New York Life Ins. & Trust Co. v. Cowperthwaite

18 F. Cas. 154

Opinion

BETTS, District Judge

(charging jury). In; a commercial community like ours, it is always important that questions arising in relation to commercial paper, should be settled on such clear, definite and distinct principles, that they may be a guide for practical, men in their business affairs. In the present case, the defence set up is, that the parties executed these papers merely as securities, and are to be considered but as sureties, and that as the plaintiffs did not proceed with that due diligence on the original debt which the law demands, they have lost their claim on the defendants.

The question thence arises, are the defendants to be held but as sureties ? As respects-Kimball, they are sureties, as between Kim-ball and the defendants no consideration was given for this note. But as regards the-plaintiffs, they are either sureties or principals, and this proposition presents the question which you are now to consider. Mm Kimball was- the only witness in the case,, and on his evidence there may be a doubt whether he dealt with the company, to have-his ownnotes discounted,and that afterwards-he should leave with them the notes of Cow-perthwaite & Lord, as collaterals, or that he-dealt with the company, on the understanding that they lent him the money on the notes of both parties. If it was on both-notes, then Kimball’s own notes were no more discounted than the notes of defendants. It was in that ease a loan on both the notes together, and either party could with equal propriety be called principals or collat-erals. And if the money was thus advanced on their notes, the holders of them could enforce payment on them. If when the money was advanced, it was understood that it was alike on the notes of Bailey, Keeler & Item sen and Cowperthwaite & Lord, then it was an original undertaking on the part of the defendants, and they are bound for the debt.

There is some little uncertainty upon the proofs as to the real character of the transaction. It appears at one time that Kimball was to have the discount on his own notes, and that he gave these notes as collateral security. But a further examination gave ground for belief that he received his loan on the foundation of both papers. If you find that it was a loan on both notes unitedly, then there is no question as to the nature of the security. It was an original undertaking. But if you find that it was a collateral security, then applies the question of law, are the defendants entitled to claim to themselves the privileges and immunities of sureties only? I think the rule of law settles that question, for although, as between Kimball and Cowperthwaite & Lord, they are but sureties, they cannot protect themselves, on that ground, against other persons who take the paper, unless they can bring home to such holder positive notice that they were only sureties in the transaction. If several persons sign a note as obligors, all but one, as between themselves, may be but sureties. Yet, if there is a loan given on the whole note, no claim to exemption as sureties can be maintained, unless they notify the pai-ties taking the paper that they were but sureties. And they must establish their right to exemption as sureties, by proving positive notice to the parties holding the paper. This relieves the question from all speculation or implication as to what the plaintiffs might have reasonably inferred, or understood respecting the origin and consideration of the note in question. It must be regarded as a valid operative paper against the defendants, at the time it was passed to the plaintiffs, inasmuch as no direct and positive notice was given them that it was intended only as security by the defendants and was given without consideration to them. You will therefore say, was the loan originally made on the paper of Kimball, and not on the paper of Cowperthwaite & Lord? If you find that this paper was received as collateral security, you must still find for the plaintiffs, on the ground that they had no direct notice that the parties were sureties only. If the court is under any error as to this point of law, it will be corrected on a review of the case, when moved by the defendants.

Tlie jury found a verdict for the plaintiffs for $0,011, and 6 cents costs; and they further found that the loan was made upon Warren Kimball's note, with Cowperthwaite & Lord’s notes as collateral securities.