1. The acceptance of a draft dated in one state and drawn by a
resident of such state on the resident of another, and by the
latter accepted without funds and purely for the accommodation of
the former, and then returned to him to be negotiated in the state
where he resides, and the proceeds to be used in his business there
-- he to provide for its payment -- is, after it has been
negotiated and in the hands of a bona fide
value and without notice of equities, to be regarded as a contract
made in the state where the draft is dated and drawn, even though
by the terms of the acceptance the draft is payable in the state
where the acceptors reside.
2. It is accordingly to be governed by the law of the former
state, and if by the law of that state the holder of it, who had
purchased it in a course of business without notice of equities, is
entitled to recover the sum he paid for it, though he bought it
usuriously, he may recover such sum, though by the law of the state
where the draft was accepted and made payable, and where usury made
a contract wholly void, he could not.
3. A purchaser of a bill or note who purchases such paper as
that above described, though a broker, is not a lender of money on
it, and if he purchase honestly and without notice of equities --
there being nothing on the face of the draft to awaken suspicion --
he can recover the full amount of the draft.
4. Though this Court may be satisfied that a plain error has
been committed in a judgment below against a defendant in error,
and that he ought to have more than the court below adjudged to
him, yet if he himself have assigned no error, the error of the
court below cannot be corrected here on the writ of the opposite
On the 4th of August, 1869, W. T. Pelton, a resident of Chicago,
Illinois, and doing business there, drew a draft on Tilden &
Co., residents of New Lebanon in the State of New York, payable to
his own order, for $5,000 at sixty days, dating it at Chicago. This
draft Pelton sent to Tilden & Co., to the members of which firm
he was nearly related, and they accepted it, "payable at the Bank
of North America, New York," for his accommodation and in order to
aid him in raising funds for carrying on his business, and
Page 88 U. S. 242
any consideration or security therefor, and without any funds in
their hands to protect it, the understanding being that the draft
was to be discounted at a certain bank in Chicago and that Pelton
should take it up at maturity. Having accepted the draft, Tilden
& Co. sent it back to Pelton for the purpose of being
negotiated in Illinois, and in order that the proceeds might be
used in his business in that state and in Michigan. Pelton, having
endorsed the draft, delivered it to one A. C. Coventry for the
purpose of having him negotiate it for the benefit of him, Pelton,
and Conventry, having endorsed it also, sold it through a note
broker to one Blair at Chicago for $4,825, and no more, Blair, at
the time when he discounted the draft, having no knowledge whatever
of the understanding between Tilden & Co. and Pelton or that
the draft was accommodation paper and accepted without any funds in
the hands of Tilden & Co.
The draft, when it went into Blair's hands, appeared, of course,
in this form:
"$5000] CHICAGO, August 4th, 1869"
"Sixty days after date pay to the order of myself five
thousand dollars, value received, with exchange, and charge to
"W. T. PELTON"
"TO MESSRS. TILDEN & CO."
"New Lebanon, New York"
"Accepted, payable at the Bank of North America, New
"TILDEN & CO."
W. T. PELTON, A. C. COVENTRY"
By statute of New York, the exacting of greater interest than
percent renders a contract illegal and void.
By the statutes of Illinois, ten
percent interest is
lawful. Any agreement for a higher rate forfeits all
interest. But the contract is not void, and the principal may be
And an act of Illinois (that of February 12, 1857), enacts as
"Where any contract or loan shall be made in this state or
between citizens of this state and any other state or country
bearing interest at any rate which was or shall be lawful
Page 88 U. S. 243
to any law of the State of Illinois, it shall and may be lawful
to make the amount of principal and interest of such contract or
loan payable in any other state or territory of the United States
or in the City of London in England, and in all such cases such
contract or loan shall be deemed and considered as governed by the
laws of the State of Illinois, and shall not be affected by the
laws of the state or country where the same shall be made
The draft matured of course on the 6th of October, 1869, and the
acceptors refusing to pay it, Blair sued them in assumpsit in the
court below. Plea, usury.
The issue was tried by the court, which found the facts as
already given and found conclusions of law as follows:
1st. That by accepting the draft and returning it to the
possession of the drawer, the defendants empowered him to negotiate
it and put it in circulation by any valid transfer.
2d. That the negotiation and transfer, having been made in
Illinois, was valid except as to the interest reserved.
3d. That interest having exceeded the rate of ten percent per
annum interest was forfeited, and could not be collected either
from the drawers or acceptors. That as to the principal it was
valid as to both.
4th. That the plaintiff was entitled to judgment for the sum of
$4,825, being the principal less the interest illegally reserved,
The defendants excepted to the first, second, and fourth of
these conclusions of law and to so much of the third as found that
the contract, except as to interest reserved, was valid and was
binding on the defendants as to the principal.
The plaintiff excepted to the fourth conclusion so far as it
limited his right of recovery to the $4,825 and to the refusal of
the court to allow interest.
Judgment being given for $4,825, the defendants, Tilden &
Co., brought the case here on error, Blair, the plaintiff, not
taking any writ or assigning any error.
Page 88 U. S. 246
MR. JUSTICE STRONG delivered the opinion of the Court.
That the contract upon which the suit was brought was made in
Illinois must be considered as established by the findings of the
circuit court. It is true the defendants formally accepted the
draft in New York and promised to pay at a bank in New York, but
there was no operative acceptance until the draft was negotiated.
They sent it back to Illinois, where it had been drawn, for the
purpose of having it negotiated there. Pelton, the drawer, for
whose accommodation the acceptance was given, was thus constituted
the agent of the acceptors to give effect to their action. While
the draft remained in his hands, it was no binding contract. He had
no rights as against the defendants, but he was empowered to
negotiate the draft, and thereby to initiate a liability not only
of himself, but also of the defendants. It was only when the
instrument was negotiated that it became an accepted draft. It has
long been settled that the liability of an acceptor does not arise
from merely writing his name on the bill, but that it commences
with the subsequent delivery to a bona fide
with notice of acceptance given to such holder. [Footnote 1
] That this is so has
Page 88 U. S. 247
often been asserted in judicial decisions, and often in New
York. [Footnote 2
] The doctrine
is most reasonable. It is therefore quite immaterial under the
facts of this case that the defendants resided in New York and that
they there wrote their acceptance upon the draft. In legal effect,
they accepted the draft in Chicago, when by their authority the
drawer negotiated it and thus caused effect to be given to their
undertaking. Nor is the law of the contract changed by the fact
that the acceptance was made payable in New York. The place of
payment was doubtless designated for the convenience of the
acceptors or to facilitate the negotiation of the draft. But it is
a controlling fact that before the acceptance had any operation --
before the instrument became a bill, the defendants sent it to
Illinois for the purpose of having it negotiated in that state --
negotiated, it must be presumed, at such a rate of discount as by
the law of that state was allowable. What more cogent evidence
could there be that it was intended to create an Illinois bill? The
case is exactly the same as it would be if the defendants had been
residents of Chicago when the draft was drawn and had accepted it
at Chicago for the accommodation of the drawer, designating New
York as the place of payment. It is plain, therefore, that the
contract is an Illinois contract, and that the rights and
liabilities of the parties must be determined according to the law
of that state. By its statutes, persons may contract to receive ten
percent interest upon any debt due them, whether it be verbal or
written. If they stipulate for a higher rate, they forfeit the
interest, but the statute expressly allows the recovery of the
principal. The contract is not declared to be void. Only so much of
it is void as exacts the excessive interest. And by a legislative
act passed February 12, A.D. 1857, it is enacted as follows,
"When any contract or loan shall be made in this state, or
between citizens of this state and any other state or country,
bearing interest at any rate which
Page 88 U. S. 248
was or shall be lawful according to any law of the State of
Illinois, it shall and may be lawful to make the amount of
principal and interest of such contract or loan payable in any
other state or territory of the United States or in the City of
London in England, and in all such cases such contract or loan
shall be deemed and considered as governed by the laws of the State
of Illinois, and shall not be affected by the laws of the state or
country where the same shall be made payable."
Provisions very similar to these are also made by the statute of
February 12, 1857. [Footnote
If then the contract is, as we think it must be regarded, an
Illinois contract, and if therefore the rights of the plaintiff are
to be determined by the laws of that state, there can be no doubt
he was entitled to judgment, and to judgment for the full face of
the draft, with interest from the time it fell due. Even if the
contract had been usurious, he would have been entitled to a
judgment for all that the circuit court allowed him, for as we have
seen, the contract would not have been void, the statute expressly
declaring that when usury is taken the principal debt may be
recovered, while the interest reserved may not be. The case would
be quite different if the law of the state made void an instrument
usuriously negotiated. There was, however, no usury. And where a
note or a bill is not made void by statute, mere illegality in its
consideration will not affect the rights of a bona fide
holder for value. [Footnote 4
The plaintiff in this case was a bona fide
the draft. At the time of his purchase, he had no notice of any
equities in the drawer or in the acceptors. There was nothing on
the face of the instrument to awaken suspicion that it was
accommodation paper or that it had not been regularly and lawfully
negotiated. He bought it from bill brokers after it had been
endorsed by the drawer and payee and also by Carpenter, an apparent
endorsee of the payee. That his purchase was not corrupt, that it
was perfectly lawful under the law of
Page 88 U. S. 249
Illinois can admit of no question. [Footnote 5
] And this is the rule everywhere unless the
note or bill is declared by statute to be void in its
The plaintiffs in error therefore have no cause of complaint.
The circuit court gave judgment against them for the sum which the
plaintiff had paid for the draft, without interest. The judgment
was only too favorable to them. It should have been for the full
amount of the acceptance, with interest from the time it fell due,
and had the case been brought here by the plaintiffs below we
should direct such a judgment. But the present writ presents to us
only the assignments of error made by the defendants, and as they
are unsustained, we can do no more than
Affirm the judgment given.
Byles on Bills, 151.
Cook v. Litchfield,
5 Selden, 279; Lee v.
33 N.Y. 615, and Hyde v. Goodnow,
Gross' Statutes, 371-372.
Norris v. Langley,
19 N.H. 423; Converse v.
32 Vt. 320; Conkling v. Underhill,
Sherman v. Blackman,
24 Ill. 347; Hemenway v.