[EDITORS' NOTE: THIS PAGE CONTAINS HEADNOTES. HEADNOTES ARE NOT AN OFFICIAL PRODUCT OF THE COURT, THEREFORE THEY ARE NOT DISPLAYED.] *Page 324 It is well said, in the opinion of the court below, that the question before us is the same as it would have been if Adriance Co. had sued Clothier upon his indorsement of the notes in question. The point would be presented more simply in such a suit, but it would be the same point. In such an action theprima facies would be against Adriance Co. Where a note is made payable to the order of Adriance Co., indorsed by them and subsequently indorsed by Clothier, the presumption of law is that the indorsement of Adriance was intended to precede that of Clothier. (Bacon v. Burnham, 37 N.Y., 616; Herrick v.Carman, 10 John. R., 224; S.C., 12 id., 159.) Clothier would be liable as an indorser only, and as an indorser subsequent to Adriance.
It is well settled, however, that where in fact the party to such a note, standing in form as second indorser, put his name upon the papers with the intention and for the purpose of becoming security to the payee of the note for the debt of a third person, he will be so held. In such a case the payee may indorse the note without recourse, transfer it to another, and the second indorser will be liable, without right of recourse to the payee. (Moore v. Cross, 19 N.Y., 227; Labron v.Woram, 1 Hill, 91.) In the case first cited the learned Ch. J. JOHNSON held that the indorsement, without recourse, being a mere matter of form could be made at the trial, or, on an appeal, could be deemed to have been made.
In the action before us, while it is proved that the indorsements of Clothier were obtained by the fraudulent representations of Bennett, it is conceded that he made the indorsements for the purpose of giving to Adriance Co. the security of his name for the debt of Bennett. He intended to become security to Adriance Co. He did not intend, as *Page 326 the form of the notes indicated, that they should be liable to him.
An indorsement, although fraudulently obtained, binds the maker thereof, where the note becomes the property of a bona fide holder for value, without notice. Adriance Co. had no notice or suspicion of the fraud perpetrated by Bennett, but the point is made that they are not bona fide holders for value. That the value given to Bennett was, in law, a sufficient consideration, can hardly be doubted at this time. When the note was received by the appellants from Bennett they surrendered and delivered up to him his three promissory notes to the amount of $5,994.44. Of these notes two were past due and one had not matured. They satisfied a mortgage purporting to be security for $3,500, a note for $2,000, signed by Harrison Cook, and a policy of insurance upon his life. The notes of Harrison Cook were said to be fictitious and the mortgage to be worthless. As the surrender of the notes of Bennett forms a sufficient consideration under our authorities, it is not necessary to discuss the effect of the surrender of the other instruments. (Youngs v. Lee, 2 Kern., 551; Brown v. Leavitt, 31 N.Y., 113; Day v. Saunders, 3 Keyes, 347; Pratt v. Coman, 37 N.Y., 440; Paddon v.Taylor, 44 id., 371.)
It is argued that the appellants are original parties to the notes in suit, that the equities are available against them, and that they cannot be bona fide holders. It is not entirely clear what is meant by calling them original parties. They certainly are parties named in the note as payees, and, so far, are original parties. In Moore v. Cross (supra), it was held that parties occupying precisely that position were bona fide holders, and were at liberty to recover, notwithstanding the equities of the indorser.
It is further insisted that the appellants are not bona fide holders, because no property was parted with on the faith of the indorsements; that Bennett was the maker of the new notes as well as the maker of the surrendered notes, and that the only effect of the transaction was to give him an extension *Page 327 of credit during the running of the new notes. It is a sufficient answer to this argument to say that in many of the reported cases where the surrender of a debtor's note was held to be a sufficient parting with value to constitute him a bona fide holder of the new one, the liability of the original debtor was retained. Thus, in Day v. Saunders (supra), the new notes, like those here, were made by Whipple, the original debtor, whose liability was thus continued. In Pratt v. Coman (supra), the case states that the liability of Agnew, the original debtor, was continued by his indorsement of the new notes.
The judgment should be reversed and a new trial ordered.
All concur.
Judgment reversed.