According to the settled law of this state, as established inCoddington v. Bay (20 Johns. 637), and reaffirmed in subsequent cases, the plaintiff having taken the draft as security for or in nominal payment of interest to accrue on an antecedent debt, it was subject in her hands to any defenses which would have been available to the defendants in case the draft had not been transferred and the action had been brought by the drawees against the defendants as acceptors. The plaintiff on receiving the draft surrendered no securities, extinguished no liability for the principal or interest of her debt against the Exchange, and the most favorable construction of the transaction in her behalf is that she received the draft as conditional payment of the interest to accrue on the loan. It cannot be doubted that in case the draft was not paid, she would have recourse on her original obligation against the Exchange to recover the interest for which the draft was taken in nominal payment. (See Phoenix Ins. Co. v. Church, 81 N.Y. 218, and cases cited.)
The plaintiff stands upon the right of the Exchange, and the right of the latter to recover if it still held the draft and had brought the action, is, in this case, a test of the plaintiff's rights. The real consideration of the draft in suit was the obligation assumed by the Exchange to accept and pay the drafts of Alcock Co., drawn upon it for goods purchased by Bassett Co. from Alcock Co., Bassett Co. desired credit for purchases to be made by the firm from Alcock Co. The Exchange agreed with Bassett Co. to accept the drafts of Alcock Co. upon its London house, at ninety days, drawn for goods sold by Alcock Co. to Bassett Co., of New York. In order to put the Exchange in funds to meet its acceptances of the drafts of Alcock Co., Bassett Co. agreed to accept drafts drawn by the Exchange upon Bassett Co. for equivalent amounts payable in New York, to mature twenty days before the drafts which it should accept drawn by *Page 526 Alcock Co. The control which was retained by the Exchange over the goods was intended as additional security for its liability on its acceptances. The Exchange was in no real sense the vendors of the goods. The goods represented by the draft in question were ordered by Bassett Co. from Alcock Co., were sent by the latter firm to the agent of Bassett Co., in Liverpool, and were shipped to New York under bills of lading running in the name of Bassett Co. which were attached to the draft drawn by Alcock Co. upon the Exchange. The possession by the Exchange of the bills of lading enabled it to control the delivery of the goods in New York, and on arrival there the bills of lading were delivered to Bassett Co. by the New York agent of the Exchange on receiving the draft in suit, together with a banker's trust receipt, to secure the application of the proceeds of the goods to the payment of the draft. Bassett Co. have been at all times and are now liable as vendees of the goods to Alcock Co.
There was, undoubtedly, a good consideration for the draft in question when it was drawn. But if the consideration has failed, the Exchange could not enforce the draft, nor can the plaintiff, who has succeeded to its rights, and stands in its shoes. The draft was transferred by the Exchange to the plaintiff on the 9th or 10th of April, 1888, within one or two days after its date. On the 12th of April, the Exchange was declared insolvent and a receiver was appointed. The evidence tends to show that it is hopelessly bankrupt. Its debts are unpaid. The plaintiff has received not to exceed $7,000 or $8,000 on her loan of $50,000, and this sum has not been realized out of the assets of the Exchange but out of individual securities of Gillig, assigned by him to the plaintiff. Bassett Co., as has been said, are still liable to Alcock Co. for the price of the goods, and if liable on the draft in suit will be compelled to pay for the goods twice over, leaving them as their only resource a worthless claim against a bankrupt concern. Under the circumstances disclosed by the evidence we are of opinion that neither the Exchange nor its *Page 527 successor could maintain an action on the draft, and that the plaintiff as transferee is in no better position. We deem it unnecessary to consider whether the transfer of the draft to apply upon an antecedent debt of the plaintiff against the Exchange, was a wrongful diversion of the draft from the purpose for which it was to be used. It is sufficient that the consideration has failed and this constitutes a good defense to the action.
The court, therefore, erred in directing a verdict for the plaintiff and for this error there should be a reversal of the judgment.
All concur.
Judgment reversed.