Madison Square Bank v. Pierce

• Decision Date: 21 March 1893
• Citation: 33 N.E. 557,137 N.Y. 444
• Parties: MADISON SQUARE BANK v. PIERCE.
• Court: New York Court of Appeals Court of Appeals

137 N.Y. 444

33 N.E. 557

MADISON SQUARE BANK

v.PIERCE.

Court of Appeals of New York.

March 21, 1893.

Appeal from supreme court, general term, first department.

Action by the Madison Square Bank against Warham N. Pierce on a promissory note. From a judgment of the general term (17 N. Y. Supp. 270) affirming a judgment entered on an agreed statement of facts in favor of plaintiff, defendant appeals. Affirmed.

Maynard, J., dissenting. 17 N. Y. Supp. 270, affirmed.

Coudert Bros.,(David Keane, of counsel,) for appellant.

John Delahunty, for respondent.

FINCH, J.

We have a novel and interesting question before us on this appeal, although its apparent importance will lessen as we pass from first impressions to some slower reflection. It arises upon facts which are very brief and simple, and may at once be stated. The defendant, Pierce, made his promissory note payable to his own order, and indorsed it to the Bates Company, Limited, which indorsed it to the plaintiff bank; the latter discounting it, and paying the proceeds over to the immediate indorser. Thereafter the Bates Company became insolvent, and passed into the hands of a receiver, who paid to the bank upon the liability of the indorser 73 1/4 per cent. of the amount secured by the note. Later the bank sued Pierce, the maker, and recovered judgment for the full amount of the note, in spite of the proof showing the payment made by the receiver, and in disregard of the claim asserted by the defendant that he should only be held liable for the balance remaining unpaid. That judgment has been affirmed by the general term, Judges Daniels and Barrett each writing very strong and valuable opinions in support of their doctrine, and relying upon the authority of Jones v. Broadhurst, 9 Man. G. & S. 177, 67 E. C. L. 175, which fully warrants their conclusion. The question does not seem ever before to have arisen in this country, and we are left at liberty to examine the English rule, and to follow it or not, as we approve or disapprove its logic and its consequences.

We are not to regard the note as being accommodation paper, but must assume its transfer for value. The form of the transaction is equivalent to what it would have been if the Bates Company had been named as payee, and loses none of its force by the intervention of the maker as first indorser. That indorsement, in the form adopted, was needed for the regular transfer of title, but does not change or affect the nature and character of the maker's liability. He remains the ultimate debtor, the person who ought to pay the debt, in preference to and in exoneration of all the other parties to the paper, who in some form or other are entitled to have final recourse to him; and it is to the case of such a maker of the note or such an acceptor of the bill of exchange that the English rule alone applies, and it is explicitly declared inapplicable where the indorser or drawer is the real debtor, although in form only secondarily liable. Pierce, therefore, was the ultimate debtor, and the party who ought to pay the note, both in discharge of the obligation to the holder and in exoneration of the indorser. When the bank sued on the note, it was the legal holder and the legal party in interest. Upon production of the paper and the usual proof, judgment against the maker for the full amount was inevitable, unless some defense should be interposed. The only possible one for Pierce was part payment, and he was compelled to assert, and his counsel are compelled to argue, that the money paid by the indorser to the holder inured to the benefit of the maker as a payment on his debt. But that doctrine cannot prevail, for very obvious reasons. The indorser's payment did not in the least lessen or satisfy the maker's debt. He owed it all exactly as before. What had happened possibly changed somewhat the real creditor, but left the whole debt due and unpaid. To whom he should pay might become a new question, but how much he should pay in discharge of the note was not made doubtful in any degree. What the receiver advanced to the holder is familiarly described as a payment, but it was such relatively to the indorser's liability alone; while relatively to the obligation of the maker it was an equitable purchase, instead of a payment. That view of it was taken in a very early case, the decision of which depended necessarily upon it. In Callow v. Lawrence, 3 Maule & S. 95, it appeared that one Pywell drew a bill upon Lawrence to his own order, which Lawrence accepted. The drawer indorsed the bill to Taylor, who discounted it, and thereafter indorsed it to Barnett. It was protested for nonpayment. The drawer paid Barnett the full amount, and took the bill, and, striking off the indorsements of Taylor and Barnett, transferred the bill to Callow, who sued the acceptor upon it. The latter claimed that the bill was paid and extinguished, which the court denied, saying that the drawer ‘became the purchaser of the bill’ when he paid and took it up out of Barnett's hands; that it was not paid by the drawer animo solvendi, in order...