Case Name: The Atlantic National Bank of New York vs. Franklin
Court: New York Supreme Court
Jurisdiction: New York
Decision Date: 1873-01-06
Citations: 64 Barb. 449
Docket Number: 
Parties: The Atlantic National Bank of New York vs. Franklin.
Judges: Ingraham and Fancher, Justices.]
Reporter: Barbour's Supreme Court Reports
Volume: 64
Pages: 441–446

Head Matter:
The Atlantic National Bank of New York vs. Franklin.
The nature of a call loan is such that the lender, when the call is made, is entitled to immediate payment of the debt; and, in default of such payment, can immediately proceed to realize on the collaterals, and may sell or collect them, without further notice to the debtor.
On the 28th of April, 1870, the plaintiff made to V. & Co. a call loan of §30,000, upon a collateral note for that amount, made by third persons, and endorsed by a fourth. The plaintiff’s president, afterwards, called upon V. <fc Co. to pay their loan, saying he was not satisfied with the collaterals. Y. & Co. not being prepared to pay it, just then, offered to give the bank additional security if it would allow the loan to remain a little longer. They thereupon brought to the plaintiff three promissory notes, amounting in the aggregate, to §22,000, made by the defendant, payable to the order of, and endorsed by Y. & Co.; which were taken and received by the plaintiff, before maturity, as additional security for the loan. The loan, and every part of it, remained unpaid. In an action to recover the amount of the new notes,
Held, 1. That upon the making of the new arrangement, the loan was thenceforth a call loan by the plaintiff to Y. & Co. upon all the collaterals, including the notes given by the defendant; and it was a call loan requiring a new demand of payment, before the collaterals could be resorted to.
2. That the transaction was not a mere offer, on one side, without acceptance by the other; but that the acceptance of the new notes and the surrender of the rights under the call that had been made, was an acceptance of the offer.
3. That there was a suspension of proceedings on the call; a new status was offered and accepted; and under the circumstances, the plaintiff became a bona fide holder of the defendant’s notes, for value. And thenceforth, on a new call or demand of payment of the loan, it was a call to pay the renewed loan, to which the notes of the defendant were in part collateral.
Held, also, that independently of this view of the case, there was another ground upon which the plaintiff was entitled to recover on the notes. There was no evidence touching the character of the notes; whether they were business, or accommodation, paper. That if they were business notes, given for a valid consideration, the plaintiff had a sufficient title to recover on them, even if they were held as security for an antecedent debt; and if conceded to be accommodation paper loaned by the defendant to V. <is Co., in the absence of evidence showing a restriction as to the mode of using them, it was competent for that firm to pledge them as security for their debt. And in such case, the maker of the notes had no defence against their payment. That the plaintiff was a bona fide holder for value, sufficient to enable it to recover on the notes.
Held, further, that the discontinuance of the proceedings to enforce the call loan by the sale of, or action to collect, the collaterals, was a sufficient consideration for the transfer of the defendant’s notes to the plaintiff.
APPEAL by the plaintiff from a judgment entered upon the report of a referee.
The action was brought by the plaintiff, as endorsee, against the defendant, as maker, of three promissory notes.
Van Saun & Company, brokers, were dealers, and kept an account with the plaintiff. On or about April 28, 1870, the bank made Van Saun & Co. a call loan of $30,000, on collaterals. Becoming dissatisfied with the collaterals, the president of the bank called on Van Saun & Co. to pay said loan, on or about the 23d day of July, 1870. Van Saun & Co. did not pay, but requested the bank to take the notes in suit as additional security, and allow the loan to remain a little longer. The bank thereupon complied with such request, and received said notes as additional security for said loan of $30,000, and said loan remains wholly unpaid, the amount thereof exceeding the amount of the three notes in suit.
The three notes in suit were made by the defendant, bearing date July 23, 1870, payable to the order of Van Saun & Co., five, six and eight months after date, re spectively, and delivered to the payees therein named, who endorsed and transferred the same to the plaintiff, before maturity, as additional security for said call loan of $30,000.
On the trial, the following stipulation was made between the parties, to govern the disposition of this case:
“It is stipulated between the parties to this action, that the decision of this case turns exclusively upon the question whether, on the evidence already in, the plaintiff is a dona fide owner, for value, of the notes in controversy.”
The case was referred to a referee, who reported in favor of the defendant, and judgment for costs was entered upon his report.
A. B. Caswell, for the appellant.
Roger A. Pryor, for the respondent.

Opinion:
By the Court, Fancher, J.
At the conclusion of the
testimony it was stipulated between the counsel for the respective parties "that the decision in this case turns exclusively upon the question whether, on the evidence already in, the plaintiff is a dona fide holder for value, of the notes in controversy."
The evidence shows that the plaintiff, on the 38th of April, 1870, made to Van Saun & Co. a call loan of $30,000 upon a collateral note for $30,000 made by the mother and wife of Albert Van Saun, and endorsed by his father, John A. Van Saun.
When the notes sued upon in this action were received by the bank, the transaction, as testified to by the plaintiff's president, was as follows: "I called upon Van Saun & Co. to pay their $30,000 loan, as I was not satisfied with their collaterals. Yan Saun said they did not want to pay it, just then, but would give the bank additional security if I would allow the loan to remain a lit- tie longer. He then brought in the four notes of Franklin, the three in suit here, and the one for $10,000, afterwards given back to him. He said they were perfectly good notes, and wished me to take them as additional security for the loan, and put them with the other collaterals, which I did, and put. them in the same envelope. That was all." He afterwards testified that the loan of $30,000, or any part of it had not been paid.
The nature of a call loan is such that the lender, when the caE is made, is entitled to immediate payment from the debtor. In default of such payment, the lender can immediately proceed to realize on the coEaterals. He may seE or coEeot them, without further notice to the debtor. The plaintiff in this case had the right, when it caEed on Van Saun & Go. for payment of the loan, to proceed to reaEze on the coEaterals in default of immediate payment. Van Saun & Co. by means of the notes of the defendant, were enabled to treat with the bank for a surrender of the caE, and for a new arrangement, which was equivalent to a new loan on the old and new coEaterals. Had Tan Saun & Co. taken a new advance of $30,000 from the bank, on aE the col-laterals, and appHed the money to pay the old loan, the transaction would have resulted in precisely what the new arrangement amounted to between the parties. Thenceforth it was a caE loan by the plaintiff to Van Saun & Co.' upon aE the coEaterals, including the defendant's notes, and it was a caE loan requiring a new demand of payment before the coEaterals could be resorted to.
It is argued on the part of the defendant, that the transaction was but an offer on one side with no acceptance on the other. This position is not maintainable, on the evidence. It is clear that the acceptance of the notes and the surrender of the rights under the call that had been made, was an acceptance of the offer. (Place v. McIlvain, 38 N. Y. 99.) There was a suspension of proceedings on 'the caE; a new status was offered and accepted as the consideration for it, and, under the circumstances, I think the plaintiff became a bona fide holder of the defendant's notes for value. Thenceforth, on a new call or demand of payment of the loan, it was a call to pay the renewed loan, to which the notes of the defendant were, in part, coEateral.
But, independently of the views" above expressed, there is another ground on which the plaintiff is entitled to recover on the notes. There is ho evidence touching the character of the notes in suit; whether they are business or accommodation paper. If they are business notes, given for valid consideration, the plaintiff has a sufficient title to them to recover on them, even were it conceded that they are held as security for an antecedent debt. (McSpedon v. Troy City Bank, 2 Keyes, 35. Schepp v. Carpenter, 49 Barb. 542.)
And conceding that the notes in question are accommodation paper, loaned by the defendant to Van Saun & Co., in the absence of evidence showing a restriction as to the mode of using them, it was competent for that firm to pledge them as security for their debt, and in such case, the maker of the notes has no defence against their payment. The plaintiff is a bona fide holder for value, sufficient to enable the plaintiff to recover on the notes. (Schepp v. Carpenter, 49 Barb. 542. Cole v. Saulpaugh, 48 id. 104. 1 Pars. on Bills, 226. Rutland Bank v. Buck, 5 Wend. 66. Grandin v. Le Roy, 2 Paige, 509. Lathrop v. Morris, 5 Sandf. 7. Mohawk Bank v. Corey, 1 Hill, 513. Boyd v. Cummings, 17 N. Y. 101. BeZeng v. Fyfe, 1 Bosw. 335. Lord v. Ocean Bank, 2 Penn. 384.) In the latter case, it was held that the maker of an accommodation note cannot set up the want of consideration as a defence against it in the hands of a third person, though it be there as coEateral security merely.
In the case of Boyd v. Cummings, (17 N. Y. 103,) it was held by the Court of Appeals, that where a note endorsed for the accommodation of the maker, was transferred by him, before maturity, to a judgment creditor, in consideration of the discontinuance of proceedings supplementary to execution, and as security for the payment of the judgment, such discontinuance made the creditor a holder for value, and not having any notice of any restriction imposed upon the maker as to the use of the note, the creditor could recover upon it, against the endorser. It was there said that the discontinuance of the proceedings was a sufficient consideration.
[First Department, General Term, at New York,
January 6, 1873.
Ingraham and Fancher, Justices.]
The principle of that authority is in favor of the plaintiff here. The discontinuance of the proceedings to enforce the call loan by the sale of, or action to collect, the collaterals, was a consideration equally meritorious with the discontinuance of supplementary proceedings.
We think the judgment entered on the report of the referee should be reversed, the order of reference discharged, and a new trial ordered at the circuit, with costs to abide the event.
Judgment accordingly.