Case Name: Howard Banking Company, Plaintiff, v. Frederick W. Welchman, Defendant
Court: New York Superior Court
Jurisdiction: New York
Decision Date: 1860-03-10
Citations: 6 Bosw. 280
Docket Number: 
Parties: Howard Banking Company, Plaintiff, v. Frederick W. Welchman, Defendant.
Judges: 
Reporter: Reports of cases argued and determined in the Superior Court of the city of New York
Volume: 19
Pages: 280–288

Head Matter:
Howard Banking Company, Plaintiff, v. Frederick W. Welchman, Defendant.
1. The bona fide indorsee of a bill of exchange received by him for value, without notice when so received that it is accepted for the accommodation of the drawer, has the right to treat the parties thereto as liable to him in the manner and order and to the same extent as is prima facie the legal import of their several positions upon the bill.
2. Hence, a release or discharge of the drawer by such indorsee will not affect the liability of the acceptor.
3. Such release of the drawer will not discharge the acceptor, although the indorsee when he gives the release has knowledge that the bill was accepted without consideration, for the accommodation of such drawer.
4. It seems that such release of the drawer would not discharge the acceptor even though the indorsee knew when he received the bill, that it was accepted without consideration, for the drawer’s accommodation.
And that the fact that as between drawer and acceptor, the latter has the rights of a surety for the former, in no manner affects the rights of the holder of a bill, or the liability of the parties respectively to him.
(Before Hoffman and Woodruff, J. J.)
Heard, November 17th, 1859;
decided, March 10th, 1860.
This case was brought to a hearing upon exceptions taken by the defendant on the trial thereof before Mr. Justice Slosson, on the 22d day of June, 1859, which exceptions were ordered to be heard in the first instance at the General Term, the judgment to be in the meantime suspended.
The action was brought by the plaintiff as indorsee of a bill of exchange drawn by Robert Ayres, residing in Boston, Massachusetts, upon the defendant in New York, payable to the order of Benjamin B. Pool, accepted by the defendant and by the payee indorsed before its maturity to the plaintiff, of which the following is a copy :
“$4,290.00. “Boston, March 30,1857.
“ Four months after date, pay to the order of Mr. Benjamin B. Pool, forty-two hundred and ninety dollars value received, which place to account of, Yours, &c.,
“R. Ayjres.
“To F. W. Welchman, New York.”
The pleadings and the proofs given on the trial sufficiently appear by the following statement:
The plaintiff is a Banking Corporation, in Boston, Massachusetts. The defendant resides in New York. On the 30th March, 1857, Robert Ayres of Boston, Massachusetts, drew his bill of exchange on defendant for $4,290, payable four months after date, to the order of B. B. Pool, which bill the defendant accepted, for the accommodation of Ayres, and upon the agreement that Ayres should pay it at maturity. Ayres delivered the bill to Pool, (the payee,) in part payment for beef purchased from him, and Pool, on 20th May, 1857, indorsed and delivered the bill to plaintiff, who discounted it, and paid him the money therefor.
This action was commenced in August, 1857. Defendant on the 17th September, 1857, put in his answer, (of which a copy was served in the city of New York on plaintiff’s attorney in the action,) and therein, among other things, averred “ that he accepted said hill of exchange, without any consideration whatsoever, for the benefit and at the request of the said Ayres.”
On 3d August, 1857, Ayres, (the drawer of said bill,) at Boston, in Massachusetts, petitioned for a discharge, under the insolvent law of that State, and, on the 18th February, 1858, such discharge was granted.
The plaintiff, on the 11th February, 1858, proved, a debt against Ayres’ estate, in insolvency, for the amount of this bill in question, and afterwards received- a dividend thereon, amounting to $339.02, which is indorsed and credited on the bill.
After said claim was proved and allowed against the estate, plaintiff on or before the 12th of February, 1858, voluntarily assented to Ayres’ receiving his certificate of discharge; and the Court of Insolvency thereupon, in accordance with the laws of the said State of Massachusetts, granted to him an absolute discharge from all his debts which had been or should be proved against his estate, and from all which are provable under the laws of that State, which are founded upon any contract made therein.
No point was taken on the trial that this discharge was not in conformity with the laws of Massachusetts, or that it was not operative and legal to discharge Ayres from any liability to the plaintiff upon the said bill.
On 27th May, 1858, defendant put in a supplemental answer, stating the above-mentioned facts, in relation to said proceedings, and the discharge of Ayres, under said insolvent law, alleging that plaintiff, at the time of receiving said bill of exchange and at the time of proving said claim, had notice that defendant accepted said bill without consideration, and for the accommodation of Ayres, and insisting that, by reason of the matters so pleaded, defendant was discharged from all liability to plaintiff on the bill, as acceptor thereof, or otherwise.
The insolvent laws of Massachusetts were put in evidence, and the aforesaid proceedings in insolvency, and the discharge of the said Ayres upon the assent of the plaintiff and certain other of his creditors, without which assent it is conceded no such discharge could have been granted by the Court.
The insolvent laws of Massachusetts under which the discharge was granted, provide “ that no discharge of any debtor under this act shall release or discharge any person who may be liable for the same debt, as a partner, joint contractor, indorser, surety, or otherwise, for or with the debtor.”
As evidence, that when the plaintiff assented to the discharge of Ayres, the plaintiff had notice that the bill in suit was accepted by the defendant for the accommodation of Ayres, (the drawer,) and without consideration, the defendant relied upon the original answer in this action, and the service thereof in the city of Mew York on the plaintiff’s attorney herein on the 17th of September, 1857, before such assent was given; in which answer the fact was averred, as above set forth. Mo other evidence was given or offered, that the plaintiff, at the time of discounting the bill, or at the time such assent to Ayres’ discharge was given, had any knowledge or notice that the bill was an accommodation bill, or that it was not accepted upon full consideration received by -the defendant.
There was no conflicting evidence, and the Judge charged the jury,
That it appeared,
1. That the bill in question was accepted by the defendant for the accommodation of Robert Ayres, who was bound, as between himself and Welchman, to protect and take it up.
2. That said bill was received by Benjamin B. Pool, the payee therein named, for full and valuable consideration by him paid to said Ayres therefor.
3. That said bill was, by said Pool, indorsed and delivered to the plaintiff before it was due, for full and valuable consideration then paid by the plaintiff to him therefor; and that as matter of law, for the purpose of this trial and with a view to an adjudication of the question by the General Term, he should charge:
1st. That by, under or in consequence of the proceedings taken by Ayres under the insolvent laws of Massachusetts, the consent of the plaintiff to his discharge and the discharge granted under such proceedings,.the defendant was-not discharged or released from, his liability to pay to. the plaintiff the amount remaining due and now .claimed to be recovered on this Bill of Exchange.'
(To which decision and charge, the counsel -for the defendant excepted.)
2d. That the plaintiff was entitled to recover in this action against the defendant, the amount appearing-to be due on said Bill of Exchange, and now claimed. ($4,508:48.)
(To which last decision and charge, the counsél for the defendant excepted.)
- The jury, under said charge and instruction of the Court, found a verdict for the plaintiff, for four thousand five hundred and eight dollars and forty-eight cents. ($4,508.48.)' .
E. W. Stoughton, for the defendant.
I. As between the defendant and Ayres, the latter was the acceptor, and primarily liable to pay the bill, whilst the former occupied the relation of drawer merely. Ho authority need be cited to sustain this proposition.
II. It is well settled, that a discharge of acceptor or maker by the holder of a bill or note, without the consent of the drawers or indorsers, operates to discharge the latter also. (Mottram v. Mills, 2 Sandf. S. C. R, 189.)
And the fact that such assent is given to a discharge, under the insolvent laws of a State, does not prevent this result. (Lynch v. Reynolds, 16 Johns., 41.)
III. It is admitted that the holder may discharge the indorser of a bill, without affecting his right to resort to the acceptor; and that he has, in the absence of notice to the contrary, a right to presume that the actual relation of the parties to a bill, is that which is indicated by the positions upon it of their respective names.
In this case, however, the plaintiff had notice before signing the petition or assent to the discharge of Ayres, that he was in fact the acceptor of the bill, and from thenceforward the plaintiff had no right as holder thereof to assent to such discharge. (Seymour v. Minturn, 17 J. R., 169; Laxton v. Peat, 2 Camp. N. P., 185; Collott et al. v. Haigh, 3 id., 281.)
IV. If it is urged that the plaintiffs, when they received the bill, did so upon the faith that the liability of the parties thereto was in factsuch as it appeared to be upon the face of the instrument, and that therefore the holder had a right to deal with each upon this footing until the bill should be paid, we answer, that the assent to the discharge of Ayres in this case, which was the act of the party and not of the law, did not in the least add to the amount which the plaintiffs were entitled to receive out of his estate. (Insolvent Laws of Massachusetts, p. 106, § 9.)
And that, therefore, to hold that they had no right, under the circumstances to give such assent, is quite consistent with the rule that they should not be deprived of any advantage which they could have derived from the parties to the bill, upon the assumption that their real liability was truly indicated by the position of their respective names.
V. It will probably be insisted that the proviso contained in section 7 of the act, declaring “ that no discharge of any debtor under this act, shall release or discharge any person who may be liable for the same debt as a partner, joint contractor, indorser, surety, or otherwise, for or with the debtor,” preserves to the plaintiff, unimpaired by the discharge, their right to recover against the defendant.
This proviso can have no such operation.
The bill was accepted, and payable in the city of New York, by the defendant, who resided there. His rights and liabilities are therefore to be determined and controlled solely by the laws of this State. (Springer v. Foster, 2 Story’s C. C. R., 383; Betts v. Bagley, 12 Pick., 572; 8 id., 194; 15 id., 417; see § 7 of Book, pp. 35, 36; Van Hook v. Whitlock, 26 Wend., 43.)
This proviso, therefore, has no other or greater operation than the same language would have if incorporated into a discharge executed by the holder of a bill or note to the acceptor or maker; and this Court has decided that in such cases a reservation of liability is inoperative, and cannot prevent the discharge of the acceptor from operating to discharge the drawer and indorsers also. (Mottram v. Mills, 2 Sandf. S. C. R., 189.)
The verdict should be set aside, and a new trial granted.
Benjamin W. Bonney, for the plaintiff.
I. The statement by defendant, in his first answer, that he accepted said bill without consideration, is not sufficient to charge plaintiff with notice of that fact. There is no pretense that plaintiff ever saw that answer, or any copy of it, or was informed of its contents; and service of the answer on plaintiff’s attorney in the action is not notice to plaintiff, or any other person, of any fact stated in the answer, except for the purposes of the trial of that cause.
II. When this bill was proved as a debt against the estate of Ayres, in insolvency, and the consent given to his discharge, plaintiff had no knowledge or notice that defendant accepted the bill for Ayres’ accommodation, and consequently the defense wholly fails.
III. But even if the plaintiff had received notice, at the time of discounting the bill, that defendant accepted it for the accommodation of the drawer, Ayres, the defense would still fail, because,
1. The insolvent laws of Massachusetts, under which the discharge was granted, provide “ that no discharge of any debtor under this act shall release or discharge any person who may he liable for the same debt, as a partner, joint contractor, indorser, surety, or otherwise, for or with the debtor.” (Laws of Mass., 1838, ch. 163, § 7; Insolvent Laws of Mass., p. 38.)
2. The holder of a bill or note has the right, in all cases, to treat the parties thereto as liable to him in the same manner and-order, and to the same extent, whether he knows the paper to be accommodation paper or not: as to him, all the parties stand liable as they appear on the paper. (Story on Promissory Notes, 2d ed., §§ 418, 423, 424, 426; Story on Bills of Exchange, 2d ed., §§ 425, 430; Bank of Montgomery Co. v. Walker, 9 Serg. & Rawle, 229; 12 id., 382; Commercial Bank v. Cunningham, 24 Pick., 270, 275; Murray v. Judah, 6 Cow., 484; Seymour v Minturn, 17 John., 169; Fentum v. Pocock, 5 Taunt., 192; Carstairs v. Rolleston, 5 id., 551; Clopper v. Union Bank, 7 Harris & John., 92; Yates v. Donaldson, 5 Maryland R., 389; Dunn v. Sparks, 7 Ind. R., 490; Manley v. Boycot, 18 Eng. Law & Eq. R., 351.)
3. The discharge of Ayres can in no way affect the claim of defendant against him for the amount of the bill in question, if the same shall be paid by defendant.
His claim will be, not on the bill, but for money paid for the use and account of Ayres after his discharge, and to such claim the discharge will be no defense. (Murray v. Judah, supra; Bush v. Cooper's Adm'rs, 18 How. U. S. R., 82; Leighton v. Atkins, 35 Maine R., 118; Dunn v. Sparks, supra.)
The plaintiff is entitled to judgment for the amount of the verdict, with costs.

Opinion:
By the Court—Hoffman; J.
I pass over the consideration of several questions which have been raised by counsel. There is one upon which the case must, I think, be decided for the plaintiffs.
The proposition is stated with precision in one of the points: "The holder of a bill or note has the right, in all cases, to treat the parties thereto as liable to him in the same manner and order, and to the same extent, as they appear on the instrument, whether he knows the paper to be accommodation paper or not. As to him, all the parties stand liable as they appear on the paper."
If this proposition is correct, then, as to the present plaintiff, the discharge of Ayres, under the insolvent law of Massachusetts, with the consent of the plaintiff, was the discharge of a surety. In the strongest form, it amounts to the release of a drawer of a bill, or indorser of a note. It is ineffectual to impair any right against the defendant, the acceptor and principal.
The English cases cited by the counsel for the plaintiff, (Fentum v. Pocock, 5 Taunt., 192; Carstairs v. Rolleston, id., 551; and Manley v. Boycot, 18 Eng. Law & Eq. R., 351,) support this conclusion.
In the case of Harrison v. Courtauld, (3 Barn. & Adol., 36 Eng. Com. Law R., vol. 23, p. 25,) the authorities were reviewed upon a case sent to the King's Bench from Chancery, for the purpose, it seems, of ascertaining whether Fentum v. Pocock was considered as law by the Court.
The case was this: P. accepted a bill for the accommodation of B., the drawer, who indorsed it over as security for a debt, and afterwards became bankrupt. The indorsee entered into an agreement with the assignees for purchasing part of the bankrupt's property, and for the arrangement of some claims which he, the indorsee, had upon the estate; and he afterwards gave the assignees a release of all demands, no mention being made, during the transaction, of the bill which had been dishonored. The indorsee knew when he made the agreement, but did not know when he took the bill, that it was accepted for accommodation.
The four Judges of the King's Bench certified that the holder was entitled to recover from the acceptor.
It would be difficult to find a case more exactly parallel with the one before us.
This rule is recognized in Jones v. Broadhurst, (9 Com. Bench R., 173,) and to some extent in Hartley v. Manton, (5 Q. B. R., 247,) as also by Parke, J., in Price v. Edmonds, (10 Barn. & Cress., 578,) who speaks of the decision in Fentum v. Pocock "as good sense and good law."
In Murray v. Judah, (6 Cow., 484,) the Court recognize Fentum v. Pocock, and Carstairs v. Rolleston.
In Seymour v. Minturn, (17 John., 170,) a note of the plaintiff was lent to the defendant and his partner, who indorsed it, and it was discounted by the Bank of Eew York for the accommodation of the Minturns, the Bank not knowing its character. The Bank had released the Minturns. It was held that the compounding with the indorser, with the consent of the drawer, did not discharge the latter. This was the main point decided.
Judgment should be entered for the plaintiff.
Ordered, judgment for the plaintiff on the verdict, with his costs.