Majority
p. 20WATERBURY a. SINCLAIR. Supreme Court, Second District; Special Term, Nov., 1857.
Headnote
Promissory Note.-.—Liability of Indorsee to Payee.— . Pleading.One who indorses a negotiable promissory note payable to the order of the payee, before its delivery to the payee, for the purpose of obtaining credit with the payee for the maker by such indorsement, is liable as indorser, upon due notice of presentment to the maker, and non-payment.*
* The objection to the payee’s recovering from such an indorser, is founded on the rule that forbids the admission of parol evidence to modify or contradict a written contract. There are two cases in which he can recover, unless this rule is held to interpose : First, where the payee parted with value on the faith of such an indorsement made for the purpose. Second, where the indorsee received value from the payee, or, in other words, was privy to the consideration of the note.
Moore v. Cross ( 23 Barb., 534 ), where a recovery was had, was a case of the latter class. See the complaint in that case, Abbotls’ Forms of Pleadings, 146. The above case was of the former class.
Morris v. Walker (15 Q. B., 589, decided in 1850), was a case of the same nature. The declaration, by O. M., stated that B. made his promissory note for £23, payable “ to the order of O. M.” three months after date, and delivered it to “ the said O. H.,” and the said Q. M. indorsed to the defendant, and the defendant indorsed to the plaintiff; it stated also dishonor and notice. Plea: That O. M., stated in the declaration to have indorsed to the defendant, and O. M. the plaintiff, are one and the same person. Replication : That before the indorsement, &e., B. was indebted to plaintiff in £23 ; and it was agreed between plaintiff and B., at B.’s request, he being unable to pay, that he should give plaintiff, who would accept and take on account of such debt B.’s note for £23, payable at three months, which time plaintiff should give for payment provided B. would procure the defendant to indorse the note for the purpose of securing payment and by way of guarantee; of which premises the defendant had notice, and assented and agreed
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thereto; and that thereupon, in pursuance of the agreement, B. made and delivered the note to the plaintiff on account, &o.; and the plaintiff, in furtherance of the agreement and not otherwise, and without any consideration or value in that behalf, indorsed to the defendant, as in the declaration mentioned, in order that the defendant might, in pursuance and furtherance of the agreement, indorse the same to the plaintiff; and that the defendant accordingly, in pursuance of the agreement and for the purpose aforesaid and not otherwise, indorsed the same to the plaintiff, which is the indorsement to him in the declaration mentioned: and it was held, on demurrer, that this replication was no departure, and was an answer to the plea; and the plaintiff had judgment.
Whether the indorsee of the payee in such a case could recover against such an indorser,—Query ?
Where the complaint stated these facts, and also averred that the deféhdant guaranteed the payment of the note, it was held that the averment of a guarantee might be disregarded as surplusage.
Form of complaint against husband and wife, on a note indorsed by the wife when unmarried, before the delivery of the note to the payee.
Demurrer to complaint.
The plaintiff was the payee of a negotiable promissory note, which the defendant Ann Sinclair, when unmarried, had indorsed before its delivery to the plaintiff, in order to induce him to accept it. The complaint was as follows :
“That on November 9, 1855, the defendant George Dick was justly indebted to this plaintiff in the sum of three hundred and eight dollars and forty-two cents, for rent of certain premises in the city of Brooklyn, before that time let and rented to said defendant Dick by this plaintiff; and for a certain promissory note made by said Dick, and delivered to this plaintiff, which was then past due, and held by said plaintiff;—that for the purpose securing said indebtedness, and also the further sum of one hundred dollars, which would accrue and become due from said defendant Dick to this plaintiff on the 1st day of February then next, for the rent of said premises above mentioned, and in consideration of the forbearance of day of payment of said indebtedness by the plaintiff, and as an inducement for said plaintiff to allow said Dick to remain in possession of said premises, said Dick agreed to make and deliver to this plaintiff his promissory note in writing, indorsed and guaranteed to this plaintiff by the defendant William Ann Sinclair, then a feme sole, and known by the name of William Ann Lawson, payable three months
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thereafter, for the sum of four hundred and thirteen dollars and eighty-two cents, being the amount of said indebtedness, with three months’ interest, and the said rent of said premises ; and the said William Ann La-wson, with a full knowledge of all the facts above stated, and for the same consideration, agreed to indorse and guarantee said note to this plaintiff.
“ That thereupon, in pursuance of said agreement, and for the consideration aforesaid, the said George Dick, on the said 9th day of November, in the year 1855, made his promissory note in writing, bearing date on that day, whereby, for value received, he promised to pay, three months after the date thereof, to this plaintiff or his order, the said sum of four hundred and thirteen dollars and eighty-two cents, for value received, at So. 190 Pearl-street, in the city of Brooklyn; and the said defendant William Ann Sinclair indorsed the same by the name of ‘ W. A. Lawson,’ and the same was afterwards duly delivered to this plaintiff, who thereupon became, and ever since has been and now is, the sole owner and holder thereof. That said defendant Dick remained in possession of said premises until after the said sum of one hundred dollars became due for rent. That on the day whereon the said note became due and payable, thdfe same was duly presented for payment at the place therein designated, and payment thereof was duly demanded, which was refused, whereupon the said note was duly protested for non-payment, and due notice of such non-payment and protest was on the same day given to said defendant William Ann Lawson.
“ That since the said note became due, and as this plaintiff is informed and believes, some time during the year 1857, the said defendant William Ann Lawson intermarried with the defendant - Sinclair, and is now the wife of said Sinclair. That
no part of the sum secured by said note has been paid to this plaintiff, or to any person for his use; and that the said defendants are justly indebted to the plaintiff on account thereof, in the sum of $413.82, and also in the further sum of 75 cents, for the fees of said protest, paid by this plaintiff, besides interest.
“ Wherefore,” &c.
The defendants Sinclair and wife demurred, and assigned as ground thereof that the complaint did not state facts sufficient to constitute a cause of action.
p. 23It is well settled that this action cannot be sustained upon the indorsement merely. It makes no difference that the defendant’s indorsement was first in point of time. In the language of Chief-justice Spencer in Herrick v. Carman ( 12 Johns., 160 , 161): “ The fact of his indorsing first in point of time can have no influence; for he must have known, and we are to presume acted on that knowledge, that though the first to indorse, his indorsement would be nugatory unless preceded by that of the payees of tire note.” This rule has never since been varied in ordinary cases, and certainly cannot be in a case like the present, where the allegations of the complaint show that the plaintiff did not take the note in its course as a commercial indorsement; but, on the contrary, show that he was privy to the nature of the contract, and was aware that no consideration passed to the defendant for her indorsement, either from herself or from the maker of the note. The plaintiff has therefore based his right to recover, on the" ground that the indorsement was intended as a guarantee to the plaintiff of a debt due to him from the maker of the note. The question therefore to be decided by the court in this demurrer is, whether such a contract of guarantee is, or is not, void by the Statute of Frauds. That it is void, is settled by the following cases:—Hall v. Newcomb ( 7 Hill, 416 ); Spies v. Gilmore (1 Comst., 321); Ellis v. Brown ( 6 Barb., 282 ); and see Brewster v. Silence ( 11 Barb., 144 ); Tyler v. Stephens (11 Ib., 485); Hall v. Farmer (2 Comst., 553); Durham v. Manrow (2 Ib., 533); Brown v. Curtis (2 Ib., 225). The defendant’s counsel errs in assuming that ^ve seek to recover upon the note described in the complaint against his client as guarantor and not as indorser. We concede that the principle is well established that an indorser cannot be made liable as guarantor. But we claim that our complaint shows facts sufficient to entitle us to recover from the defendant W.. Ann Sinclair (late Lawson), establishing her liability as indorser of the note in question. It alleges among other things—I. That the indorsement was
J. Paulding, in support of the demurrer.
Theodore F. Jackson, in support of the complaint.
p. 24made for a good and sufficient consideration, viz.: 1. Forbearance of a certain debt. 2. Use and occupation of certain premises. The maker of the note might have been sued upon the debt already due, and might also have been dispossessed and turned out of the premises. Either consideration would have been sufficient to sustain an action against the defendant as indorsor. (1 Parsons on Contr., 368, 369; Story on Prom. Notes, §186.) II. That the note was indorsed by the defendant to give the maker credit with the payee. Part of the consideration of the note was the subsequent use and occupation of certain premises, a debt not yet accrued. III. That the note was indorsed by this defendant before its delivery to the plaintiff, and in pursuance of a prior agreement, that said defendant would indorse the note to this plaintiff, and that she intended to become the first indorser. IY. Due presentment, non-payment, and notice to the defendant. The word “ guaranteed,” as used in the complaint, is mere surplusage, and is not intended to show a special contract to guarantee the note, otherwise than by her blank indorsement. It does not follow that there was no consideration as between the maker and indorser for her indorsement, because none was alleged. It was unnecessary to allege any. In the case of Bishop v. Hayward (4 T. R., 470), Lord Kenyon, admitting that in* some cases the payee might recover against the indorser, says that “ the note should in such case be declared on according to its legal import,—i. e. as payable to the indorser’s order,—as was held in Minet v. Gibson (3 T. R., 481). A name may be omitted in a declaration, if the legal op eration of the instrument requires it.” And in Bayley on Bills, ch. 5,179 (3 Lond, ed.), it is said: “ A bill or note made payable to A., that he might guarantee the payment to B., but through ignorance or mistake made payable to B., and by him indorsed
The above facts are all that it was necessary for the plaintiff to allege (besides the making and delivery of.the note, which are sufficiently pleaded) to entitle him to recover in an action against the defendant Sinclair as indorser, if the action is sustainable. Whether such an action can be sustained or not, is the question in this case.
p. 25to A., and then indorsed back by A. to B., may be stated to have been made payable to A.” Under our system of pleading we could'not allege that this note was made payable to the defendant, but we are obliged to set out the facts; and we claim that the complaint in this case shows substantially a state of facts, upon which, under the above authorities, we will be enabled to recover in this action; i. e., that this defendant was substantially the payee and first indorser. In the case of Hall v. Newcomb ( 7 Hill, 416 ), the reporter’s note places the decision on the ground that ¡Newcomb could not be made liable as guarantor or maker, “ but only as indorser y” and although the correctness of this note has since been questioned, we think a careful reading of the case will show that it was correct. In that case there was no proof of demand or notice ; and the chancellor in his opinion (p. 417), says: “ And the question for our consideration is, whether a person who puts his name in blank upon the back of a negotiable note, which is drawn in such a form that he may be charged as indorser in the usual mode, if demand is made and notice of non-payment given, can be charged as a general surety, without such demand and notice, by parol evidence merely.” And there is not a sentence in the whole opinion which contradicts or questions the conclusion arrived at by the reporter. On the contrary, the chancellor expressly and fully concurs (p. 419) in the opinion of Justice Bronson in Seabury v. Hungerford ( 2 Hill, 80 ), who says : “ If we assume that the note was originally passed to the plaintiff, who is named in it as payee, that will not alter the case. The defendant might still home been charged as indorser / and where he may be so charged, he cannot, I think, be made liable in any other form.” In the last-mentioned case there was no proof of demand and notice, and the court held that the defendant could only be made liable as an indorser, and not as guarantor, and that he was entitled to notice. The case of Spies v. Gilmore (1 Comst., 321) is almost identical with the one last cited,■—the only difference being that in Spies v. Gilmore it was attempted to sustain the action on the ground that the parties were non-residents and not entitled to notice; and the only defence interposed was the want of notice. The defendant’s counsel attempts to explain this failure by the defendant to set up
p. 26The case of Ellis v. Brown ( 6 Barb., 282 ) was never carried to the Court of Appeals. A dissenting opinion was delivered by Pratt, P. J., to which we refer as a conclusive answer to every argument advanced in the prevailing opinion. The still later case of Moore v. Cross ( 23 Barb., 534 ), precisely similar to this, was decided in favor of the plaintiff1, who was the payee against the indorser. In Moore v. Cross, the defendant Cross was in fact the bargainer: goods were sold to another at his request, and although he appeared merely as indorser, the court considered that “ he was as much- a principal as the maker; that the whole transaction was simultaneous. The sale was on the credit of Cross. It was not a case of pre-existing indebtedness of McGervey (the maker) which Gross engaged to discharge.” (Opinion of Roosevelt, J., 23 Barb., 536 , 538.)
the defence here interposed, by saying that the action had been brought and tried on the exploded doctrine that Gilmore was liable as guarantor or maker. This fact may well account for the omission of the plaintiff to make the proper demand, and give the necessary notice of non-payment, where it was a matter of such difficulty; but it is hardly to be supposed that the able counsel who argued the cause in the Coiut of Appeals were ignorant of the decision in Herrick v. Carman, made some thirty years before the argument, and which the counsel for the defendant says established the doctrine that a first indorser cannot maintain an action against a second. But Justice Bronson expressly says (p. 325): “ lie was in fact indorser, and nothi/ng else, and as such he was entitled to notice.”
J. Paulding, in reply.
This is an action on a promissory note by the payee against the maker and an indorser, who was a feme sole when she indorsed the note, but has since married, and her husband. The note was payable to the plaintiff, or his order, three months after its date. It was partly for a debt from the maker to the payee existing at the time, and partly for prospective rent, and was made and indorsed pursuant to an arrangement between the maker and the payee to extend the time for the payment of the debt, and to permit the continued occupancy of the demised premises, which was known to the indorser. It
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was indorsed in blank before it was delivered to the plaintiff. The note was presented to the maker when it became due, and payment was refused, and it was thereupon protested, and due notice was given to the indorser.
As the note was negotiable, and there is no express engagement by Mrs. Sinclair as guarantor, she must be considered as an indorser only. The allegation in the complaint that she agreed to guarantee the payment of the note, is not therefore made out; but as that is coupled with the averment that she agreed to indorse it, what is said in reference to the guarantee may be considered as surplusage. The plaintiff can sustain his suit if he should prove enough of the averments in his complaint to maintain an action, although he may fail in establishing the whole.
The main question is, whether one who has indorsed a note before delivery can be made liable to the payee who has not indorsed it. That one may become an indorser under such circumstances appears to be well settled. An indorsement by •the payee is undoubtedly essential to a valid transfer of the note when it is' payable to his order; and when he actually indorses it, I cannot see that he can maintain an action upon it against a subsequent indorser. That, if permitted, would be an inversion of the usual order of liability. The idea of the late chancellor, that a subsequent indorser may be rendered responsible to a prior one by an indorsement by the latter without recourse to him, and a delivery of the note to some nominal plaintiff, who might prosecute for him, was dismissed when it was advanced by a learned member of the Court for the Correction of Errors, and at any rate is not now considered tó be sound law. That any one who writes his name upon the back of a negotiable note, not then endorsed by the payee, assumes an inchoate liability, there can be no doubt. If the name and signature of the payee should afterwards be prefixed, that would be clearly all that would be formally necessary to consummate the responsibility. That would, as I conceive, be absolutely necessary in all cases where the holder was to be any other than the payee. But is there the same, or any, necessity for an indorsement by the payee when there is a general indorsement by another designed for his benefit? What is the general engagement by the indorser ? It is to pay the note to any subsequent holder, provided
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it is duly presented to, and payment refused by, the maker, and due notice of non-payment is given. It can make no difference, as I conceive, whether the subsequent holder is the payee or another. There is the same equity in favor of either, and there is no technical rule against the liability to the payee, unless he is also the prior indorser. An indorser of a promissory note is considered in the light of a drawer of a bill of exchange upon the maker to pay the amount to any subsequent holder, whether named or not. (Chitty on Bills, 155, 156, and the cases there cited.) Surely he can make the bill of exchange payable to the person named in the body of the note as the payee. There is no principle applicable to commercial paper which forbids that. That it may be an order upon the maker to do what he at the same time engages to do, can make no difference. That is done, or is the effect of what is done, in other cases; as where there has been a previous promise of the drawee of a bill of exchange to accept it, or where a bill payable at a future day has been accepted. There are in such cases both an order from one and a promise by another upon such order already made, or to be made, to pay. In substance the note in question contains a promise to pay money to the payee upon the order of the indorser; and that under such circumstances an action may be maintained by the payee against the indorser, was decided in the case of Willis v. Greene ( 10 Wend., 516 ). There is no necessity for proving a valid consideration for the obligation of an indorser, and certainly none for reducing the consideration to waiting. He is not considered as entering into a special promise to answer for the debt, default, or marriage of another person within the statute. An entire want of consideration might be available between the original parties at common law, but in this case enough is averred to cause the liability of an indorser. The case of Gilmore v. Spies ( 1 Barb., 158 ; and 1 Comst., 321) was much like that now under consideration, except that no notice bad there been given to the indorser. He escaped solely on that ground. The counsel for the defendant in that case, who was an acute and experienced lawyer, contended before this court that the indorser was “ only liable on condition of a demand of payment at the expiration of the days of grace and notice of non-payment.” He did not contend, nor did this court assume, that the indorser would not have been liable if de
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mand of payment had been duly made, and notice of non-payment had been given. If in that case the indorser had not originally assumed any liability to the payee, that would have been a sufficient defence for him, and it would have been unnecessary to consider any other. When the case was before the Court of Appeals, the defendant was considered by Judge Bronson to be an indorser, and as such entitled to notice of nonpayment. Such was also the opinion of Judge Jewett; but Judge Gardiner dissented, and held that the defendant by his indorsement contracted that if the note was duly demanded of the maker, and not paid, or if after the exercise of due diligence no such demand could be made, he could on due notice pay the amount to the indorsee or holder. In that case, as in this, the action was by the payee of a note against the indorser, and neither counsel nor any of the judges supposed that the indorser did not assume any liability to the payee. In the case of Herrick v. Carman ( 12 Johns., 159 ), the note, it is true, had been indorsed by Herrick when it was delivered to the payee ; but they subsequently prefixed their indorsement, and then sold it to Carman at a large discount, to whom the facts were known. Chief-justice Spencer remarked that it did not appear that Herrick indorsed the note for the purpose of giving the maker credit with the payees, or that he was in any wise informed of the use to which the maker intended to apply the note; and that in the absence of any proof to the contrary, the court must intend that Herrick meant only to become second indorser, with all the rights incident to that situation. The chief-justice adds, that Herrick must have known that his indorsement would be nugatory unless preceded by that of the payees of the note. He cites no authority for this, and it is to be presumed that what he said was in reference to the circumstances of that case, and that he did not intend to lay down the rule as of universal application. The case of Ellis v. Brown ( 6 Barb., 282 ) was where there had been a transposition of indorsements, and the question was, whether in such case an indorsee in effect could recover against his indorser, and it was rightly decided that he could not. That is certainly the rule when the payee of the note actually indorses it, or when his indorsement is necessary to give it effect in the hands of him who seeks to enforce it. But in the present case no indorsement by the payee was neces
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sary in order to perfect his rights. His rights, whatever they were, accrued when the note was delivered to and accepted by him, and were in no manner -dependent upon any additional indorsement. What they were has been already shown. I repeat, that the rule that the payee must first indorse a note is founded upon the fact that he alone can transfer it; and that where, as in this case, there was no transfer, the reason of the rule fails, and it is therefore inapplicable.
There must be a judgment for the plaintiff, with leave to the defendants Sinclair and wife to withdraw their demurrer, and answer in twenty days, upon the payment of costs.