Opinion
Argued December 17, 1879
Decided January 13, 1880
Samuel Hand, for appellants.
A.D.L. Baker, for respondent.
The referee finds that the three notes made by the Burrs on the 4th day of October, 1875, were indorsed by the defendant Wells, for the accommodation of the makers to take up other notes for about the same amount previously indorsed by him, and with the understanding and direction to the Burrs when the indorsements were made, that the notes should be used by them to pay and take up the prior paper. This paper consisted of four notes made by the Burrs, viz.: two notes of $1,000, each, discounted and held by the plaintiff; one of $2,000, held by a New York bank, and the note of $2,400, upon which this action is brought. One of the $1,000 notes was past due; the other matured on the eighth of October. The $2,000 note was also to mature in a short time. The $2,400 note was dated August 9, 1875, and became due October 12, 1875. The Burrs within a few days after its date delivered it to the plaintiff's cashier, who indorsed it, and at their request procured it to be discounted by the First National Bank of Albany, the plaintiffs receiving from the Burrs as a compensation for procuring the discount, and for the loan of its credit, by indorsing the paper, a sum equivalent to five per cent per annum, on the amount of the note. The Albany bank discounted the note at the usual rate, and the result of the transaction was that the Burrs paid at the rate of twelve per cent per annum for the money received on the discount of the paper. The $2,400 note was protested, and soon after was taken up by the plaintiff, and this action was subsequently brought thereon. The plaintiff at the time of the indorsement by the defendant Wells, of the notes made October 4, 1875 held in addition to the paper already mentioned, notes of the Burrs past due, indorsed by one Johnson. Johnson failed a few months after that date, and the inference from the evidence is, that he was then irresponsible. The Burrs after obtaining the indorsements of Wells upon the paper of the fourth of October, on the same day in violation of their agreement with Wells and of his direction to use the paper only for the purpose of retiring the paper upon which he was already liable as indorser, delivered two of the notes amounting in the aggregate to $4,500 to the plaintiff who discounted them, and by the direction of the Burrs applied about $3,500 of the proceeds to the payment of the Johnson paper held by the bank, and the balance to pay the past due note of $1,000, indorsed by Wells.
It is undisputed that so far as the notes were used to take up the Johnson paper, it was a clear diversion of them from the purpose for which they were indorsed, and a fraud upon the defendant Wells. It was a controverted question on the trial, whether the bank when it took this paper was informed or knew of the special purpose for which it was indorsed, or of the restriction placed by Wells upon its use. The referee finds that the bank had notice that Wells was an accommodation indorser of this paper, as well as of all the paper then held by or which had passed through the bank. The Burrs testified that the plaintiff's cashier was informed when the two notes were discounted, that the notes upon which Wells was indorser, were to be paid out of the proceeds of the discount. This was denied by the cashier. The circumstances certainly might naturally have suggested to the bank, that Wells being accommodation indorser on the paper of the Burrs, some of which was lying over past due, and the balance of which was about maturing, intended that the new paper should be used for the purpose of retiring the outstanding paper upon which he was liable. But the referee has found adversely to the defendant Wells on the question of notice, and we cannot interfere with this finding. Wells has paid all the paper indorsed by him on the fourth of October. The bank has thus been enabled contrary to the intention of Wells to secure the payment by him of the Johnson paper, practically unsecured, and with which Wells had no connection, to the amount of $3,500.
But the question remains whether the note in suit was not paid in whole or in part by the subsequent transaction between the Burrs and the bank. The third of the notes indorsed by Wells on the fourth of October for $2,000, was received by the plaintiff from the Burrs' on or after the fifth of October, and the plaintiff procured it to be discounted on its indorsement, and the proceeds were credited to the Burrs' account in the bank, on the twenty-eighth of October. The precise day on which the bank received this note is not found by the referee, and is left by the evidence in doubt. The defendant R.D. Burr testifies that he left it with the acting cashier on the fifth of October with directions to apply the proceeds towards taking up the Wells paper, and informed him at that time that the balance lacking for this purpose, he would have at the bank by the twelfth. The acting cashier denies positively that this note was left with him on the fifth. He admits that Burr brought paper to the bank on that day, but says he took it away with him. The cashier of the bank testifies that he presumes the note was left at the bank on the twelfth. That, it will be observed, is the day on which the note in suit would become due. The precise day the bank received the note is not perhaps very material. But I do not understand that there is any denial in the case of the testimony of Burr that he informed the acting cashier when he left the note, that the proceeds were to be applied to take up the Wells paper. There is no evidence that this direction was ever revoked. The proceeds of this note, as has been said, were credited to the Burrs on the twenty-eighth of October. It does not appear that at that time the bank held any paper of the Burrs except the note in suit. The second $1,000 note held by the bank was paid. The time of payment does not distinctly appear, but it does appear that it was not paid out of the avails of this discount. On the third of November, the Burrs drew a check on the plaintiff for $2,731.62, payable to "notes, etc., or bearer." No money was paid the drawers, and the plain inference from the transaction is that it was given to pay obligations held by the bank against them. The proceeds of the discount of the note credited to the Burrs on the twenty-eighth had so far as appears never been drawn out, and were still liable to their draft, when the check of November third was drawn. The plaintiff gave no proof to rebut the natural inference from the circumstances that this check was intended to pay the note in suit. The note of October fourth from which the credit to the Burrs on the twenty-eighth was derived, was indorsed by the defendant Wells for the express purpose of taking up this paper. The Burrs when the note was delivered to the plaintiff, directed that the proceeds should be so applied. In the absence of evidence of any right in the plaintiff to make a different application, or of any different application in fact, we think the presumption is that the note in suit was paid by the check of November third, and that the issue of payment should upon the facts presented have been found in favor of the defendant Wells. The case does not very clearly present the exception raising this question, but it was assumed on the argument that it was involved, and I am of opinion that it can properly be considered under some of the exceptions to the findings, and refusals to find made by the learned referee.
The counsel have elaborately argued another question, viz.: whether a national bank can loan its credit, and become an accommodation indorser of a promissory note. If material to the decision of this case I should have no hesitation in denying this proposition. Such a transaction as is here disclosed on the part of the plaintiff, is clearly outside of its corporate powers. If a bank may charge a compensation for loaning its credit, and procuring another bank to discount the paper of its customers, it would practically abrogate all restraints imposed by the usury clauses, in the national bank act. It will be easy, if the practice can be sustained, for banks, by a course of friendly and reciprocal dealings, to obtain from needy borrowers under the guise of commissions for indorsing, any rate of interest which they may see fit to exact. But it is unnecessary to decide whether this matter constitutes a defense.
The judgment must be reversed on the ground that the evidence unexplained, established a payment of the note in suit, and I think the proper conclusion is to reverse the judgment and grant a new trial as to all the defendants.
All concur.
Judgment reversed.