In re McCord

• Decision Date: 01 February 1909
• Citation: 174 F. 72
• Parties: In re McCORD.
• Court: U.S. District Court — Southern District of New York

174 F. 72

In re McCORD.

United States District Court, S.D. New York.

February, 1909

The following is the opinion of Olney, Referee:

In this proceeding, Leo Oppenheimer, as receiver (now trustee) in bankruptcy of Frank Squier, filed a claim against the estate of William M. McCord, bankrupt. William M. McCord was adjudicated a bankrupt in December, 1907. Thereafter, in January, 1908, Frank Squier was adjudicated a bankrupt, also in the Southern district of New York. The claim filed by Leo Oppenheimer, as receiver, arises by reason of 15 notes and interest thereon, aggregating $39,138.85.

The trustee of McCord, bankrupt, moved that the claim of Oppenheimer, as receiver, be expunged in whole or in part. Testimony was taken on the motion, and briefs of counsel submitted.

My conclusion, from the testimony, is that the bankrupt William M. McCord, and the bankrupt Frank Squier, were, with others accommodation indorsers of the paper in question, and that each knew that the other was such accommodation indorser. Neither McCord nor Squier received any benefit from the said notes. The notes were discounted, and the proceeds of such discount was received by, or used for the benefit of, the Manufacturers' Mercantile Company or the Meers Artificial Leather Company. The first eight notes mentioned in the proof of claim, aggregating, with interest, the sum of $18,638.85 were taken up and paid by Squier before his failure, and are now held by his trustee in bankruptcy. Some of these notes were taken up before the bankruptcy of McCord, and some after the McCord bankruptcy. The remaining seven notes were not taken up by Squier, and are not held by his trustee in bankruptcy.

The trustee contends that Oppenheimer, the trustee of Squier, can only prove on the notes which Squier had taken up prior to McCord's bankruptcy. But it has been settled by decisions of the courts that the holder of a note indorsed by a bankrupt can prove thereon against the bankrupt estate although the note had not become payable at the date of the bankruptcy, provided the note was duly protested, and the bankrupt notified thereof after the bankruptcy. Re Gerson (D.C.) 5 Am.Bankr.R. 89, 105 F. 891; Re Gerson, 6 Am.Bankr.R. 11, 107 F. 897, 47 C.C.A. 49. Here all the notes were duly protested, and the indorsers duly notified. The holders of the notes at the time of their protest, therefore, could have proved on the notes. Under subdivision 'i,' Sec. 57, of the bankruptcy act (Act July 1, 1898, c. 541, 30 Stat. 560, 561 (U.S. Comp. St. 1901, c. 3443)), upon failure of the holders of the notes to prove thereon against the bankrupt, any other party liable to the holder could prove thereon in the creditor's name. Hence Squier, after he had taken up eight of the notes, had the right to prove thereon against the bankrupt estate, and to his right Oppenheimer, as trustee, succeeded.

The question arises: For what amount can Squier's trustee prove? All the indorsers of the notes were accommodation indorsers, and known to each other so to be. The first note mentioned in the proof was a note of the Meers Artificial Leather Company for $3,406.38, indorsed by McCord, Henry Berg, H. & J. T. Slade, and Squier, and delivered, so indorsed, to the payees, C. H. Pope & Co. in payment for merchandise sold by Pope & Co. to the leather company. Squier paid and took up this note. Then the other accommodation indorsers became liable to pay Squier their pro rata share of said note. Each of the other indorsers was liable in contribution to pay to Squier one-fourth of said note; there being, with Squier, four such accommodation indorsers. This must be so, unless the New York statute, entitled the 'Negotiable Instruments Law' (Consol. Laws N.Y.c. 38), has changed the rule of law in that respect.

The counsel for Squier's trustee contends that this statute has changed the rule, and that McCord, and in fact each of the prior indorsers, is liable to Squier's trustee for the whole amount of the note; and the counsel cites sections 55 and 114 of the statute in support of his claim. Section 55 provides that an accommodation party to a negotiable instrument is liable to a holder for value, notwithstanding that such holder, at the time of taking the instrument, knew the accommodation party received no value. The section does not mean that one accommodation indorser is necessarily liable to another accommodation indorser, who takes up the paper, for the full amount of the instrument. The extent of the liability depends upon the agreement among themselves express or implied, of the several accommodation indorsers. When two or more accommodation indorsers lend their names in order that a third person can borrow money from some other person on the instrument thus indorsed, the implied agreement is that each accommodation indorser shall be liable as between themselves for his proportionate share of the sum mentioned in the instrument. The provision in section 114 that any person who indorses a negotiable instrument before delivery is liable to the parties subsequent to the payee, it seems to me, states what is the presumption, in the absence of any evidence showing what the facts are as regards the rights and liabilities of the various parties as between...