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bank, and is indorsed for the accommodation of the maker, to enable him to raise money with which to purchase barley, and he then applies the note to the payment of a debt which he and another owe at a different bank, this is not such a diversion of the paper as will discharge the indorser, it not appear. ing that at the time of indorsing that the use to which it might be applied was at all important to him: Mohawk Bank v. Corey, 1 Hill, 513. When a note is indorsed by the payee to enable the maker to discount it at a bank for his accommodation, and the maker, upon being refused by the bank, discounts it to a third person, with knowledge of the circumstances, this does not amount to a fraud which can affect the rights of the holder against the indorser: Powell v. Waters, 17 Johns. 176; Bank of Chenango v. Hyde, 4 Cow. 567.
If an accommodation note is made payable to the accommodation indorser, to be discounted at a particular bank, but instead is sold to a private person, the indorsers thereon are liable, although the sale is made without their knowledge: Parker V. McDowell, 95 N. C. 219; 59 Am. Rep. 235. When a note is indorsed for the accommodation of the maker, to be discounted at a certain bank, it is not a fraudulent misapplication of the note to discount it at another bank, or to use it in the payment of a debt, or in any other way for the credit of the maker: Parker v. McDowell, 95 N. C. 219; 59 Am. Rep. 235. When an accommodation indorser agrees with the maker of a note that it is to be used only at a certain bank, and such bank, with notice of the agreement, advances money upon the note, and retains it as collateral security, it may then dispose of its claim against the maker, and transfer the note as col. lateral security therefor, and such transfer will not constitute a misappropriation as against the accommodation indorser: Proctor v. Whitcomb, 137 Mass. 303. When the maker of a note, indorsed for his accommodation for a special purpose, misapplied it, and transferred it before maturity as collateral security for a debt, part of which he afterwards paid, it was decided that the holder, taking it without notice of its misapplication, might recover of the indorser the unpaid balance of the debt for which it was pledged as security, but no more: Sloddard v. Kimball, 6 Cush. 469; Duncan v. Gilbert 29 N. J. L. 521. The fact that accommodation paper is made payable to a particular person or at a particular place does not, without more, prevent the person to whom it is intrusted, and for whose accommodation it is made, from obtaining the money from another. Unless the makers or indorsers have some interest beyond the mere accommodation of their principal, any person may assume that it is an accommodation to advance the amount of money the paper calls for. Thus when mere accommodation makers, having no interest beyond the accommodation of their principal, either in the mode of raising the money, or in the manner in which it is to be applied, siga a note made payable to a named person, the fact that without their consent the note is delivered to another without any alteration, who advances the money upon it, is not such a perversion of the paper as will defeat it in the hands of a holder for value: Meeker v. Shanks, 112 Ind. 207. It is not a good defense to an action by the payee against the makers of a note that such makers are gureties for the principal maker, and that after signing it they intrusted it to him upon the condition that he procure the signature of a designated person as an additional surety, and that he delivered the note to the payee without their knowledge or consent, and without complying with the condition. In such case it must also be averred and proved that the payee, before the delivery to him, had notice of the condition: Jordan v. Jordan, 10 Lea, 124; 43 Am. Rep. 294.
In order that misappropriation of the paper may be set up as a defense by the accommodation maker or indorser, it is generally necessary that the party acquiring it have notice of the restricted indorsement, and that the condition has not been complied with, and also that the perversion of the paper from the purpose intended by the parties has injuriously interfered with the interest of the maker or indorser. When this condition exists, the holder is not considered a purchaser for value, and cannot recover of the maker or indorser against whom the paper has thus been frandulently diverted. Thus when a bill of exchange, indorsed for accommodation, and delivered to the maker on the express condition that if it is not that day discounted by a particular bank, it is to be returned to the indorser or destroyed, and after the bank has refused to discount the bill, it is passed to another, with notice, to pay an existing debt, this is such a perrersion and misappropriation of the paper as releases the indorser: Hickerson v. Raiguel, 2 Heisk. 329. When a note is signed by a number of persons, it having a condition attached to it, in writing, that before its delivery ten solvent persons should sign it, and it is delivered after the condition has been complied with, and detached from the note, the party taking it with knowledge of the condition also takes the risk of the solvency of such signers, and cannot hold the in. dorser, unless the condition has been complied with: Campbell Printing Press etc. Co. v. Powell, 78 Tex. 53. When a note is indorsed in blank, and left with a third person to be signed by the maker and used for a particular pur. pose, and the maker takes it from the depositary without his knowledge, fills it up, and gives it to third parties with notice of the condition, this is such a frand on the indorser as will release him: Lenheim v. Wilmarding, 55 Pa. St. 73. When an accommodation note is designed to be discounted for the purpose of taking up other paper of the person giving the accommodation, or is otherwise intended for his benefit, a failure to have it thus used is a misappropriation. Thus when a note is indorsed for the accommodation of the maker, and delivered to him to be used in renewal of another note indorsed by the same party, and about to fall due, and it is transferred by the maker in payment of another debt existing against him, it cannot be enforced against such indorser by the creditor taking it with notice of the condition: Wardell v. Howell, 9 Wend. 170; Kasson v. Smith, 8 Wend. 436 If the holder of such paper misappropriates it with notice, he will be bouna to reimburse the party whose name is misused for any resulting loss: Com. stock v. Hier, 73 N. Y. 269; 29 Am. Rep. 142. When a pledgee of a note is made a garnishee, he cannot defend on the ground that the note is accommodation paper, pledged for a specific purpose, and not to be enforced against the maker for any other purpose, as such defense can be resorted to by the drawer only when sued upon the note: Kirkpatrick v. Oldham, 38 La. Ann. 553. When the payment of accommodation paper is resisted on the ground that it has been misappropriated, and diverted from the purpose for which it was intended, the burden of proof is generally upon the maker or indorser to show such misappropriation, because the holder is presumed to be a bona fide purchaser for value: Mailland v. Citizens' Nat. Bank, 40 MU. 540; 17 Am. Rep. 620; Jordan v. Jordan, 10 Lea, 124; 43 Am. Rep. 294; Hall v. Thayer, 105 Mass. 219; 7 Am. Rep. 513; Gray v. Bank of Kentucky, 29 Pa. St. 365. After such diversion is shown, however, the burden of proof is then upon the holder to establish that he is, or has succeeded to rights of, a bona fide holder for value and without notice: Farmers' Nat. Bank v. Nicon, 45 N. Y. 762; Schepp v. Carpenter, 51 N. Y. 602-604.
Rights of Accommodation Makers and Indorsers. — As has been elsewhere stated in this note, accommodation indorsers of negotiable instruments are not co-sureties as between themselves, nor liable to contribution, in the abo seuce of an understanding between them to that effect before or at the time of the indorsements. A subsequent understanding, in the absence of a new consideration, will not support an action for contribution by a prior against a subsequent indorser: Druhe v. Christy, 10 Mo. App. 567; McGurk v. Huggett, 56 Mich. 187. When the last indorser has to pay the note, he can recover the whole amount from his predecessors, and from the maker: McGurk v. Huggett, 56 Mich. 187. When two indorsers on a note become such for the accommodation of the maker, the first indorser is liable to the second, and when the latter pays and takes up the note, he becomes a holder for value, and entitled to indemnity from the former: Kelly v. Burroughs, 102 N. Y. 93. An accommodation indorser is not a surety in such sense as to enable him to discharge hiinself from liability on a note by proving a request to the holder to enforce payment of the maker, the neglect of the holder to do so, the sol. vency of the maker when such request was made, and his subsequent insol. vency: Converse v. Cook, 25 Hun, 44. One who indorses a note before delivery, with the intention of assuming the liability of an indorser, in order to give the principal in the note credit with a bank, is liable as an indorser, and not as a surety, and the failure of the bank to give notice of the dishonor of the note results in the discharge of such indorser. In such case it is not mate. rial that the bank and the maker of the note intended that the indorser should be bound as surety, unless there was an agreement to that effect with the indorser: De Pauw v. Bank of Salem, 126 Ind. 553. When the holder of accommodation paper has recovered judgment thereon against the maker, and holds sufficient of the property of the latter under levy to satisfy the note, but releases the levy without applying such property to the satisfaction of his judgment, an accommodation indorser on such paper is thereby released from liability: Priest v. Watson, 75 Mo. 310; 42 Am. Rep. 409; Capital Savings Bank v. Reel, 62 Cal. 419. Indulgence by the holder of accommodation paper to the payee thereof, without the consent of the indorser, granted for a consideration, will discharge the latter: Hall v. Capital Bank, 71 Ga 715. One who is liable on a note cannot, after paying it, recover the sum so paid from one who has indorsed the note for his accommodation: Grabbe v. Bosse, 10 Mo. App. 492. When the payee of accommodation paper, or a person discounting it with knowledge of the purpose for which it was made, has been guilty of usury, this defense is open to the accommodation maker or indorser: Tufts v. Shepherd, 49 Me. 312; Keim v. Bank of Penn Township, 1 Pa. St. 36.
Accommodation bills and notes are subject to the general rule that one tak. ing overdue negotiable paper takes it subject to all equities: Bacon v. Harris, 15 R. I. 599. An accommodation indorser of a note, who takes it up at matu. rity without notice of any infirmity, and in discharge of his own debt to the holder, or in consideration of his own note given therefor, may recover the amount of the note taken up from the maker thereof: Breckinridge v. Lewis, 84 Me. 349; 30 Am. St. Rep. 353. An accommodation indorser may withdraw his indorsement at any time before the note is discounted, unless rights for a valuable consideration have in the mean time attached in others: Second Nat. Bank v. Howe, 40 Minn. 390; 12 Am. St. Rep. 744; and after it has been negotiated, such indorser's liability is limited to the amount advanced in good faith by the holder: Berkeley v. Tinsley, 88 Va. 1001. An accommodation indorser of a note, transferred to a bank as collateral security for rent due and to become due, cannot be held liable for rent subsequently accruing un. der a new lease, when the bank has notice of the nature of the transaction and of the intention of the parties: Continental Nat. Bank v. Bell, 125 N. Y. 38. An accommodation indorser who receives no benefit therefrom may defend against a bona fide holder of the indorsed note on the ground that he was non compos mentis at the time of the indorsement, although the holder had no notice of the indorser's lunacy at the time of the transfer: Wirebach v. First Nat. Bank, 97 Pa. St. 543; 39 Am. Rep. 821. One who has discounted negotiable paper for the maker cannot be compelled by the accommodation indorser to resort to collaterals belonging to the maker in his hands before resorting to him, although the indorser relied upon the collaterals in making such in. dorsement, although the holder knew of his reliance, and that the indorse. ment was for accommodation, and the proceeds were applied by the holder to payment of other paper of the maker, and other parties are in the same situation with the indorser. The remedy of the indorser is to pay the paper and demand and enforce the security: First Nat. Bank v. Wood, 71 N. Y. 405; 27 Am. Rep. 66. An accommodation indorser of a note is entitled to be subrogated to all the rights and remedies of the maker, if the note was given in payment of a machine warranted to accomplish certain purposes, which warranty has wholly failed, if the holder of the note acquired it after maturity, with notice of the warranty and of its breach, and the maker is insolvent: McDonald Mfg. Co. v. Moran, 52 Wis. 203.
By Corporations.— The indorsement of negotiable paper for accommodation is not a necessary incident to the business of a corporation, and unless such transaction is authorized by its charter, such indorsement is unlawful and ultra vires, and the corporation is not liable thereon: National Bank v. Wells, 79 N. Y. 498; Bank of Genessee v. Patchin Bank, 13 N. Y. 308; Morforil v. Farmers' Bank, 26 Barb. 568; Bridgeport City Bank v. Empire Stone Dressing Co., 30 Barb. 421; Savage Mfg. Co. v. Worthington, 1 Gill, 284. Unless ex. press power is granted, a corporation cannot execute accommodation paper; and such paper, if executed, is void in the hands of the assignee: Smead v. Indianapolis etc. R. R. Co., 11 Ind. 105; or payee; and the corporation cannot ratify such note after execution by its officers, so as to create any liability in the hands of the payee against the corporation: Hall v. Ako burn Turnpike Co., 27 Cal. 256; 87 Am. Dec. 75. A banking corporation, whether state or national, has no authority to make an accommodation in. dorsement, in the absence of express power granted in its charter to that of. fect: Bank of Genessee v. Patchin Bank, 13 N. Y. 308; National Bank v. Wells, 79 N. Y. 499. The general powers of a manufacturing corporation give it no authority to indorse accommodation paper: Lafayette Savings Bank v. St. Louis Stoneware Co., 2 Mo. App. 299. An accommodation indorsement made by a corporation is not binding upon it, unless the note has been dis. counted in good faith by the party holding it, in consequence of repre. sentations made by the corporation that it was its own note: Morford v. Farners' Bank, 26 Barb. 568; Bridgeport City Bank v. Empire Stone Dressing Co., 30 Barb. 421. When a corporation is authorized to make notes in its business, but exceeds its power in making an accommodation note, such note will be good in the hands of a bona fide holder, on the principle that other. wise the general power of making and transferring notes thus abused would leave a bona fide holder without means of information as to such abuse. Thus the accommodation note of such corporation, in the hands of a holder in good Alth, for value, who takes it before maturity, and without knowledge that the maker has not received full consideration, can be enforced against the
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corporation: Monument Nat. Bank v. Globe Works, 101 Mass. 57; 3 Am. Rep. 822; Bird v. Daggett, 97 Mass. 494. When the corporation has exceeded its power by making an accommodation note, this defense is admissible under the general issue, and need not be specially pleaded: Hall v. Auburn Turnpike Co., 27 Cal. 255; 87 Am. Dec. 75. But the burden of proof to show that such paper was taken with notice that the corporation had no authority to make or indorse it lies on the defendant in a suit on the note: Lafayette Savings Bank v. St. Louis Stoneware Co., 2 Mo. App. 299.
By Agent. — A general power given an agent to make or indorse notes or bills on behalf of his principal will not warrant the agent in putting the name of his principal to paper for the accommodation of the agent or a third person, and the principal will not be bound, in the absence of express author. ity in the agent to make or indorse accommodation paper in the name of his principal: German Nat. Bank v. Studley, 1 Mo. App. 260; Ætna Nat. Bank v. Winchester, 43 Conn. 391; Stainer v. Tysen, 3 Hill, 279; Bank of Hamburg v. Johnson, 3 Rich. 42; Wallace v. Branch Bank of Mobile, 1 Ala. 565; Gulick V. Grover, 33 N. J. L. 463; 97 Am. Dec. 728. In the case last cited, Depue, J., in delivering the opinion of the court, said: “I take the rule to be well settled, that the authority to sign accommodation paper, or as security for a third person, must be specially given, unless the authority of the agent is one of universal agency, and will not flow from any general authority to transact business for the principal. The making of accommodation paper, or the loan of one's name as security for another, does not fall within the ordinary business in which persons engage. The authority to use a princi. pal's name for that purpose is not established by proof of an agency, how. ever general, in the transaction of the principal's business, even though in connection with such business it be shown that the agent was authorized to make notes in the name of his principal. To validate such paper, it must be shown that the agent was authorized to make use of his principal's name for that purpose, and his authority must either be express, or implied from proof that he was accustomed, with the principal's consent, to use his name for the accommodation of others. An agent who is authorized to draw and indorse notes, and to draw, indorse, and accept bills of exchange, can act ander such authority only to the extent of his principal's business, and is not authorized to draw, indorse, or accept them for the accommodation of mere strangers”: Gulick v. Grover, 33 N. J. L. 467; 97 Am. Dec. 728. Yet when a note or bill is made or indorsed by an agent in the name of the principal for the accommodation of such agent or a third person, with the consent of the principal, or with his subsequent ratification, the principal is liable: German Nat. Bank v. Studley, 1 Mo. App. 260; Gulick r. Grover, 33 N. J. L. 467; 97 Am. Dec. 728. Thus when a note is made or indorsed by an agent with the consent of his principal for the purpose of taking up paper upon which the latter is already liable as an accommodation indorser or maker, the principal is bound: German Nat. Bank v. Studley, 1 Mo. App. 260.
By Partners. — The power of partners to bind one another by commercial paper does not extend to indorseinents or other contracts for the accommodation of a third persou. Hence the rule is well settled that when one member of a partnership becomes an accommodation maker or indorser, for • the benefit of a third person, in the name of the firm, without the assent, express or implied, or the subsequent ratification of his copartners, such paper cannot be enforced against them or the firm by a holder who takes it with knowledge of its accommodation character: Austin v. Vandermark, •