Section 4282 in terms applies only in case of fire happening "to or on board the vessel." Therefore the ship-owner is not protected by that section if goods be destroyed by fire on a lighter conveying them from the shore to the ship. Morewood v. Pollock, 1 Ell. & Bl. 743. Nor if they be destroyed by fire on the dock after landing. Per Curtis, J., Salmon Falls Mfg. Co. v. The Tangier, 11 Law Rep. (N. S.) 6.

Section 4283 is not so precise on this point. We are not aware of any reported case in which it has been decided whether, under that section, the loss or damage must have occurred on the vessel itself.

Under section 4283, the destruction, injury, etc., must have occurred "without the privity or knowledge" of the owners.

The English courts have shown a disposition to construe the words "privity and knowledge" strictly in favor of ship-owners.

Thus, if the loss is occasioned by the actual fault of one of several part owners, his co-owners are not thereby precluded from the benefits of section 4283. See The Spirit of the Ocean, Br. & Lush. 336. This case was perhaps anticipated, as would appear from the provision that the liability shall not exceed "the amount or value of the interest of such owner in such vessel and her freight then pending."

If a collision occur while the master, who is also part owner, is on board, but not on deck, his duty not calling him there, he can have the benefit of the act. The loss occasioned by the collision is not, under the circumstances, with his "fault or privity." The Obey, L. R., 1 Adm. & Ecc. 102.

When the owner is a corporation, the privity or knowledge of the managing officers of the corporation must be regarded as the privity and knowledge of the corporation itself. Lord v. Goodall, etc., S. S. Co., 4 Sawy. 292; Hill Mfg. Co. v. Prov. & N. Y. S. S. Co., 113 Mass. 495, 500.

If such managing officers, or an individual owner fails to select a competent master and crew, and to have the ship seaworthy when she sails, and loss ensues in consequence of such neglect, such loss is chargeable to the owners as occurring with their privity and knowledge. Lord v. Goodall, etc., S. S. Co., supra.

Can there be a loss by fire caused by the neglect of the owner, and so not within the total exemption allowed by section 4282, and yet within the limited liability of section 4283, because occasioned without the "privity or knowledge of the owner?"

On the one hand it is argued that special provision is made in section 4282 for this peculiar single loss, and even though the general language of subsequent sections might include the loss in that section provided for, yet where they may be fully applied to other cases of loss, they should be so applied and be satisfied with such application, thus leaving each and all provisions in force-a cardinal rule in the construction of statutes. Again, by no code of law was an owner of a ship limited in his liability where the loss occurred by his Own design or neglect; " the provisions would have to be very plain and clear that would justify such an interpretation. Knowlton v. Prov. & N. Y. S. S. Co., 53 N. Y. 76.

On the other hand it is said that the solution of the question must depend on the facts of the case as developed by judicial process. In re Prov. & N. Y. S. S. Co., 6 Ben. 124. To the same effect is Chisholm v. Northern Transportation Co., 61 Barb. 363, 390, which as an authority must be considered overruled by the case in 53 N. Y. 76.

In a case within section 4283, if the owner claims the benefit of that section he must take proceedings himself (unless some claimant does so), under sections 4284 or 4285, at least where there is more than one claimaut. Otherwise the owner might reduce the compensation to be made to those claimants who

should prosecute him, to their proportionate share of the value of the vessel and freight (§ 4284), and at the same time retain the balance without paying the other injured parties. Besides, it is necessary that the total amount of losses should be ascertained in order that the proportion to be paid to each claimant may be determined. Norwich Co. v. Wright, 13 Wall. 104, 124; Dyer v. National S. S. Co., 14 Blatchf. 483; The Niagara v. Cordes, 21 How. 7, 26.

In a case where only one person sustained loss it was said that the ship-owner must take the same proceedings in order to have the benefit of the act. Per Dwight, Com., Baird v. Daly, 57 N. Y. 236, 252. But to the contrary is the opinion of Grover, J., in Dougan v. Champlain Trans. Co., 56 N. Y. 1, 6, and the reasoning in Norwich Co. v. Wright would seem not to apply.

The rules prescribed by the Supreme Court allow the owner to take these proceedings and at the same time to contest his liability to any extent whatever by inserting proper allegations in his libel or petition. Adm. Rule 56. But literal compliance with section 4285, and a transfer in trust for the benefit of the claimants, would seem hardly consistent with reserving the question of liability. Of course, where a stipulation is given on appraisement or money deposited under Admiralty Rule 54, there would be no difficulty. The Annie Childs, Lush. 509.

It is held that great delay in taking the necessary proceedings will deprive the owner of the benefit of the act. Dyer v.Nat. S.S. Co.,14 Blatch.483, 487. Our practice in this respect differs from the English courts, where proceedings to limit liability may be taken after an adverse decree in admiralty. Leycester v. Logan, 3 K. & J. 446.

The value of the interest of the owner of the vessel was in some cases of collision computed on the value of the vessel immediately before the disaster. Walker v. Boston & Hope Ins. Co., 14 Gray, 288, 303; Barnes v. Steamship Co., 6 Phila. 479 (per Grier, J.) But the Supreme Court, in view of section 4285, allowing a transfer to trustees in full exoneration of the shipowner, which must necessarily be made after the disaster, held the value of the interest at that time to be the limit of liability, even if the vessel were entirely destroyed. Norwich Co. v. Wright, 13 Wall. 104, 126; Waltson v. Marks, 2 Am. Law Reg. 157, 165. Nor can insurance be included in this value. It is a distinct, independent subject of property. The assignment of the ship passes no interest in it. Waltson v. Marks, 2 Am. Law Reg. 157, 167. (Per Kane, U. S. D. J.)

The owner must answer not only to the amount of his interest in the vessel but also in the freight pending. And for this purpose a reasonable freight upon his own goods is to be included. Allen v. Mackay, 1 Sprague, 219; The Glaucus, 1 Low. 366. But a whaling voyage is special in its character, and on such a voyage as ordinarily prosecuted there is no "freight pending' within the meaning of the act. The Ontario, 2 Lowell, 40, 52; affirmed as Swift v. Brownell, 1 Holmes, 467.

If there be a decree against two vessels, A and B, as in a case of collision where both are found in fault, that the owners of A pay 2,000l. to the owners of B, and that the owners of B pay 14,000l. to the owners of A, and the owners of B take proceedings to limit their liability under the act, which result in the payment of a fund into court for distribution, the owners of A cannot retain the 2,000l. by way of set-off against the amount due to them by the owners of B, proving against the fund in court for the balance only, but they must pay the 2,000l. in full to the owners of B, and prove against the fund in court for the 14,000! Otherwise the owners of B, instead of having their liability limited pursuant to the statute, would suffer an additional loss of 2,000l., and would be in exactly the same position as if they had been condemned in Ad

miralty to bear all their own loss. Chapman v. Royal Netherlands S. N. Co., L. R., 4 Prob. Div. 157.

Finally it is always competent for the ship-owner by contract to waive the benefit of any or all the provisions of the statute. The original act of 1851 contained an express proviso to this effect, at the end of the first section. This is omitted in the Revised Statutes; but it is believed that on general principles, as no rule of morality or public policy forbids, such a contract would be binding without the aid of the proviso.

But the contract must be express, and no mere implied contract can be alleged against the express exemption or limitation of the statute. Walker v. The Trans. Co., 3 Wail. 150.

J. F. MOSHER.

NEGOTIABLE INSTRUMENT-HOLDER FOR VALUE-BAR TO ACTION-ESTOPPEL - CONFLICT OF LAW.

SUPREME COURT OF THE UNITED STATES-OCTOBER TERM, 1879.

BROOKLYN CITY & NEWTOWN RAILROAD Co., Plaintiff in Error, v. NATIONAL BANK OF THE REPUBLIC.

1. The judgment in an action instituted by the holder of negotiable paper against the indorsers is not a bar to a subsequent action by the holder against the maker, the latter not having been made a party to the first action, nor notified of its pendency.

2. An estoppel arising out of the judgment of a court of competent jurisdiction is equally conclusive upon all the parties to the action and their privies. It may not be invoked or repudiated at the pleasure of one of the parties as his interest may happen to require.

3. The transfer, before maturity, of negotiable paper, as security for an antecedent debt merely, without other circumstances - if the paper be so indorsed that the holder becomes a party to the instrument - although the transfer is without express agreement by the cred itor 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 such debt. In either case the bona fide holder is unaffected by equities or defenses between prior parties of which he had no notice.

4. The courts of the United States, in determining questions of general commercial law, are not controlled by the decisions of a State court, even in an action instituted by a National bank, located in the Stato rendering such decision, against one of its own citizens, upon a negotiable note there executed and payable. Such decisions, not based upon local legislative enactments, are not "laws" within the meaning of the Federal statute, which provides that "the laws of the several States, except where the Constitution, treaties or statutes of the United States otherwise require or provide, shall be regarded as rules of decision in trials at common law in the court of the United States, in cases where they apply." Swift v. Tyson, 16 Pet. 1, reaffirmed.

IN

N error to the Circuit Court of the United States for the Southern District of New York. The opinion states the case.

HARLAN, J. The case, as made by an agreed statement of facts, is this: The plaintiff in error, the Brooklyn City & Newtown Railroad Company, a corporation organized under the laws of New York, executed, at Brooklyn, in that State, on 9th May, 1873, its promissory note for the sum of $5,000, payable four months after date to the order of Wm. V. LeCount, [its] treasurer, at the Atlantic State Bank of Brooklyn. It was indorsed in blank, first by LeCount, treasurer, 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 owing the larger portion of its stock. The note was made for the purpose only of

Neither

raising money thereon for the company. LeCount nor Palmer & Co. received any consideration for their respective indorsements. The note thus indorsed 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 defendant in error, the National Bank of the Republic of New York. They however kept no account with that institution, 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 per cent 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 11th, $15,000; March 15th, $10,000; April 11th, $10,000; May 16th, $10,000; May 20th, $20,000; May 23d, $10,000; June 4th, $15,000; June 6th, $12,000; June 12th, $10,000; June 19th, $36,000; and July 11th, $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 9th, 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 the 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 $3,520.17 and $2,146.92.

On the 22d July, 1873, Howes, Hyatt & Co. having become insolvent, Hutchinson & Ingersoll executed and delivered to the bank, at its request, antedated to June 19th, 1873 (which was the date of the $35,000 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 be and are hereby pledged as security for the payment of any and every indebtedness, liability or engagement on our part, held by said bank, and that on the non-payment, 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, etc., * * * 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 August 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 indorsement 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 any thing else than ordinary business paper, or that there was any question as to tho

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 August 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 15th 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 July 22, 1873, and the last payment being April 4th, 1874, leaving the $5,000 note in the bank's possession.

The collate

Hutchinson & Ingersoll are insolvent. rals collected exceeded the $36,000 loan by $4,503.61. On the $10,000 loan of July 11, 1873, there was a balance due the bank, November 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 indorsers 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.

The court below gave judgment for the bank, to reverse which the company has prosecuted this writ.

First. The first proposition of the plaintiff in error is that there has been a final determination by a court of competent jurisdiction, between the same parties or their privies, upon the same subject-matter as that here in controversy. This contention rests upon the judgment of the Supreme Court of New York in the action instituted by the bank against Palmer & Co., as the indorsers of the note in suit.

The judgment in the State court clearly constitutes no bar to the present action. Personal judgments bind only parties and their privies. The railroad company was in no sense a party to the separate action against Palmer & Co. Nor did it receive notice from the latler of the pendency of that suit. It was therefore in no manner affected by the judgment. Had the company received such notice in due time, it would, perhaps, although not technically a party to the record, have been estopped, at least as between it and its accommodation indorsers, from saying that the latter were not bound to pay the judgment, if obtained without fraud or collusion. Being however an entire stranger to the record, it had no opportunity or right, in that proceeding, to controvert the claim of the bank, to control the defense, to introduce or cross-examine witnesses, or to prosecute a writ of error from the judgment.

If, in the action against Palmer & Co., the bank had obtained judgment for the full amount of the note, and being unable to collect it, had sued the railroad company, the latter would not have been precluded by the judgment in that action, to which it was not a party, and of the pendency of which it had not been notified, from asserting any defense it might have against the note. This being so, it results that the company cannot plead the judgment in the State court as a bar to this action. An estoppel arising out of the judgment of a court of competent jurisdiction

is equally conclusive upon all the parties to the action and their privies. It may not be invoked or repudiated at the pleasure of one of the parties as his interest may happen to require.

The liability of the maker and indorsers was not joint, but several, and therefore a judgment in an action against the indorsers, upon the contract of indorsement, could not bar a separate action by the bank against the maker- certainly not, where the maker was without notice from the indorsers of the pendency of the action against them.

Second. The next proposition involves the right of the railroad company to show, as against the bank, that the note was executed and delivered to Hutchinson & Ingersoll for the purpose only of raising money upon it for the company, and that consequently they had no authority to pledge it as collateral security for their own indebtedness to the bank. It will have been observed, from the statement of facts, that the note in suit was among those pledged to the bank as security for the call loan of $36,000, made on June 19, 1873; that Howes, Hyatt & Co., whose notes had been pledged as security for the call loan of $10,000, made on June 19, 1873, having become insolvent, Hutchinson & Ingersoll, July 22, 1873, at the request of the bank, executed the writing dated June 19, 1873, whereby they pledged all securities, bonds, stocks, things in action, or other property theretofore deposited with the bank, whether specifically or not, as security for the payment of any and every indebtedness, liability, or engagement held by the bank for which they were, or should become, in any way liable. Although, therefore, the call loan of $36,000 was extinguished, without resorting to the note in suit, that note, under the agreement made on the 22d of July, 1873, stood pledged as collateral security also for the $10,000 call loan of July 11, 1873.

The bank, we have seen, received the note before its maturity, indorsed in blank, without any express agreement to give time, but without notice that it was other than ordinary business paper, or that there was any defense thereto, and in ignorance of the purposes for which it had been executed and delivered to Hutchinson & Ingersoll. Did the bank, under these circumstances, become a holder for value, and as such entitled, according to the recognized principles of commercial law, to be protected against the equities or defenses which the railroad company may have against the other parties to the note?

This question was carefully considered, though perhaps it was not absolutely necessary to be determined, in Swift v. Tyson, 16 Pet. 1. After stating that the law respecting negotiable instruments was not the law of a single country only, but of the commercial world, the court, speaking by Mr. Justice Story, said: "And we have no hesitation in saying that a pre-existing debt does constitute a valuable consideration in the sense of the general rule already stated as applicable to negotiable instruments. Assuming it to be true (which, however, may well admit of some doubt from the generality of the language) that the holder of a negotiable instrument is unaffected with the equities between antecedent parties, of which he has no notice, only where he receives it in the usual course of trade and business for a valuable consideration, before it becomes due; we are prepared to say that receiving it in payment of, or as security for a pre-existing debt, is according to the known usual course of trade and business. And why, upon principle," continued the court, "should not a pre-existing debt be deemed such a valuable consideration? It is for the benefit and convenience of the commercial world to give as wide an extent as practicable to the credit and circulation of negotiable paper, that it may pass not only as security for new purchases and advances, made upon the transfer thereof, but also in payment of and as security for

pre-existing debts. The creditor is thereby enabled to realize or to secure his debt, and thus may safely give a prolonged credit, or forbear from taking any legal steps to enforce his rights. The debtor also has the advantage of making his negotiable securities of equivalent value to cash. But establish the opposite conclusion, that negotiable paper cannot be applied in the payment of, or as security for pre-existing debts, without letting in all the equities between the original and antecedent parties, and the value and circulation of such securities must be essentially diminished, and the debtor driven to the embarrassment of making a sale thereof, often at a ruinous discount, to some third person, and then by circuity to apply the proceeds to the payment of his debts. What, indeed, upon such a doctrine would become of that large class of cases, where new notes are given by the same or by other parties, by way of renewal or security to banks, in lieu of old securities discounted by them, which have arrived at maturity? Probably more than one-half of all the bank transactions in our country as well as those of other countries are of this nature. The doctrine would strike a fatal blow at all discounts of negotiable securities for pre-existing debts."

After a review of the English cases, the court proceeded. "They directly establish that a bona fide holder, taking a negotiable note in payment of, or as security for a pre-existing debt, is a holder for a valuable consideration, entitled to protection against all the equities between the antecedent parties."

The opinion in that case has been the subject of criticism in some courts, because it seemed to go beyond the precise point necessary to be decided, when declaring that the bona fide holder of a negotiable note, taken as collateral security for an antecedent debt, was protected against equities existing between the original or antecedent parties. The brief dissent of Mr. Justice Catron was solely upon that ground, which renders it quite certain that the whole court was aware of the extent to which the opinion carried the doctrines of the commercial law upon the subject of negotiable instruments transferred or delivered as security for antecedent indebtedness. In the judgment of this court, as then constituted (Mr. Justice Catron alone excepted), the holder of a negotiable instrument, received before maturity, and without notice of any defense thereto, is unaffected by the equities or defenses of antecedent parties, equally whether the note is taken as collateral security for, or in payment of, previous indebtedness. And we understand the case of McCarty v. Roots, 21 How. 439, to affirm Swift v. Tyson, upon the point now under consideration. It was there said: "Nor does the fact that the bills were assigned to the plaintiff as collateral security for a pre-existing debt, impair the plaintiff's right to recover. *** The delivery of the bills to the plaintiff as collateral security for a pre-existing debt, under the decision of Swift v. Tyson, was legal."

It may be remarked in this connection that the courts holding a different rule have uniformly referred to an opinion of Chancellor Kent in Bay v. Coddington, 5 Johns. (N. Y) 56, reaffirmed in Coddington v. Bay, 20 id. 637. There is, however, some reason to believe that the views of that eminent jurist were subsequently modified. In the 6th edition of his Commentaries, side page 81, note b. prepared by himself, reference is made to Stalker v. McDonald, 6 Hill, 93, in which the principles asserted in Bay v. Coddington were re-examined and maintained in an elaborate opinion by Chancellor Walworth, who took occasion to say that the opinion in Swift v. Tyson was not correct in declaring that a pre-existing debt was, of itself, and without other circumstances, a sufficient cousideration to entitle the bona fide holder, without notice,

to recover on the note, when it might not, as between the original parties, be valid. But Chancellor Kent adds: "Mr. Justice Story, on Promissory Notes, p. 215, note 1, repeats and sustains the decision in Swift v. Tyson, and I am inclined to concur in that decision as the plainer and better doctrine. Of course it did not escape his attention that the court in Swift v. Tyson declared the equities of prior parties to be shut out as well when the note was merely pledged as collateral security for a pre-existing debt, as when transferred in payment or extinguishment of such debt.

According to the very general concurrence of judicial authority in this country as well as elsewhere, it may be regarded as settled in commercial jurisprudence there being no statutory regulations to the contrary that where negotiable paper is received in payment of an antecedent debt; or where it is transferred, by indorsement, as collateral security for a debt created, or a purchase made at the time of transfer; or the transfer is to secure a debt, not due, under an agreement express or to be clearly implied from the circumstances, that the collection of the principal debt is to be postponed or delayed until the collateral matured; or where time is agreed to be given and is actually given upon a debt overdue in consideration of the transfer of negotiable paper as collateral security | therefor; or where the transferred note takes the place of other paper previously pledged as collateral security for a debt, either at the time such debt was contracted or before it became due; in each of these cases the holder who takes the transferred paper before its maturity, and without notice, actual or otherwise, of any defense thereto, is held to have received it in due course of business, and in the sense of the commercial law, becomes a holder for value, entitled to enforce payment without regard to any equity or defense which exists between prior parties to such paper.

Upon these propositions there seems at this day to be no substantial conflict of authority. But there is such conflict where the note is transferred as collateral security merely, without other circumstances, for a debt previously created. One of the grounds upon which some courts of high authority refuse in such cases to apply the rule announced in Sirift v. Tyson is, that transactions of that kind are not in the usual and ordinary course of commercial dealings. But this objection is not sustained by the recognized usages of the commercial world, nor, as we think, by sound reason. The transfer of negotiable paper as security for antecedent debts, nothing more, constitutes a material and an increasing portion of the commerce of the country. Such transactions have become very common in financial circles. They have grown out of the necessities of business, and in these days of great commercial activity they contribute largely to the benefit and convenience both of debtors and creditors. Mr. Parsons, in his Treatise on the Law of Promissory Notes and Bills of Exchange, discusses the general question of the transfer of negotiable paper under three aspects one, where the paper is received as collateral security for antecedent debts. We concur with the author, "that when the principles of the law merchant have established more firmly and unreservedly their control and their protection over the instruments of the merchant, all of these transfers (not affected by peculiar circumstances) will be held to be regular, and to rest upon a valid consideration." 1 Pars. on Notes and Bills, 218, 2d ed.

Another ground upon which some courts have declined to sanction the rule announced in Swift v. Tyson is, that upon the transfer of negotiable paper merely as collateral security for an antecedent debt, nothing is surrendered by the indorsee-that to permit the equities between prior parties to prevail deprives him of no right or advantage enjoyed at the time of trans

fer; imposes upon him no additional burdens, and subjects him to no additional inconveniences.

This may be true in some, but it is not true in most cases, nor, in our opinion, is it ever true when the note, upon its delivery to the transferee, is in such form as tom ke him a party to the instrument, and impose upon him the duties which, according to the commercial law, must be discharged by the holder of negotiable paper in order to fix liability upon the indorser.

The bank did not take the note in suit as a mere agent to receive the amount due when it suited the convenience of the debtor to make payment. It received the note under an obligation imposed by the commercial law to present it for payment and give notice of non-payment in the mode prescribed by the settled rules of that law. We are of opinion that the undertaking of the bank to fix the liability of prior parties by due presentation for payment and due notice in case of non-payment-an undertaking necessarily implied by becoming a party to the instrument -was a sufficient consideration to protect it against equities existing between the other parties, of which it had no notice. It assumed the duties and responsibilities of a holder for value and should have the rights and privileges pertaining to that position. The correctness of this rule is apparent in cases like the one now before us. The note in suit was negotiable in form, and was delivered by the maker for the purpose of being negotiated. Had it been regularly discounted by the bank at any time before maturity and the proceeds either placed to the credit of Hutchinson & Ingersoll, or applied directly to the discharge, pro tanto, of any one of the call loans previously made to them, it would not be doubted that the bank would be protected against the equities of prior parties. Instead of procuring its formal discount Hutchinson & Ingersoll used it to secure the ultimate payment of their own debt to the bank. At the time the written agreement of July 22, 1873, was executed, by which this note, with others, was pledged as security for any debt then or thereafter held against them, the bank had the right to call in the $10,000 loan, that is, to require immediate payment. The securities upon which that loan rested had become in part worthless, and it is evident that but for the deposit of additional collateral securities the bank would have called in the loan, or resorted to its rightful legal remedies for the enforcement of payment. It was, under the circumstances, the duty of the debtors to make such payment, or to secure the debt. It was important to them, and was in the usual course of commercial transactions, to furnish such security. If the bank was deceived as to the real ownership of the paper, or as to the purposes of its execution and delivery to Hutchinson & Ingersoll, it was because the railroad company intrusted it to those parties in a form which indicated that the latter were its rightful holders and owners, with absolute power to dispose of it for any purpose they saw proper.

Our conclusion, therefore, is that the transfer, before maturity, of negotiable paper as security for an antecedent debt merely, without other circumstances, if the paper so indorsed that the holder becomes a party to the instrument, although the transfer is without express agreement by the creditor 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 such debt. In either case the bona fide holder is unaffected by equities or defenses between prior parties of which he had no notice. This conclusion is abundantly sustained by authority. A different determination by this court would, we apprehend, greatly surprise both the legal profession and the commercial world. Bigelow's Bills and Notes, 502 et seq.; 1 Daniel on Neg. Instr. (2d ed.) ch. 25, §§ 820 to 833; Story on Prom. Notes, $$ 186 and 195 (7th ed.) by Thorndyke; 1 Pars. on Notes and Bills, 218 (2d ed.),

$4, ch. 6; and Redfield & Bigelow's Lead. Cas. on Bills of Ex. and Prom. Notes, where the authorities are cited by the authors.

Third. It is, however, insisted that by the course of judicial decision in New York, negotiable paper transferred merely as collateral security for an antecedent debt, is subject to the equities of prior parties existing at the time of transfer; that the bank being located in New York, and the other parties being citizens of the same State, and the contract having been there made, this court is bound to accept and follow the decision of the State court whether it meets with our approval or not. This contention rests upon the provision of the statute which declares that "the laws of the several States, except where the Constitution, treaties, or statutes of the United States otherwise require or provide, shall be regarded as rules of decision in trials at common law, in the courts of the United States, in cases where they apply."

It is undoubtedly true that if we should apply to this case the principles announced in the highest court of the State of New York, a different conclusion would have been reached from that already announced. That learned court has held that the holder of negotiable paper transferred merely as collateral security for an antecedent debt, nothing more, is not a holder for value within those rules of commercial law, which protect such paper against the equities of prior parties.

The question here presented is concluded by our former decisions.

We remark, at the outset, that the section of the statute of the United States already quoted is the same as the 34th section of the original judiciary act.

In Swift v. Tyson, supra, the contention was that this court was obliged to follow the decisions of the State courts in all cases where they apply. But this court said: "In order to maintain the argument it is essential therefore to hold that the word 'laws in this section, includes within the scope of its meaning the decisions of the local tribunals. In the ordinary use of language it will hardly be contended that the decisions of courts constitute laws. They are, at most, only evidence of what the laws are, and not of themselves laws. They are often re-examined, reversed, and qualified by the courts themselves, whenever they are found to be either defective, or illfounded, or otherwise incorrect. The laws of a State are more easily understood to mean the rules and enactments promulgated by the legislative authority thereof, or long-established local customs having the force of laws. In all the various cases which have hitherto come before us for decision this court have uniformly supposed that the true interpretation of the 34th section limited its application to State laws strictly local; that is to say, to the positive statutes of the State, and the construction thereof adopted by the local tribunals, and to rights and titles to things having a permanent locality, such as the rights and titles to real estate, and other matters immovable and intraterritorial in their nature and character. It has ever been supposed by us that the section did apply, or was designed to apply, to questions of a more general nature, not at all dependent upon local statutes or local usages of a fixed and permanent operation; as for example, to the construction of ordinary contracts or other written instruments, and especially to questions of general commercial law, where the State tribunals are called upon to perform the like functions as ourselves; that is, to ascertain upon general reasoning and legal analogies, what is the true exposition of the contract or instrument, or what is the just rule furnished by the principles of commercial law to govern the case. And we have not now the slightest difficulty in holding that this section, upon its true intendment and construction, is strictly limited to