Court Opinion

ID: 6238825
Source: CourtListenerOpinion
Date Created: 2022-02-17 20:39:14.245377+00
Date Added: 2024-06-11T08:58:08.063280
License: Public Domain

Opinion,
Mr. Justice Williams :
This action was brought to recover the amount of two promissory notes. They were given by Hart payable to the order of Martin Kalbfleisch’s Sons, and indorsed by them to the trust company. The affidavit of defence set out the following facts:
1. That the notes were without consideration, having been made for the accommodation of the payees.
2. That before their negotiation the payees becoming insolvent suspended payment.
3. After such suspension the payees promised Hart not to use, but to return the notes.
4. Notwithstanding such promise, the payees did not return them, but turned them over to the trust company as collateral security for an antecedent debt.
The court below entered judgment against the defendant for want of a sufficient affidavit of defence, and this ruling is here assigned for error.
The general rule as to the liability of the maker of an accommodation note was laid down with clearness in Lord v. The Ocean Bank, 20 Pa. 384. It was there said that “he who chooses to put himself in the front of a negotiable instrument *569for the benefit of his friend, must abide the consequences, and has no more right to complain if his friend accommodate himself. by pledging it for an old debt than if he used it in any other way.” Proof, therefore, that the bill or note sued on was given as an accommodation will not put the holder on proof of the consideration paid. The legal presumption is that he is a holder for value. This presumption is rebutted by proof that the bill was negotiated after its maturity, and the maker is let into any defence that he might make against the payee: Bower v. Hastings, 36 Pa. 285; Hoffman v. Foster, 43 Pa. 137. So, where the note was procured by fraud, the holder is affected by the fraud unless he shows himself to be a holder for value* before maturity, and without notice. So if one not a party to-the bill or note is intrusted with it indorsed in blank, for the purpose of getting it discounted for the benefit of the maker and payee, and fraudulently appropriates it to his own use by pledging it as security for an existing debt, the maker may setup the want of consideration and the fraudulent diversion of the note as a defence against the holder: Royer v. Keystone N. Bank, 83 Pa. 248. Where the note was given as a memorandum, and not for negotiation, but the payee fraudulently pledged it as collateral security for an antecedent debt, it was held that the holder, not being a purchaser for value, could not recover: Carpenter v. National Bank, 106 Pa. 170. These exceptions rest on the proposition that fraud in the procurement or misappropriation of the note, as against one not a-purchaser for value, is a defence.
We are now asked to take one more step, in the way of impairing the commercial value of accommodation paper, by holding that the insolvency of the payee happening between the procurement and the negotiation of an accommodation-note, gives the maker the right to have his note retired; and. that the promise of the payee to deliver it up to him makes the subsequent negotiation of it a fraud on the maker, which he can set up against the holder who has taken it as security for an existing debt of the payee. But one who lends his credit, like one who lends his money, takes the risk of the continuing-solvency of the borrower. If insolvency happen it is not easy to see how the lender of his credit is placed in a worse position where it happens before, than where it happens after, the nego*570tiation of the note. If it be conceded, as perhaps it should be, that where the insolvency happens before the note is negotiated, the maker has the right to recall his loan of credit, yet such right like the vendor’s right of stoppage of goods sold while in transit must be effectually exercised or it is lost. A request that the note be returned is not enough, nor is the promise of the payee that it will be. It must be taken up. So long as it is left in the hands of the payee it must be presumed in favor of one, having no notice to the contrary, that it is left on the same terms on which it was originally given, and his power to use it continues. The duty of the maker in such cases is stated by Chitty on Bills, 457, in these words: “ Upon payment or satisfaction of a bill or note, the party making such payment should take care that the instrument be delivered up to him or his payment indorsed thereon, or he may be liable in an action by a third party, who has become the holder of the note before it became due.” On page 458 of the same work, an illustration is given in which it was held that not taking up an accommodation bill which A. had given to B., and which B. had pledged to O. for the payment ■ of certain acceptances, but permitting it to remain in O’s hands after the acceptances were paid, raised a presumption that A. had left his acceptance as security for advances subsequently made by C. to B.
In the case now before us Hart lent his note to Kalbfleisch’s Sons for their accommodation. Whatever conversation he may have had with them after their failure, he did not take back his note but left it in their possession. They made use of it before its maturity to secure an antecedent debt and perhaps saved themselves thereby from legal proceedings at the instance of the creditor. The trust company appear to have taken it without notice of the alleged agreement, in the ordinary course of business, before maturity, as security for an antecedent debt, and we can see no reason why they should not be permitted to collect it. It is better not to extend the exceptions to, or go further in the impairment of, the negotiability of accommodation paper. A note fairly obtained and properly used cannot be defeated in the hands of the holder, because the payee had promised to deliver it up, but had not done so, and that is the substance of the defence set up in this ease. If the maker had the right to recall it when the payee became *571insolvent, lie did not do so, and he' cannot ask us to do after the negotiation of the note what he should have done, but failed to do, while it was in the hands of the payee.
Judgment affirmed.