Court Opinion

ID: 6577006
Source: CourtListenerOpinion
Date Created: 2022-07-20 19:35:12.019808+00
Date Added: 2024-06-11T15:57:08.112358
License: Public Domain

Stores, J.
The court dismiss all enquiry into those claims of fact and law, made by the parties, which have reference to a former note of which the plaintiff was holder, and the defendant was endorser. Our view of other aspects of the ease renders it unnecessary to decide whether the defendant, being directly indebted to the plaintiff, on account of having been legally charged with a liability, as such endorser, caused the note now in suit to be delivered to the latter, in satisfaction of that indebtedness, or whether, as claimed by the defendant, there was no such indebtedness at all, by reason of the want, not only of actual notice to him, of non-payment, but also of its legal equivalent, due diligence in the attempts made on the plaintiff’s behalf to ascertain the defendant’s residence.
There is as little occasion, as will be seen, to decide whether, according to the laws of the state of New York, or of any other jurisdiction, a recovery can be had upon the common counts, in assumpsit, in favor of the endorsee of such a note, as that on which this action is founded, against the endorser. In coming to the conclusion that the plaintiff is entitled to a judgment, we have not looked beyond the note itself, and the ordinary relation of the endorser of negotiable paper to its' bona fide holder.
The contract, which is the subject of the present suit, was made in the state of New York, and by its terms, to be executed within the same jurisdiction. Its validity, operation and effect, at least, are therefore to be determined according *611to the laws of that state. It is urged on the part of the defendant, that, whatever may be the legal theory elsewhere, by the law of New York, the endorsee of an accommodation note, who receives it from a former holder, only in payment of a debt, at that time outstanding in his own favor, does not become a holder, for value, in that technical sense, which will preclude an endorser from setting up against him any equities, which exist between such endorser and any of the prior parties to the note. We regard the title of the plaintiff as acquired under such circumstances, as to make his rights in the present suit dependent on the correctness of the doctrine just recited; that is, we shall regard the plaintiff as having received the note, (in suit,) in payment of Yan In-gen’s indebtedness.
As early as the year 1822, if not before, the courts of New York took the ground, that a party, whose legal or equitable rights had been violated by the unauthorized transfer of negotiable paper, had a superior equity to that of a holder, however innocent, who had received it merely as a security against an existing liability, and without parting with something of value, or relinquishing any other security at the time; and that, although he held by what would be a valid consideration between him, and the party, who had fraudulently negotiated the paper to him, he could not however be said to have given value for the note, and was not therefore to be treated as a bona fide holder, as against parties having prior equities, either as makers or former holders. Coddington v. Bay, 20 Johns., 637. This doctrine was recognized in several intervening cases, but the distinction suggested (as it would seem,) by the language of the court, between the receipt of negotiable paper, as collateral security for a debt, and its acceptance, in discharge of such debt, was explicitly recognized in subsequent decisions. Bank of Salina v. Babcock, 21 Wend. R., 499. Bank of Sandusky v. Scoville, 24 Wend. R., 115.
*612In 1843, the deliberate opinion of Chancellor Walworth, apparently called out by the exceptions taken by Judge Story, (see Swift v. Tyson, 16 Pet. R., 1, to the decision of Coddington v. Bay,) was pronounced in the case of Stalker v. McDonald, 6 Hill. R., 93. This opinion is relied upon by the defendant, and it unmistakeably promulgates the principle, that a party who receives negotiable paper, either as nominal payment or security for the payment of an antecedent debt, without parting with any value, or relinquishing any previous security on the credit of it, does not take it “ in the actual course of business, for a valuable consideration,” in such a sense as to protect him against the equities of the maker, or former holder of the paper. It is contended by the learned Chancellor, that such is the law of England, and the opinion of Justice Story is formally disapproved of.
The opinion however, so far as it can be construed as rejecting the distinction between the transfer of negotiable paper as a collateral security for an outstanding debt, and as payment of such debt, was subsequently disavowed as extrajudicial, and was considered by Justice Duer, a departure “ from a general and undoubted rule of mercantile law.” White v. Springfield Bank, 3 Sand. Sup. Ct. 222.
The doctrine was, nevertheless, again called in question in 1864, in the case of Youngs v. Lee, 18 Barb. R., 187. It appeared that the note, on which the suit was brought, had been improperly diverted from its proper application, and fraudulently transferred by its holder to a creditor of his own, in payment of a note given by him for goods purchased and then not quite due. The creditors at once withdrew their own security from the bank, where it had been placed for collection, and delivered it up to their debtor to be cancelled. The supreme court held, that such a transaction is in the usual course of business, if the negotiable paper is thus received before its maturity, in payment and discharge of an outstanding indebtedness. The case was then brought before the court of appeals, 2 Kern. R., 551, where the decis*613ion of the supreme court was fully affirmed by a majority of the ultimate tribunal. From the evidence of the law of New York, as furnished by the reports of its judicial decisions, we cannot doubt that the law of that state, as applicable to our view of the facts in the present case, would entitle the plaintiff to recover, had his suit been brought in that state, and conforms to the view of the common law taken by Kent and other elementary writers, and the doctrine recognized in Brush v. Scribner, 11 Conn. R., 388, by the supreme court of Connecticut.
Judgment should therefore be rendered for the plaintiff.
In this opinion, the other Judges, Ellsworth and Hinman, concurred.
Judgment for the plaintiff.