Court Opinion

ID: 6140860
Source: CourtListenerOpinion
Date Created: 2022-02-05 14:38:34.765995+00
Date Added: 2024-06-11T08:54:38.154676
License: Public Domain

Van Hoesen, J.
In the case of Wheeler v. Allen (59 How. Pr. 118), as well as in the cases of Mohawk Bank v. Corey (1 Hill, 515), and Montross v. Clark (2 Sandf. 115), the plaintiff was a bonafide holder for value. The case now before us differs from them all in that respect, and we are called on to consider whether the plaintiff, who received the note merely as collateral security for an antecedent debt, is entitled to recover upon it from the defendant Murray, who indorsed it with the expectation that it would be discounted by Mr. Henry Hilton. The jury found by their verdict that the note was not indorsed by Murray upon condition that it should not be used unless it was passed to Mr. Hilton. In other words, they found that' *448there was no restriction as to the use which might be made of the note, though there was no room for doubt that Murray expected that it would be discounted by Hilton. Schoonmaker, the maker of the note, who induced Murray to indorse it, told him that Hilton said he did not want the note, but he (Schoonmaker) insisted on giving it to him. Murray said that he would indorse it,, but that it must not go to protest under any circumstances. Schoonmaker said that he should have plenty of money, and that he would take it up himself. Schoonmaker, failing to'get the note discounted by Hilton, transferred it to the plaintiff as security for an antecedent debt. The general term of the marine court seem to have considered this to be a diversion of the note, and consequently that the plaintiff, who is not a bona fide holder for value, could not recover. If the facts which I have narrated constituted what the law adjudges a diversion of the note, the decision of the marine court was right. The first question, therefore, is, was the note diverted, within the meaning of the law ?
In the case of Powers v. Waters (17 Johns. 176), the court said that it was of no consequence that a note, which was indorsed with the understanding that it was to be discounted at a particular bank, was in fact discounted elsewhere; for, it did not alter or increase the responsibility of the indorser. In Bank of Rutland v. Buck (5 Wend. 66), the court reiterated that opinion. In Wardell v. Howell (9 Wend. 170), in Mohawk Bank v. Corey (1 Hill, 513), in Duel v. Spence (1 Abb. Ct. App. Dec. 559), in Montross v. Clark (2 Sandf. 115), in Purchase v. Mattison (2 Robt. 76), and in many other cases which might be cited, the law is laid down that the lender of accommodation paper who has no interest in the use of its proceeds, cannot complain that it has been diverted simply because it was not discounted by the person whom he was led to believe would cash it, or because it was used in paying an antecedent debt, though the accommodation indorser expected it would be used to raise money. The effect of these decisions seems to me to settle the law that unless the accommodation indorser imposes some restriction upon the borrower as to the use to be made of the paper, the latter may apply the note to any pur*449pose which he considers of advantage to himself, even though the purpose be different from that whicn the indorser contemplated. Where the note is negotiated in violation of the restriction, the transferee cannot recover upon it, without showing that he paid value for it, before its maturity, without notice of the restriction, and in the regular course'of business. This restriction may be imposed, not merely when the accommodation indorser has a pecuniary interest in the use to which the proceeds of the nóte shall be applied, but in any case whatever. It is always competent for him, when he lends his name, to fix the condition upon which the note shall be transferred, and to prohibit its transfer unless that condition be complied with. When he does so, it is not for the courts to say whether 'or not the condition should be dispensed with. One who takes the note, the use of which is so restricted, with notice of the facts, or merely as collateral security for an antecedent debt, cannot recover upon it. But, as as already been said, where no restriction is imposed, where no condition is made, which limits the right of the person for whose accommodation the note is drawn, to use it as he thinks best, it is not a diversion of the note for him to apply it to any purpose which he considers advantageous to himself, though that purpose be the paying or the securing of an old debt, and though the accommodation indorser expected that the note -would be discounted at a bank. The courts have said that if the note were discounted, the proceeds could be used to pay an antecedent debt, and that it cannot injure the accommodation indorser, if the note itself, instead of the avails of it, be applied to that purpose. ■
The case of Rutland Bank v. Buck (5 Wend. 66), to which I have already referred, holds this very doctrine, as do the other cases which I have cited.
When an accommodation indorsement is procured by false and fraudulent representations, the transfer of the note conveys no title to one who receives it as security for an antecedent debt; not because it has been diverted, but because the fraud, practiced upon the indorser, vitiates the instrument in the hands of every one but a tona fide holder for value.
Where the accommodation indorser is interested in the use *450to be made of the proceeds of the note, it is a diversion of the note to use it in any way which will deprive him of the benefit of those proceeds. Hence, if the note be diverted, no one can recover against the indorser but a bona fide holder for value.
In the case before us, there is no evidence that the indorsement of the defendant was obtained by fraud. If there were fraud, no attempt was made to prove it. The jury have found distinctly that the defendant imposed no. restriction upon the use to be made of the note. It is not contended that the defendant had any interest in the proceeds of the -note,, or any concern with the use to which Schoonmaker might apply them. Upon the facts found by the jury, there is no doubt in my, mind that the transfer of the note to the plaintiff was not, in contemplation of law, a diversion of it. If the note were not diverted, then, under the decision of the court of appeals in Grocers' Bank v. Penfield (69 N. Y. 502), the plaintiff, though he received the note as collateral security for an antecedent debt, would be entitled to recover. Such is the law of this state, as settled by the uniform course of decisions.
Though the opinion of the marine court at general term, fails to state whether the judgment of the trial term was reversed because the verdict was against the weight of evidence, or because it was supposed that' even upon the facts found by the jury the plaintiff was not entitled to recover, it is nevertheless apparent that a motion for a new trial was made upon the minutes, and that all the evidence was before the general term, for review. It may be that the general term thought that the verdict of the jury was against the weight of evidence, and that Murray did make it a condition that the note should not be used at all if Hilton would not discount it.
Under these circumstances, we cannot entertain this appeal. As the judgment may have been reversed on the ground that the verdict was against the weight of evidence, we are bound to rbsmiss the appeal, unless we discover that the defendant, took some good exception at the trial; in which event, it is our. duty to render judgment absolute against the plaintiff. I fail to find upon the points of the respondent a reference to any valid exception taken at the trial, and I think, therefore, that *451the appeal should be dismissed with costs (Harris v. Burdett, 73 N. Y. 136).
Charles P. Daly, Ch. J., and J. F. Daly, J., concurred.
Appeal dismissed, with costs.