Farmers & Mechanics' Bank v. Humphrey

Kellogg, J.

In several recent cases, it has been settled by this court that a promissory note made for the purpose of raising money, or of being exchanged for money, though made payable to a particular person or corporation, and with the expectation that it will be discounted by the payee, may be discounted by any other person, and that the party who advances the consideration may hold the note as a valid security for the money, even against sureties, and may use the name of the payee to enforce payment by suit, by the payee’s consent, either •express or implied. Keith v. Goodwin, 31 Vt. 268 ; Bank of Montpelier v. Joyner et al., 33 Vt. 481 ; Bank of Middlebury v. Bingham, et al., 33 Vt. 621 ; Bank of Newbury v. Richards et al.. 35 Vt. 281 . These cases were decided upon a full discussion and consideration of the rule of decision adopted by the court, and the rule itself is quite as firmly established as any legal principle connected with the law of the subject.

Humphrey was the principal in the note in the present case, and Allen was his surety. When Allen signed the note, it was agreed between him and Humphrey, that before it should be used, Humphrey should procure it to be signed by one Noble, a responsible person, as co-surety, and that the note should be used at the bank to which it was made payable, “ and not otherwise.” Humphrey in violation of this agreement, sold and delivered the note to Silas Whitcomb, who advanced to Humphrey the full amount of it in cash, acting in entire good faith and without any notice of the agreement between Allen and Humphrey. Does this agreement in respect to obtaining another surety and to the use which Humphrey should make of the note, vary or affect the rights which Whitcomb acquired by *558 the purchase of the note ? The note upon its face was complete and perfect, and it was in the hands of a party who was apparently entitled to deal with it, and its tenor, coupled with his possession of it, fairly imported that it was made for the purpose of being exchanged for money. If Humphrey had taken the note to the bank, and it had been there discounted, it would have been no defence to Allen that Humphrey had agreed with him not to use the note without procuring another surety upon it, unless the officers or directors of the bank had notice of the agreement at the time of discounting it.

This was expressly held in the case of the Passumpsic Bank v. Goss, 31 Vt. 315 , and that case illustrates a well known legal principle that where one of two innocent parties must suffer by the fraud of a third person, he who by trusting such third person, enabled him to perpetrate the fraud must bear the loss. If the note was on its face a complete and perfected instrument, Whitcomb would, in the absence of any notice or information of the agreement between Humphrey and Allen, have had the same right to purchase this note of Humphrey that he would have had to purchase it of the bank if it had been discounted for Humphrey by the bank. If Whitcomb exchanged his money for the note in good faith, his equities would be precisely the same whether he made the exchange with Humphrey or with the bank, and the apparent object for which the note was executed would be secured by the exchange with whomsoever it might be made. It could make no difference to Allen, as a surety on the note, whether the note should be discounted by Whitcomb in the first instance, or be discounted by the bank and then transferred by the bank to Whitcomb for value. If the note was purchased by Whitcomb for a full consideration and in good faith, while current, we think that he is entitled to enforce every legal right arising upon it which the bank could have asserted if it had discounted the note under the same conditions. He thereby became the real holder and party in interest, and the delivery of the note to’ him was an effectual delivery of it as well against the surety as against the principal. Bank of Middlebury v. Bingham, et al., 33 Vt. 634 ; Bank of Newbury v. Richards et al., 35 Vt. 281 .

It is claimed by the surety that even if this note should be *559 considered as perfected and completed for use when it was purchased by Whitcomb, no action could be maintained to enforce payment upon it without the consent of the bank. It is conceded, in making this objection, that with such consent the action is maintainable; and some expressions used in cases decided in this court seem to imply that such-consent, either express or implied, is necessary. Bank of Burlington v. Beach, 1 Aik. 62 ; Bank of Middlebury v. Bingham et al., 33 Vt. 633 . But the liability of the makers of the note accrued on its purchase by Whitcomb, and on the delivery of the note to him, and it is not dependent upon the subsequent assent of the bank. If there was any foundation for this objection, it .could be set up to defeat the action as well by Humphrey as by Allen ; but we do not think that either are entitled to raise any question of this character. It is a familiar rule of practice that an assignee of a debt'may bring an action for it in the assignor’s name, even against his consent and without his knowledge, if such use of his name is necessary to enforce payment of the debt. And yet, on his application, an indemnity against costs would be required, or the proceedings might be set aside or stayed. Where an attorney brought an action for a wife in her husband’s name, for a trespass in entering her house and taking her goods (she living apart from her husband), without authority from the latter, the court refused to stay the proceedings, although -the husband joined the defendant in the application, ( Chambers v. Donaldson, 9 East, 471) ; but the proceedings in such a case would be ordered to be stayed until an indemnity against costs, to the satisfaction of the court, was given to the husband. (Morgan and wife v. Thomas, 2 C. & M. 388.) So where a cestui que trust brings an action in the name of his trustee, or in the case of joint tenants or joint contractors, or in other cases where a person is obliged to use another’s name in an action, the proceedings will not be stayed upon the application of the trustee, &c., excepting temporarily, until he be indemnified against costs. But where the interference of the court would prejudice the real party in interest, they may decline to interfere, especially where the attorney who prosecutes the action is a responsible person. 1 Chitty’s Archb. Pr. *560 (9th Ed.) 74; 2 ib. 1300-1301. The note upon which this suit was brought, not being negotiable, could be sued only in the name of the bank; and we regard the real holder of that note as having the right to make use of the name of the bank in any necessary suit upon it. The right of the bank to interfere by refusing its assent to the prosecution of the suit in its name, ought not to be recognized except upon the ground of some possible liability for costs arising from the suit against which an indemnity ought to be provided ; but the bank in this case seeks for no indemnity against costs, and the refusal of its consent to the prosecution of this suit in its name must be presumed to rest upon other reasons. If under existing circumstances this question could not be raised by the bank, there is still less reason for its consideration when raised by the defendants. It could not be claimed that, if the bank had originally discounted this note and then sold it to Whitcomb, it could refuse the use of its name in a suit upon the note, if such a suit became necessary ; and we do not see how the case is varied by the use of the name of the bank in this note without its knowledge. If Whitcomb had a right to purchase the note, we find no difficulty in conceding to him the right to use the name of the bank to enforce all the legal remedies upon it to which the bank itself would have been entitled if it had originally discounted the note.

Judgment of the county court for the plaintiff affirmed.