Case Name: The Bank of Charleston vs. P. P. Chambers; Same vs. John D. Frost
Court: South Carolina Court of Appeals
Jurisdiction: South Carolina
Decision Date: 1858-12
Citations: 11 Rich. 657
Docket Number: 
Parties: The Bank of Charleston vs. P. P. Chambers. Same vs. John D. Frost.
Judges: O’Neall, Wardlaw, Withers, Glover and Mcnro, JJ., concurred.
Reporter: South Carolina Law Reports
Volume: 45
Pages: 657–662

Head Matter:
The Bank of Charleston vs. P. P. Chambers. Same vs. John D. Frost.
Promissory Note taken as Collateral Security — Evidence —Consideration—Accommodation Indorser— Costs— Witness.
An indorsee who takes the promissory note of a third person as collateral security for a precedent indebtedness, is a bona fide holder for value, and entitled to recover the amount of the note against the parties liable when he took it; and proof that he had as yet sustained no actual loss, and had not given credit for the note to his immediate debtor, is no defence to the action.
In an action on a promissory note the plaintiff is not required to show1 that it was given for value ; that the law presumes, and.the onus is on the defendant to show want of consideration.
The drawer of a promissory note is a!n incompetent witness for his accommodation indorser in an action against him — the drawer being liable to the accommodation indorser for the costs of the suit.
BEFORE WHITNER, J., AT RICHLAND, FALL TERM, 1858.
These were actions of assumpsit on a promissory note for $10,000, bearing date the 9th May, 1854, drawn by P. P-Chambers, and payable nine months'after date to the order of J. D. Frost'at the Bank of Charleston. The note was indorsed by J. D. Frost, and Chambers, Jeffers & Co.
J. K. iSass, President of the Bank of Charleston, testified, that in July, 1854, Chambers, Jeffers & Co., being largely indebted to the plaintiff, became embarrassed, and the bank required of them- additional security; that the note was then lodged in the bank as collateral security for their debt to the bank; the note was never discounted in bank, nor credited to Chambers, Jeffers & Co.; that the date or time or perhaps both were in blank, were and filled up by Mr.Wynn, a member of the firm of Chambers, Jeffers & Co.; that at the time of the assignment by Chambers, Jeffers & Co., their debt to the Bank amounted to $73,300; the amount remaining unpaid was $59,800 ; what portion of it would be eventually lost to the bank he could not say; judging from present appearances there will be a deficit, even if the plaintiff recover .in these actions.
J. Gheesborough, cashier, testified, that there is good reason to apprehend loss to the plaintiff, even if there should be recovery in these cases.
Peter B. Lalane, discount clerk, testified to the same facts testified to by Mr. Sass; his opinion was that the bank will lose, even if the plaintiff should recover in these actions.
0.3. Bimonton, is agent of the creditors of Chambers, Jef-fers & Co., under the assignment. If the debt to the bank is paid at all it will be after a considerable lapse of time. For himself he is prepared to say, it will never be paid in full out of the assets of the assigned estate.
W. S. Gilliland, is the assignee of Chambers, Jeffers & Co. He thinks and hopes that the assets will be sufficient to pay off the preferred creditors, the bank being one, although the long lapse of time leaves some room to doubt.
■ In the action against J. D. Frost, who was conceded to be an accommodation indorser, P. P. Chambers was offered as a witness for the defendant. He was objected to as incompetent, and the objection was sustained.
The verdicts were for the plaintiff; and the defendants appealed, and now moved this Court for a new trial in each case on the ground:
Because the plaintiff, at the time the suits were instituted, had no cause of-action on the note, inasmuch as the plaintiff had not discounted or paid any valuable consideration for said note, but simply had the possession of the same, by a deposit made by Chambers, Jeffers & Co., as collateral secu rity for their general debt to the plaintiff; and there was no evidence that the plaintiff had sustained any loss of the debt due by Chambers, Jeffers Co., or any part thereof.
And in the case against Erost, on the ground :
Because it. is respectfully submitted his Honor erred in ruling that P. P. Chambers, the maker of the note, was an incompetent witness on the behalf of said defendant.
Baushett, for appellants,
cited Chit, on Bills, 79 ; Wiffen vs. Roberts, 1 Esp. E. 261; Jones vs. Hibbert, 2 Stark. E. 304; Brock vs. Thompson, 1 Bail. 322 ; Chit, on Con. 26, 29. The note and all the indorsements were without consideration, and where that is the case the plaintiff is not entitled to recover. The bank has no authority to take notes on deposit, or to act as trustee. 8 Stat. 74. P. P. Chambers was a competent witness for his indorser. Steele vs. Sawyer, 2 McC-459 ; Cleveland vs. Covington, 3 Strob. 184; Vandiver vs. Glaspy, 7 Eich. 14 ; Knight vs. Packard, 3 McC. 71; Kecheley vs. Cheer, 4 McC. 397.
Gregg, contra.
The consideration was an extension of time on the paper of Chambers, Jeffers & Co., to the bank, and that is sufficient. Chambers was an incompetent witness for Erost. The general rule is as decided in Steele vs. Sawyer, that the drawer is not liable for the costs in a suit against the indorser, but the case of an accommodation indorser is an exception. The drawer is liable to his accommodation in-dorser for the costs, and is for that reason an incompetent witness for him. ,

Opinion:
The opinion of the Court was delivered by
Whitneb, J.
The appellants ask for a new trial, because as they allege in tbeir first ground, " The plaintiffs at the time these suits were instituted, had no cause of action on the note." Passing by the proof in the case for the present, it is submitted, whether upon the premises assumed in this ground, the conclusion is authorized. When a creditor receives from his debtor the promissory note of a third person as a collateral security, is it true as a legal proposition, that an action may not be maintained on the collateral, unless a positive loss be shown, or until the remedy against the original debtor is exhausted? This is by no means conceded. In this ground it is said " there was no evidence that the plaintiffs had sustained any loss of the debt due," whereas the force of the objection would have been acknowledged, if it had been alleged there was evidence of the payment of the debt once due by the original debtor. However this phase of the case need not be pressed.
The argument on the part of the appellants, proceeds upon the assumption that the note and indorsement were without consideration. The reply is brief and direct. It was not necessary for the plaintiffs to allege or prove a consideration. This the law presumes, and for the protection of such negotiable paper, the. burden of proof rests with the defendants. In the case before us, we have proof of the circumstances leading to the transfer by the second indorser to the plaintiffs, but the evidence is wholly silent as to the paper in its original inception. On the trial of the second case the drawer was offered in behalf of the first indorser, who was then conceded to have indorsed the paper for the accommodation of the drawer, but this it must be seen in no way affects the question of consideration as to the note itself, or suggests any matter of benefit even to this indorser. Though he stand as a mere surety to the drawer, the legal presumption as readily attaches to him in this suit. He has held himself out in such way, that those taking the paper in a regular course of business are equally protected as though the value had been advanced to him personally and at bis own request. Stor. Pro. Notes, 194. But tbe evidence in fact corroborates tbe presumption. Chambers, Jeffers & Go., were indebted to the plaintiffs. "Additional security was required," and "the note referred to in this action was lodged with other col-laterals." It has passed to the plaintiffs as a further security for a pre-existing debt. Because the plaintiffs have neither advanced the cash, nor passed the amount to the credit, of Chambers, Jeffers & Co., before it is received, the startling proposition is submitted that the action cannot be maintained and the original parties are discharged from their contract.
It is to be remarked this is not even the case of a drawer attempting to set up his original equities, as against a subsequent indorsee with notice, or because transferred without value, wherein the Courts have been somewhat troubled, nor is the objection interposed by the last indorser.
But I have said the evidence shows a consideration. " Every person is in the sense of the rule treated as- 'a bona ficle holder for value not only when he has advanced money, or other value for it, but when he has received it in payment of a precedent debt, or when he had a lien on it, or has ialcen it as collateral security for a precedent debtt or for future as well as past advances." Stor. on Prom. Notes, sec. 195, and a copious note collect authorities on these heads. The reason is manifest. The creditor is thereby enabled to realize or to secure his debt, and thus may safely give a prolonged credit or forbear from taking any legal steps to enforce his rights, whilst the debtor has also the advantage of making his negotiable securities of equal value to cash. Such -is the doctrine gathered from the source indicated, and such was the consideration moving to this transfer. The evidence discloses that from that day to this no steps have been taken towards legal coercion. In the effort to shift the onus the further proof was elicited that a heavy indebtedness yet exists, and .that plaintiffs "willlose" or "have good reason to apprehend loss, even if they recover in the above cases." . :•
On the second ground, the .ease.of Cheer vs. Kleckly, 1 Bail. 479, is directly in point.- The maker of a'note is not a competent witness for the indorser, in an action; by the holder, when the note was indorsed - for the accommodation of the maker. He has a direct interest in the event to the extent of the costs. . This is distinguishable from the case of Steele vs. Sawyer, 2 McC. 459. The distinction is pointed out though not directly ruled in the case of Cleveland vs. Covington, 3 Strob. 184.
The motion for a new trial in each case is dismissed.
O'Neall, Wardlaw, Withers, Glover and Mcnro, JJ., concurred.
Motion dismissed.