Marks v. First National Bank

SOMEPYILLE, J. The main question in this case, reduced to its last analysys, is simply, whether, in the case of accommodation negotiable paper, the fraud of the maker, in procuring the signature of an accommodation indorser, is a good defense to a suit brought against such indorser by the payee, who knows the nature of the paper, but is ignorant of the fraud. We are of opinion, upon fundamental principles of law governing the subject of commercial paper, that the defense can not be sustained. 1. Accommodation indorsers, beyond all doubt, are liable precisely to the same extent as if they had received value, when the paper upon which their names appear has come into the hands of a holder for value, who has taken it bona fide, before maturity, and without notice of any fraud or other equity, which would vitiate it. It is entirely immaterial that such purchaser was cognizant of the fact that the bill or note was founded on an accommodation transaction, and was, therefore, to this extent, without consideration as between the indorser and the maker. The obvious reason is, that the purpose of making the paper was to loan the credit of the accommodation indorser, or other surety, to the maker, or party for whose accommodation the paper is made, that he might obtain money or credit from a third person on the faith of it. Unless this [558] rule prevailed, it is easy to see how the circulation of accommodation paper would be so far frustrated as to destroy its use in commerce.—Chitty on Bills, pp. 80, 305; 2 Parsons Notes & Bills, p. 27; Park Bank v. Watson, 42 N. Y. 470. The rule, in other words, is, to use the language of Judge Story, that “the parties to every accommodation bill hold themselves out to the public, by their signatures, to be absolutely bound to every person who shall take the same for value, as if that value were personally advanced to them, or on their account, and at their request.”—Story on Bills, § 192. This familiar principle is a full answer to the argument, that the notes in suit were obtained by the plaintiff from the maker, Eellows, and that this fact charged the plaintiff with a knowledge of the nature of the paper as being of an accommodation character. 2. That the notes were taken by the bank in payment of an antecedent debt, did not render it any the less a purchaser for value, in due course of business, than if it had advanced the money on the faith of the paper. Such transactions are constantly occurring among merchants, and it may, therefore, be said to be according to their usage. The notes were payable to the bank on their face, and of this fact the defendant was necessarily apprised, when he loaned Fellows the credit of his indorsement.—1 Parsons Notes & Bills, pp. 256-257; 2 Lead. Cas. 242; Connerly v. Planters' Ins. Co., 66 Ala. 433; Bank of Mobile v. Hall, 6 Ala. 639. The case of McKenzie v. Branch Bank, 28 Ala. 606, cited and relied on so strenuously by appellant’s counsel, is easily distinguishable from this case. Here, accommodation paper is taken in absolute payment of a pre-existing debt. — there only as collateral security for such debt. In the former case, the holder, under our decisions, is a purchaser for value; in the latter, not.—Miller v. Boykin, 70 Ala. 469. 3. That the liability of the defendant was that of an indorser, is too well settled by the decisions of this court to admit of discussion. It is true that his name was written in blank on the back of the notes, before they had been indorsed by the payee, who never put them in circulation; and' the indorsement was, therefore, wdiat is commonly termed an irregular and imperfect one. But this was immaterial, as no effort is made to show by parol evidence, or otherwise, that the defendant, at the time of the indorsements, in any manner qualified or restricted his liability, so far as concerns the plaintiff, or contracted to assume, as between him and the plaintiff, any other liability than that of an indorser.—Hooks v. Anderson, 58 Ala. 238; Price v. Lavender, 38 Ala. 389; Tankersly v. Graham, 8 Ala. 251; Jordan v. Garnett, 3 Ala. 610; Day v. Thompson, [559] 65 Ala. 269. The case raises no inquiry as to the circumstances under which irregular indorsements may be qualified by parol proof of the real contract between the parties litigant — who are here the payee and the indorser. As between the indorsers themselves, the inquiry might assume entirely another phase, which it is unnecessary for us to discuss. 4. This brings us back to the first inquiry, as to how far the alleged fraud practiced by the maker, whereby he obtained the consent of defendant to become one of his accommodation indorsers, is to affect the payee, who is entirely ignorant of it. The evidence shows that Dawson, the first indorser on the notes, made his indorsement upon the condition, that' the maker, Fellows, was to obtain the names of two other responsible indorsers on the paper, before delivering it to the bank, such indorsei’s to be jointly liable with him. This condition was not communicated to the defendant, and this may be admitted to be a swppressio veri, which was a fraud in law. But the plaintiff was as ignorant of the alleged fraud as was the defendant, being an innocent purchaser of the legal title, before maturity; and for value. Why should the bank, then, be held responsible for a deception in wrhich it had no participation ? Its officers trusted to the paper, and the affirmed genuineness of the signatures, which were sufficient on their face to create a legal liability. They placed no special trust in any representations of the maker, as to the nature of the paper. The defendant, however, trusted the maker, by standing as his surety, and did not either inquire or inform himself as to the terms upon which Dawson had indorsed the notes. One giving currency to commercial paper, by indorsement, is understood, not only to assert the genuineness of all previous signatures, but also “ the regularity of all such previous transactions as he was bound to know.”—2 Greenl. Ev. § 164. He was guilty of negligence, in this particular; and its consequences should rather be visited on him, than upon one who has parted with value on the faith of his indorsement.—Anderson v. Warne, 71 Ill. 20; s. c., 22 Amer. Rep. 83. Fellows, moreover, was, to a certain extent, the agent of the defendant to deliver the note to the bank — without special instructions, and without the imposition of any conditions or terms of delivery. Here, again, was the reposing of confidence; and the rule is, that where one puts trust and confidence in a deceiver, it is more reasonable that he should be the loser than a stranger, who deals with him with him without any relations of confidence. The case can scarcely be stronger, than if the notes had been indorsed to be used for some special purpose, and had been fraudulently misappropriated to another purpose by the maker, without knowledge on the part of the payee of such restriction [560] or misappropriation. Yet, in such a case, it has been often held, that a bona fide holder for value can recover o£ theaccommodation indorser, although he knows that the paper is founded on an accommodation transaction.—Merchants’ Bank v. Comstock, 14 Amer. Rep. 169; Quinn v. Ward, 5 Amer. Rep. 284; 1 Parsons Notes & Bills, p. 279, note (u); 2 Ib. p. 27. So, it is decided, where a surety fixes his signature after others which are forged, and while it is yet in the hands of him for whose benefit the note is drawn, that this would be no such fraud as would vitiate the paper in the hands of an innocent holder for value, who was not privy to the fraud.—Selser v. Brooks, 3 Ohio St. 302. In Helms v. Wayne Agricultural Co., 73 Ind. 325, where the name of one of the makers of a note was forged, and another signed it as surety only, under the belief that the forged name was genuine, he was held to be bound nevertheless to the payee, who was without notice of the forgery. A fortiori, should this be true, in view of the fact that such indorsement is, in a certain sense, a separate and distinct contract with the payee, or holder, by which it is agreed that every indorser severally will pay the debt,-if by the use of due diligence it can not be collected from the maker. The case of Anderson v. Warne (71 Ill. 20; s. c., 22 Amer. Rep. 83), cited supra, is an authority for the proposition, that where a surety is induced by the fraud of the maker to sign a note, this fact constitutes no defense to an action brought bv the payee on the note, unless the latter’s participation in the fraud is proved; and this principle, we think, is both reasonable and just, at least in cases of commercial paper, which is held by a purchaser for value without notice of the fraud.—Helms v. Wayne Agricultural Co., 73 Ind. 325; Farmers’ & Traders’ Bank v. Lucas, 26 Ohio St. 385; 2 Randolph on Commercial Paper, § 919. 5. The principle decided in Guild v. Thomas, 54 Ala. 414; s. c., 25 Amer. Rep. 703, and Bibb v. Reid, 3 Ala. 88, touching the liability of sureties on bonds conditionally delivered, has no application to commercial paper in the hands of an innocent purchaser, and acquired before maturity, and, therefore, furnishes no rule for our guidance in this case.—1 Daniel Neg. Instr. (3d Ed.) § 856; Deardorff v. Foresman, 24 Ind. 481; Guild v. Thomas, supra; 25 Amer. Rep. 710, note; First Nat. Bank v. Dawson, 78 Ala. 67. 6. But one other point remains to be considered, and this arises on an objection to a statement of the witness Chambers, who, as an officer and agent of the bank, clothed with unquestionable authority, informed Fellows, during the progress of his negotiation with the bank, for its taking of the notes, that they would not be taken without the names of Marks and [561] Gaston as indorsers. It is objected, that this conversation was not known to defendant Marks, and was not, therefore, admissible against him. The answer to this objection very obviously is, that this statement was part and parcel of the agreement between Fellows, the maker of the notes, and the bank, as payee, constituting one of the conditions on which the paper would be received, and that the defendant became connected with it by afterwards indorsing the notes, thus literally carrying the agreement into execution. It was res gestee to the main fact, and illustrative of its very essence. It was admissible on another ground. The notes were in the possession of the bank, or payee, when Marks signed them. Unless the signing had been executed pursuant to a previous agreement to that effect, the contract of indorsement on Marks’ part would have been without consideration. The testimony of Chambers was, for this reason alone, relevant, to show a consideration for defendant’s assumption of liability, the paper not being complete and perfect in the absence of his signature, for the giving of which there had been an express stipulation.—McNaught v. McClaughry, 42 N. Y. 22. Note jby Reporter. — On a subsequent day of the term, in response to an application by appellant’s counsel for a rehearing, the following opinion was delivered : STONE, C. J. — There is an able and elaborate argument for a rehearing in this cause, but I think it misapprehends both the force of our statute, and the rulings made by this court on irregular indorsements. The statute declares — Code of 1876, § 2094 — that “Bills of exchange and promissory notes payable in money at a bank or private banking-house, or a certain place of payment therein designated, are governed by the commercial law.” The notes sued on in this case are, on their face, made payable to the order of the First National Bank, at its office in the city of Montgomery. This, by the terms of the statute, constituted them commercial paper. And the notes, on their face, are made payable to the said bank. When the bank acquired the ownership, it acquired the legal title, and the right to sue in its own name, not by virtue of the indorsement, but by the very face of the notes. This difference distinguishes tins case from those brought on bills of exchange having irregular indorsements not vesting the legal title in the holder. There is, in our opinion, no error in the record, and the judgment must be affirmed. Clopton, J\, not sitting. The notes sued on in this case, as we have seen, are on their face promissory notes made by Fellows, payable to the First National Bank of Montgomery. The names of the appellant and two others appear on the back of them as indorsers. Under some very able judicial systems, such indorsements constitute the indorser a surety of the maker, made liable to the same extent, and by the same form of proceeding, as if he had signed his name as co-maker with the principal. — Rey v. Simpson, 22 Flow. U. S. 341; Ohaddook v. Vanness, 35 N. J. Law, 517; s. o., 10 Amer. Rep. 256. A different rule prevails in Alabama, and has prevailed so long, that we have no wish to disturb it. Speaking of such indorsements, it was said in Price v. Lavender, 38 Ala. 389, “ that unexplained, they impose a liability in favor of the person to whom the indorsement is made, against the indorser, which is strictly analogous to the liability upon a regular indorsement.” — Hooks v. Anderson, 58 Ala. 238. Applying that principle to this case, timely notice of non-payment by the maker was required to be given to the indorser, as the means, and only proper means of fixing the latter’s liability. That is shown to have been done in this case. It is contended for appellant, that because Fellows, the maker of the notes, carried them to the bank, and himself received the benefit of their discount or purchase, this was itself notice to the bank that the indorsers were mere accommodation parties; and lets in proof of the violation of the authority and restricted power which had been confided to him, Fellows, by Dawson, the first indorser. If the acceptor of a bill of exchange, or maker of a promissory note, himself present it at a bank, procure its discount, and receive the money, the proceeds of the discount, this is certainly notice to the bank that the other names on the paper are accommodation parties. What duties such notice or knowledge casts on the bank are not defined with that definiteness and uniformity we could desire. — Mauldin v. Bra/nch Bank, 2 Ala. 502; Mc-LLenzie v. Branch Bank, 28 Ala. 606 ; Saltmarsh v. Planters Ac Mer. Bank, 14 Ala. 668, and cases cited. It is very clear, under these authorities, that the offer of a paper for sale or discount, if made by the party primarily liable for its payment, is evidence that the paper represents no existing debt, but is only an offer to incur one. The purchase of such paper at a greater rate of discount than eight per cent, is usurious. Suppose, however, some of the makers of the paper signed it for the accommodation of the principal debtor, and the bank knew such was the case, what difference can that make? A consideration moving to the principal upholds not only his promise, but that of the surety or indorser, who signs before the negotiation of the paper. — Rutledge v. Townsend, 38 Ala. 706. The principle we have been discussing has nothing to do with this case. The notes were made to be discounted or purchased, and were purchased, not with money paid to Fellows. No money was to be paid to him, and none was paid to him. They were made to be used as an extension and novation of a debt already due from Fellows to the bank. Giving new notes, with additional partiés bound, having several months to run, and the surrender of the evidence of the old debt, constituted a novation, and the creation of a new debt, the surrender of the old note being the consideration for it. It is not pretended the new notes are greater in amount than the debt taken up, with interest added. The surrender or cancellation of a debt is, equally with money paid, a valuable consideration parted with, which will uphold as bona fide a purchase made of which it is the consideration. — Spira v. Hornthall, 77 Ala. 137. Nor is there ánythingin the fact that Fellows himself carried the notes to the bank. He, of all men, was the person to carry them, for with them he was negotiating a settlement, and did settle a debt he owed the bank. Being the debtor, it was his duty to make payment, and he only discharged that duty when he delivered the new notes in discharge of the old. This fact distinguishes this case from Mauldin v. Branch Bank, supra, and the cases which follow it. And it would seem there was no occasion for invoking the doctrine of presumption in this case. The entire transaction shows that every one connected with it, including the bank, knew that Fellows was the debtor, and the appellant only his surety. An indorser of a note is a surety for the maker, who is the principal debtor. This is particularly so, when the indorsement is for accommodation. .2 Dan. Neg. Instr., § 1303. Why resort 'to presumption, when the admitted fact stands prominently out? To summarize: The notes were commercial paper on their face. The bank purchased them in the regular course of its business, paying a present, adequate consideration for them, in the surrender of the old debt on Fellows. The notes were carried to the bank, and the negotiation and sale made by Fellows, the most natural person in the world to perform such service. And the liability of the appellant being the same as that of a regular indorser of commercial paper, that liability has been fixed by the failure of his principal to pay, and timely notice thereof given to him. I fully concur in the argument and conclusions of my brother Somerville, and the petition for re-hearing is overruled.