Mr. Justice Harlan,
after stating the facts, delivered the opinion of the court.
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 not a party to the separate action against Palmer & Co., nor did it receive notice from the latter 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, fróm 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 defence, to introduce or cross-examine witnesses-, or to prosecute a writ of error to 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 defence it might have against the note. This being so, it results that the comparv 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.
The next proposition involves the right of the railroad company to. show, as against the bank, that the note was executed land 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 pwn 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 June 19, 1873; that Howes, Hyatt, & Cm, whose notes had been pledged as security for the call loan of $10,000, made 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,Q00 was extinguished, without resorting to the note in. suit, that note, under the agreement made July 22, 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- defence "thereto, and in ignorance of the purposed 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 defences 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, o'f .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 óf 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 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 embarrass ment 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 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 Iona 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 defence thereto, is unaffected by the equities or defences of antecfedent 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. 432). to affirm Swift v. Tyson, upon the point now under consideration. It was there said: "Nor does the fact that the hills were assigned to the plaintiff as collateral security for a pre-existing debt impair the plaintiff's right to recover." p. 488. " 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." p. 439.
It may be remarked in this connection that the courts hold- ' ing a different rule have uniformly referred to an opinion of Chancellor Kent in Bay v. Coddington (5 Johns. (N. Y.) Ch. 54), reaffirmed in Coddington v. Bay, 20 Johns. (N. Y.) 637. There is, however, some reason to believe that the views-of that eminent jurist were subsequently modified. In the .later editions of his Commentaries (vol. iii. p. 81, note 5), prepared by himself, reference is made to Stalker v. McDonald (6 Hill (N. Y.), 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 consideration to entitle the Iona 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 papér 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, actua-l or otherwise,, of any defence 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 defence 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 Swift 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 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, moré 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 Parsons, Notes and Bills (2d ed.), 218..
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- -transfer, imposes upon him no additional burdens, and subiects 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 to make him a party, tó the instrument, and impose upon him the dutjes 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 nonpayment, — 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 how before us. The nóte 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, of applied directly to the discharge, pro tanto, of any one of the call loan's 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 & Ingersollj it was because the railroad company intrusted it-to thoge 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 be 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 mucli 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 defences 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 ¿ind the commercial world. See Bigelow's Bills and Notes, 502 etseq.; 1 Daniel, Neg. Inst. (2d ed.) c. 25, sects. 820 — 833 ; Story, Promissory Notes, sects. 186, 195 (7th ed.), by-Thorn-dyke; 1 Parsons, Notes and Bills (2d ed.)* 218, sect. 4, c. 6; and Redfield & Bigelow's Leading Cases upon Bills of Exchange and Promissory Notes, where the authorities are cited by the authors.
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 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 tbe outset, that the section of the statute of the United States already quoted is the same as the thirty-fourth 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 e'ssential, 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 are not of themselves laws. They are often re-examined, reversed, and qualified by the courts tliemsélves, whenever they are found to be either defective, or ill-founded, or otherwise incorrect. The laws of a State are more usually 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 vari ous cases which have hitherto come before us for decisión this court have uniformly supposed that the true interpretation of the thirty-fourth 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 intra-territorial in their nature and character. It has never 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 local statutes and local usages of the character before stated, and doeá not extend to contracts and other instruments of a commerial nature, the true interpretation and effect whereof are to be sought, not in the decisions of the local tribunals^ but in the general principles and doctrines of commercial jurisprudence. Undoubtedly, the. decisions of the local tribunals upon such subjects are entitled' to and will receive the mqst deliberate attention and respect of this court; but they cannot furnish positive rules, or conclusive authority,' by which our own judgments áre to be bound up and governed."
In Carpenter v. The Providence Washington Insurance Co. (16 Pet. 495); decided at the same term with Swift v. Tyson, it was necessary to determine certain questions in the law of insurance. The court said: " The questions under' our consideration are questions of general commercial law, and depend upon' the construction of a contract of insurance which is by no means local in its character, or regulated by any local policy or customs. Whatever re'kpect,,therefore, the decisions of State tribunals may have on such a subject, and they certainly are entitled to great respect, they cannot conclude the judgment of this court. On the contrary, we are bound to interpret this instrument according to our own opinion of its true intent and objects, aided by all the lights which can be obtained from all external sources whatsoever; and if the. result to which we have arrived differs from these learned State courts, we may regret it, but it cannot be permitted to alter our judgment." '
In Oates v. National Bank (100 U. S. 239), we had before us the precise question now under consideration. That was an action by a national bank, located in Alabama, against a citizen of that State, upon a promissory note there executed and negotiated. It was contended that the decision of the Supreme Court of Alabama should be accepted as the law governing the rights of parties. We, however, held — referring to some of our previous decisions — that the' Federal -courts were not bound by the decisions of the State courts " upon questions of general commercial law. . We have already seen that the statutes of Alabama placed under the protection of the commercial law promissory notes payable in money at a certain designated place ; but how far the rights of parties here. are affected by the rules and doctrines of that law is for the Federal courts to determine, upon their own judgment as to what these rules and doctrines are."
To this doctrine, which received the approval of all the members of this court when first announced, we have, as our decisions show, steadily adhered. We perceive no reason for its modification in any degree whatever We could not. infringe upon it, in. this case, without disturbing or endangering that stability which, is essential to be maintained in the rules of commercial law. The decisions of the New York court, which we are asked to follow in determining the rights of parties under a contract there made, are not in exposition of any legislative enactment of that State. They express the opinion of that court, not as to the rights of parties under any law local to that State, but as to their rights under the general commercial law existing throughout the Union, except where it may have been modified or changed by some local statute. It is a law not peculiar to one State, or dependent up9n local author ity, but on.e arising out of the usages of the commercial world. Suppose a State court, in .a case before it, should determine what were the laws of war as applicable' to that and similar cas.es. The Federal courts,, sitting in that State, possessing, it must be conceded, equal power with the State court in the determination of such questions, must, upon the theory of counsel for the plaintiff in error, accept the conclusions of the State court as the true'interpretation, for that locality, of the laws of war, and as the "law" of the.State in the sense of the statute which makes the " laws of the States rules of decision in trials at common law." We apprehend, however, that no one would go that far-in asserting the binding force of State decisions upon the courts of the United States when the latter are required, in the discharge of their judicial functions, to consider questions of general law, arising in suits, to which their jurisdiction extends. To so hold would be to defeat one of the objects for which those courts were established, and introduce infinite confusion in their decisions of such questions. Further elaboration would seem to be unnecessary.
Judgment affirmed.
Mi. Justice Miller and Mr. Justice Field dissented.