
    Pratt v. Coman.
    
    
      Promissory notes.—Bond fide holder.
    One who surrenders to a party tire latter’s own negotiable note, over due, and receives in lieu thereof the note of a third person, before its maturity, is a bond fide holder of such note for value.
    
    Appeal from the general term of the Supreme Court, in the first district, where a judgment entered in favor of the defendant, upon the report of a referee, had been affirmed.
    This was an action by Milo Pratt against Lucien D„ Coman, upon a promissory note for $3000, made by the defendant, on the 4th June 1869, payable six months after date to the order of one Agnew, and by him indorsed to the plaintiff.
    The answer set up the defence that Agnew, by false representations, induced Coman to buy certain stock in the iEtna Mining and Manufacturing Company, and that the defendant gave the note in suit, in payment thereof. The referee found the fact, that the note was procured by fraud, and that Agnew indorsed the note to the plaintiff, before maturity; that Agnew being indebted to the plaintiff in a large sum of money, for which the plaintiff held Agnew’s over-due notes, the plaintiff gave up to Agnew such over-due notes, and received therefor the note in suit, and new notes made by Agnew for the balance, and that the plaintiff took the note in suit, without notice of any defence. The referee also found, that the said notes so due from Agnew to the plaintiff were surrendered hy the plaintiff to Agnew, and this note of the defendant, with Agnew’s indorsement, was delivered by Agnew to the plaintiff, on account of so much, and as a part, of said indebtedness, and the note or notes of Agnew given for the balance. That no agreement was made, at the time, that the note in suit should be a payment of so much, or any part of said indebtedness, nor 'was anything said on the subject; the transaction being simply a surrender of the old notes, and the indorsement over of this, and the giving of the other notes.
    *Upon this -state of facts, the referee held as matter of law, that the plaintiff was not a bond fide holder for value; sustained the defence, and directed judgment in favor of the defendant; which, having been affirmed at general term, the plaintiff appealed to this court.
    
      Tracy, for the appellant.
    
      Fancher, for the respondent.
    
      
       Also reported in 5 Trans. App. 334.
    
    
      
       See Phœnix Insurance Co. v. Church, 81 N. Y, 218, where the cases oa this subject are collated and distinguished.
    
   Mason, J.

(after • stating the facts.)—The plaintiff, upon • the conceded facts of this case, must be regarded, in law, a bona fide holder, for value, of the note upon which this action is brought.

I do not deem it importaht, to inquire, in this case, whether the receipt of the note in suit hy the plaintiff, and the surrender to Agnew of his note, to take up which this note was received by the plaintiff, was, under the facts, as found hy the referee, a discharge and satisfaction, or payment, of the debt of which the note surrendered by the plaintiff was the evidence. The general rule of presumption, it seems to me, should be, that the plaintiff intended to relinquish his claim, evidenced by Agnew’s note, and take this note of Coman in its stead, or in pavment or discharge of such demand. The giving up to Agnew of his note, and taking the note in suit for it, according to every rule of presump tion known to the law, is evidence of the intention of the parties to cancel the note. If, however, it did not discharge the pre-existing debt, it certainly operated to cancel the negotiable paper of the plaintiff; and this, as I understand the law, is parting with value, sufficient to constitute the plaintiff a bond fide holder of this note.

This was expressly held in the case of Youngs v. Lee (18 Barb. 187, 191-92), and affirmed in this court (12 N. Y. 551). Judge Welles, in delivering the opinion of the supreme court, in that case, very justly remarks, that, “admitting the plaintiff could have recovered against Bell & Goodman the amount of the note surrendered, under the facts stated, it does not follow, that they have parted with nothing of substantial value. Their demand against Bell & Goodman, in the shape of negotiable bank *paper, was better and more available, on many accounts, than if it rexnained in an open, unliquidated account.” This case was affirmed, as we have already said (12 N. Y. 551); and the head-note, wh<'°h is an accurate statement of what the case decides, is as follows: “ Where the owners of a note, due in a few days, which was deposited for collection with the hank where it was payable, withdrew it from the baní„ and surrendered it to the maker, on receiving from him his note, payable in three months, indorsed by a third person: held, that they were holders of Hie note last named, for value, to the amount of the note surrendered '

The same rult -was affirmed in the supreme court, in the case of Bank of Salina v. Babcock (21 Wend. 499), in which it was held, that, “where a bank receives and discounts negotiable paper, places the proceeds to the credit of the holder, and charges the avails over against him, and cancels the other notes, upon which are responsible parties, but which notes are over due and lie under protest, such cancellation is equivalent to paying value at the time, and precludes all defence existing as between the original parties. And Judge Nelson, in delivering the opinion of the court, says: " The court ought not to speculate about the probability of reviving these cancelled securities, in case the paper, upon the strength of which they were cancelled, should turn out to be unavailable; much less ought we to go into the chances of revival, as a ground of defeating a, substituted security.” He adds: “It is enough, that the plaintiffs, in good faith, charged over and cancelled them, according to the usage, and held them merely to be sent home ; this is parting with value, in the strictest sense of the term. The plaintiffs had a right to give up the old securities, upon the faith of the new paper; and they have done an act that is equivalent and so intended.” The case of Saunders v. Day (31 N. Y. 113) holds, that if the note was received in payment, the plaintiff is a band fide holder.

There is another view which may be taken of this case, which, to my mind, shows conclusively, that the plaintiff parted with value, in surrendering up Agnew’s note, which *was past due, and taking this note 7 ° in suit, made by the defendant, in its stead, and which had six months to run before it was due. The law is well settled, that the acceptance of such a note, on time, though not received as an absolute payment of the original debt, suspends the right of action on the original debt, until the note becomes due, or is dishonored. (Putnam v. Lewis, 8 Johns. 389; 5 T. R 513; Edwards on Bills and Promissory Notes, 197, 199, 200; 1 Bing. 100.) The debt from Agnew to the plaintiff being due, and the plaintiff, at the time of surrendering the old note, having the right to enforce its payment presently, and which right he relinquished, by receiving the note in suit, and his power to collect the original debt from Agnew being suspended, until the note in suit should mature, he certainly parted with value, which constitutes a sufficient consideration to make the plaintiff a bond fide holder of the note in suit, (Burns v. Rowland, 40 Barb. 369.) It is true, the plaintiff had Agnew’s indorsement upon the note in suit, but this was only a contingent liability, at the end of six months, and the plaintiff was bound to protest the note to charge him. (Jones v. Savage, 6 Wend. 645; 7 Mass. 286; 7 Vt. 549; Edwards on Bills and Notes,, 197-98.)

I will, without further consideration or reference to authorities, only say, that I am entirely satisfied, that both upon principle and authority, the plaintiff, upon the facts found by the referee in this case, must be regarded as a bond fide holder, for value, of the note upon which this action is brought. It follows, that the judgment of the supreme court should be reversed, and a new trial granted, costs to abide tffe event, which I advise to be done.

Miller, J.

This is an action on a promissory note for $3000, payable, six months after date, to the order of one Agnew, and indorsed by him. The defendant, the maker, set up as a defence, that Agnew, by false representations as to the value of certain stock, induced Coman to buy it, and to make this note in payment. The cause was referred, and the referee found, that the note was procured as alleged in the defence; that Agnew indorsed the note to the plaintiff, before maturity, and being indebted to the plaintiff in a large sum' of money, for which he held Agnew’s overdue notes, the plaintiff gave up to Agnew the said notes, received the note in suit, and new notes for the balance, and took the note in suit, without notice of any defence thereto. He also found in favor of the defendant. The judgment was affirmed at general term, in the first district.

In Brown v. Leavitt (31 N. Y. 1131, it was held, that the holder of . a promissory note, transferred for a note already due, is a holder for value. 1 am unable to discover why the case at bar does not come within the principle here laid down. Another note was given up by the plaintiff, and he took the note in question, before maturity, and without notice of any defence existing to it. Having surrendered an existing obligation in his hands, for the note in suit, he became a holder for value. It is said, that the note given up was only evidence of a debt for money lent, and that Agnew being liable as indorser, the plaintiff was not prejudiced by taking the note in suit. I think it a conclusive answer to this position, that he might be prejudiced by the delay in prosecuting Agnew as indorser, and that no action could be maintained against him, until the new note became due. By surrendering the old note, the plaintiff’s right of action was given up, on that demand, and hence, he could not press the collection of his debt, until the new note became due; and, by the delay, he lost a right which he possessed when he obtained the note, and suffered an injury. In the case cited, the like feature of indorsement existed. (See also Bank of Salina v. Babcock, 21 Wend. 499; Mohawk Bank v. Corey, 1 Hill 513; Bank of Sandusky v. Scoville, 24 Wend. 115.)

Nor does it, in my opinion, alter the case, because the original indebtedness was for money lent. If this was not merged in the first note given, I think it became extinct, by the exchange of that note for others; and as there was no evidence to show, that it was not intended as a payment, the presumption would be, that It was so intended. But, conceding that it was not thus merged, it cannot be denied, .that the taking of the note suit delayed the collection of the original debt, pro tanto, and thereby the plaintiff was injured, and lost a right which he possessed, which would entitle him, upon the principle applicable to such case, to occupy the position of a bond fide holder for value. The judgment should be reversed.

Woodruff, J.

In this case, the facts which are material to the precise question, may be stated' in simple form, thus: The plaintiff loaned money to Agnew, to a large amount; for that money, the plaintiff held Agnew’s notes, which were past due; Agnew, on the 4th of June 1859, by fraud,, procured from the defendant his note for $3000, payable to his (Agnew’s) order, six months after date; Agnew, before its maturity, indorsed and delivered such note to the plaintiff, on account of, and as part of, said indebtedness; and the plaintiff, thereupon, gave up to Agnew his own notes, which were past due, receiving for the balance of such indebtedness, Agnew’s new notes. The plaintiff received the defendant’s note in good faith, without notice of anything impairing its validity in the hands of Agnew. Did this transaction make the plaintiff a holder for value, entitling him to recover from the defendant, notwithstanding the fraud by which Agnew obtained the note from him ?

It is settled in this court, in Youngs v. Lee (12 N. Y. 555), that the receipt of a note, in extinguishment of a demand upon a note not yet due, constitutes the recipient a holder for value, although the debtor indorsed the note, at the time of the transfer. And in Brown v. Leavitt (31 N. Y. 113), it was decided, that where the plaintiff, being the holder of a note which was past due, surrendered it to the maker, on receiving from him the defendant’s note, payable to the order of such maker, not yet due, indorsed by a third party, and certain other notes and money, in payment, such plaintiff was a holder for value; and evidence of the transactions between the maker and payee was not admissible to impeach, the validity of the note. (See Day v. Saunders, decided in this court, in 1867, not yet reported.)

In the belief that all the questions conned ed with the inquiry, what constitutes a holder for value, heretofore so much agitated in our courts, are not yet settled, the respondent points us to the fact, that there was a fwrthcr distinct indebtedness for money lent, constituting a cause of action against Agnew, for the money lent, unimpaired by the transaction; and that he cannot be said to have received the present note in payment of a precedent indebtedness, nor to have in anywise given or parted with value, upon the faith of the note of the defendant, indorsed to him by Agnew. If it had distinctly appeared, that the parties agreed, on the indorsement of this note, that it should simply be held as a security for the debt due to the plaintiff for the money loaned, the plaintiff retaining the right to sue for such debt, at any moment he saw fit, the cases of Coddington v. Bay (20 Johns. 637), and Stalker v. McDonald (6 Hill 93), would have applied to the transaction. But, upon the facts proved, it is clear, that, in the first place, the notes of Agnew, first' given for such debt, operated to extend the time of payment cf the money loaned, until they matured; and upon the- indorsement of the note in question to the plaintiff, and the surrender and extinguishment of these notes, the time of the payment of the loan, pro tanto, was extended to the maturity of the defendant’s note.

This reduces the question to the simple inquiry, does the giving of time to the debtor, by receiving a security, payable at a future day, constitute a giving or parting with value, within the meaning of the rule? I think it does. Giving time is a good consideration for a promise ; giving time impairs the right of the creditor, as against the debtor; the immediate right to sue may be of good importance as a security. The law holds it material, where it declares, that giving time to a principal debtor releases a surety, on the ground, that the right of immediate pursuit is valuable. So, as to the maker of a note, in favor of an indorser. So, the giving of time is a sufficient consideration for the obligation of a surety, or an indorser. On this ground, I think, the judgment should be reversed.

Judgment reversed, and new trial awarded. 
      
       Since reported in 1 Abb. Dec. 495.
     