Patterson v. Todd & Lemon

The opinion of the Court was delivered, by Lewis, J. The questions for decision in this case have relation to the effect of endorsing a promissory note overdue. 1. What is the contract which the law implies from such an endorsement ? 2. Is the implied contract subject to modification by parol evidence of the special agreement made by the parties at the time of the transaction ? In 1816, Chief Justice Parker, in Field v. Nickerson, 13 Mass. Rep. 131, considered it remarkable that the law on so familiar a contract as the endorsement of a nóte on demand, should at that late period be doubtful; and it is certainly to be regretted that on a kindred, if not the identical question, it remains in the same condition in Pennsylvania. The law of bills of exchange seems to be well understood. Every business man knows that when he receives an inland bill of exchange, it is his duty to present it for payment, at maturity, if pay [431] able at a particular time; or, within a reasonable time, if payable at sight; and, in either case, to give immediate notice to the drawer, if the bill be dishonored. If these duties be neglected by the holder, the drawer is, in general,-discharged from all further liability on the bill. It is also well understood, among the learned and unlearned, that the rules of the law merchant which regulate the liabilities of the parties on bills of exchange apply also to the endorsement of promissory notes. The endorser of a note is considered as the drawer of a bill of exchange upon the maker, and the body of the note is referred to for the purpose of showing the sum to be paid, the time and place of payment, and the fact that the bill is already accepted by the maker of the note, whose signature thereto, places him, as between the endorsee and himself, in the condition of a drawee of a bill of exchange, after acceptance. Where a note is endorsed before it is due, the holder must present it for payment at maturity, and in case of default must give immediate notice of the dishonor. But after the note becomes due, it is payable whenever the holder chooses to demand it, and for this purpose an action at law is a sufficient demand, as between the maker and holder. Like a contract for the payment of money, where no time of payment is specified, it is legally payable presently. So that when such a note is endorsed, the endorser still stands in the condition of the drawer bf an inland bill of exchange; and we refer to the note, as before, for the purpose of ascertaining the amount, and the time and place of payment. The time of payment having passed, the note is^in law, payable on demand, and this shows that the endorsement is to be considered as if made upon a new note payable on demand, and the legal effect of it is precisely the same as if the endorser had drawn an inland bill of exchange upon the maker, payable at sight. It is the duty of the holder of such a bill to present it for payment within a reasonable time, and if the bill be dishonored, to give immediate notice thereof to the drawer. In the case of an endorsement of a note, overdue, the holder is, in like manner, bound to present it for payment within a reasonable time; and, in case of non-payment, to give immediate notice of the dishonor to the endorser, otherwise the latter is discharged from liability. This doctrine is fully sustained by the authorities. It is stated in Chitty on Bills, 15, 16, that a bill may legally be endorsed after it is due and has been dishonored, but not after it has been paid by the acceptor: 1 Ld. Ray. 575; 1 Show. 163; 3 M. & S. 97; 1 H. Bl. 89; 1 M. & P. 11; and that a bill, endorsed after due, is equivalent to drawing a new bill payable at sight: 2 N. H. 159; 3 S. Carolina C. C. Rep. 33. But there is this distinction between notes, &c., endorsed after and before due, that in the first case the holder takes them subject to all the defences to which they were subject in the hands of the original [432] parties: Chitty on Bills 15, 16. It may fairly be inferred from Mr. Okitty’s statement of the distinction between endorsements of bills after due and before due, that the only difference is that in the first case the holder takes them subject to all the equities which existed between the original parties ; and in the last case, he takes them discharged of all such defences. That the endorsement of a note overdue is equivalent to drawing a new bill payable at sight, upon which the endorser is liable only upon proof of a demand upon the maker within a reasonable time, and immediate notice of the default, is fully established by the following decisions made by the highest courts of our sister states, and pronounced by judges whose learning and experience in this particular branch of the law entitle their opinions to the highest regard: Poole v. Tolleson, 1 McCord’s Rep. 199; Eifert v. Desondres & Co., 1 Comst. Rep. 70; Crouse & McFarlane v. Shackleford’s admrs., 2 Nott & McCord’s Rep. 283; Bishop v. Dexter, 2 Conn. Rep. 419; Field v. Nickerson, 13 Mass. Rep. 131; Colt et al. v. Barnard, 18 Pick. 260 ; Berry v. Robinson, 9 Johns. 121; Agan v. McManus, 11 Johns. 180; Leavitt v. Putnam, 3 Comst. 494; 1 Sandf. S. C. Rep. 199; McKinney v. Crawford, 8 Ser. & R. 353; Brenzer v. Wightman, 7 W. & Ser. 265. The cases which are supposed to conflict with this view of the subject, and to sustain the position that the contract of endorsement, when made upon a note overdue, changes its character, and becomes an original and unconditional engagement to pay the amount, arc: Brown v. Davies, 3 T. R. 80; Bank of N. America v. Barriere, 1 Yeates 360; Leidy v. Tammany, 9 Watts 353; and Jordan v. Hurst, 2 Jones 269. In Brown v. Davies, the only question was whether the maker, in an action against him by an endorsee, could bo permitted to prove a payment to the payee before the endorsement. No question touching the liability of the endorser arose in the cause, or was decided by the Court; and the misapprehension which has since occurred in relation to some of the loose remarks of one of the judges on a question to which his attention was not drawn, and on which he did not feel called upon to speak with precision, shows the danger of relying upon such obiter dicta as authority for anything. The case of the Bank v. Barriere, 1 Yeates 360, was decided by a single judge, upon its own special circumstances, and has not only been so explained and understood, but it was solemnly decided by this' Court, nearly thirty years ago, that it furnished no authority for the doctrine that the conditional contract of endorsement may be tortured into an original unconditional engagement: McKinney v. Crawford, 8 Ser. & R. 351. The case of Leidy v. Tammany, 9 Watts 353, like that in 1 Yeates 360, was properly decided upon its special circumstances ; and the observations of the judge, in going further than the case required, must not be received to unsettle the established rules of [433] law. There are other cases, in which the erroneous idea that an endorsement of a note overdue is a new note, seems to float in the minds of the judges; but the error arises from a want of precision in the language used in some of the early cases. When it was intended to say that such an endorsement was a new HU, payable at sight, the judge has been erroneously supposed to mean a new note payable on demand. The difference is so manifest as to need no explanation. In Jordan v. Hurst, 2 Jones 269, a demand was made upon the maker of the note on the fourth day after the endorsement, and it was stated in the case, “ that the drawer (of the note) had no property or effects out of which the debt could be levied.” There was no complaint of a want of diligence in making demand upon the maker of the note, and we do not propose to inquire into the propriety of the decision that his insolvency dispensed with the necessity of notice to the endorser. But it cannot be denied that the observations of the judge who delivered the opinion of this Court in that case, had a tendency to mislead the intelligent and excellent President who decided this cause in the court below. The observations of Mr. Justice Coulter lose much of their weight, however, when it is remembered that they extended to a question not necessarily arising in the case, that' they are founded chiefly upon the cases already explained as not sustaining the position that an endorsement of a note overdue is a new note, and that the learned judge himself virtually abandons the position when he concedes that the action against the endorser can only be sustained “ after the original maker of the note has refused payment.” This implies the necessity of a demand upon the maker, which is altogether repugnant to the idea that the endorsement is a new note. The interrogatories of Mr. Justice Duncan, in McKinney v. Crawford, 8 Ser. H. 353, have never been satisfactorily answered by those who desire to convert an endorsement into an absolute and unconditional engagement to pay the amount. “If it was a contract of absolute and immediate liability why endorse ? For what purpose draw? Why not give his own note?” 8 Ser. & R. 353. We fully adopt the language of Mr. Justice Duncan, in the case last cited, in which he declares that “it is now a doctrine well settled that in the case of all notes, whether overdue or not, to render the endorser liable, there must be a demand on the maker and notice to the endorser, unless a contract of a different nature from that of endorsement is to be implied from the special circumstances, and the understanding of the parties at the time of the transaction:” McKinney v. Crawford, 8 Ser. & R. 357. A note overdue and a note payable on demand, are, in legal effect, identical, and therefore the decision in McKinney v. Crawford is a direct decision on the question involved in this case. [434] We have seen that the contract of endorsement may he converted by parol evidence into an absolute and unconditional engagement to pay the amount: 1 Yeates 360; 9 Watts 353. It follows that it may be explained, by the same kind of evidence, to mean nothing further than a transfer of the debt, without recourse to the endorser. The evidence on this part-of the case ought to be submitted to the jury, if the plaintiff, on another trial, by the proof of demand and notice,' should establish a primd facie title to recover. But in the absence of evidence of a demand upon the maker of the note and notice to the endorser, the instructions given by the Court below were erroneous. The instruction ought to have been given that the plaintiffs were not entitled to recover. Judgment reversed and venire de novo awarded.