Case Name: Nichol, Hill & Co. vs. Bate
Court: Tennessee Supreme Court
Jurisdiction: Tennessee
Decision Date: 1837-12
Citations: 10 Yer. 429
Docket Number: 
Parties: Nichol, Hill & Co. vs. Bate.
Judges: 
Reporter: Tennessee Reports
Volume: 18
Pages: 429–434

Head Matter:
Nichol, Hill & Co. vs. Bate.
Nashville,
December, 1837.
Wo equities existing between the original parties to a note can be set up against a bona fide holder, when taken and received by him in a “due course of trade.”
A note taken in “a d\ie course of trade,” is, where the holder has given for the note his money, goods or credit, at the time of receiving it, or sustained some loss or incurred some liability.
Where anote is taken in payment of a debt due and secured by endorsement of a third person, which last note is given up and discharged: Held,that the note is taken “in a due c'ourse of trade.”
In all cases of notes endorsed, where one is fairly received in renewal of another, it discharges the first, and the second is taken “m the usual course of trade,” and for a good consideration passing at the time.
This is an action of assumpsit against Bate, as endorser of a note of Rogan, Carr and Roberts. The proof shows that Rogan, Carr and Roberts owed Nichol, Hill & Co. an account, for which theyr had given them tlieir note, with L. Winchester, as endorser; that the note had fallen due and been protested at Bank, and was taken up by Nichol, Hill & Co. That sometime thereafter they applied to Bate to endorse a note for them for a small amount, that Bate refused to endorse it, but was induced to endorse a blank note, upon its being represented to him that it was to be filled up for about $¡600, to take up a note then about to fall due in bank, on which Bates was Rogan, Carr and Roberts’ endorser; that Roberts, one of the firm of Roerán, Carr and Roberts, brought blank to Nashville, and filled it up, or it was filled up by ‘ 1 Thomas J. Read, the clerk of Nichol, Hill & Co. for about 02600, to take up a note on which Winchester was endorser, and to secure an account that Roberts owed to Nichol, Hill & Co. and that the note on which Winchester was endorser was given up. This was all done without Bate being present or knowing anything of the matter. The court charged the jury, among other things, that if the note was taken out of the usual course of trade, without a sufficient consideration paid therefor at the time, that it would not be’ good against the endorser, although it might be good against the makers; that if it was filled up contrary to Bate’s consent, for more than he had agreed upon, and was passed to pay a debt of Roberts then due, and not contracted upon the faith of the note; or if it was passed to discharge a debt of Winchester, not contracted upon the faith of the note, the consideration would not be such as would entitle the holder to recover, as it Would not be taken in a due course of trade. The jury found a verdict for the defendant. Motion for a new trial was overruled, and an appeal in the nature of a writ of error prosecuted to this court.
F. B. Fogg and J. Campbell, for plaintiffs in error.
We think the judge erred in his charge. The note was an accommodation note, so far as regards the maker and the defendant, and was wholly ineffectual as between them until the maker passed the note for value. See McDonald vs. Magruder, 3 Peters, 470. The first endorser by endorsing his name in blank gave credit to the note, made the maker bis agent to fill it up in favor of a bona fide endorser to any amount, and when that second endorser paid the note, he stood precisely in the situation of the holder, who had advanced the money in the first instance. See the following cases: Russell vs. Langslaff, Douglass, 514: Violet vs. Patton, 6Cranch, 142: Putnam vs. Sullivan, 4 Mass. Rep. 45: 2 Paige’s Rep. 509, 27: E. C. Law Rep. 234: 5 Barn, and Ad. 909: Cliitty, 33.
J. S. Yerger, for the defendant in error»
made the same points and cited the same authorities which he relied on in , c T~ , r ,7 Ti i it-the case oi Kunbro vs. Lylte. lie however, remarked ,5 ECldltlOHj
1. The authorities proved that where the endorsement was in blank, and without restriction, to charge the endorser the note must be negotiated for a consideration passing at the time; that if this be not so, yet if the endorser restricted the note to be discounted at bank fora particular purpose, and the maker divert it from its original design, and fraudulently put the note in circulation, the case is much stronger, and the right of the holder to recover is destroyed, if he advanced nothing on the faith of the note, but received it in payment, or as security of a pre-existing debt. He must have received it in good faith, in the ordinary course of trade, and have paid for it a valuable consideration. 10 John. Reports, 231: 15 John. Reports, 270: 5 Wend. 66, 566: 6 Wend. 615: 17 John. Rep. 176: 4 Cowen, 567: 8 Wend. Reports, 437: 9 Wend. Rep. 172: 2 Paige’s Ch. Rep. 209, and the authorities cited in those cases: 10 John. Rep. 198.'
Here the design of Bate was to endorse a note on which money was to be raised to take up a note on which he, Bate, was an endorser, but Roberts fraudulently diverted the note from its original design, and applied it in payment of his own debt, which already existed and was not created upon the faith of this note.
2. But it is argued that the giving up the note on which Winchester was endorser, released Winchester, and was a sufficient consideration for the promise, and was a taking in the course of trade. This is not so, because,
1st. There is no evidence which shows that notice of protest was ever given to Winchester. - If this was not done, Winchester was discharged, and nothing was given up which, will form a sufficient consideration. 12 Pickering’s Rep. 399.
2d. The note on which Winchester was endorser was given up after it was due, and if he had notice of its non-payment, was the debt of Winchester as well as Roberts. If Roberts could not transfer the note, under the circumstances, in payment of his own debt, he could not in payment of the debt of another person. It was not created on the faith of this note. See cases above.
3d. The circumstances were such as should have aroused suspicion, and therefore entitle Bate to set up the want of consideration. The note was taken in fraud of him. 1 Eng. Ch. Rep. 550: 6 Yerger’s Rep. 387: 2 Kent’s Co. 2d ed. 80, 81: 5 Wendal’s Rep. 566: 8 Wend. Rep. 437: 3Pick. 5, 298: 5 Pick. 223: 10 Wendal, 85: 9 Wendal, 170.
4th. The giving up the note of Winchester does not release him, if his liability was fixed by proper steps. It is not giving up a security for the debt, occasioning a loss, as a pledge for instance. If the parties do not recover of Bates any part of this note, or if the note now sued on was not paid, they were remitted to their remedy against Winchester in the same way that they were against Roberts, and consequently formed no consideration. 2 John. Rep. 455: Chitty on bills, 8 ed. 441, 442: 5 Wendal, 490: 3 John. C. R. 71: 7 John. R. 311: 8 Connecticut Rep. 472: 9 Con. Rep. 23: 2 Gill and J. 493: 2 Háwks Rep. 326: 4 East, 147: 1 M’Cord, 449: 2 Stark. Ev. 2d ed. 594, note 1: 1 Cowen, 290: 9 John. Rep. 310: 2 Eng. Co. L. R. 118: 5 John. Rep. 68: 1 Yerger’s Reports, 151, 154 — 5: 6 Yerger’s Rep. 52: 2 Bos. and P. 518.
5th. The demand against Winchester was merely suspended, not released. 2 Stark. Ev. 2d ed. 596, note 1: 8 John. Rep. 389.
6th. The only liability Winchester was under was for money paid and advanced for him. This could not be paid by Bate’s note any more than the same demand against Rogan, Carr and Roberts.

Opinion:
Turley, J.,
delivered the opinion of the court.
After the determination of the two cases of Kimbro vs. Lytle and Hill vs. Bostick, at the present term of this court, there remains but little to observe upon, in the case now under consideration. In the case of Kimbro vs. Lytle, we have recognized the authority of the case of Bay vs. Coddington, 20 John. Rep. 637; and the question now is, does the present case fall within the principles therein determined, ín that case, notes were fraudulently passed by an agent tose- , c . . J iii-cure the defendant against responsibilities assumed by mm as endorser of bis notes, and It was held, that the notes not being received in the usual course of trade, nor for a present consideration, the defendant was not entitled to hold them against the true owner. What is the present case? Nichol, Hill & Co. were the last endorsers on a note drawn by Ro-gan, Carr and Roberts, in favor of Lucillius Winchester, payable in the United States Bank, at Nashville. The note, at maturity, was protested, for non-payment, and taken up by Nichol, Hill & Co. After this was done, Rogan, Carr and Roberts offered to Nichol, Hill & Co. their note, endorsed by the defendant, H. Bate, for the purpose of renewing the previous note, which was received by them, and upon their endorsement, discounted in bank. This note, at maturity, was also protested for non-payment, and taken up by Nichol; Hill & Co. who are now prosecuting this suit against Bate, the first endorser. There is no doubt that the note was endorsed by Bate, when it was blank,, and that in filling it up for the amount and for the purpose for which it was used, a gross fraud was practiced by the drawers upon Bate, who only intended to endorse a note for $600, to renew one on which he was already liable for Rogan, Carr and Roberts, as endorser; but it was equally true, that Nichol, Hill & Co. were no participators in the fraud, and that they had no cause to suspect the honesty of the transaction. The only question then is, did Nichol, Hill & Co. receive the note in the due course of trade, or for a present consideration. We are of opinion that they did. In the case of Kimbro vs. Lytle, this court has said that due course of trade is where the holder has given for the note his money, goods or credit, at the time of receiving it, or has, on ácc'ouht of it, sustained somé loss, or incurred some liability. To apply this principle-, Nichol, Hill & Co. were the last endorsers of the previous note, Lucilius Winchester was the first, and as such, responsible to them. When the new note, endorsed by the defendant, was presented, it was taken by the plaintiffs in discharge of that responsibility, and that it was a full and complete discharge, this court has, at the present term, in the case of Hill vs. Bostick determined. This constitutes a marked difference between this case and that of Bay vs. Coddington; there the notes were given as collateral security for liabilities incurred as endorser, here it was given in payment of a debt due and secured by the endorsement of Winchester; there the notes could be appropriated to the true owner, without placing the person to whom they had been endorsed in a different situation from that which he would have occupied if he had never received them, for we cannot deprive Nichol, Hill & Co. of their recourse against the defendant, without depriving them also of the ample security for the payment of them, in the endorsement of Winchester, and which they gave up when the last note was received. In short, in all cases of notes- endorsed, when one is fairly received in renewal of another, it discharges the first, and we think it has been taken in the usual course of trade, and also for a good consideration, (if that were necessary,) passing at the time. The present case then, is not within the operation of Bay vs. Coddington, and the law as applicable to the rights of the plaintiffs, has not been correctly stated by the court below. The judgment must therefore be reversed and the cause remanded for a new trial, when the law will be charged in conformity with this opinion.
Judgment reversed.