Harrington v. Dorr — 26 N.Y. Super. Ct. 275

Majority

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Henry J. Harrington, plaintiff and respondent, vs. James A. Dorr, defendant and appellant.

Headnote

1. A waiver of protest of accommodation notes passed away after they become due, by the person for whose accommodation they were indorsed, in satisfaction of a previous debt owing by such person to the transferee, made by a memorandum above the indorser’s name, is a waiver of a demand, also. And the indorser’s undertaking, instead of being conditional, becomes thereby as absolute as if he were a joint maker.

2. A note past due may be negotiated; and a party who lends his note, without limitation as to the time of its use, is not presumed in law to have limited such time to the period prior to its maturity.

3. The fact that the indorser of a note appears to be a surety, only affects the question of indulgence to, or discharge of, the maker. The law may imply the condition of a reasonable time in the negotiation of a note, without necessarily restricting such time to that before its maturity.

4. Waiver of demand and notice, by an accommodation indorser, leaves him absolutely liable for the payment of the note, as much as though he were a joint and several maker by writing his name under the maker’s with the word “ surety” subjoined. And his liability must be determined upon the same principle as if he were the accommodation joint maker of the note.

5. Any presumption, arising from the form of the obligation, when a party is an ordinary indorser, and thereby supposed to limit its use to the period before maturity, because his contract is conditional, fails when, by waiving demand, he makes his contract absolute.

(Before Robertson, Ch. J., and Garvin and McCunn, JJ.)

Heard February 9, 1865;

decided May 27, 1865.

This action was brought against the defendant as indorser of six promissory notes, hearing different dates, payable at different times, (though all made on the same day,) and in the following form:

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“ $500.00. Northfield, January 15th, 1858.

Eight months after date, we promise to pay to the order of James A. Dorr, five hundred dollars, at No. 34 Pine street, New York city.

The Northfield Brick Company, by James A. Doer, Treasurer.”

Indorsed, “ Protest waived,

James A. Doer.”

The defense set up in the answer, so far as involved in the trial, was that the defendant indorsed the notes for the accommodation of one Myers, and that Myers passed them to the plaintiff after their maturity.

The cause was tried before a referee, who found the following facts, namely :

First. That the Northfield Brick Compan}’-, in or about the month of June, 1858, made the notes described in the complaint, bearing the dates and for the amounts and payable at the times and place in said complaint stated, amounting in all to the sum of $4000. Second. That at the time of the making of such notes, such company were indebted to Michael A, Myers in the said sum of $4000, which indebtedness was evidenced by notes given by said company and held by Myers, past due and unpaid. Third. That Myers surrendered to the said company the past due notes, so held by him, and received therefor the notes in the complaint described ; such notes indorsed by the defendant at the request of said Myers, to enable him (Myers) to use them. That no consideration was paid to the defendant for so indorsing the said notes, but that Myers gave to the company, for the notes in the complaint described, so indorsed by the defendant, the said past due and unpaid notes of such company. Fourth. That there was no agreement between Myers and the defendant, by which Myers was restricted as to the use which he might make of any of the notes in the complaint mentioned. Fifth. That Myers continued to hold such last notes until after their maturity ; after which Myers transferred and delivered the same.to the plaintiff, for a full

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and.valuable consideration, equal to the amount of the said notes, paid by the plaintiff to Myers therefor.

And, as a conclusion of law from the foregoing facts, the referee adjudged and determined that the plaintiff was entitled to judgment for the amount of the said notes, and interest as specified in the complaint.

From the judgment entered upon the report, the defendant appealed.

B. D. Silliman, for the defendant, (appellant.)

I. The plaintiff is not the real owner of the notes in suit.

II. The evidence is clear and distinct, that the defendant lent his name, not to the maker of the notes, (the Northfield Brick Company,) but to Myers, without consideration, and solely for his (Myers’) accommodation. There was, therefore, no liability on the part of Dorr to Myers; but Myers was bound to protect Dorr from liability upon his indorsements as the paper matured. (Wright v. Garlinghouse, 26 N. Y. Rep. 539 .)

III. The plaintiff took the notes as assignee of Myers, and took only such title as Myers had at the time of the transfer. By taking them after their maturity, he took such claim and demand only as Myers then had against Dorr as indorser thereof. (Farrington v. Park Bank, 39 Barb. 645 .) By taking the paper from Myers “ dishonored,” the plaintiff holds it subject to all equities and to all defenses on the part of the defendant against Myers. (Johnson v. Bloodgood, 1 John. Cas. 51. Sebring v. Rathbun, Id. 331. O’Callaghan v. Sawyer, 5 John. 118 . Lansing v. Lansing, 8 id. 454. Havens v. Huntington, 1 Cowen, 387. Williams v. Matthews, 3 id. 252. Furniss v. Gilchrist, 1 Sandf. 53 . Reed v. Warner, 5 Paige, 650. Britton v. Bishop, 11 Verm. R. 70. Odiorne v. Howard, 10 N. H. Rep. 343 . Bower v. Hastings, 36 Penn. Rep. 285 . Cummings v. Little, 45 Maine Rep. 183 . Andrews v. Pond, 13 Pet. 79 .)

IV. When Dorr indorsed the notes for the accommodation of Myers, the latter became bound to take them up at matu

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rity. This excluded the idea that he could negotiate them after maturity. In contemplation of law, therefore, the contract between him and Dorr was that they should not be used after maturity. (Byles on Bills, 94, 95. Reynolds v. Doyle, 1 M. & G. 753. S. C. 2 Scott’s N. R. 45. Story on Bills, §§ 187, 191.)

Y. There was also an agreement by Myers with Dorr (when he induced the latter to indorse these notes for his accommodation) to use them before maturity. The notes for which he wished to substitute them were past due, and therefore no longer negotiable; he desired Dorr’s indorsement to the new notes, in order to be able to use them, while negotiable, i. e. before their maturity. Such being the contract, both by operation of law and by actual agreement between Dorr and Myers, the plaintiff taking these notes after due, took them subject to all equities, as absolutely as he would have done had they been originally business paper.

YI. When Dorr indorsed the notes for accommodation of Myers, the relation of principal and surety arose, which must be regarded by all other parties or holders affected with notice. (Bank of Toronto v. Hunter, 4 Bosw. 646 . Pitts v. Congdon, 2 Comst. 352. Griffith v. Read, 21 Wend. 502 .) The plaintiff was chargeable with knowledge that Dorr was surety only for Myers, and a right on the part of Myers to negotiate Dorr’s indorsements several years after the paper had been dishonored, cannot be implied, to the prejudice of the surety. The well settled rule in such cases excludes implied engagements. (Rochester City Bank v. Elwood, 21 N. Y. Rep. 88 . Gates v. McKee, 3 Kernan, 232. Ludlow v. Simond, 2 Cai. Ca. 1. Leeds v. Dunn, 6 Selden, 469.)

YII. Where a guaranty is given by a surety, although no period of credit is specified^ yet it is not to be taken as a guaranty for an unlimited period, but to be restrained by the usual course of business. (Pitman on Sureties, 172. Combe v. Wolf, 8 Bing. 150. Howell v. Jones, 1 Cr. M. & Ros. 97.) The court has judicial knowledge that, in the usual course of business, indorsed paper is negotiated before its maturity. So

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certain is this, that paper past due “ does not circulate for commercial purposes, and neither banks nor business men deal in it, or accept it, in exchange for money or merchandise. The substantial elements of commercial paper are wanting.” It is disgraced paper. (Farrington v. Park Bank, 39 Barb. 645 .) It follows that the agreement between Dorr and Myers having been that the notes should not be used after maturity, the plaintiff, by taking them when past due, had notice of it.

VIII. But where the guaranty expresses time, the limit is absolute, and any variation will discharge the surety. (Holl v. Hadley, 5 Bing. 54.) This rule is held with special strictness as regards negotiable paper. (3 Kent’s Com. 124. Birckhead v. Brown, 5 Hill, 635 .) Here the time was distinctly expressed by the_ very words of the notes, viz. “ eight months after date.” That promise, and that only, was guaranteed by Dorr. But he did not agree to guarantee a promise made (by Myers issuing the notes) two or three years after that eight months had expired. Dorr, by indorsing and becoming surety for the promise of another, to make a payment eight months after January 7th, 1858, did not undertake to guaranty a very different promise, which had not been made—a promise which might or might not be made' two or three years-after that date. The promise which he did guaranty, was expressed in the note, to be one maturing on the days named in 1858. “ If this is the meaning which the paper naturally conveys, it is the sense which the court is bound to apply to it.” (Per Denio J. Gates v. McKee, 3 Kern. 234.) The only contract or undertaking made by Dorr was therefore one by its terms maturing on, and restricted to those days.

IX. No case in this country, we believe, has held that accommodation paper could be negotiated after maturity so as to bind the surety, unless with his express consent. In England, in certain cases where the question arose mainly on the pleadings, the surety was held liable on paper negotiated after maturity. (Charles v. Marsden, 1 Taunt. 224. Sturtevant v. Ford, 4 M. & G. 101.) But the more recent English cases indicate dissatisfaction of the courts with those decisions, and

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a disposition to recede from them. Even in Sturtevant v. Ford, the court treat the question as one of pleading, merely, and say that they should hold, the surety not liable, but for the case of Charles v. Marsden, In Parr v. Jewell, (16 Common Bench, 7 J. Scott, 684, 81 E. C. L. R. 684,) it was held that it is a good defense to an action by the indorsee against" the acceptor of a bill of exchange, that it was accepted for the accommodation of the drawer without consideration, and that it was indorsed over by the drawer after it had been paid by him at maturity.

X. Dorr having indorsed for Myers’ accommodation, they stood in the same relation to each other as though Myers had been maker and Dorr indorser. Such being the case, and the notes being in Myers’ hands at maturity, the law presumes that Myers had negotiated and paid them at maturity. (Chirographum apud debitorem, repertum prcesumitur solutum.) The notes, therefore, had ceased to have vitality, and were “functi officio,” before their subsequent delivery to the plaintiff. Dorr’s suretyship as indorser thereon had ceased, and they could not be again negotiated so as to bind him. In Parr v. Jewell, (ubi supra,) Crompton, J. said, “it would be very unreasonable toehold that an accommodation bill may be kept outstanding for an indefinite time, and circulated and paid over and over again.” (P. 703.)

XI. By his indorsement alone Dorr agreed to be liable only if payment should be demanded at maturity, and notice given of non-payment. Such is the nature of the contract of indorsement. The waiver averred by the complaint related only to the demand and notice necessary at maturity. The waiver given by the defendant performed its function when the notes matured. The notes were then still in Myers’ hands, and the defendant owed nothing upon them. If Myers could again negotiate them, Dorr not being chargeable at the time of such second negotiation, could thereafter be rendered liable, only by new demand and notice. No such new demand and notice is averred, waived, or proved.

XII. The construction claimed by the plaintiff makes the

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statute of limitations unavailable. The liability of the indorser, instead of being limited to six years after the maturity of the notes, would continue for twelve years. Myers might have held the notes for six years, and negotiated them on the last day of that period, and the indorser’s liability would not cease until the end of six years more. Thus the defendant, waiving demand and notice, which by the terms of the notes would have been due in September and October, 1858, might first hear of his liability in September and October, 1870.

XIII. The insolvency of Myers, known to. the plaintiff at the time of the alleged transfer of the notes to him (he then holding the dishonored notes of Myers) creates a strong equity in favor of the defendant, as against the plaintiff. (Gillespie v. Torrance 25 N. Y. Rep. 306 .)

E. W. Chester, for the plaintiff, respondent.

I. The notes were for a valuable consideration, and were indorsed by the defendant for the purpose of being used by Myers. Myers’ use of them was in strict accordance with the understanding between him and the indorser. (DeZeng v. Fyfe, 1 Bosw. 335 . 2 id. 398 , affirmed in the Court of Ap peals.)

II. It is no defense to a bill or note, held by an indorser who has given value for it, that it was made without consideration paid to the acceptor or indorser, where there is no fraud in the use made of it, or where the use is in accordance with the purpose for which it was accepted or indorsed. It does not affect the responsibility of such an acceptor or indorser that it was passed away after maturity, or that the purchaser for value knew that the acceptor or indorser was an accommodation acceptor or indorser, or that he took it in payment or as security for a precedent debt. (Edwards on Bills, 316. Smith v. Knox, 3 Esp. 46, per Lord Eldon. Bank of Rutland v. Buck, 5 Wend. 66 . Powell v. Waters, 17 John. 176 . Grandin v. LeRoy, 2 Paige, 509. Seneca Co. Bank v. Neass, 3 Comst. 442. Duel v. Spence, 1 Abb. 237 . Mohawk Bank v. Corey, 1 Hill, 513 . Brown v. Mott, 7 John. 361 . Grant

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& Cary v. Ellicott, 7 Wend. 227 . Story on Promissory Notes, 5th ed. §§ 194, 195. Sturtevant v. Fordes, 4 Scott, 668. Bank of Salina v. Babcock, 21 Wend. 499 . Bank of Sandusky v. Scoville, 24 id 115.)

Taking a' note in payment of a precedent debt, and still more as merely security for it, or with the knowledge that it was made or indorsed for the accommodation of the party using it, or after maturity, all stand upon the same footing. Against holders who take notes in either of these ways the maker or indorser cannot set up merely that he became a party to the note for the accommodation of the party who held and passed it away. It is enough that its use is consistent with the purpose for which it was made or indorsed.

The notes in suit in this case having been passed away by the person for whose accommodation they were indorsed by the defendant (Myers) after they became due, in satisfaction of a debt due by such person to the plaintiff, by a memorandum above the defendant's name, the protest of such notes was waived, which includes a waiver of demand also, (Coddington v. Davis, 1 N. Y. Rep. 186 ;) and his undertaking, instead of being conditional, became thereby absolute as if he were a joint maker. It is claimed on behalf of the defendant, that by implication of law the use of such notes by Myers was limited to the time such notes had to run.

There is no doubt that any one taking a negotiable obligatory instrument past due, or for a precedent debt, takes it subject to all equities or defenses, as between the original parties, except that of the want of a.consideration, if that be one. A promissory note made by one person and delivered to another, to be negotiated by the latter, without any limitation as to time or purpose, is equivalent to a general authority from the maker to bind him to pay according to the terms of such note the amount specified therein, to any person to whom the party for whose accommodation it is made, may deliver it, for a valuable consideration. The legal effect of taking it when

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past due is precisely similar to that of incorporating in the body of the note the terms and conditions of the original understanding of the parties as to its use, and no more. And if, in this case, by operation of law or the express agreement of the parties outside of such notes, they were not to be passed away after becoming due, such limitation of their use would be available as a defense, to the defendant.

Notes or bills of exchange past due, may be passed away so as to bind accommodation makers of the one or acceptors of the other; otherwise the books would not be so full of decisions as to the effect of taking notes past due from an accommodation holder. The fact that the indorser appears to be a surety, can only affect any indulgence to or discharge of the maker. The law may imply the condition of a reasonable time in the negotiation of a note, yet not necessarily restrict such time to that before its maturity.

In this case, as I have said, the waiver of the demand and notice left the defendant absolutely liable for the payment of the note, as much as though he had been a joint and several maker by writing his name under the maker’s, with the word “surety” subjoined. And his liability must be determined upon the same principle as if he were such accommodation joint maker of a note. A note past due may be negotiated, and is more valuable than one not due, because it draws interest from its maturity. A party who lends his note without limitation as to the time of its use, cannot therefore be presumed in law to have limited such time to that before its maturity. He might even have post dated the note when he delivered it. Any presumption, arising from the form of the obligation, when a party is indorser and thus may be supposed to limit its use to the period before maturity, because his contract is conditional, fails when he makes his contract absolute, by waiving demand.

This court held, when this case was formerly before it, that without reference to the waiver of demand and notice, the defendant was liable : possibly considering that the delivery of the indorsement without any restriction as to the time and

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mode of its use was a waiver of such demand and notice. The cases there cited as authority for that decision, Sturtevant v. Ford, (4 Man. & Gr. 101,) and Carruthers v. West, (11 Q. B. R. 143,) were full on this point; and to these may be added the earlier case of Charles v. Marsden, (1 Taunt. 224.) Cases in which a note 'has been once passed away and paid, functus officio, are not applicable to one where the accommodation paper has not' received any vitality or * performed any office by being used as was intended. (See Parr v. Jewell, 16 Com. Bench, 7 J. Scott, 684. E. C. L. R. 81.) I have not been able to find any subsequent cases which intimate dissatisfaction with the doctrine established in those earlier cases ; on the contrary, subsequent cases, by making distinctions, seem tacitly to approve them.

In any event there are no such clear and convincing proofs of haste or error in the former decision of this court as to induce a departure from its deliberate judgment. The judgment must be affirmed, with costs.

Cases cited

Farrington v. Park Bank 39 Barb. 645 N.Y. Sup. Ct. 1863-05-11 p. 277, p. 279
Griffith v. Reed 21 Wend. 502 N.Y. Sup. Ct. p. 278
De Zeng v. Fyfe 1 Bosw. 335 N.Y. Super. Ct. 1857-05-30 p. 281
Bank of Rutland v. Buck 5 Wend. 66 N.Y. Sup. Ct. p. 281
Grant v. Ellicott 7 Wend. 227 N.Y. Sup. Ct. p. 282
Bank of Salina v. Babcock 21 Wend. 499 N.Y. Sup. Ct. p. 282