
    The Madison Square Bank, Resp't, v. Warham N. Pierce, App’lt.
    
      (Supreme Court, General Term, First Department,
    
    
      Filed December 31, 1891.)
    
    Bills and notes—Part payment by endorser.
    The holder of commercial paper may collect the entire amount against the maker, although a part payment has been made by the endorser. In such case the plaintiff will hold the excess as a trustee for the benefit of the endorser.
    Appeal from a judgment recovered at the circuit on trial before the court.
    
      David Keane, for app’lt; J. Delahunty, for resp’t
   Daniels, J.

The judgment which has been recovered is for the full amount of a promissory note made by the defendant to the order of himself for the sum of $1,000, payable at the Madison Square Bank in six months from the 23d day of January, 1889. This note was endorsed by him and transferred to the L. M. Bates Company, which company before the maturity of the nóte, and for value, endorsed and delivered it to the plaintiff. After that the L. M. Bates Company became insolvent and a receiver of its property and effects was appointed and duly qualified, and took possession of all the assets of the company. The note, together with other claims, were presented to the receiver, and under orders made by the court he paid to the plaintiff 73J per cent of the amount due upon the note. And that payment was relied upon by the defendant as a defense to the extent to which it had been made. But this defense was overruled, and the amount of the note was held to be recoverable by the plaintiff.

Whether this was a correct application of the law to the facts of this case upon principle, certainly admits of some doubt. For by the payments which the receiver made, a right of action vested in him to recover from the maker of the note this sum of 73¿ per cent. It was a right of action entirely independent of the plaintiff, and capable of being- enforced by him against the defendant. And this view was adopted and followed by early cases decided by the English courts. Bacon v. Searles, 1 Henry Black., 88; Hemming v. Brook, 1 Carr. & Marshman, 57; Pierson v. Dunlop, 2 Cowp., 571, and Wolwyn v. St. Quintin, 1 Bos. & Pul., 652, which however is not a decisive authority in support of this positian. These cases, and the others bearing upon the same point, were fully considered in Jones v. Broadhurst, 9 Manning, G. & S., 173. And the conclusion was there maintained, in view of all the preceding decisions, that a defense of this nature was not available to the maker of a note or the acceptor of a bill of exchange. But that, notwithstanding the payment, the holder of the paper was still entitled to proceed against the principal debtor and recover the full amount for which the obligation had been created. And as a result of that recovery the plaintiff would hold the excess, beyond that due upon the paper, as a trustee for the benefit of the endorser by whom the payment had been made. The principle is somewhat arbitrary, it is true, but it was considered to be the fair result of the authorities applicable to this subject. And it was not disaffirmed in Thornton v. Maynard, L. R., 10 C. P., 695. The circumstances in that case were peculiar, and the court there held the plea to be good as an equitable defense on account of the equities which had vested in the defendant In Goodwin v. Cremer, 16 Eng. Law & Eq., 90, the same principle is applied. But in that case the question was disposed of more as a matter of pleading than otherwise. And it was followed in Kemp v. Balls, 28 Eng. Law & Eq., 498, where, however, the suggestion was made in the course of the discussion that the amount paid might be proved by way of mitigation of damages. And this it was also held might have been proved in Wattles v. Laird, 9 Johns., 326. But that was in favor of a surety in an action upon a bond given on the arrest of the debtor, and for that reason it has no special application to this controversy. And Agra, etc., Bank v. Leighton, L. R., 2 Exch., 56, so far as it extends, is in the same direction. And a quite similar view of the law was expressed in President, etc., v. Hazard, 13 Johns., 352.

The existence of this legal principle followed at the trial has also been assumed in 2 Parsons on Notes, etc., 218, where the author has collected the cases bearing upon it in a note to the ■statement of it. And a like conclusion of the law has been stated in 2 Daniel’s Neg. Inst., § 1237. And the authority, although not without conflict, appears now to be sufficient to entitle the holder of commercial paper to collect the entire amount against the principal debtor although a part payment may have previously been made by an endorser to the holder. And this right is not inconsistent with § 449 of the Code of Civil Procedure, requiring every action to be prosecuted in the name of the real party in interest. Eor the exception to that requirement has been made that a trustee of an express trust may sue without joining the person for whose benefit the action is prosecuted. And a person with whom or in whose name a contract is made for the benefit of another is a trustee of an express trust within the meaning of this section, and that appears to include this obligation. For the contract of the defendant held by, and under the circumstances made with the plaintiff, was not only for its own benefit, but also for the benefit'of the endorser by whose endorsement the paper was transferred to the plaintiff'. The judgment in the action, therefore, appears to be sustained by the law, and it should be affirmed.

Van Brunt, P. J., concurs.

Barrett, J.

I concur in the conclusion arrived at by Mr, Justice Daniels. The precise question to be here determined depends for its solution in the first instance upon the effect of the defendant’s answer. Under this answer the equities as between the plaintiff and the endorsers are not in the case. We have simply to decide, therefore, whether a part of the note has been paid to the plaintiff by the defendant or on his behalf. Nothing-of the kind is set up in the answer. The defendant says that the plaintiff has received seventy-three and one-fourth per cent of the-note and that there is only due it on account of said note twenty-six and three-fourths per cent thereof. But-he does not aver that this per centage was received from him or from some one who-paid it on his account.

The averment, therefore, is not a plea of payment pro tanto, and it is irrelevant to say that the plaintiff has received a part of the note without adding that it was so received from the defendant or from some one who made the payment on his behalf. The answer was demurrable and no other judgment could have been rendered upon such a plea than that which was rendered. But even if the matter set forth in the agreed statement of facts had been pleaded, the defendant’s case would not have been helped. For it thereby appears that the payments made by the receiver of the-endorsers were made, not by or on behalf of the defendant, but on account of their independent contract. The payments were so made not because the maker was liable therefor, but because the endorsers were themselves liable therefor. Such payments-were not upon account of the maker’s primary obligation, nor can the maker take advantage of such payments to relieve himself from his distinct contract obligation to the holder. It is true that-the endorsers upon payment under their contract have a right of action over against the maker. And it may be asked, how then can the holder have a right of action against the maker for the-full amount of the note ? And how can the holder under any circumstances be allowed to recover from any one more than the amount of his note ? There need be no inconvenience in these particulars, and the logic of the legal situation may be preserved without subjecting the makers to payment twice or permitting the holder to receive more than his due or frustrating the endorser’s action over. In the 'first place, payment to the holder by the maker fully extinguishes the latter’s obligation. In the nature-of things this must be so, and that too although the endorser may have previously paid-a part of the amount due.

If the endorser has paid such part and is unwilling to permit, the holder to collect from the maker the part so paid as well as. the remainder, he has his direct action against the maker and the latter can interplead the bolder and bring the whole amount of the-note into court for equitable division. Whether the maker be ued by the holder or by the endorser, he can interplead the other party and bring the whole amount of the note into court, thus at one and the same time satisfying the holder for the whole amount due on the note and the endorser for the amount paid thereon by him. The right of the holder to sue for the whole amount of the note is not affected by the rule of the Code which requires all actions' to be brought in the name of the real party in interest. The holder is not a trustee for the endorser when, after part payment by the latter, he proceeds against the maker for the whole amount of the note. It is true that after he has collected the whole amount, the law implies a trust obligation to re-pay to the endorser the amount of his previous payment. In that sense, he holds part of the money collected as trustee for the endorser. But as between the holder, as plaintiff in the action, and the maker as defendant, the action is not brought by a trustee but by the owner of the paper. And as such owner he is the real party in interest.

Any other view of this relation overlooks the true nature of the original contract and the obligations which the maker and endorser respectively assume. Besides, it has been repeatedly held that.he who holds the legal title to the instrument is the real party in interest and that the defendant has no right to show the equities under which the transfer was made or otherwise to prove that the recovery would be for the benefit of some one other than the plaintiff in whom the legal title is vested. I agree therefore with Baron Cresswell in Jones v. Broadhurst, cited by Mr. Justice Daniels, that “ the only question in which he (the defendant) has any interest is whether the party seeking to enforce payment by him is the legal owner of the bill and whether recovery by and payment to such party will enure as a satisfaction and absolute discharge of his liability upon the bill." Baron Cresswell demonstrates the latter proposition with convincing logic, and certainly the defendant here, who has not paid the endorsers nor offered to pay them nor even pleaded liability to pay them, cannot escape his contract obligation upon a mere suggestion aliunde his answer that perhaps the endorsers may prefer to hold him directly rather than look to the plaintiff as their trustee.

Thus the defendant, without offering to pay any one, insists that he should be relieved from a part of his contract obligation. His case does not differ from that of the defendant in Jones v. Bradhurst, supra, and his situation is well described in the opinion in that case as follows: The plaintiffs stand upon the record the legal owners of the bill and the defendant as having failed to perform his contract without any legal excuse for the breach. The defendant was the party primarily liable and by his plea he sets up, by way of discharge, satisfaction by one notin privity with him in relation to such satisfaction, and which we think did not enure to his discharge.”

I may add to the list of authorities cited by Mr. Justice Daniels Thornton v. Maynard, L. R., 10 C. P., 698, where Lord Coleridge, speaking of Jones v. Bradhurst, said that “the judgment of Cresswell, J., in that case reviews the authorities and finally decides that payment either partially or in full by the drawer to the endorsee does not dis-entitle the endorsee to sue the acceptor for the full amount of the bill.”

He also cites Byles on Bills, 10 Ed., 210, where Sir John Bylessays : “ To an action against the acceptor, payment by the drawer is no plea, but only converts the holder into a trustee for the drawer when the holder afterwards recovers from the acceptor.”

By the payment of this judgment the defendant will have paid the note ana extinguished his entire obligation thereon. And the endorsers will no longer have any right of action over against, him, but will have to look to the plaintiff for the amount already paid on account of their obligation. We must not speculate as-to why the receiver of the endorsers has not already sued the defendant nor why he has suffered the plaintiff to proceed as the-owner of the note for the recovery of the whole amount thereof from the maker. Such speculations would be unprofitable and would only tend to confuse the real question, namely, whether the payment by the endorser under his contract of endorsement is a payment by or on behalf of the maker operating pro tantoto extinguish the maker’s obligation. Upon both principle and authority we think such payment is in extinguishment of the endorser’s liability and of that alone, and that it is not a payment for or on behalf of the maker. We think too that the single payment by the maker to the holder of the entire sum due and payable by his contract enures as a satisfaction and absolute discharge of his liability upon the note.

I agree that the judgment should be affirmed, with costs.  