
    JAMES HOOPER, Plaintiff and Respondent, v. ORLANDO W. DE LONG and EDWARD A. BOURY, Defendants and Appellants.
    The note that was the subject of this action was made by defendants, and indorsed by the payees, and subsequently by the plaintiff, as an accommodation note, and the plaintiff procured the same to be discounted at a usurious rate of interest, and transmitted the proceeds thereof to the prior indorsers, for whose accommodation the note was made. When the note fell due and was protested, the plaintiff paid to the person who had discounted it, and took up the same, and brought this action against the makers. The referee before whom the action was tried, decided that the note in the hands of plaintiff, after its payment by him as indorser, was not affected -with usury, and could be enforced against the makers (substantially assuming the fact of the same having been discounted at a usurious rate of interest).
    
      
      Held, by the general term, that the plaintiff, having procured the note to be discounted at a usurious rate 'of interest, and being a mere accommodation indorser, before the paper had a legal inception, that when he paid the note at its maturity, paid the same in his own wrong, and acquired thereby no greater rights than the person who had purchased and discounted the same at a usurious rate of interest, and the note could not be inforce d against the makers-by the plaintiff.
    Before Monell, Ch. J., and Freedmabt, J.
    
      Decided February 28, 1874.
    Appeal from judgment.
    The action was tried by a referee who made the following findings:
    PACTS.
    “ The defendants were copartners in business at the city of New York from June 1, to December, 1869, under the firm name and style of De Long & Co. On or about September 20, 1869, the defendant De Long, in the said firm name, made and executed the promissory note mentioned in the complaint, bearing date on the day and year, and at the place last mentioned, whereby the defendants promised to pay, ninety days after date, to the order of themselves, seventeen hundred and ninety-eight dollars and sixty-four cents, at the office of the said defendants, No. 12 Cedar street, in the city of New York.
    “The defendant De Long indorsed the said note in the said firm name of the defendants, and delivered it so indorsed to the firm of John P. Boyle & Co., on or about the day and year, and at the place last mentioned.
    “The said John P. Boyle & Co., on or about October 11, 1869,- at the city of New York, indorsed the said note and delivered it so indorsed to the plaintiff, at the city of Baltimore, who carried on business without any partner, under the name and style of James Hooper & Co.
    “ The plaintiff in his said style of J. Hooper & Co., at Baltimore, Maryland, on or about October 12, 1869, and before the maturity of said note, indorsed the same at the request and for the accommodation of John P. Boyle & Co., and delivered the same so indorsed to J: Hopkins, who paid therefore to the said Hooper the sum of $1,756, reserving a discount thereon of $42.64.
    “ The said Hooper, on October 13, 1869, paid the whole of the said sum of $1,756 to the said John P. Boyle & Co.
    “The said note was so made and indorsed by the defendant De Long, without the knowledge or consent of the defendant Boury, for the accommodation of the the said John P. Boyle & Co., but the plaintiff had no knowledge thereof.
    “ The said note had no valid inception or business character before it was discounted by the said HopJcins.
    
    “The said note was duly protested for non-payment at maturity, and the plaintiff, on receipt of notice of protest, paid the whole amount thereof to the said Hopkins, who then delivered the said note to the plaintiff, who then became, and ever since has been, the holder and owner thereof.
    “ The interest on the said note, from its maturity to the date of my report, is the sum of eighty-nine dollars and seventeen cents.
    “ I do further report as my
    CONCLUSIONS OF LAW :
    “ 1st. That the law of the State of Hew York governs as to the validity of the said note, and as to the-application of the defense of usury thereto.
    “2nd. That the plaintiff having indorsed the said note before maturity, lawfully paid the amount thereof to the holder, after protóst, on his own liability as indorser.
    “3rd. That there was no obligation resting on the plaintiff to defend against the said note, nor to wait for an action to be brought against him after the maturity of the note, and before he paid the same, nor to interpose the defense of usury.
    “4th. That the plaintiff not having any knowledge that the said note was made by De Long, without the knowledge and consent of his partner, the defendant Boury and the defendants being in fact partners at the time the said note was made, carrying on business under the firm name of De Long & Co., they, the defendants, are liable on the said note as partners and makers.
    “ 5th. That the said note is not affected with usury in the hands of the plaintiff.
    “6th. That the plaintiff have judgment against the defendants for one thousand eight hundred and eighty-seven dollars and eighty-one cents, the amount of the said note and interest, besides the costs of the action.” <&c.
    The defendants excepted to every one of the foregoing findings of fact, except the finding that the note had no valid inception or business character before it was discounted by Hopkins, and. to every one of the conclusions of law except the first.
    Judgment having been entered upon the report, the defendants appealed.
    
      John T. McGowan, for appellants, urged:—I.
    An accommodation note, as between the original parties, has no validity ; it.is only when it comes into the hands of a Iona fide holder that it can be enforced. The phrase “ bona fide holder” involves two essential facts: the first, that value has been paid; and the second, that the transferee, at the time of receiving the paper, was ignorant of its origin.
    II. The plaintiff was apprised of the character of this note in the very letter which enclosed it. It was borrowed from .De Long by Boyle & Co., to enable them to raise money with which to meet their note of one thousand eight hundred and five dollars and forty-seven cents, payable to the order of De Long & Co., and which was then held by the American Exchange Hational Bank, and about falling due. Plaintiff received it for the purpose of selling or negotiating it; and the more readily to dispose of it he indorsed it, not for the defendants or at their request, but for the accommodation of John P. Boyle & Co., and the exact sum of money which plaintiff received as the proceeds of the note from Hopkins, was remitted by plaintiff to John P. Boyle & Co.
    III. The note in suit having therefore been made without consideration, and for the accommodation of John P. Boyle & Co., and having been discounted for the plaintiff by Hopkins at an usurious rate of interest, and the plaintiff having been a party to that transaction, and the proceeds of the note having passed through his hands, he is to be considered as the person making the discount and charging the usurious interest, and is not entitled to recover as an innocent or bona fide holder of the note.
    IY. The plaintiff became the owner and holder of the note after it became due and was protested. He paid Hopkins the face of it on December 24, two days after it had been protested, and received it on that day from him. Plaintiff paid the amount of the note to Hopkins in Ms own wrong. In paying the note he discharged a mere moral obligation, and he acquired no greater rights than Hopkins possessed, although plaintiff was an indorser. In the hands of Hopkins there was a complete defense. Ho one can become a bona 
      
      fide holder of a promissory note so as to shut out a valid defense by the maker when such holder takes it after it is past due (Newell v. Gregg, 51 Barb. 363, and cases cited ; American Ex. Bank v. Corliss, 46 Id. 19; Devlin v. Brady, 36 N. Y. 531 ; Chester v. Dorr, 41 Id. 379).
    
      E. T. Bell and George Bell, for respondent, held :—
    I. The capacity in which the plaintiff received the note in suit was that of an indorser. He took up the note on his liability as indorser, and now looks to the maker • to recover the amount paid. He did not become the owner of the note after maturity, as the appellant claims, in such a manner as to let in defenses available against one who takes after maturity. The plaintiff took up the note for the account of the payee and the maker.
    II. Further, the plaintiff was an innocent indorser, without knowledge or notice of the character of the note. It was represented to him to be business paper in the hands of J. P. Boyle & Co.
    III. .The question in this case then, is whether an accommodation maker can set up the defense of usury against an indorser without notice, who has taken up the note upon protest thereof. The maker is liable to such indorser either on the note or for money paid on his account (Brown v. Mott, 7 Johns. 361). The plaintiff is entitled to récover against the defendants who are sureties (Edw, on Bills, .333), for J. P. Boyle & Co. because they (defendants), being such sureties, allowed the plaintiff to pay the note. If the defendants had notified plaintiff of any defenses and requested him not to pay the note but to defend against it, these defendants might'set up such defense against the. plaintiff. But as in this case the defendants did not so notify the plaintiff of any defense, but allowed him to pay the note, they were guilty of laches and are bound to repay plaintiff the sum paid by him.
    IV. The defendants being sureties for J. P. Boyle & Co., cannot set up any defense not available by said J. P. Boyle & Co., and are bound by the representation of J. P. Boyle & Co. (Holmes v. Williams, 10 Paige, 326).
    Y. Tire defense of usury has not been made out. The evidence is not clear. This is a defense which must be proved absolutely and as laid (Griggs v. Howe, 31 Barb. 100).
   By the Court.—Freedman, J.

The learned referee did not in express terms find that the retention of the sum of forty-two dollars and sixty-four cents by Hopkins for discounting the note was usurious. He decided the case upon the theory that even if it was usury, and although the note had in point of fact no valid inception or business character before it was discounted by Hopkins, the plaintiff, as indorser before maturity, was under no obligation to the defendants as makers to set up the claim of usury, and that consequently he had a right to take up the note, after pro-' test, and having thus taken it up, he could maintain an action thereon in which the defendants were not at liberty to interpose the defense of usury. In this the referee erred. There was evidence upon which the referee might have based a finding of usury ; and if there was usury, Hopkins could not have recovered on the note, either against the plaintiff or the defendants ; and this being so, the plaintiff could not, by merely taking up the note, create a cause of action against the defendants. True, the plaintiff might nevertheless recover, upon proof that the defendants induced him by representations that the note was a business note, and that it would be paid by them as such, to take it up, and that in reliance upon such representations, and in ignorance of the true state of affairs, he did take it up. As an estoppel in pads may be urged against the defense of usury (Mason v. Anthony, 3 Keyes, 609), such proof would operate as such estoppel. But there is no finding to this effect, and the evidence at large points strongly to the conclusion that the plaintiff, at the time he indorsed the note, and induced Hopkins to discount it, well' knew the true character of the paper.

If, therefore, with knowledge of its infirmity, plaintiff procured the note to be discounted at a usurious rate of interest, he, as a mere accomodation indorser before the paper had a legal inception, could not deprive the makers, who had made the note solely for the accommodation of the first indorsers, Boyle & Co., of their defense of usury; and when he paid the amount to Hopkins, he paid it in his own wrong, and acquiesced thereby no greater rights than Hopkins possessed. Brown v. Mott (7 Johns. 361), was not a case of usury, and is not in point.

The theory of the referee being inapplicable to the facts, as far as they were found, and the court at general term being unable to determine that in point of fact there was no usury, when the referee had assumed that there was, and had based his decision upon such assumption, especially as the case discloses evidence upon which the referee might have made a finding to that effect, a new trial must necessarily be ordered. This being so, it is unnecessary to. notice the other questions discussed on the argument.

The judgment should be reversed, the order of ref- • erence vacated, and a new trial ordered, with costs to appellants, to abide the event.

Monell, Oh. J., concurred.  