Case ID: tenn_18/html/0417-01.html
Source: Caselaw Access Project
Author: {"author": "Reese J.", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

Kimbro vs. Lytle.
    Nashville,
    December, 1837.
    
      A, left blank endorsements of bis name with B with a view to aid Bin his ■business and to sustain his credit. No restriction was imposed as to the use to be made of them. B filled up a note with A’ss endorsement thereon, and passed it to Cas a surety for an existing liability of B: Held that A was responsible to C upon such endorsement.
    Where an endorsement in blank is left with A generally and without restriction, it is an assent, by the endorser that A may pledge it as security for his existing liabilities, or use it any other way lawful and necessary for bis accomodation and credit.
    On the 9th July, 1834, Cantrell & Allen executed to Wm. Lytle their promissory note for $0,000, due lour months after date, payable at the office of discount and deposite of the bank of the United States in Nashville, for value received. This note was endorsed by Wm. Lyte and Fielding Deadrick, and negotiated to Joseph Kimbro, under circumstances hereafter stated. When the note fell due, it was duly protested for non-payment, and notice of the dishonor given to the endorsers, after which this suit was brought by Kimbro against Ly-tle and Deadrick, the endorsers, to recover the amount of the note from them as endorsers thereof, Cantrell & Allen having since become insolvent,
    
      The following are the circumstances under which, and the consideration for which the note was endorsed to the plaintiff. j£¡mqro was an endorser for Cantrell & Allen, on a note to John Shute, for $1,500. When that note was about to come due, Shute was willing that it should be renewed if Kimbro would endorse it. Kimbro was sent for, and when he came to Nashville, Cantrell and Allen requested him to endorse the note. He replied that he was already an endorser on many notes for Cantrell & Allen, on one note to Ensley, (among others,) for $3,000, and observed he would endorse the note to Shute for $1,500, if Cantrell and Allen would get the name Of Fielding Deadrick before him, and give him another note to secure him on the endorsement of the $3,000 note to Ensley, which was agreed to. In consequence of this agreement, Cantrell & Allen gave Kimbro the $3,000 note now sued on, with Lytle’s name thereon as first endorser, and had the note for $1,500 drawn payable to Fielding Deadrick, and by him endorsed as first and Kimbro as second endorser, which was delivered to Shute. Kimbro afterwards paid the note to Ensley, on which he was first endorser. Lytle was not present when the agreement was made with Kimbro.
    The proof shows that Lytle was the general accommodation endorser of Cantrell & Allen in bank, that he from time to time left blank endorsements with Cantrell & Allen, to be used by them in their business, that the above note of $3,000, delivered to Kimbro as collateral security, with Lytle as endorser thereon, was given without the knowledge of Lytle, that is, Alien, one of the firm of Cantrell & Allen, wrote the above note for $3,000 on one of the pieces of paper left with Cants ell & Allen by Lytle, with his name endorsed in blank thereon. No consideration passed between Kimbro and Cantrell & Allen, other than is above stated.
    On the trial of the cause in the circuit court, the plaintiff moved the court to instruct the jury, fst. that if the note in the declaration mentioned, was endorsed by Lytle and Deadrick, for the accommodation of Cantrell & Allen, and no restriction was imposed by the endorsers upon Cantrell & Allen, as to the manner in which they should use it, then Cantrell & Allen would be authorised to pledge the note to Kimbro, to indemnify him for a previous endorsement of a note of the same amount made by Kimbro for the accommodation of Cantrell & Allen, and if Kimbro received the note from Cantrell & Allen upon that consideration, he would be authorised to recover from the endorsers.
    2. If the note was endorsed by Lytle and Deadrick in blank, for the benefit of Cantrell & Allen, to be used by them for their own benefit, that would authorise Cantrell & Allen to pledge the note (o Kimbro, to indemnify Kimbro for his endorsements or securilyship for Cantrell & Allen, or for a liability incurred by Kimbro at the time he received the note, to Shute as stated in the evidence.
    3. If Kimbro, at the time the note was transferred to him by Cantrell & Allen, became responsible for Cantrell & Allen on the note to Shute, and this was in part the consideration of the contract, this would be a negociation of the note in the usual way of trade, and if Kimbro received the note upon the consideration stated in the testimony of William Allen, (which is the same before mentioned,) that would authorise him to recover from the endorsers.
    Which instructions the court declined giving, but the court did instruct the jury;
    1. That if Lytle and Deadrick were accommodation endorsers on the note sued on, as stated in the testimony, Cantrell & Allen could negotiate or transfer the note in the usual way of trade, but could not pledge it to Kimbro to indemnify him for a previous endorsement of a note made by Kimbro for Cantrell & Allen. That the pledging of the note for such previous liability was not a negociation in the usual way of trade, and they could not pledge it to Kimbro to indemnify him for a previous endorsement made by Kimbro for Cantrell & Allen. That the pledging of the note for such previous liability, was not a negotiation in the usual way of trade and would not form a sufficient consideration to sustain this action against Lytle and Deadrick, the accommodation endorsers. That Lytle and Deadrick might have bound themselves upon the accommodation endorsement if they had agreed the note should be pledged to Kimbro, but unless they had so a£reed Cantrell & Allen could only negotiate i't in the usual of trade. ^
    , _ , , 2. lliat u the note was endorsed in blank by JUytle ana Deadrick, for the benefit of Cantrell & Allen, and merely for their accommodation and left with them to be used by them for their own benefit, and this was all that took place between them, that would not authorise Cantrell and Allen to pledge the note to Kimbro as an indemnity for his previous endorsements or securityship for Cantrell & Allen, and Kimbro could not recover from the accommodation endorsers.
    3. If Kimbro, at the time the note was transferred to him by Cantrell & Allen, became endorser for Cantrell & Allen on the note to Shute, yet, if this last note to Shute was given in renewal of a former one, for which Kimbro was bound as endorser, the transfer of the note under such agreement, would not be a negotiation in the usual way of trade, and would not authorise Kimbro to recover against the accommodation endorsers.
    The plaintiff excepted to the opinion of the court in refusing the instructions asked for by him, and also for the instructions that were given. The jury found a verdict for the defendants. A new trial was moved for and refused, and judgment given for defendants, to all which plaintiff excepted, and prayed and obtained an appeal in the nature of a writ of error to this court.
    
      J. Campbell, for plaintiff’ in error.
    The first proposition the plaintiff contends for is this, that “where the endorsers of an accommodation note lend their names to the drawer, without any limitation or restriction as to the manner in which the note is to be used, he has the right to apply it to the payment or security of an antecedent debt, or to sustain his credit in any other way.” Grandin vs. Leroy and Smith, 2 Paige’s Ch. Rop. 509: Bank of Rutland vs. Buck, 5 Wend. 66: Bank Chenango vs. Hyde, 4 Cowen Rep. 577, 575: Rowell vs. TFaters, 17 John. Rep. 176.
    2. The cases most relied upon by defendants in error, do not militate against the principles I have laid down or the cases I have adduced in support of them. The leading case relied on by defendants, is that of Bay vs- Coddington, 20 J. R. 637, el seq. Tliat was the case where the payee of a 71 _ . / . note, who was a mere trustee, having no beneficial interest ° the note, pledged it for a debt of his own. That case so far from supporting the principle contended for here by defendants, makes directly against it. The trustee in the case of Bay vs. Coddinglov., committed a gross fraud in negotiating the note, and as he did not do it in the usual way of trade, but merely pledged it for a debt of his own, the person to whom the note was pledged could not hold it against the true owner.
    The case of Napier vs. Elam, 6 Yer. Rep. 108, is another case of the same discription, where the holder of the note was guilty of a fraud and breach of trust in negotiating the note. So in the cuse oí Hunt vs. S'andford, G Yer. Rep. 38S, the holder of the note committed a fraud in trading the note, and the purchaser bought it under suspicious circumstances.
    The case of Wardell vs. Ilowell, 9 Wend. R. 170, is distinguishable from this. That was a case where anote was given for a particular purpose, that is, to renew a former one, and the holder pledged it as collateral security to pay another and a different note.
    The case of Rosa vs. Bretherson, 10 Wend. R. 85, says, that where the creditor receives the transfer of a note in payment of a precedent debt, he takes it though transferred before maturity, subject to all equities existing between the orig-nal parties. This case proves nothing against the proposition advanced by the plaintiff. The transfer of a note in payment of a precedent debt, says the case, is not a negotiation in the usual way of trade, but it cannot be pretended that an accommodation endorser in such a case is not bound upon his endorsement, except where a gross fraud has been practised upon him.
    The case of Kasson vs. Smith, 8 Wend. R. 437, merely establishes the principle, that an accommodation note executed for one purpose, cannot betaken and applied to another purpose by a person cognizant of the circumstances.
    The case of Dickerson and others vs. Tillinghast and others, 4 Paige’s Rep. 215, was a case where a debtor gave ¿ mortgage to liis creditor to secure the payment of a debt. The debtor afterwards sold and conveyed the mortgaged property or a part of it, in payment of another precedent debt. It was decided upon the registry act of New York, that although the first mortgage was not recorded as required by law, yet he would hold in preference to the secondjiargainee, who bought the land and gave an old debt in payment. This case we must suppose depended upon some peculiar principle contained in the registry act of New York, otherwise the principle of the case may be doubted.
    The case of Coveil vs. The Tradesman's Bank, 1 Paige’s Rep. 131, is also relied on. None of the principles of that case are in conflict with those assumed by plaintiff1.
    The case in 10th English Common Law Reports, 154, was the case where a note was stolen and transferred for apre-cedent debt, and not for a consideration then paid.
    In illustration of the principles contended for, I refer the court to the following cases containing principles somewhat analagous. A blank endorsement or signature to a blank note, is a letter of credit for an indeffinite amount, and the person signing the blank paper is bound for any promissory note written upon the paper, and he is bound as endorser. Chitty on Bills, p. 32, 138: 4 Camp. Rep. 97: Collins vs. Emmet 1 Hen. Bla, Rep. 313: 4 Mass. R. 54: Putnam vs Sullivan,: Russell vs. Langslaff, Doug. Rep. 514, 516: Violett vs. Patton, 5 Cranch Rep. 142.
    This is the general rule, that the person signing or endorsing the note, is bound to a bona fide holder, and itis incumbent on the defendants to show the exceptions. They have not shown and they can not show that this case is an exception.
    2. The above authorities also illustrate and support the other principle contended for, and which the circuit court decided against us; to wit, that money paid or a liability incurred at the time of the transfer of a note, is a transfer in the usual way of trade, and will bind the accommodation endorser, though the note was fraudulently transferred, if the assignee had no notice of the fraud.
    
      F-. B. Fogg argued on same side.
    
      
      J. iS. Fera-er, for defendant in error.
    
    
      1. It is undeniably the J p law, that when a man endorses a paper in blank, to he used for the accommodation of another, it is a power to draw a note for any amount, and if the same be drawn for jnore than the amount agreed-upon, (he endorser will be ■ liable to abona fide holder for value. 3 Kent’s Com. -2d ed. 78.
    Although this authority, exists, yet the holder to entitle him-_self to recover, must show that he or some one else gave a valuable consideration for the note or bill. 12 Eng. Com. L. R. 285: 17 John. Rep. 301: 3 Pick. Rep. 5.
    If the holder pays nothing for the note, lie is not protected, but is in privity with the preceding parties and cannot recover. Chitty on Bills, 69: IBos. and Pul. 651.
    To constitute one a bona fide holder of a bill or note, he must have paid value for it. He must have given the credit to the note itself. Thus, if one receive a note for an inferior ■ consideration, under such circumstances as should excite the suspicions of a prudent man, he would not be considered as a purchaser bona fide, and the endorser would be let into his de-fence. 6 Fer. Rep. 387, 16 Eng. Com. L. E. 256: 10 do. 154. 3 Kent’s Com. 2d ed. 80, 81: 20 John. R. b52: 5 Wend. 566: 1 Cond. Eng. Ch. Rep. 550: 8 Wend. 437: 12 do. 600, 601.
    Although an endorsement in blank is a power to make a note for any amount, yet it will not authorise its transfer in any way It only allows of the exercise of this power in the usual course of trade and business. Thus, if one 1311 up a note so endorsed and give it away, no action will lie against the endorser, because the holder paid no consideration for the endorsement. 20 John. Rep. 637, 652.
    If a debtor take a note endorsed in blank, for bis accommodation, and pass the same in discharge of a pre-existing debt, the holder cannot recover of the endorser, because not taken in the usual course of trade. 20 John. Rep; 637: 9 Wend. Pep. 170: 10 do. 85: 11 do. 533: 12 do. 600: 13 do. 570, 605: 1 Paige’s Ch. Rep. 131: 4 do. 205: 6 Ser. and R. 537: 4 Bin. 366: 6 Conn. R. 521: 5 John. Ch. Rep. 54.
    So if he pledge the note so endorsed to secure a pre-ex-isting liability, no recovery can be had of the endorser. 20 ^eP- 637: 9 Wend. Rep. no: 10 do. 85: 11 do. 533: ^ do. do. 570, 605: 1 Paige’s Ch. Rep. 131: 4 do. 215: 6 Ser. and R. 537: 4 Bin. 366: 6 Conn. R. 521.
    In neither case was the note passed upon a sufficient consideration; no credit was given to it by which a debtor liability or loss accrued. To constitute the transfer of the note a negotiation in the usual course of trade, the credit must be given or the liability incurred at the time upon the credit of the note. If the holder is left in the same situation that he was before the transfer of the note, he cannot complain. 20 John. Rep. 637, 652, 657: 9 Wend. 170: 10 do. 85: U do. 533: 12 do. 600-1: 13 do. 570, 605: 1 Paige’s Ch. Rep. 131: 4 do. 205:6 Ser. and R. 537: 4 Bin. 366: 6 Conn. Rep. 521.
    If a creditor receive a note as security for an existing debt or liability, merely endorsed in blank, this is such a circumstance as should put him upon his inquiry, and if taken by him .without obtaining the consent of the endorser, will let the endorser into his defence of a want of consideration. See cases above cited.
    It is true, that the consideration actual given can be recovered by the holder generally and no more. 13 John. Rep. 52: 7 do. 361: 15 do. 44: Chitty on Bills, 69, 70: Hunt vs. Sandford and Cook, 6 Yer. Rep. 387.
    Yetif the circumstances were such as would have amounted to notice, no recovery at all can be had of the endorser. Hunt vs. Sandford and Cook, 6 Yer. Rep. 387: 5 Wend. Rep. 566: 3 Kent’s Com. 2d ed. 80-1: 1 Eng. Ch. Rep. 556: 6 Yer. Rep. 108: 8 Wend. 437: 3 Pick. Rep. 5, 298: 5 do. 223.
    II. It is argued that the endorsement of the $1,500, to Shute, was a sufficient consideration for the transfer of this note.
    1. This, to make the most of it, would only create a consideration for that sum, and being taken under the above circumstances, would let in the endorser to show the want of consideration in the whole. Hunt vs. Sandford and Cook, 6 Yer. Rep. 387.
    2. But this is not even true. The Shute note already existed. Kimbro was already liable upon it. He did not become so liable by reason of this note being transferred. It was an existing debt, and if this note was passed in order continue that, it is still given to secure an existing liability. 20 John. Rep. 687: 9 Wend. Rep. 170: 10 do. 85: 11 do. 533: 12 do. 600-1: 13do. 570, 605: 1 Paige’s Ch. Rep. 131: 4 do. 205.
    3. The discharge of Lytle and Deadrick from this endorsement, still leaves Kimbro where he was when it was transferred, neither better nor worse. If left in this situation, he cannot claim to be a holder bona fide in the usual course of trade* 20 John. Rep. 637, 657.
    III. It is argued that Kimbro but for the transfer'of this note, would not have endorsed the note to Shute a second time, and could have secured himself, and that this is such credit given to the endorsement as will entitle him to recover*
    1. The possibility or probability that a party would have obtained other indemnity, is not sufficient to make him a bona fide holder. 20 John. Rep. 637, 64S: 12 Wend. 600-1.
    2. The Shute note already existed, and his endorsement of it was a mere continuation of a pi e-existing liability. 20 John. Rep. 637: 12 Wend. 600 — 1: 10 do. 85: 9 do. 170: 13 do. 570,605.
    3. The proof shows fully that this note was taken as a security on theEnsley note, and that Deadrick was to be placed first endorser to secure the Shute note.
    IV. Whether the note was transferred to secure the Ensley or Shute debt, can make no difference. It was passed to secure or continue a liability that already existed, and as such cannot enure to the party taking it, with a knowledge of the circumstances. Hunt vs. Sandford and Cook, 6 Yer. Rep. 387: 20 John. Rep. 637: 9 Wend. 170: 10 do. 85.
   Reese J.

delivered the opinion of the court,

We consider the present case as submitting to our determination this general question, is one who becomes endorser upon a note for the accommodation of the maker, with a view to aid him in his business and to sustain his credit, and without enquiry or restriction as to the use to be made of it, liable to a holder, who received it from the maker as a security for existing liabilities? This question is answered in the affir- . , , , ,, i- ivr -tr i • i c by the present chancellor of New York, in the case of Grandin vs. Le Roy, 2 Paige’s Ch. Rep. 510, in which he says, that if the complainants in the case “lent to F their endorsement without any restriction as to the manner in which it was to be used and without any inquiry, he had a right to use it in the way he had done, to pay or secure an antecedent debt, or to sustain his credit in any other way which was not illegal,”

The chancellor in that case did not think that “the facts raised the question, whether an accommodation note made and endorsed for a particular purpose, and afterwards negotiated for another purpose to a third person with notice, or in payment or security for an antecdent debt, can be recovered against the endorser.” The chancellor to sustain the principle, determined in this case, refers to the cases of the Bank of Rutland vs. Buck, 5 Wend. 66, and the Bank of Chenango vs. Hyde, 4 Cow. Rep. 566. In the former of those cases, the note was made by Spear and Everett, and signed by Buck as surety, payable to the bank; it was made to enable Spear and Everett to raise money for their own accommodation. Upon |ts being offered at the bank for discount, the bank refused to discount it, and it vyas subsequently and before it was due, delivered over to ETonse and others, as collateral security for the payment of a judgment in their favor against Spear & Everett. The suit was brought in the name of the bank, but for the use of Honse and others. It was objected that the object for whice the note was made, being to raise money from the bank, and that object having failed, it ought to have been returned to the surety. It was admitted, that if the bank refused to advance the money, and a third person had done so, as in the 'case of the Bank of Chenango vs. Hyde, 4 Cow. Rep. 567, the surety would have been bound, as the substantial object, the raising of money, would have been obtained. It was further objected, that the note was not received in the ordinary course of commercial business, and so as to be governed by the law merchant. But Ch. J. Savage, delivering the opinion of the court says, “ L can see no well formed objection to a recovery upon this note. It was drawn for the purpose of raising money for the accommodation of the * ^ ^ two makers, Spear & Everett, who have had the benefit of it.” He relies upon the case of Powell vs. Waters, 17 John. Rep. 176, and Chenango Bank vs. Hyde, as sustaining the case, and distinguishes it from the case of Woodhall vs. Holman, 10 John. Rep. 231, and the case of Skelding vs. Hoight, 15 John. Rep. 274, upon the ground that a fraud was committed in putting the note in circulation in those cases;” and he adds, here had the plaintiffs obtained a discount at the bank, they might have paid the money to Honse & Co. and Buck’s liability would have been the same, his situation is not changed, nor is there any fraud.”

Without further citation of cases, we think that upon the authority of the two cases above referred to, and those relied on to sustain them, so consonant to reason and to the objects and principles of commercial law, we too may answer the question with which this opinion commences, in the affirmative.

It is not denied, indeed it is admitted* that one who becomes endorser of a note for the accommadation of the maker, in the conduct of his business and to sustain his credit, without restriction or enquiry as to the use of the note, would be liable to the holder, who might receive it in payment of existing debts, or as a security for.existing liabilities, if he had assented to such use of it. But does he not assent to this or any other use of it, lawful and necessary to the accommodation and credit of the maker, when he endorses it for his benefit generally, and without reference to any end more special, than that with it he might raise money to sustain credit? We certainly think him as much bound as if he had given his express assent. In this case, as in the that of the Bank of Rutland vs. Buck, it may be remarked, that if the money had been raised upon the note endorsed by Lytle, and the responsibility of Kimbro to Ensley extinguished by means of it, the liability of Lytle would have been just the same. His situation would not have been changed.

But it is contended that where one endorses a note for the general credit and accommodation of the maker, without restriction as to the purpose for which it may be used, still there is a restriction arising from the operation of the law merchant, which limits the responsibility of such endorser to the claim up0n p,;m 0f that holder only, who has received the note in the due course of commercial transactions, that is in other words, who has given his money for it, his goods or bis credit, at the time of receiving it, or who then on account of it, sustained some loss or incurred some liability. To sustain this position much elaborate argument has been used, and many authorities, insisted upon as relevant have been cited. We deem none of them as resting upon grounds which will sustain the purpose for which they are relied on. They are of that class, where the note having been stolen or found, or fraudulently obtained, or fraudulently put into circulation, and the holder, innocent though he rnay have been, has received it, not in due course of trade as above explained, but as payment or pledge for a pre-existing debt or liability. Such was the great case of Bay vs. Coddington, 20 John. Rep. 637, so fully discussed and so well considered, which has carried the restrictions upon the negotiability of commercial paper to a point, where this court is willing to carry it and where it is disposed to leave it. Such also are the subsequent cases of Wardell vs. Honell, 9 Wend. R. 170: Rose vs. Brotheson, 10 Wend. R. 85: Kosson vs. Smith, 8 Wend. R. 637: Clovell vs. The Tradesman’s Bank, 1 Paige’s Rep. 131. In these cases, in general, there was some equity as between the original parties, arising upon the ground of fraud or other cause, which stood in the way of the holder, in collecting the note, because he had not received it in the due course of trade. But in this case as between the makers and the holder, the note was valid and founded on good consideration, and what equity, as it has been called, against the plaintiff, has Lytle, who endorsed the note for the credit of the makers to sustain them in their business, without enquiry or restriction as to its use, because they chose to give it to the plaintiff to secure him for his responsibilities in their behalf? We think he is not in the attitude in this transaction to enable him to resist the claim of the plaintiff, and thinking so on the general , ground which we have stated, it is not necessary to look into the agreement between the makers of the note and (he plaintiff, touching the endorsement by the latter of Shute’s note, for the purpose of enquiring whether the plaintiff did not at the time of receiving the note sued on, give for it his credit and incurred a new liability.

Upon the whole, we think that the judgment of the circuit court is erroneous, that it must be reversed, and a new trial of the cause be had, when the law will be charged conformably' to this opinion.

Judgment reversed.