Stephens v. Monongahela National Bank

Mr. Justice Trunkey

delivered the opinion of the court, January 6th 1879.

The maker of a negotiable note undertakes to pay it, according to its tenor, to any holder to whom it may be due. An accommodation maker is equally liable, except to the payee. In respect to thir,d persons the law considers him just in the character he has assumed, and will not permit him to allege that the paper to which ho gave his name w'as an imposition, nor to gainsay its reality by proof that it wras a fiction. It shall be taken pro vertíate that he was the drawer, for da vertíate that was the very thing he was intended to be: Bank of Montgomery County v. Walker, 9 S. & R. 229. “ We assume this broad principle that the man who draws a promissory note for the purpose of negotiation, must stand by it. He has placed himself in the situation of a principal, and shall not escape by alleging that he was a surety” : Walker v. Bank, 12 S. & R. 382. The fact that the holder knew he had received no value will not relievo him, for, by placing himself in front, the holder had a right to suppose that he was willing to abide the consequences : Id. The payee of an accommodation note may sell or discount it, or pledge it as collateral security for an antecedent debt, for he has a loan of the maker’s credit without restriction: Appleton v. Donaldson, 3 Barr 381.

By endorsement of a negotiable note, without qualification, the endorser promises that if the maker and previous endorsers do not pay it at maturity, when duly called upon and notified, he will, and this promise is to his immediate endorsee and every subsequent one. The endorsee of accommodation paper takes more than the rights of the payee, and can recover of the maker because the note was given for this very purpose. So is an accommodation endorser liable to subsequent endorsees. The principle is a general one that the person making or endorsing a negotiable note, for the benefit of another, is liable to a third person, even with notice of the want of consideration, but is not to the person for whose benefit the paper was signed: 2 Pars, on Bills and Notes 27; Byles on Bills 237.

An endorser is something more than a surety, and is liable in the first instance as a drawer. As between maker and endorsers the relation of principal and surety exists, and each prior party is a principal for each subsequent party. In an action by one who has paid the holder, extrinsic evidence may be admissible to show that the maker, in fact, is surety for the endorser. Every surety for another is discharged from this secondary obligation if the creditor does not hold the principal debtor to his primary obligation with proper strictness. The rights and duties of endorsers and sureties are so alike that most acts which will discharge the one will also the other. But there are some distinctions important to observe lest a principle, exclusively applicable to one, be perverted. For instance, without due demand and notice, at the maturity of a note, an endorser will bo discharged — a surety continues liable upon his contract, though the creditor sleeps. A surety may spur the creditor into activity by notice to pursue the principal debtor, on pain, for neglect, that the surety will be no longer bound — not so an endorser. The latter cannot call upon the holder of a protested note to sue the drawer, and, if he refuses, thereby relieve himself, for, if he wishes instant recourse to the principal, it is his duty to pay the note and sue for himself: Beebe v. West Branch Bank, 7 W. & S. 375.

It is well settled, sustained by authorities cited by counsel for plaintiff in .error, that when the property of the principal has been taken in execution by the creditor, the lien thus acquired cannot be i relinquished without discharging the surety, to an extent corresponding with its value. It is more than doubtful that, in Pennsylvania, such result would follow a withdrawal of the execution before levy, though it was once so held in England. The distinction between the lien of the writ and lien of the levy seems to be that the latter is a technical satisfaction of the'.judgment. But it is now settled that if a judgment-creditor relinquish his levy upon personal property, leaving the same with the debtor, his debt is not paid, nor the lien' upon the debtor’s land postponed to a junior judgment. He may leave the goods in the debtor’s hands, release his levy and abandon his writ, without affecting his right as an older lien-holder, to claim the proceeds of sale of the debtor’s land. Only when the goods, by the seizure, have been lost to the debtor, is the judgment satisfied: Campbell, Bredin & Co.’s Appeal, 8 Casey 88.

Long kept his goods, and no part of the judgment against him was satisfied by relinquishing the levy and staying the writ. Were he the principal debtor, his surety might be released because of the creditor’s duty to hold the levy for benefit of the surety. A barren levy is no payment in fact, and a levy of the goods of a surety, given up, is no bar to recovery against the principal. Stephens stands just as he placed himself upon the face of the note, and indulgence to the payee, who endorsed it, will not prejudice the holder. A composition accepted from the endorser would not relieve the maker farther than the sum paid to the holder: Love v. Brown, 2 Wright 307. It follows that the offers of testimony, B, C and E, were rightly rejected.

It was earnestly pressed that the court erred in rejecting the offer to prove an agreement between the bank and Israel Stephens, to violate section 5200 of the Revised Statues U. S., which declares that “ the total liabilities to any association of any person, or of any company, corporation, or firm, for money borrowed, including, in the liabilities of a company or firm, the liabilities of the several members thereof, shall at no time exceed one-tenth part of the amount of the capital stock of such association actually paid in and that the loans, in pursuance of said agreement, were in excess of the authority and power of the bank to make. No principle is better settled than that an action cannot be maintained on a contract, the consideration’ of which is either wicked in itself or prohibited by law. This has been often discussed, and recently in an able opinion by the present chief justice, in Fowler v. Scully, 22 P. F. Smith 456, a case relied on in support of the offered testimony. Not stopping to remark upon the rule, nor upon distinctions between cases within and without, we come to consideration of the statute to ascertain if the alleged agreement prevents recovery of the money loaned.

The powers conferred on banks must be distinguished from regulations for their business. An act done without authority, and forbidden, is not„ like one which violates a regulation. In Fowler v. Scully the action was upon a mortgage, showing on its face that it was taken to secure loans to be made, and “ to avoid the necessity of procuring the additional endorsement to said paper of a third party.” It was held that, 1. Under section 5736 banks have power to loan money on personal security, but not upon other; 2. Section 5137 authorizes them to take mortgages to secure debts previously contracted; 3. They are prohibited, by necessary implication, from lending money on the security of a mortgage. The reasoning in support of these conclusions seems unanswerable, yet so close was that case to the border beyond which a contract will not be held void for illegal consideration, that two-fifths of the judges believed it on the other side and dissented from the judgment. Here the note was in the power of the bank to take, and the security was personal. Nothing on the face of the note, nor in the plaintiff’s evidence, shows a taint of illegality. It appears as clear as any transaction within the conceded powers of the bank. The statute has many provisions for regulation of banking business. Some sections, as 5197 and 5198, relating to interest, contain clauses of forfeiture and penalty for violation. But everywhere it has been held that the bank may recover the money actually loaned upon a usurious contract. Other sections, as 5201 and 5208, for violation, subject the bank to appointment of a receiver. Nearly all the sections, including 5200, relating to liabilities of any one person to the bank, are vindicated by the provisions in section 5239, which declares that a wilful violation of any provision, shall forfeit the rights, privileges and franchises of the association. Such violation can only be determined by suit brought by the comptroller of the currency in the proper court of the United States. And in case of such violation, every director who participated in or assented thereto, shall be personally liable for all damages, in consequence of the violation, sustained by the bank, its shareholders or any other person. Until the forfeiture be determined, in the mode provided, the bank may do business; and no person by a conspiracy to evade its regulations, may escape liability for borrowed money, loaned by the bank, upon personal security in the manner authorized. In O’Hare v. Second National Bank of Titusville, 27 P. F. Smith 96, it was said, per Aunew, C. J.: “ Evidently the limitation of the indebtedness to the one-tenth in the 29th section (5200 R. S.), was intended as a general rule for conducting the business of the bank ; a rule laid down from experience to regulate its loans for its own best interest, and those of stockholders and creditors, not a rule to regulate its customers. It was, as remarked in Fowler v. Scully, a regulation to prevent these .associations from splitting on the rock which has ruined so many banks, to wit, that of lending too much of their capital to one person or firm. The intention being to protect the association and its stockholders and creditors from unwise banking, we cannot suppose it was meant to injure them by forbidding recovery of the injudicious loans. We should not interpret the section so as to carry its prohibition beyond its true purpose, and thus cause it to destroy the very interest it intended to protect by regulation. To do so would be, as said by the court below, to demand a penalty in favor of one individual for an offence against the country, and invite to dishonesty under a.pretence of a regard for the law.” If this language was not strictly necessary to disposition of that case it is apposite here, and demonstrates that a contract purposely made in evasion of that section is not void. Of course, we have considered the offer as true, namely, that there was a conspiracy between the bank and the borrower to violate the statutory regulation. The question is whether the note is invalid on general principles of policy, and not one of equity and justice between the parties. The public good is the ground of relief to a defendant who'proclaims his own turpitude in the wilful violation of a statute, and his shame in refusing payment of what he justly owes — not his worthiness. The bank is treated as a conspirator, but the fact is unmistakable that it was.its officer. It is not the intendment of the statute to provide a way by which an unfaithful officer and dishonest stranger may empty the vaults of the bank, work its ruin, to the great loss of its shareholders and creditors, and the receiver of its money, wrapped in the mantle of public policy, escape liability.

Error is assigned- to the rulings of the court limiting set-off of excess of interest, paid on other transactions, to a period within six years preceding the trial. While it may be true, that neither time nor contract will sanctify or legalize the taking and holding of usurious interest by a national bank, it is just as certain that the remedy for the owner to recover it back is -by a personal action'. The right of action accrues the very instant the usury is paid. That it is barred in six years by the Act of 27th March 1718, is too plain for remark. It is difficult to imagine a case where the statute does not begin to run from payment of the usurious money, for the owner almost necessarily has knowledge of the facts from the first. In case of fraud the statute runs from its discovery. Not a tittle was shown to toll the" statute, at law or in equity.

The rulings of the learned judge upon the question of jurisdiction need no vindication. They accord with the doctrine in Bletz v. The Columbia National Bank, 6 Norris 87.

But one other point requires special notice. Since this cause was tried in the court below, it has' been decided- that -where there has been a series- of renewal notes given to a national bank, for the continuation of the same original loan, and the bank sues to recover its debt on the last, the borrower is entitled to credit for all the intcest he has paid from the beginning, on the loan, and not merejy to the excess above the lawful rate. All interest paid, or charged and put into the notes, must be credited: Overholt v. National Bank of Mt. Pleasant, 1 Norris 490; Cake v. Bank, 5 Norris 303. Nothing can be added to the opinion of Sharswood, J., in Overholt v. The Bank. The rulings upon offers of testimony, answers to points and charge, so far as inconsistent with the principles of that case, are erroneous. And for this

Judgment reversed, and a venire facias de novo awarded.