Spies v. Nat'l City Bank

• Decision Date: 24 March 1903
• Citation: 66 N.E. 736,174 N.Y. 222
• Parties: SPIES v. NATIONAL CITY BANK.
• Court: New York Court of Appeals Court of Appeals

174 N.Y. 222

66 N.E. 736

SPIES

v.NATIONAL CITY BANK.

Court of Appeals of New York.

March 24, 1903.

Appeal from Supreme Court, Appellate Division, First Department.

Action by Amelia L. Spies, executrix of Francis Spies, against the National City Bank. From a judgment of the Appellate Division (74 N. Y. Supp. 64) affirming a judgment in favor of plaintiff, defendant appeals. Affirmed.

John A. Garver, for appellant.

James Harold Warner, for respondent.

PARKER, C. J.

The Appellate Division having unanimously affirmed the judgment entered on the report of the referee, the legal effect thereof was to conclusively establish the findings of fact made by the referee, which are as follows:

‘In and prior to April, 1893, Francis Spies, the plaintiff's testator, was doing business in the city of New York in the name of Marcial & Co. At his request, in April, 1893, at New York City, the defendant discounted for him a note for $4,786.62 made in New Orleans by R. M. Ong to the order of Marcial & Co., dated the 11th day of April, 1893, and payable in four months thereafter. Spies indorsed the note, in the name of Marcial & Co., to the defendant. At that time the defendant held certain railroad bonds which Spies had deposited with it as security for the indebtedness then due to it from him, and as security also for ‘any other note or claim’ the defendant might have against him. The defendant discounted the above-mentioned note, relying upon the said securities. The note was not paid when due, and was duly protested, and due notice was given to the plaintiff-Spies, the indorser, having in the meantime died. In February, 1894, this defendant recovered judgment upon the note against Ong, the maker, in the civil district court for the parish of Orleans, in Louisiana, where Ong resided. A few months later the defendant sold and transferred the said judgment to Alfred Hiller for 50 per cent. of its face value. An order of subrogation was entered in the action in which the said judgment had been recovered, which declared that Hiller ‘be subrogated to all the plaintiff's rights, claims, and demands in and to the judgment therein against the defendant R. M. Ong.’ In this transaction, all of which took place in Louisiana, Hiller represented Ong, and acted in his behalf and for his benefit, and Ong became the owner of the judgment. When this defendant sold and assigned the said judgment to Hiller, it was with an express reservation of all of the defendant's rights and claims against the indorser of the note, to which reservation both Hiller and Ong assented. In or about January, 1899, the defendant sold the railroad bonds above referred to, and applied a part of the proceeds to the payment of the sum due to the defendant on the indebtedness for which the said bonds had been originally pledged by Spies. The balance of said proceeds, amounting to $1,469.06, the defendant applied on account of his alleged claim against Spies as indorser of the Ong note.

‘By the law both of Louisiana and New York, the effect of the said transaction between this defendant and Hiller and Ong was to release Ong from all liability upon the note as maker. Such release operated to discharge the liability of Spies (or Marcial & Co.), the indorser. The liability of the indorser was not preserved or continued by the reservation by the defendant of its rights and claims against the indorser when it sold and assigned the judgment.

‘The plaintiff is the duly qualified executor of the said Francis Spies, and, before the commencement of this action, demanded of defendant the said sum of $1,469.06, which the defendant refused to pay.’

While the note was a Louisiana contract, havinb been made in that state by a resident thereof, payable at a bank therein, the contract of indorsement was an independent contract, governed by the law of the state where it was made and took effect, for in the case of every negotiable instrument there are as many separate contracts as there are indorsements, each being governed by the law of the place where made, unless the intention is to negotiate the instrument elsewhere. Story on Conflict of Laws, § 314; Daniel on Negotiable Instruments, §§ 867, 868, 899; Aymar v. Sheldon, 12 Wend. 439, 27 Am. Dec. 137;Allen v. Merchants' Bank, 22 Wend. 215, 34 Am. Dec. 289;Cook v. Litchfield, 9 N. Y. 279, 290. The note was made payable to the order of Marcial & Co., under which name the plaintiff's testator did business in the city of New York, and it was by him duly indorsed to the defendant, at its banking house in New York, before maturity. The contract of indorsement was therefore a New York contract, and, the defendant having presented the note for payment when and where it was made payable, and, upon the refusal to pay, having caused the same to be duly protested for nonpayment and notice thereof to be given to the plaintiff, it thereupon became entitled to enforce payment, and still retains that right, unless it has done or omitted to do some act which, under the law of this state, has destroyed that right.

While the holder of a note may enforce collection from either the maker or indorser, or both, he must take care not to impair the remedy of the indorser against the maker, for, to the extent that he destroys the indorser's claim against the maker, he releases his claim against the indorser. Shutts v. Fingar, 100 N. Y. 539, 3 N. E. 588,53 Am. Rep. 231;Pitts v. Congdon, 2 N. Y. 352, 51 Am. Dec. 299;Brown v. Williams, 4 Wend. 360.

In Shutts' Case it is said, in the course of a very full and careful discussion of the general subject, that an indorser who pays a note ‘is entitled to demand its possession from the creditor, with the right of subrogation to all securities and remedies possessed by him against the prior parties thereon, unimpaired by any act or laches of such creditor.’

In Pitts' Case it is held that ‘he’ (the holder) ‘cannot discharge the party primarily liable and then sue the indorser, because the latter would in this way be deprived of his remedy over.’

In Brown's Case the court said: ‘If the holder releases the principal debtor, he ought not to recover against the indorser, for, by releasing the debt, he discharged the principal from all liability upon the note to the indorser as well as himself.’

The principle established by these cases is that, if the holder of a note so deals with the maker that he becomes discharged from all liability thereon as against...