if he so elects, stipulate to reduce the judgment to such amount, in which event the judgment, to that extent, should be permitted to stand, and be enforced. Ten dollars costs and disbursements of this appeal to the appellants. All concur.