courts prior to its enactment so far as concerns the discharge of an antecedent debt,69 and though it is not clearly stated that taking as security for an antecedent debt is also giving value, where neither extension nor forbearance is promised by the creditor, the decisions under the statute seem to treat a transferee as giving value regardless of whether he takes the instrument in payment of, or as security for an antecedent debt.70 If, however, the same rule is to be applied to the enforcement of the promises between immediate parties to an instrument, a note given as security for the unmatured debt of another, or an indorsement on the unmatured note of another after its discount by the holder, is supported by sufficient consideration-a result certainly at variance with the law as it existed before the enactment of the statute.71 Whether the courts will accept this conclusion is perhaps not yet wholly clear, but from such decisions as have been made it seems very unlikely.72 69 The New York Court of Appeals recognizes this change in the law of New York. Kelso v. Ellis, 224 N. Y. 528, 121 N. E. 364. 70 Scherer v. Everest, 168 Fed. 822, 94 C. C. A. 346; Melton v. Pensacola Bank, 190 Fed. 126, 111 C. C. A. 166; Vogler v. Manson, (Ala. 1917), 76 So. 117; Crystal River Lumber Co. v. Consolidated Naval Stores Co., 63 Fla. 119, 58 So. 129; Voss v. Chamberlain, 139 Ia. 569, 179 N. W. 269, 19 L. R. A. (N. S.) 106, 130 Am. St. Rep. 331; State Bank v. Bilsted, 162 Ia. 433, 136 N. W. 204, 49 L. R. A. (N. S.) 132; Lowell v. Bickford, 201 Mass. 543, 88 N. E. 1; Burnes v. New Mineral Fertilizer Co., 218 Mass. 300, 105 N. E. 1074; Graham v. Smith, 155 Mich. 65, 118 N. W. 726; Snelling State Bank v. Clasen, 132 Minn. 404, 157 N. W. 643; First Nat. Bank v. McGrath, 111 Miss. 872, 72 So. 701; Central Bank v. Lyda, (Mo. App. 1916), 191 S. W. 245; Kelso v. Ellis, 224 N. Y. 528, 121 N. E. 364; King v. Bowling Green Trust Co., 145 N. Y; App. Div. 398, 402, 129 N. Y. S. 977. Brewster v. Shrader, 26 N. Y. Misc 480, 57 N. Y. S. 606; Manufacturing Co. v. Summers, 143 N. C. 102, 55 S. E. 522; Smathers v. Toxaway Hotel Co., 162 N. C. 346, 78 S. E. 224; Second Nat. Bank v. Werner, 19 N. Dak. 485, 126 N. W. 100; Crane v. Hall (Tenn.), 213 S. W. 414; Helper State Bank v. Jackson, 48 Utah, 430, 160 Pac. 287; American Bank v. McComb, 105 Va. 473, 54 S. E. 14; German-American Bank v. Wright, 85 Wash. 460, 145 Pac. 769, Ann. Cas. 1917 D. 381. For the cases deciding whether taking chattel property as payment or security for an antecedent debt is a taking for value, see Williston, Sales, § 620. 71 See supra, § 108. 72 In the following cases where the Negotiable Instruments Law was applicable, the promise was held nudum pactum. Zadek v. Forcheimer, (Ala App. 1918), 77 So. 941; American Multigraph Sales Co. v. Grant, 135 Whatever may ultimately be decided where the creditor merely accepts an instrument or signature as security, his agreement to forbear or to extend the time of payment of the debt of another is unquestionably sufficient consideration to support a promise on a negotiable instrument,73 as indeed it would be sufficient to support an informal promise; 74 and if Minn. 208, 160 N. W. 676; Schaus v. Henry, 89 N. J. L. 607, 99 Atl. 188; Roseman v. Mahony, 86 N. Y. App. D, 377, 83 N. Y. S. 749; Rogowski v. Brill, 131 N. Y. S. 589; Wetmore & Morse Granite Co. v. Ryle (Vt.), 107 Atl. 109. In Holmes v. Webb, 166 Wis. 280, s. c. sub nom. Holmes v. Wisconsin Grain &c. Co., 164 N. W. 1007, though a majority of the court held that lack of consideration had not been proved since it did not appear that the antecedent debt had not been extended, they implied that otherwise recovery could not be allowed. The words of the Wisconsin statute, however, differ from the standard form of the Uniform Law. In Widger v. Baxter, 190 Mass. 130, 76 N. E. 509, 3 L. R. A. (N. S.) 436, a note signed by husband and wife for an antecedent debt due from the husband, which had been discharged in insolvency, was held without consideration as against the wife, the court saying, at page 132: "A wife's note, given to a third person in payment of her husband's debt, is for a valuable consideration; but a note given as security for such a debt, previously existing, is not. To make a note of the latter kind valid there must be a new consideration." The Negotiable Instruments Law though then recently enacted and applicable to the case was not cited. In Lowell v. Bickford, 201 Mass. 543, 88 N. E. 1, a subsequent note given as security for an earlier indebtedness was enforced but there was clear consideration for the later note in a promise of forbearance by the creditor. Thus the distinction from the previous case was obvious but the court made the unnecessary statement that in Widger v. Baxter, 190 Mass. 130, 76 N. E. 509, 3 L. R. A. (N. S.) 436, "there was no preëxisting debt in existence when the wife's note was given." In Neal v. Wilson, 213 Mass. 336, 100 N. E. 544, a check was paid to make good an overdraft of a third person and the drawer of the check was held liable. Here the check was clearly given in satisfaction of an antecedent debt not merely as security for it, but the court said: "Where a defendant for the accommodation of a debtor and without consideration gives his note or check to a creditor of the debtor in payment of or as security for the debt due from the debtor to the creditor, he is liable to the creditor on the note or check. That is the rule of the negotiable instruments act (R. L. c. 73, § 46), which governs the case. The negotiable instruments act in this regard is a codification of the common law." A similar statement was made in the case of Seager v. Drayton, 217 Mass. 571, 105 N. E. 461. 73 Russell Electric Co. v. Bassett, 79 Conn. 709, 66 Atl. 531; Mohn v. Mohn, 181 Iowa, 119, 164 N. W. 341; Bank of Montreal v. Beecher, 133 Minn. 81, 157 N. W. 1070; Citizens' Bank v. Oaks, 184 Mo. App. 598, 170 S. W. 679; Milius v. Kauffmann, 104 N. Y. App. D. 442, 93 N. Y. S. 669; Holmes v. Webb, 166 Wis. 280, sub nom. Holmes v. Wisconsin Grain &c. Co., 164 N. W. 1007. 74 See supra, § 135. the claim in question has matured, it is often possible to find facts warranting an implication of a promise of extension or forbearance.75 Merely crediting a customer with the proceeds of a discounted note for his future drawing will not constitute a bank a holder for value.76 This is inconsistent with the language of section 25, though undoubtedly in accord with principle apart from the statute. The bank by its discount and credit in effect has made a promise to pay the amount with which it credits the customer. This promise would be "sufficient to support a simple contract." " Where, however, the bank permits the customer to check out the proceeds of discounted paper, there is no doubt that it is a holder for value.78 And so where an obligation is incurred by the bank in reliance on the proceeds of the discount.79 80 77 If the proceeds by agreement are used to pay a debt due from the customer to the bank, the latter has indisputably given value, but if the application was not made by agreement but by the mere exercise of the banker's lien or right of set-off the contrary conclusion has been reached in New 75 See Many v. Krueger, 153 Ill. App. 327; Zimbelman v. Finnegan, 141 Ia. 358, 118 N. W. 312. 76 Tatum v. Commercial Bank, 185 Ala. 249, 254, 64 So. 561; City Deposit Bank v. Green, 130 Ia. 384, 106 N. W. 942; McNight v. Parsons, 136 Ia. 390, 113 N. W. 858, 22 L. R. A. (N. S.) 718, 125 Am. St. Rep. 265; Merchants Nat. Bank v. Santa Maria Sugar Co., 162 N. Y. App. Div. 248, 147 N. Y. S. 498; Elgin City Banking Co. v. Hall, 119 Tenn. 548, 108 S. W. 1068; Miller v. Norton, 114 Va. 609, 610, 77 S. E. 452. But see contra, Royal Bank v. Tottenham, [1894] 2 Q. B. 715, 717, 718; Capital & Counties Bank v. Gordon, [1903] A. C. 240, 245. Cf. Gaden v. Newfoundland Sav. Bank, [1899] A. C. 281. 77 See Marling v. Fitzgerald, 138 Wis. 93, 120 N. W. 388, 131 Am. St. Rep. 1003. 78 National Bank v. Silke, [1891] 1 Q. B. 435, 439; Citizens' Nat. Bank v. 79 Elmore County Bank v. Avant, 189 Ala. 418, 66 So. 509; Montrose Savings Bank v. Claussen, 137 Ia. 73, 114 N. W. 547; National Bank of Commerce v. Armbruster, 42 Okla. 65, 140 Pac. 1190. See also Hermann's Ex. v. Gregory, 131 Ky. 819, 115 S. W. 809. 80 Mechanics' Bank v. Chardavoyne, 69 N. J. L. 256, 55 Atl. 1080, 101 Am. St. Rep. 701; Wallabout Bank . Peyton, 123 N. Y. App. D. 727, 108 N. Y. S. 42; Ogle v. Armstrong (Okl.), 15 Pac. 1139. York.81 It is not requisite that value be adequate, therefore one who takes paper at a large discount,82 or simply forbears for a short time to enforce a claim against a third person may be a holder in due course. But a large discount may be evidence of bad faith when taken in connection with other circumstances.84 83 Section 26. [WHAT CONSTITUTES HOLDER FOR VALUE.] Where value has at any time been given for the instrument, the holder is deemed a holder for value in respect to all parties who became such prior to that time. Section 27.-[WHEN LIEN ON INSTRUMENT CONSTITUTES HOLDER FOR VALUE.] Where the holder has a lien on the instrument, arising either from contract or by implication of law, he is deemed a holder for value to the extent of his lien.85 Section 28. [EFFECT OF WANT OF CONSIDERATION.] Absence or failure of consideration is matter of defense as against any person not a holder in due course; and partial failure of consideration is a defence pro tanto, whether the failure is an ascertained and liquidated amount or otherwise.86 81 Consolidation Nat. Bank v. Kirkland, 99 App. Div. 121, 91 N. Y. S. 353. But see Sec. 27. The words "by implication of law" in that section would seem to require an opposite decision. 82 Ham v. Merritt, 150 Ky. 11, 149 S. W. 1131; Wells v. Duffy, 69 Wash. 310, 124 Pac. 907. 83 Bank of Montreal v. Beecher, 133 Minn. 81, 157 N. W. 1070. 84 Harris v. Johnson, 89 Conn. 128, 93 Atl. 126. 85 See Crewdson v. Shultz, 165 C. C. A. 434, 254 Fed. 24; Continental Credit Co. v. Ely, 91 Conn. 553, 100 Atl. 434; Elk Valley Coal Co. v. Third Nat. Bank, 157 Ky. 617, 163 S. W. 766; Citizens Bank v. Limpright, 93 Wash. 361, 160 Pac. 1046. The transferee from such a lienholder may recover the full amount if he pays value in good faith. Burnes v. New Mineral Fertilizer Co., 218 Mass. 300, 105 N. E. 1074. 86 It seems clear under this section, taken in connection with Sec. 24, that whatever may have been the rule prior to the enactment of the statute (see supra, § 108), the burden, not only of introducing some evidence of lack of consideration but of ultimately proving such lack, is thrown upon the defendant; but a number of decisions failing to notice the effect of the statute have followed their previous rule that the ultimate burden is upon the plaintiff to establish sufficient consideration. The matter is discussed with citation of cases in Shaffer v. Bond, 129 Md. 648, 99 Atl. 973, where the correct conclusion is reached. See also Stubbins Hotel Co. v. Beissbarth (N. Dak.), § 1147. Accommodation parties. Section 29. [LIABILITY OF ACCOMMODATION PARTY.] An accommodation party is one who has signed the instrument as maker, drawer, acceptor, or indorser, without receiving value therefor, and for the purpose of lending his name to some other person. Such a person is liable on the instrument to a holder for value, notwithstanding such holder at the time;of taking the instrument knew him to be only an accommodation party.87 This section does not affect the capacity, or lack of capacity to make an accommodation indorsement. By statute in some States, a married woman is incapable of contracting as surety for her husband.88 Corporations cannot generally bind themselves in this way.89 Nor has a partner authority to sign the partnership name for accommodation.90 If a valid accommodation signature is made, knowledge by one who discounts the instrument that it was given for accommodation will not limit his rights. This was true before the enactment of the statute, and is expressly provided therein.91 Whether the authority to transfer accommodation paper is revoked on the maturity of the paper so that the accommodated party no longer can give a right even to a holder for value, is disputed. If an express agreement were made by which the accommodated party undertook to pay the obligation at maturity this agreement would, it seems, clearly 174 N. W. 217, and Brannan, Neg. Inst. Law (3d ed.) p. 95. 87 In the Illinois Act the words "without receiving value therefor" are omitted and at the end of the section is added, "and in case a transfer after maturity was intended by the accommodating party, notwithstanding such holder acquired title after maturity." 88 See People's National Bank v. Schepflin, 73 N. J. L. 29, 62 Atl. 333, and supra, § 269. 89 See Monument National Bank v. Globe Works, 101 Mass. 57; J. G. Brill Co. v. Norton & Taunton Street Ry. Co., 189 Mass. 431, 75 N. E. 1090, 2 L. R. A. (N. S.) 525; Jacobus v. Jamestown Mantel Co., 211 N. Y. 154, 105 N. E. 210; Cox & Sons Co. v. Northampton Brewing Co., 245 Pa. St. 418, 91 Atl. 859, Ann. Cas. 1916 A. 86. 90 Tanner v. Hall, 1 Pa. St. 417. 91 See Neal v. Wilson, 213 Mass. 336, 100 N. E. 544; Packard v. Windholz, 88 N. Y. App. Div. 365, 84 N. Y. S. 666; Marling v. Jones, 138 Wis. 82, 119 N. W. 931, 131 Am. St. Rep. 996. Cf. Lackawanna Trust Co. v. Carlucci (Pa.), 107 Atl. 693. |