Temple v. Baker

Opinion, Mr. Justice Williams : The point on which this case turned in the court below has not been decided in this state, so far as we have been able to learn from a somewhat extended examination. Like all questions affecting the liability of parties to negotiable paper, it is important and should be fully considered. It is raised upon a promissory note in the form following: “ 11,000. West Chester, Pa., Oct. 25, 1882. 158 days after date we promise to pay to the order of the administrators of Wm. Baker, at the First National Bank of West Chester 11,000, without defalcation, for value received. “ Credit the Drawer. Alebed Mancill & Son. “Bennett Temple.” On the back of the note were the following indorsements: Bennett Temple, Frederick W. Baker, James A. Baker, Levis G. Baker. The action is brought by the heirs-at-law of William Baker, who were the real payees and owners of the note, against Bennett Temple, whose indorsement appears on the note above that of the payees. The defence is that while Temple might be liable to an indorsee, he is not liable to the payees who are of necessity the first indorsers. The jury before whom the case was tried returned a special verdict, covering the important questions of fact, as follows: 1. That the administrators were made payees for the use of the present plaintiffs, the parties in interest. 2. That Temple wrote his name under the words “ credit the drawer,” and on the back of the note, before it was signed by the maker or the blanks filled up. 3. That the blanks were filled, the note signed, and the indorsement [641] made by the administrators after the indorsement by Temple. 4. That the plaintiffs have exhausted their legal remedies against Mancill & Son, the makers. The court below entered judgment in favor of the plaintiffs. To sustain this judgment the liability of the defendant must rest either upon his indorsement, or upon his direction to “ credit the drawer.” His indorsement is of that sort described in our cases as an “ anomalous ” one. Though not the payee, his indorsement as to its order or place on the back of the note is first, that of the payees being under his. Before the passage of the statute of frauds in 1855, such an indorser was held liable to the payee as a guarantor, if such was the understanding when the indorsement was made, and the payee might write a contract of guaranty above the name of such indorser, and sue upon it: Leech v. Hill, 4 W. 448 ; Taylor v. McCune, 11 Pa. 460. Since 1855 these cases have been necessarily departed from so far as to require a memorandum in writing “ signed by the party to be charged therewith,” as the evidence of any contract of guaranty. The indorsement which imports only the commercial contract into which every indorser enters, is not such a memorandum: Jack v. Morrison, 48 Pa. 113; Schafer v. The Bank, 59 Pa. 144; Murray v. McKee, 60 Pa. 35. The result of these cases has been to fix the position and legal liability of such an indorser as that of a second indorser. He is not liable to the payee, but, if compelled by a later holder to pay, he has a right to proceed against the payee for reimbursement: Slack v. Kirk, 67 Pa. 380; Eilbert v. Finkbeiner, 68 Pa. 243; Hauer v. Patterson, 84 Pa. 274. Such an indorser may still be converted into a guarantor by an agreement in writing signed by him, but in the absence of the writing his liability is fixed by the law merchant: Eilbert v. Finkbeiner, supra. It is clear, therefore, that the payees cannot recover against Bennett Temple as a guarantor, because of the statute of frauds; nor as an indorser, because they are prior parties to the note and liable to him. The learned judge of the court below seems to have been of this opinion, for he says, “ If it was not for the words ‘ credit the drawer,’ separately signed by the defendant, the case would be undoubtedly ruled in favor of the defendant by the case of Schafer v. The Bank.” He then proceeds to expand these [642] words into the following: “ A. Mancill & Son have this day made their promissory note for $1,000, which I have indorsed for their accommodation. The person to whom said note may be given for value is hereby authorized to give credit to said A. Mancill & Son.” Now, unless this is the commercial meaning of the words “ credit the drawer,” the statute of frauds is as clearly violated as it would be by engrafting such a guaranty upon a mere indorsement. What therefore do the words mean ? The legal relation of the parties to a bill or note to each other, is presumed to be that indicated by the order in which their names stand upon it. The maker is liable to the payee, the payee to his indorsee, and so on down the line of indorsements. The last indorsee is presumed to be the holder and owner of the note, and entitled to its proceeds. The note in question was made, by Mancill & Son to the administrators of William Baker. They indorsed it. The indorsement of Temple being in law that of second indorser, he would appear to be entitled, as against the prior parties, to the proceeds of the note. The office of the memorandum we are considering, is to advise the bank or other party to whom it may be offered, that, contrary to the prima facies of the note, he is not the owner; that his indorsement is for the accommodation of the prior parties, and that as between him and them the drawer is entitled to have the proceeds of the note delivered to him, or passed to his credit. It is not a declaration that the maker is worthy of credit, nor a request that credit be given him upon the responsibility of the person signing the memorandum, but a statement that such person is not the owner in fact, though such in appearance, of the note to which the memorandum is attached, and disclaims any .interest in its proceeds. The court below was wrong in treating the words, “■ credit the drawer,” as implying an undertaking to pay, or as affording any basis for liability on the part of Temple. It was also wrong to say tliat “'the jury could look at the note, the indorsement, the words ‘ credit the drawer,’ and all the parol' testimony, and say whether the contract was original or collateral.” Since the statute of frauds, in 1855, parol testimony is not admissible to show a contract for the payment of the debt of another if over twenty dollars in amount, and the jury had no right to consider the parol testimony on that subject. [643] The indorsement was entitled only to the force which the general commercial law gives it; and the direction to credit the drawer was without significaney on the question of Temple’s liability as an indorser. It neither increased nor diminished his liability in any particular. It has been urged that Roth v. Barner, 2 Penny. 214, is an authority in support of the ruling of the court below, but we do not so understand it. In that case Kline, the irregular indorser, was held liable, not upon his indorsement, or upon the words “ credit the drawer,” but upon a distinct and independent agreement to pay the note, founded on a sufficient consideration. In the opinion of this court, delivered by our brother Steerett, this appears very clearly. He says, on page 219: “ In view of the explicit instructions thus given, the jury must have found that the plaintiff in error, in consideration of obtaining the confession of judgment, promised absolutely and unconditionally to pay the balance due on the note, and that the judgment for $5,000 was given by Kline on the faith of that promise.” Such a promise furnished a distinct basis for liability to the payee, on which alone the recovery against Roth rested. On the whole case, we conclude that the plaintiffs, the payees, are not entitled to judgment on the special verdict for the following reasons : 1st. The irregular or anomalous indorsement of Temple imposed upon him the liabilities of second indorser, and did not make him liable to the payees. 2d. His indorsement cannot be turned into a contract to guarantee payment of the note, by parol testimony, because of the statute of frauds. 8d. The words, “ credit the drawer,” imply no promise or undertaking on the part of him who uses them, but are a direction to all persons to whom the note may be presented, to treat with the drawer as the owner, notwithstanding the apparent title of the indorsee. This was the question on which the case turned in the court below, and the only one involved which was not well settled by our own cases. It is apparent that the application of these principles to this case leaves the plaintiffs nothing upon which to stand, and The judgment is therefore reversed.