Case Name: Clifford T. Strickland, Respondent, v. William Henry, Appellant
Court: New York Supreme Court, Appellate Division
Jurisdiction: New York
Decision Date: 1901-11
Citations: 66 A.D. 23
Docket Number: 
Parties: Clifford T. Strickland, Respondent, v. William Henry, Appellant.
Judges: 
Reporter: Appellate Division Reports
Volume: 66
Pages: 23–25

Head Matter:
Clifford T. Strickland, Respondent, v. William Henry, Appellant.
An accommodation note, transferred at a usurious discount, is not enforcible by the transferee — leant of knowledge on his part as to its character is immaterial.
A promissory note, made for the accommodation of the payee, and transferred by him before maturity to a third person at a discount which made the interest reserved forty per cent per annum, is not enforcible by the transferee against the accommodation maker.
Want of knowledge on, the part of the transferee that the note was accommodation paper and had no inception until it passed into his hands, is immaterial. The Negotiable Instruments Law (Laws of 1897, chap. 612) has not altered the rule.
Appeal by the defendant, William Henry, from a judgment of the Supreme Court in favor of the plaintiff, entered in the office of the clerk of the county of Kings on the 19tli day of March, 1901, upon the verdict of a jury, and also from an order entered in said clerk’s office. on the 18th day of March; 1901, denying* the defendant’s motion for a new trial made upon the minutes.
Charles M. Stafford, for the appellant.
John R. Farrar, for the respondent.

Opinion:
Sewell, J.:
This action was brought to recover on .an accommodation note made' by the defendant to the order of Tony Rheims and transferred by him before maturity to the plaintiff at a discount which made the interest reserved forty per cent per annum. The note did not represent a legal transaction. It had no legal existence when sold to the plaintiff, and having no legal existence,'could not be the subject of sale and purchase. (Eastman v. Shaw, 65 N. Y. 522, arid cases cited.) In point of law the sale of accommodation paper is merely a loan of money, the purchaser being the lender and the seller the borrower. (Claflin v. Boorom, 122 N. Y. 385, and cases cited.) In Eastman v. Shaw (supra) the rule is stated in this form: " One who takes a note at its inception at a greater discount than the legal rate must be conclusively presumed to have intended to-loan, as the transaction can have no other character. His want of knowledge that the note takes its inception in his hands is immaterial." The court there also said: " It cannot be urged that this was no loan by Benedict, because no loan was intended. The answer is that the law stamps the transaction with the characteristics of a loan. The same thing -might be urged when' one discounts an accommodation note at a greater discount than seven per cent, not knowing its true character, but supposing it to be a business note. It is perfectly well settled that this want of knowledge has no effect. The holder is bound to know the character of the paper he is dealing in, and if it turns out to be accommodation paper the transaction is usurious."
The Negotiable Instruments Law (Laws of 1897, chap. 612) has not changed or affected this rule. That statute is a substantial re-enactmént of other statutes containing similar provisions. ' It is plain that the plaintiff is not a holder in due course, as he failed to-meet the burden cast upon him to show that he took the note in good faith and without notice of any infirmity. A plaintiff suing, upon a negotiable note or bill is presumed, in the first instance, to be a bona fide holder. But when the maker has shown that the note was obtained from him under duress, through a fraud, or that it had no legal existence previous to its negotiation, the plaintiff is then required to show under what circumstances and for what value he became the holder. ( Vosburgh v. Diefendorf , 119 N. Y. 357; Joy v. Diefendorf , 130 id. 6.)
It follows that the judgment and order appealed from should be reversed and a new trial granted, costs to abide the event.
Goodrich, P. J., Woodward, Hirschberg and Jenks, JJ., concurred.
Judgment and order reversed and. new trial granted, costs to abide the event.