14U

sets up a want of consideration, the payee cannot avail himself, in rebuttal, of the fraud on the maker's creditors.1 And in Vermont the maker cannot set up, even against the original payee, that the note was made to defraud his own creditors.141

Fraudulent Breach of Condition.

143

§ 1802. The nonperformance of a promise to be performed in the future does not amount to a fraud,1 142 unless the payee obtains the note upon a false pretense that he will do something, which he immediately afterwards declares he will not do.1 If a note is delivered upon an express condition that another shall sign as surety before it is issued, and it is negotiated without such additional signature, the original surety will not be liable,11 and he may have relief in equity.145 But an agreement that another surety shall be obtained, "if possible," will not constitute a defense.146 And if a surety signs a note on condition of another surety being obtained, but delivers it to the payee, the condition will be discharged, since the note cannot be delivered in escrow to the payee. 147 So, if the accommodation maker of a note deposits it with the creditor until the accommodated payee should give another note to replace it, and he never does so, it will be no defense.148 So, if the condition of an accommodation acceptance (that he should pay only when collected) was omitted by mistake.149

140 Wearse v. Peirce, 24 Pick. (Mass.) 141.

141 Carpenter v. McClure, 39 Vt. 9; Gen. St. p. 672, § 33. So, the maker cannot set up that the note sued on was made for a composition with creditors, and the maker fraudulently gave the payee an additional bill for the balance due him. Howden v. Haigh, 11 Adol. & E. 1033.

142 Patterson v. Wright, 64 Wis. 289, 25 N. W. 10.

143 Wienholt v. Spitta, 3 Camp. 376.

144 Awde v. Dixon, 6 Exch. 869; Cowan v. Baird, 77 N. C. 201. But it is otherwise as to a stipulation between principal and surety, of which the payee had no knowledge. Whitcomb v. Miller, 90 Ind. 384.

145 Majors v. McNeilly, 7 Heisk. (Tenn.) 294.

146 Harris v. Atchinson, 2 Ill. App. 587.

147 Johnson v. Branch, 11 Humph. (Tenn.) 521; Massmann v. Holscher, 49 Mo. 87. So, if he makes the performance impossible by his own act.

well v. Gidney, 73 Me. 84.

148 Ryle v. Harrington, 14 How. Prac. (N. Y.) 59.

149 Greer v. Bentley (Ky.) 43 S. W. 219.

Stock

Fraudulent Diversion-Accommodation Paper.

§ 1803. Where accommodation paper is fraudulently diverted from the purpose for which it is given, it will amount to a defense.150 So, where one signs as indorser or surety on condition of other sig natures which are not procured."

151

So, if an accommodation indorsement is given to enable the maker to raise money at the bank, and he exchanges it before maturity for lottery tickets at an exorbitant price, the party so taking it cannot recover against the indorser.153 So, where a surety signs a note to enable the principal to take up certain other notes and discharge a collateral mortgage, and all of the notes are not taken up, and the mortgage is not discharged, the surety will not be liable.154 So, if an accommodation acceptance is given to enable the drawer to secure A. for goods purchased, and the acceptance is retained by A. after the goods are paid for, as collateral for another debt of the drawer, and is afterwards transferred to a bona fide holder, who recovers against the acceptor, the latter may recover from the drawer the amount so paid.155

But, if the purpose of the accommodation is substantially effected, a diversion of the paper from the precise use contemplated will be immaterial.158 And one who gives an unrestricted accommodation indorsement cannot defend on the ground that the proceeds have not been applied as agreed.157 So, if an accommodation note is given

150 Quebec Bank of Toronto v. Hellman, 110 U. S. 178, 4 Sup. Ct. 76; Faulk-. ner v. White, 33 Neb. 199, 49 N. W. 1122. Without proof of special damage. Rochester v. Taylor, 23 Barb. (N. Y.) 18.

151 Twenty-Sixth Ward Bank v. Stearns, 148 N. Y. 515, 42 N. E. 1050; Jordan v. Jordan, 10 Lea (Tenn.) 124.

153 Brown v. Taber, 5 Wend. (N. Y.) 566.

154 Johnston v. May, 76 Ind. 293. And see §§ 916, 917, supra.

155 Bleaden v. Charles, 7 Bing. 246. As to recovery by bona fide holder, see § 1894, infra.

156 Wardell v. Howell, 9 Wend. (N. Y.) 170; Rogers v. Sipley, 35 N. J. Law, 86. But where the maker signs a note to A., to be indorsed by him and delivered for B.'s accommodation on receipt of certain securities from B., and A. pays B.'s debt and retains the note, but surrenders the securities, he cannot hold the maker. Boutelle v. Wheaton, 13 Pick. (Mass.) 499.

157 Brooks v. Hey, 23 Hun (N. Y.) 372; Grandin v. Le Roy, 2 Paige (N. Y.) 509; Mohawk Bank v. Corey, 1 Hill (N. Y.) 513.

to raise money, and it is used by the party accommodated as collateral for,158 or in payment of,159 an existing debt, it will not amount to a fraudulent diversion. And if the party accommodated sells the note, instead of having it discounted at a bank as agreed, the surety will not be discharged, and may, therefore, recover contribution from his co-surety, on paying the note.100 So, if a note is given to A. to raise money to pay off a mortgage on his property held by B., and it is transferred instead to B., after maturity, the defendant must show himself to have been injured by the diversion.161 So, one who gives his accommodation acceptance to the drawer to pay off a debt to A. cannot set up that it was transferred to A. in payment of such debt and other advances.162 So, the accommodation maker of a note will be liable on it to a bank making advances on the note as collateral, although the note was made to be discounted by the bank.163

Diversion to Other Payee.

§ 1804. In general, where accommodation paper is made to be negotiated to a party named in it, and is actually negotiated to another party instead, it will constitute no defense; 164 especially where the accommodation maker has delivered it to his co-maker, and it is delivered by him to such other party.165 So, where the nominal payee, on refusing to discount the paper, has indorsed it

158 Bank of Rutland v. Buck, 5 Wend. (N. Y.) 66; Duncan v. Gilbert, 29 N. J. Law, 521; Jackson v. Bank, 42 N. J. Law, 177.

159 Wheeler v. Allen, 59 How. Prac. (N. Y.) 118; Maitland v. Bank, 40 Md. 540; Fetters v. Bank, 34 Ind. 251.

160 Briggs v. Boyd, 37 Vt. 534.

161 Corbitt v. Miller, 43 Barb. (N. Y.) 305. But see, contra, Thomas v. Watkins, 16 Wis. 549. And see § 222, supra.

162 Leach v. Lewis, 1 MacArthur, 112.

163 Proctor v. Whitcomb, 137 Mass. 303.

164 Reed v. Trentman, 53 Ind. 438; Ward v. Bank, 14 B. Mon. ‘(Ky.) 351; Browning v. Fountain, 1 Duv. (Ky.) 13; Whitaker v. Crutcher, 5 Bush (Ky.) 621; Hunt v. Aldrich, 27 N. H. 31; Commercial Bank v. Claiborne, 5 How. (Miss.) 301; Bank of Newbury v. Richards, 35 Vt. 281. Where the accommodation party is not prejudiced. Duncan v. Gilbert, 29 N. J. Law, 521. And see §§ 917, 1655, supra.

165 Wardell v. Hughes, 3 Wend. (N. Y.) 418.

and delivered it to another party, who discounted it; 166 and, if such party afterwards transfers it to a bona fide holder, he will not be liable on that account to the accommodation indorser.167

But, as against the payee, the diversion of accommodation paper has been held to be equivalent to a failure of consideration.168 And where the nominal payee refuses to discount the paper, and it is discounted by another for one of the makers, his accommodation comakers have been held not to be liable.10 169 So, a surety has been held not to be liable where the note is discounted by another person, instead of the payee named.170 If B. gives his accommodation indorsement to obtain a discount and apply the proceeds to the maker's debt to the payee, for which A. is surety, and, on the payee's refusal to discount the note, it is delivered to A., it has been held that he cannot bring suit against the accommodation indorser.171 And an accommodation indorser is not liable where his indorsement was given on the express condition that it should be returned to him, if a particular bank refused to discount it,172 or where it was agreed that certain mortgage security should be given to him, which was not done, and the note was delivered to another party than the payee, who advanced money on it to the principal debtor.173 So, where a note is given by A. to B., to be discounted at a certain bank on certain terms, which are refused, the maker will not be liable on it, either to the payee, or to an indorsee suing in his name.174

Duress.

§ 1805. Where a bill or note is obtained by duress, it is, in like manner, of no effect between the original parties.175 Thus, a note

166 Morris v. Morton, 14 Neb. 358, 15 N. W. 725; Dunn v. Weston, 71 Me. 270; Cross v. Rowe, 22 N. H. 77.

167 Dawson v. Goodyear, 43 Conn. 548.

168 Simpson Centenary College v. Tuttle, 71 Iowa, 596, 33 N. W. 74.

169 Adams Bank v. Jones, 16 Pick. (Mass.) 574.

170 Granite Bank v. Ellis, 43 Me. 367.

171 Kasson v. Smith, 8 Wend. (N. Y.) 437.

And see § 980, supra.

172 Hickerson v. Raiguel, 2 Heisk. (Tenn.) 329. 173 Howe v. Selby, 53 Iowa, 670, 6 N. W. 39. 174 Denniston v. Bacon, 10 Johns. (N. Y.) 198.

175 Chit. Bills, 85; Duncan v. Scott, 1 Camp. 100; Stevens v. Underwood,

is void if it is procured by abuse of criminal process,176 or obtained by means of a pretended warrant executed by a pretended officer,177 or if it is given under duress of imprisonment in order to regain possession of property unlawfully withheld from the maker,178 or is procured by unlawful refusal to allow the maker's vessel to leave port until he had signed a bill for the debt.179 So, a fraudulent threat of an attachment without justifiable ground,180 or a threat of personal violence,181 amounts to duress. So, if a note is obtained and collected by military force, the maker may recover the amount paid.182 But a note given for a debt of the maker to procure his discharge from prison is not given under duress.183 And it is not duress to threaten lawful bankruptcy proceedings,184 or to say that the maker could not leave the state, as he was about to do, until he

6 Scott, 402; Hatch v. Barrett, 34 Kan. 223, 8 Pac. 129; Magoon v. Reber, 76 Wis. 392, 45 N. W. 112.

176 Shenk v. Phelps, 6 Ill. App. 612; Phelps v. Zuschlag, 34 Tex. 371. And see §§ 501, 502, supra. So, threats of criminal prosecution of the brother, to procure a note from the sister. Schultz v. Catlin, 78 Wis. 611, 47 N. W. 946. But not so a note for money embezzled with threat of criminal prosecution. Beath v. Chapoton (Mich.) 73 N. W. 806; Wolf v. Troxell's Estate, 94 Mich. 573, 54 N. W. 383.

177 Coffelt v. Wise, 62 Ind. 451.

178 Bennett v. Ford, 47 Ind. 264.

179 McPherson v. Cox, 86 N. Y. 472.

180 Downing v. Ely, 125 Mass. 369.

181 Rossiter v. Loeber, 18 Mont. 372, 45 Pac. 560. So, where the note was given in settlement of a crim. con. proceeding, which occasioned the threat. McGowen v. Bush, 17 Tex. 195. But not so a note obtained by threat of personal violence to a third person, then at a distant place. Barrett v. Mahnken (Wyo.) 48 Pac. 202.

182 Voiers v. Stout, 4 Bush (Ky.) 572. So, where the holder of a note is compelled by military arrest to surrender it on receipt of Confederate currency offered in payment. Anderson v. Lewis, 31 Tex. 675. But saying he "must take it," without any threats, is not duress, although the Confederate army was near, and military orders required marshals to arrest persons refusing to take such currency, and some had been arrested. Davis v. Railroad Co., 46 Miss. 552.

183 Bates v. Butler, 46 Me. 387; St. Albans Bank v. Dillon, 30 Vt. 122; Kelley v. Noyes, 43 N. H. 209. And see § 500, supra.

184 Benner v. Van Norden, 27 La. Ann. 473.