Freeman v. Cherry

McCay, Judge. Our Code, section 2123, has this language under the head of “Principal and Security” : “ The form of the contract is immaterial provided the fact of suretyship exists; hence an accommodation indorser is considered merely as a surety.” It is difficult to put any meaning upon this provision of the Code if it does not mean that accommodation indorsers are liable to contribution. All indorsers are, in a certain sense, securities. They all undertake for the maker of the [17] note. But ordinary indorsers receive value, since prima facie un indorsement implies that the indorser, not the holder of the note, passed it to the indorsee for value. In this State, since the act of 1826, all indorsers of notes not payable at bank are securities, in almost every respect, save that they are liable to each other in the order of their indorsements. They are not entitled to notice; they may be sued in the same action with the maker, and they may give notice to sue as other securities. Our Code, section 2738, says: “In ordinary indorsements the contract of the indorser is to pay the money, if the parties to the instrument primarily liable thereon fail to pay according to the terms thereof; hence, if there are several indorsers each is liable to subsequent ones in the order of their several indorsements.” But section 2123, which we have quoted above, says that whatever may be the form of the contract, accommodation indorsers are considered as securities merely. It would seem wholly useless to say this if they are to be liable as other indorsers. The form of every contract of indorsement is the same; prima facie, it imports that the indorser passes the note to the indorsee for value. This is the ordinary meaning of the contract, and as provided by section 2738, it guarantees that not only the makers but every previous indorser will pay, and each is liable to the other in the order in which they stand. The fact of securityship does not exist as between one indorser and the others. Each gives and each receives value. But in the case of accommodation indorsers, there is no sale or passage of the note from one indorser to the other — the fact of suretyship does exist. In such a case section 2123 says, however the form may be, they are securities merely. As to the maker, they are all securities in every indorsement, and there is no propriety in the language of section 2123, unless it means to say that they are securities as to each other. There was clearly an intent to make some distinction between accommodation indorsers and ordinary indorsers. Under our law, as it has stood [18] since 1826, there was no distinction — see 1 Kelly, 205 — nor was there any distinction at common law. What other distinction is there than this, that they are to be liable to contribution ? Our act of 1826 provided that all indorsers of notes not payable at bank were to be treated as securities. This Court, however, held, in 1st Kelly, 205, that this only meant that they were not entitled to notice, and might be sued in the same action as the principal. The Code leaves out this general language of the Act of 1826, though it provides that indorsers of notes not intended to be negotiated at a bank are not entitled to notice, and may be sued with the principal : sections 2739 and 2740. But as to accommodation indorsers it provides that they are securities merely. We can see no other motive for this language and for the provision in section 2738, as to ordinary indorsements, except to change the rule at common law and as it previously stood in this State, by making them liable to contribution. In every other respect but this, an ordinary indorser is a security only. This is the meaning of the ordinary contract of indorsement — the form of it — and the section under consideration says, notwithstanding the form, an accommodation indorser is treated as a surety merely. And this is, in our judgment, an eminently just and .proper change of the law. As the common law was, the presumption of law, to-wit: that the indorser had transferred the note to the transferee for value, was directly contrary to the truth of the case when the indorser was only an accommodation indorser, and it required a very refined and subtle line of reasoning to sustain the liability of a prior accommodation indorser to a subsequent one, on principle, since the want of consideration between them was apparent. See 1st Kelly, 205. ' The law of the Code is, therefore, just. The indorsers are in fact securities for the maker. That, in this case, is the truth of the matter, whatever the form may be. That was the motive of each for signing, and it is nothing but carrying out the real meaning of the signing to hold that even as be [19] tween themselves they are securities merely for the maker, and liable to contribution as between each other. Judgment affirmed.