US SUPREME COURT DECISIONS

1. The judgment in an action brought by the holder of negotiable paper against the endorsers is not a bar to his subsequent action against the maker, who was not notified of the pendency of the first action.

2. An estoppel by judgment is equally conclusive upon all the parties to the action and their privies, and may not be invoked or repudiated at the pleasure of one of them as his interest may require.

3. The transfer by endorsement to a creditor of negotiable paper before maturity merely as security for an antecedent debt, although it is without his express agreement for indulgence, is not an improper use of such paper, and is as much in the usual course of commercial business as its transfer in payment of the debt. In neither case is the bona fide holder affected by equities or defenses between prior parties of which he had no notice.

4. The courts of the United States are not controlled by the decisions of state courts on questions of general commercial law. Swift v. Tyson, 16 Pet. 1, and Oates v. National Bank, 100 U. S. 239, reaffirmed.

This was an action by The National Bank of the Republic of New York against The Brooklyn City and Newtown Railroad Company.

The case, as made by an agreed statement of facts, is this:

The company, a corporation organized under the laws of New York, executed, at Brooklyn, in that state, May 9, 1873, its promissory note for the sum of $5,000, payable four months after date to the order of William V. LeCount, its treasurer, at the Atlantic State Bank of Brooklyn. It was endorsed in blank, first by him and then by Palmer & Co., a firm composed of Thomas Palmer, Jr., and Anson S. Palmer, the former being the president and the latter the financial agent of the company, and together owning the larger portion of its stock. It was made for the purpose only of raising money thereon for the company. Neither LeCount nor Palmer & Co. chanrobles.com-redchanrobles.com-red

Page 102 U. S. 15

received any consideration for their respective endorsements. The note thus endorsed was, with others, placed by the company in the hands of Hutchinson & Ingersoll, a firm of note brokers in Wall Street, for negotiation and sale.

Prior to the execution of the note, Hutchinson & Ingersoll had frequently borrowed money from the bank. They, however, kept no account, and had no transactions with it, other than those to which reference will now be made.

In the month of October, 1872, the bank first made them a call loan at seven percent interest, of $25,000, on collaterals. Subsequently, in 1873, it made to them other call loans on collaterals, at the same rate of interest, as follows: March 11, $15,000; March 15, $10,000; April 11, $10,000; May 16, $10,000; May 20, $20,000; May 23, $10,000; June 4, $15,000; June 6, $12,000; June 12, $10,000; June 19, $36,000; and July 11, $10,000. Each of these loans was a separate one upon a particular and distinct lot of collaterals. Hutchinson & Ingersoll were in the habit of borrowing money from various banks and from individuals or firms upon specific lots of collaterals.

The loan of $36,000 on 19th June, 1873, was upon several notes as collateral security, among them the above-described note for $5,000, executed May 9, 1873. All the loans by the bank prior to the one of $36,000 had been paid off before that loan was made.

The loan of $10,000 on 11th July, 1873, was upon the following notes as collateral security: two notes of Howes, Hyatt, & Co. for $2,605.98 and $3,540.15, and two of H. L. Ritch & Co. for $3,320.17 and $2,146.92.

On the 22d of July, 1873, Howes, Hyatt, & Co. having become insolvent, Hutchinson & Ingersoll executed and delivered to the bank, at its request, antedated to June 19, 1873 (which was the date of the $36,000 loan), a written instrument whereby they agreed with the bank

"that all securities, bonds, stocks, things in action, or other property or evidences of property whatsoever, which have been or may at any time hereafter be deposited or left by us or on our account, with said bank, whether specifically pledged or not, may be held by said bank, and shall be deemed to by and are hereby pledged

Page 102 U. S. 16

as security for the payment of any and every indebtedness, liability, or engagement on our part, held by said bank, and that on the nonpayment, when due and payable, of any sum or sums of money which have been or may hereafter be by said bank lent, paid, or advanced to or for the account or use of us, or for which we are or may become in any way liable or indebted to said bank, the said bank, or its president or cashier, may immediately thereupon, or at any time thereafter, sell, &c., . . . and apply the net proceeds of sale to the payment of any sum or sums due and payable from us to said bank, and hold any surplus of such net proceeds, together with any and all remaining securities, property or evidences of property, then held by said bank and not sold, as security for the payment of any and all other of our then existing and remaining liabilities and engagements to said bank."

When that writing was executed, no agreement was made to extend the loan, or to refrain from calling it in.

The bank knew that Hutchinson & Ingersoll were note brokers, but until Aug. 8, 1873, had no knowledge or information of the connection of the Palmers with the railroad company, or of the circumstances attending the making or endorsement of the note in suit, or of the purpose thereof, or of any relations, dealings, or communication between Hutchinson & Ingersoll, and the parties to the note (except that they knew Hutchinson & Ingersoll to be note brokers), or that the note was anything else than ordinary business paper, or that there was any question as to the right of said Hutchinson & Ingersoll to pledge or negotiate it. Nor did the railroad company know or suspect that the firm had parted with or hypothecated said note until Aug. 15, 1873.

The company, by reason of certain advances made to its use by Hutchinson & Ingersoll, became indebted to the latter, on the 8th of August, 1873, in the sum of $600. On the fifteenth day of August, 1873, it tendered that sum to the firm and demanded a return of the $5,000 note. During the same month, it made a like tender to the bank, and demanded the note.

The $36,000 loan was paid in full out of the collaterals given to secure its payment, as they respectively matured, without resorting to the note in suit, the first payment of $4,580 being chanrobles.com-redchanrobles.com-red

Page 102 U. S. 17

July 22, 1873, and the last payment being April 4, 1874, leaving the $5,000 note in the bank's possession.

Hutchinson & Ingersoll are insolvent. The collaterals collected exceeded the $36,000 loan by $2,403.61.

On the $10,000 loan of July 11, 1873, there was a balance due the bank, Nov. 21, 1876, of $5,136.68 after exhausting all collaterals in its possession which had been specially pledged to secure that loan, and crediting the amount, with interest collected, of a certain judgment to be now referred to.

In 1874, the bank sued Palmer & Co., as endorsers upon the note in suit, in the supreme court of New York. The case was sent to a referee, who rendered judgment in favor of the bank for $601, which seems to be the amount due from the railroad company to Hutchinson & Ingersoll. That judgment, with the costs, was satisfied.

The present action is by the bank against the railroad company to recover the amount of the $5,000 note executed by the latter on the 9th of May, 1873, and placed in the hands of Hutchinson & Ingersoll for sale for the benefit of the company. It was agreed that if the company is liable to the bank upon that note, the amount would be as of Nov. 21, 1876, $5,136.68.

The court below gave judgment for the bank, and the company sued out this writ. chanrobles.com-redchanrobles.com-red

Page 102 U. S. 21