Grocers' Bank v. Buffalo & Penfield

Where a promissory note is made for the accommodation of the payee, but without restriction as to its use, an indorsee talcing it in good faith as collateral security for an antecedent debt of the payee and indorser, without other consideration, occupies the position of a holder for value, and can recover thereon against the maker. The precedent debt is a sufficient consideration for the transfer, and no new consideration need be shown. It is only where the note has been diverted from the purpose for which it was intended, by the payee, or where some other equity exists in favor of the maker, that it is necessary that the holder should have parted with value on the faith of the note, in order to enforce the same.

Appeal from judgment of the General Term of the Supreme Court in the first judicial department reversing a judgment in favor of defendants, entered upon the report of a referee. (Reported below, 7 Hun, 279.) This action was upon two promissory notes, or which defendants Penfield and Stone were makers, which were made payable to defendant Truax, and by him indorsed and transferred to plaintiff. The referee found, in substance, that the notes were executed by the makers without any consideration; were accommodation notes, and were received by plaintiff solely as collateral security for a precedent debt, without any agreement to extend the time of payment of the debt, and thereupon held that plaintiff was not a bona fide holder, and directed judgment dismissing the complaint as to said makers. The payee of a promissory note, made for his accommodation, may pay an existing indebtedness with it, or transfer it as collateral for his existing indebtedness, if payment of such indebtedness is by agreement extended on the faith thereof. (E. R. Bk. v. Butterworth, 45 Barb., 476; Cole v. Saulspaugh, 48 id., 104; Schepp v. Carpenter, 51 N. Y., 602; Dezeng v. Fyfe, 1 Bosw., 335; Lathrop v. Morris, 5 Sand., 7; Farrington v. Frankfort Bk., 24 Barb., 554; Turners. Treadway, 53 N. Y., 550; Bowman v. Van Kuren, 29 Wis., 110; Bramhall v. Becket, 31 Me., 205.) The mere talcing of collateral security for an existing indebtedness, does not per se extend the time of payment, or suspend the remedy on the original indebtedness. (Gahn v. Neimcewicz, 11 Wend., 312, 320, 321; Bk. of Utica v. Ives, 15 id., 501; Stalker v. McDonald, 6 Hill, 93-114; Austin v. Curtis, 31 Vt., 64; Wood v. Robinson, 22 N. Y., 564, 567 ; Carey v. White, 52 id., 138, 142-146; Place v. McIlvain, 38 id., 96, 98, 99; Fellows v. Prentiss, 3 Den., 512; Bangs v. Mosher, 23 Barb., 478; Albany City Ins. Co. v. Devendorf, 43 id., 444; Matthew v. Coe, 49 N. Y., 57, 60; Devlin v. Mayor, 63 id., 13; Caswell v. Davis, 58 id., 223.) The notes in suit having been regularly indorsed, and delivered to plaintiff by the payee, and plaintiff having discounted them in the regular course of business, they became thereby its property. (Demmon v. Boylston Bk., 5 Cush. [Mass.], 194; Mont. Co. Bk. v. Albany City Bk., 8 Barb., 396; Essex Co. Bk. v. Russell, 29 N. Y., 673.) The maker or indorser of an accommodation note cannot set up want of consideration as a defence against it in the hands of a third person, although placed there merely as collateral security by the person entitled to negotiate it. (Work v. Kase, 34 Pa. St,, 138; Lord v. Ocean Bk., 20 id., 384.) A note made for the accommodation of the indorser, without any restrictions, may be used by him for that purpose; and the holder may recover upon it, even if he had knowledge of its origin, to any amount for which he holds it as security, not exceeding the amount of the note. (E. R. Bk. v. Butterworth, 45 Barb., 476; Cole v. Saulspaugh, 48 id., 104.) Defendants are liable as makers, even though they loaned the notes to the payee. (Schepp v. Carpenter, 49 Barb., 542; Deems v. Crook, 1 Edm. Sel. Cas., 95; Robbins v. Richardson, 2 Bosw., 248; De Zeng v. Fyfe, 1 Bosw., 335; Edwards on Notes, 316.) The notes were not subject to any defence existing between the original parties. (Essex Co. Bk. v. Russell, 29 N. Y., 673.)