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more disadvantageous to her than that stipulated would have been.
For these reasons, the decree of the court below is reversed, and a procedendo is awarded.
Accommodation Paper – Rights and Liabilities of Makers and In
dorsers.* Nature of Contract. — An accommodation maker or indorser is a person who has signed a note without receiving value, and for the purpose of lend. ing his name to some other person as a means of credit: Benjainin's Chalmers's Digest, art. 90; Randolph on Commercial Paper, soc. 472; Miller v. Larned, 103 Ill. 662. An accommodation note, in the strict sense, is a loan of the maker's credit without instructions as to the manner of its use: Lenheim v. Wilmarding, 55 Pa. St. 73. The party accommodated impliedly agrees to take up the note at maturity, and to indemnify the accommodation maker or indorser against the consequences of non-payment: Reynolds v. Doyle, 1 Man. & G. 753; Asprey v. Levy, 16 Mees. & W. 851. As to third parties, the rights and liabilities of an accommodation party are, in general, the same as those of a party receiving valuable consideration for his signature; but between the accommodation party and the person accommodated, there is no such liability, and one who draws or indorses commercial paper for the accommodation of another is not liable on it to him, whatever their apparent relation upon the paper may be: Miller v. Larned, 103 Ill. 562.
Liability of Maker or Indorser. — The contract and liability of an accommodation party are, in general, those of a surety for the party accommodated:
Oberhellmann, 20 Mo. App. 336; Child v. Eureka Powder Works, 44 N. H. 354; Cumminys v. Little, 45 Me. 183; Barron v. Cady, 40 Mich. 259; Blakeslee v. Hewett, 76 Wis. 341. And if he takes up the paper at maturity, the party accommodated will be liable for it as a principal is to a surety: Burton V. Slaughter, 26 Gratt. 914; Lacy v. Loflon, 26 Ind. 324. In some jurisdictions, however, an accommodation maker is held liable as a principal, and not as a mere surety, as to a bona fide holder for value, and without notice: Stephens v. Monongahela Nat. Bank, 88 Pa. St. 157; 32 Am. Rep. 438; First Nat. Bank v. Morgan, 6 Hun, 346. The maker of an accommodation note delivered to the payee to be discounted for his benefit cannot set up want of consideration as a defense against the holder for value: Waite v. Kalo misky, 22 Ill. App. 382; Miller v. Larned, 103 Ill. 562; Grant v. Ellicott, 7 Wend. 227. The very purpose of making accommodation paper is that the party favored may dispose of it, and unless restricted, he may transfer it, either before or after maturity, and the maker or indorser will be equally bound. The only safe rule is, that when a note is given without restriction as to the time or mode of using it by the party accommodated, and it has been transferred in good faith and in the usual course of business, the holder, if he paid a valuable consideration for it, will be entitled to recover the full amount, although he may have had full knowledge that it was accommodation paper: Winters v. Home Ins. Co., 30 Iowa, 172; Jones v. Berryhill, 25 Iowa, 289; Thompson v. Shepherd, 12 Met. 311; 46 Am. Dec. 676; Thutcher v. West River Nat. Bank, 19 Mich. 196; Powell v. Waters, 17 Johns. 176; Miller v. Larned, 103 Ill. 562; First Nat. Bank v. Grant, 71 Me. 374; 36 Am.
REFERENCE TO MONOGRAPHIC NOTE. Accommodation paper, defenses available to acceptor of: 1 Am. St. Rep. 136-138.
Rep. 334; Seyfert v. Edison, 45 N. J. L. 393. When a note is made to en. able the maker to raise money apon it, and it is indorsed by him for that purpose, the indorsee may recover upon it, not only as against the payes and indorser, but against all others who may have signed it: Norfolk Nat. Bank v. Grifin, 107 N. C. 173; 22 Am. St. Rep. 868. A person who makes his negotiable note, and gives it to another to raise money on, is bound by the note to a third person, who takes it for value; and in this respect there is no difference between a promissory note and a bill of exchange: Hawkins v. Neal, 60 Miss. 256. When such a note is made for the accom. modation of the payee, and is left with him to be used in the general transaction of his business, it has no vitality while it remains in his possession; but when negotiated by him, it stands on an equality with other commercial paper, and the maker is bound primarily and unconditionally for its pay. ment. When such note is not made for any special purpose, and there is no restriction on its use by the payee, the title and rights of the holder, as against the maker, are not affected by the fact that he acquired it of the payee after maturity with knowledge of the relation existing between the payee and the maker: Connerly v. Planters' etc. Ins. Co., 66 Ala. 432.
An accommodation note, indorsed by the payee, and delivered to one of the makers before due, to be negotiated, is not presumed to have been paid, and the person purchasing it in good faith and for value may recover thereon: Morris v. Morton, 14 Neb. 358. When the assignee of accommoda. tion paper again assigns it, before maturity, to an innocent purchaser for value, the latter takes it free of all equities between the first assignee and the payee: Cook v. Norwood, 106 Ill. 558. An accommodation indorser who signs a negotiable note, leaving the amount blank, and intrusts it to another with authority to fill the blank with an agreed sum, will, as to third persons having no knowledge of the limitations of such authority, be bonnd by the act of the person to whom the instrument is intrusted, although he fills the blank with a larger sum than that agreed upon: Johnson Harvester Co. v. McLean, 57 Wis. 258; 46 Am. Rep. 39. Au accommodation indorser cannot set up, in a suit against him and his indorsee, that there was an agreement between them, at the time of putting their names on the paper, that such indorsement should constitute a joint, and not a successive, lia. bility: Johnson v. Ramsey, 43 N. J. L. 279; 39 Am. Rep. 580. An accommodation indorser on a note may, by agreement between hiniself and a subsequent indorser, render himself liable to the latter as an actual indorser for value: Leeke v. Hancock, 76 Cal. 127.
Although there is some conflict of authority, the general rule seems to be well settled that several accommodation indorsers on a note are not coBureties, in the absence of an agreement between them to that effect: Moody v. Findley, 43 Ala. 167. Thus when several persons indorse their names on a note, in order to enable the maker to get it discounted, and some of them afterwards, on the failure of the maker, pay the note, they cannot maintain an action against the others for contribution, without proving that the relation between them was really that of co-sureties; but parol evidence is always admissible to show that such indorsers, by agreement between themselves, constitnted themselves co-sureties: Clapp v, Rice, 13 Gray, 403; 74 Am. Dec. 639; Eusterly v. Barber, 66 N. Y. 433. In the absence of such special agreement, an accommodation indorser who is obliged to pay it to a holder for value may maintain an action for the whole amount, as against A prior indorser: Shaw v. Knox, 98 Mass. 214; McCarty v. Roots, 21 How.
432; McDonald v. McGruder, 3 Pet. 470; McCune v. Belt, 45 Mo. 174; Core v. Wilson, 40 Ind. 204; Phillips v. Plato, 42 Hun, 189.
A subsequent accommodation indorser who pays the note may recover of a prior indorser the whole amount paid, and not merely a contribution, as in case of sureties. It makes no difference that the indorsers both knew that each was an accommodation indorser, so long as there is no actual agreement between them to share the liability, nor, in the absence of such agreement, that the object of the indorsements is to enable the maker to get a loan at a bank upon the note, and that they were to operate together as a security to the bank: Kirschner v. Conklin, 40 Conn. 77. When one of two accommoda. tion signers executes a note as a joint maker with the principal debtor, and the other as payee and indorser, and there is no special agreement between them, the former cannot, after paying the note, call upon the latter for contribution: Hillegas v. Stephenson, 75 Mo. 118; 42 Am. Rep. 393. When the payee of an accommodation note indorses it in blank, after which it is in. dorsed in blank by two other persons, it will not be presumed that they are joint indorsers to the holder; but the presumption is, that they are successive indorsers, and the second indorser may be sued alone, without noticing the other indorser: Girens v. Merchants' Nat. Bank, 85 III. 442. In some juris. dictions the rule prevails that indorsers on accommodation paper for the benefit of third persons, when there is no special agreement between them, and when neither is benefited, are to be considered as co-sureties, and only entitled to contribution: Daniel v. McRae, 2 Hawks, 590; 11 Am. Dec. 787; Dawson v. Pettway, 4 Dev. & B. 396. So it was decided in Douglas v. Wad. dle, 1 Ohio, 413, 13 Am. Dec. 630, that accommodation indorsers of promiso
re co-sureties, and that the last indorser cannot recover moro than a contributive share against a previuus indorser. This case is criticised, but adhered to, in Barnet v. Young, 29 Ohio St. 11, where the court said, quoting from the former case: “Where there are two or more apon an ac. cominodation note, all of whom indorsed before the note became operative by being transferred to some person not a party, for value received, and all of whom are charged by notice of demand and non-payment, they shall be treated as co-sureties, and contribution shall be made between them as such. Although the doctrine thus laid down and applied to promissory notes is not in accord with the great weight of authority on the subject, yet the length of time that has elapsed since the decision was made, its having been subsequently recognized by this court without questioning its correctness, and the fact that the rule as this class of commercial paper is and has been long understood in the state, all unite in requiring the decision to remain undisturbed." The rule maintained by these Ohio cases also prevails in Vermont: Pilkin v, Flanagan, 23 Vt. 160; 56 Am. Dec. 61.
Pledge as Collateral Security or in Payment. — The rule is well settled that one not induced by fraud, who makes or indorses a note or bill for the accommodation of another, without restriction as to its use, is liable to a holder or indorsee who receives it in good faith, before due, as collateral security for an antecedent debt or in payment of a pre-existing or concur. rent debt of such holder or indorsee, although there is no other consideration, as the existence of the debt is sufficient consideration for the transfer: Schepp v. Carpenter, 51 N. Y. 602; Pitts v. Poglesing, 37 Ohio St. 676; 41 Am. Rep. 640; Washington Bank v. Krum, 15 Iowa, 53; Fetters v. Muncie Nat. Bank, 34 Ind. 251; 7 Am. Rep. 225; Grocers' Bank v. Penfield, 69 N. Y. 502; 25 Am. Rep. 231; Miller v. Larned, 103 Ill. 562; Quinn v. Hard, 43 Vt. 373; 5 Am. Rep. 284; Kimbro v. Lytle, 10 Yerg. 417; 31 Am. Dec. 555; Dunn v. Weston, 71 Me. 270; 36 Am. Rep. 310; Dawson v. Goodyear, 43 Conn. 648; Maitland v. Citizens' Nat. Bank, 40 Md. 540; 17 Am. Rep. 620. Thus when an accommodation bill is paid by one of the indorsers, and there is no special agreement that they should be bound to pay in equal proportions as co-sureties, the indorser who takes up the bill may assign it as collateral security for a pre-existing debt; and the assignee may recover of the original payee, who is also an indorser: McCarty v. Roots, 21 How. 432. One who takes accommodation paper as collateral for a precedent debt, and surrenders other security for it, is entitled to recover upon it as a holder for value: Depeau v. Waddington, 6 Whart. 220; 36 Am. Dec. 216. When a note with an accommodation indorsement is pledged to one who afterwards becomes a purchaser of it, he is entitled to recover against the accommodation indorser, even though he knew of the accommodation at the time he took the note: Ranson v. Turley, 50 Ind. 273. When such paper has been pledged as collateral, only the amount which is actually due and secured by it can be recovered from the accommodation maker or in. dorser: Atlas Bank v. Doyle, 9 R. I. 76; 98 Am. Dec. 368; Buchanan v. International Bank, 78 Ill. 500. This is also true when it has been trans. ferred as collateral for advances made the time, or afterward: Gordon v. Boppe, 55 N. Y. 665. In Alabama and in Pennsylvania, a creditor who receives accommodation paper as collateral security for the payment of a pre-existing debt is not regarded as having acquired it for a valuable consideration in the due course of business, and is not entitled to protection against equities or defenses on the part of the maker or indorser, of which he has no notice. This, however, is contrary to the great weight of author. ity: Boykin v. Bank of Mobile, 72 Ala. 262; 47 Am. Rep. 408; Marks v. First Nat. Bank, 79 Ala. 550; 58 Am. Rep. 620; Royer v. Keystone Nat. Bank, 83 Pa. St. 248; Carpenter v. National Bank, 106 Pa. St. 170. Even here, however, it is maintained that if a creditor takes the note in payment of a precedent debt, he becomes a purchaser for value in due course of busi. ness, equally as if he had advanced money on the faith of the note: Marks v. First Nat. Bank, 79 Ala. 550; 58 Am. Rep. 620.
Misappropriation. When accommodation paper is made or indorsed for a restricted or special purpose, and has been fraudulently diverted from the purpose for which it was intended by the payee or indorsee in the payment of a debt, or as collateral security for a precedent debt or otherwise, a holder with knowledge of the purpose for which the paper was made is not a pure chaser for value, even if he acquires the paper before maturity, so as to free it of all defenses and equities which exist in favor of the maker or indorser. When such paper has effected the substantial purpose for which it was designed by the parties, the accommodation maker or indorser cannot object that it was not effected in the precise manner contemplated at the time of its creation; but when the paper is diverted from its original destination, and fraudulently put in circulation by the payee or his agent, the holder cannot recover upon it against the accommodation maker or indorser, unless he received it in good faith in the ordinary course of trade, without notice and for value: Wardell v. Howell, 9 Wend. 170; Small v. Smith, 1 Denio, 583; Moore v. Ryder, 65 N. Y. 438; Grocers' Bank v. Penfield, 69 N. Y. 502; 25 Am. Rep. 231; Thompson v. Poston, 1 Duvall, 389; Daggett v. Whiting, 35 Conn. 366; Duncan v. Gilbert, 29 N. J. L. 521.
Fraudulent Dirersion of Accommodation Paper from the purpose for which it was drawn, by pledging it as collateral security for a precedent debt or otherwise, is no defense to an action by a bona fide holder for value and with.
out notice, before maturity: First Nat. Bank v. Hall, 44 N. Y. 395; 4 Am. Rep. 698; Petter: v. Muncie Nat. Bank, 34 Ind. 251; 7 Am. Rep. 225; Maitland v. Citizens' Nat. Bank, 40 Md. 540; 17 Am. Rep. 620. Thus when aco commodation paper is fraudulently diverted from the purpose for which it was made, and a banker, who, without notice of such diversion, takes it from his payee as collateral for a previous loan not yet due, and in lieu and upon surrender of collateral notes of other parties then past due, and protested for non-payment, which had previously been deposited as collateral to such loan, he is a bona fide purchaser, and entitled to recover against the accommodation maker, notwithstanding the diversion, and although the parties liable on the protested notes, for which this accommodation paper was substituted, were insolvent and the notes worthless: Park Bank v. Watson, 42 N. Y. 490; 1 Am. Rep. 573. An accommodation indorser of a note, which is diverted from the purpose for which it was made and indorsed, and is transferred by the maker as security for a precedent debt, cannot avail himself of the de. fense of the misappropriation of the note as against one who has received it from the original transferee in the usual course of business, for value, before maturity, without notice of such defense. The latter is within the protec. tion accorded by the law merchant to all bona fide holders for value; and when, in such case, the original transferee of the note receives it without any knowledge of a restriction upon the rights of the makers in its use, and transfers it to a bank of which he is a director, the fact that he took it for a precedent debt does not affect the title of the bank: Merchants' Bank v. Comstock, 55 N. Y. 24; 14 Am. Rep. 168.
One who takes a note in good faith, for value, before its maturity, without knowledge of the death of the maker, or that it is accommodation paper, may recover on it against the estate of the maker, even though the indorser, for whose accommodation it was made, put it in circulation fraudulently as against the maker: Clark v. Thayer, 105 Mass. 216; 7 Am. Rep. 511. When a bill of exchange is drawn and indorsed for the accommodation of the aoceptors, upon condition that it shall be discounted at a particular bank, a purchaser of the bill before maturity, without notice of the secret agreementy is not affected by it, though he may have taken the bill in payment of a preexisting debt: Frank v. Quast, 86 Ky. 649. When a note is made or indorsed as accommodation paper with the understanding that it is to be discounted at a certain bank, or that money is to be obtained upon it in a particular manner, it is not a fraudulent misappropriation to discount it at a different bank, or to obtain money or credit upon it in a different way from what was intended. If the note effects the substantial purpose for which it was de sigued, it is not material that it was not effected in the precise manner con. templated, unless there is fraud, or the interest of the maker or indorser is prejudiced. In such case it is not a misappropriation to deposit the note as collateral security for letters of credit thus obtained, unless such act is a fraud upon the maker or indorser, or in some way injuriously affects his in. terest: Duncan v. Gilbert, 29 N. J. L. 521. If an accommodation note is given with an agreement that the payee is to deposit it temporarily as collateral security for a loan to be made to him, but instead of obtaining a new loan, with the note as collateral, he deposits it with a bank as security for money already owing by him to it, this is not a misappropriation, because the paper effects the substantial purpose for which it was designed, though the result is not produced in the precise mode contemplated; and in order to constitute a misappropriation, the misuse must be tainted with fraud: Jackson V. First Nat. Bunk, 42 N. J. L. 177. When a note is drawn, payable at a certain