Case Name: Winters et al. v. The Home Insurance Company et al.
Court: Iowa Supreme Court
Jurisdiction: Iowa
Decision Date: 1870-12-08
Citations: 30 Iowa 172
Docket Number: 
Parties: Winters et al. v. The Home Insurance Company et al.
Judges: 
Reporter: Iowa Reports
Volume: 30
Pages: 164–168

Head Matter:
Winters et al. v. The Home Insurance Company et al.
t. Promissory note: accommodation maker. It is no defense in an action on a promissory note by an indorsee thereof, that the defendants were accommodation makers, though it was received by the plaintiff with knowledge of that fact, if it was taken in good faith, and for value in the usual course of business.
2.-negotiation by maker. Nor would the fact that the note was negotiated'to the plaintiff by one of the makers, who was the real debtor, instead of the payee, change the rule..
Appeal from Dewy District Court.
Thursday, December 8.
The firm of Colby Brothers were indebted to the Home Insurance Company, of New York, in the sum of about $900, money in their hands as agents of said company. In March, 1869, Wm. A. Colby, one of the firm of Colby Brothers, delivered to the special agent of the company three promissory notes in payment of such indebtedness. These notes were signed by Wm. A. Colby, John Winters and Daniel E. Root, as makers, payable to the order of B. E. Colby, the father of Wm. A. Colby, and were indorsed in blank by said B. E. Colby; and thereupon the insurance company released Colby Brothers from said indebtedness. This action is brought by Winters and Root to enjoin the transfer of and to cancel the notes held by the insurance company, on the ground that Wm. A. Colby obtained their signatures thereto by false representations as to the use he intended to make of them.
The defendant, the insurance company, answers by denying the fraud alleged; averring that the firm of Colby Brothers were indebted to the company; that said notes were purchased by it in good faith, before maturity, for a valuable consideration, namely: that the notes were taken by the company in full payment and satisfaction of said indebtedness, without notice of any fraud between the original parties; and they file their cross-petition to recover the amount of the notes and interest.
Issue being joined on the petition, answer, cross-petition and reply, the cause was tried by the first method of equitable trials, and a decree rendered dismissing plaintiffs’ petition, and the entry of judgment in favor of the insurance company for the amount of the notes, with interest and cost, against all the makers and the indorsers; from which Winters and Root appeal.
L. G. Palmer for the appellants.
T. W. & J. S. Woolson and Charles H. Phelps for the appellees.

Opinion:
Miller, J.
I. Winters and Root were accommodation makera. There is no controversy on this point. That they were such however, is no defense to the notes ^ hands of a bona fide holder for value, before maturity, without notice of any fraud in obtaining the signatures of such makers. Trustees of Iowa College v. Hill, 12 Iowa, 462; Washington Bank v. Krum, 15 id. 53; Jones v. Berryhill, 25 id. 289, and cases cited.
That they were accommodation makers is no defense, even where the holder takes the paper with knowledge of that fact, if it is taken in good faith, and for value, in the usual course of business. This is an exception to the rule that " where a party takes commercial paper, knowing that it is open to the defense of want of consideration against the original payee, the makers may interpose such defense as effectually as though the paper had not been transferred."
In the hands of the party accommodated the defense of want of consideration is good. But in the hands of a third party, who purchases in good faith for value, the defense does not obtain. The accommodation maker intends to lend his credit to a party who pays nothing, and the holder takes the paper and pays value for it upon the faith of the credit thus loaned. Jones v. Berryhill, supra; 1 Parsons on Notes and Bills, 183, 184.
II. The evidence in this case shows, conclusively, that the insurance company took the notes in payment of a precedent indebtedness of Colby Brothers, before maturity, and without any knowledge whatever of any fraud in obtaining the signatures of the plaintiffs. Thereforej unless the fact that the notes were negotiated to the company by "William A. Colby, one of the makers, instead of by B. E. Colby, the payee, changes the relation, the appellee is a bona fide holder for value, and the alleged fraud cannot defeat a recovery by the company. Trustees of Iowa College v. Hill, supra.
Where a promissory note is indorsed in blank, it may be passed by mere delivery, the same as if made payable to bearer, and the indorsee, or other holder, has full authority to demand payment thereon, or to make it payable to himself or to his order, or to any other person. Story on Promissory Notes, § 138; 2 Parsons on Notes and Bills, 19; Edwards on Bills and Notes, 269. Any bona fide holder of such note may pass the same by mere delivery.
The notes in question were made by William A. Colby and the plaintiffs, as principals, payable to the order of B. E. Colby, indorsed by him in blank, and delivered to William A. Colby. The plaintiffs as accommodation makers, and B. E. Colby the accommodation indorser, all understood that the notes were made and indorsed for the accommodation of William A. Colby. The plaintiffs signed the notes, and B. E. Colby indorsed them at the request of William A. Colby, and for the purpose of enabling him to raise money by their negotiation. When the notes were thus made, indorsed and delivered by the indorser to William A. Colby, he was authorized to negotiate them— to transfer them by delivery. This was in the usual course of business. It is a common practice for a party for whose benefit accommodation paper is made, to execute his note to his accommodation indorser, to obtain his indorsement in blank, and then negotiate the paper himself. 1 Parsons on Notes and Bills, 220,221. Such is the history of this case. William A. Colby had authority to negotiate the notes. The appellee took them in good faith, before maturity, without notice of the alleged fraud, paying value therefor, and, therefore, the fraud alleged is no defense to the notes in their hands.
The judgment of the district court is
Affirmed.