Riddle v. Stevens

Dutton, J. This case has been presented to us as if the main question on the record was, whether a blank negotiable note which has been indorsed in blank by a person for one purpose, can be filled up by the maker without the consent of the indorser by inserting the name of another person as payee, to whose order it is made payable, and passed off to such payee for another purpose, so as to make the indorser liable to such payee. An examination of the record will show that no such question is fairly presented. But assuming that it is, a majority of the court are inclined to the opinion that the payee under such circumstances, although ignorant. of the purpose for which the indorsement was made, could not recover against the indorser. It is unnecessary to inquire what would be the legal effect elsewhere of the indorsement of a negotiable note already .filled up by one who is not a party to it. In this state, after numerous decisions, some of which can not be easily reconciled with others, it is settled law that an indorsement by one who is not a party to it, either of a negotiable or non-negotiable note, implies a warranty that the note when due will, by the use of due diligence, be collectible. Laflin v. Pomeroy, 11 Conn., 440; Castle v. Candee, 16 id., 223. It is equally well settled that such an indorsement is only prima facie evidence of what the contract was between such an indorser and the holder of the note. It would yield to proof of what the real contract was, if it was of a different character. Proof is admissible even to show that the indorsement imposed no legal liability, but was put on merely for purposes'of collection. So it is admissible to show that it was a guaranty, or that it imposed any other liability. An exami — 386 — nation of the cases will also prove that the rule in this state is no part of the law-merchant. Paper so indorsed has none of the sanctity that is attached to negotiable paper as such. The indorsement is of the nature of a power of attorney, authorizing the holder of the paper, if there is no agreement to limit his authority, to write over the name the agreement which the law holds such an indorsement to imply. Some of our judges have lamented the flexibility of the rule, and have regretted that the meaning of such an indorsement was not absolutely fixed. This only shows that the rule is too well established to be shaken. We are now prepared to see what authority is given by the indorsement of a blank negotiable note. That it would not give the holder any actual authority to make use of it contrary to the intention of the indorser is plain. But it is insisted that a stranger has a right to take it for granted that the indorsement was made after the note was filled up ; and that there is nothing to put him on his guard or to lead him to inquire for what purpose the indorsement was made. There can be no doubt that a blank signature on a piece of paper authorises the holder of it to write certain contracts over it. In Montague v. Perkins, 22 Eng. Law & Eq. R., 516, the court held that the signer of a blank note which was stamped, would be considered as authorizing the holder to fill up the note with any amount and for any time which the stamp would authorize. This shows at once the implied authority and the limitation. It could not be contended that a mere signature of a name on the back of a blank note would authorize the holder to write over it a warranty of a horse or a receipt in full of all demands. The authority depends in a great measure upon what use it is customary to make of such signatures. In Mahaiwe Bank v. Douglass, 31 Conn., 170, the defendant indorsed a blank bill of exchange, from which the holder, who had previously signed it as drawer, erased most of the formal part, and then wrote over his own name a negotiable note payable to the defendant’s order, and got it discounted as an indorsed negotiable note at the Mahaiwe Bank, which was the plaintiff in the case, and this — 387 — court held that the bank was bound at its own risk to scrutinize it, and to ascertain whether the defendant authorized such a change. There was enough, it. was decided, to put the bank on its guard, and if it trusted to the representations of the holder it was at its own risk. When a negotiable note, with the blank indorsement of a person who is not a party to it, is presented to a man to advance money upon, or receive for other purposes, he will discover at once that the indorsement is an unusual one and not in the ordinary course of business. The obligation of the indorser, which he is called upon to take as security, is of a peculiar character. The inquiry would at once suggest itself, why was such an indorsement made upon such a note. It is apparently incompatible with the nature of such an instrument. For this reason the, courts in the state of New York will not admit that there can be but one kind of indorsement of negotiable paper. Mr. Abbott, in his New York Digest, (vol. 1, p. 440, note,) after a thorough examination of the numerous decisions which had been made in that state, comes to the conclusion that the rule in that state is that an indorsement of a negotiable note by one who is not a party to it implies a contract as indorser only, and that he could be sued only as indorser. We have seen that a different rule prevails here, but it shows how incongruous any other indorsement than one by a party to a negotiable note seems to an observer in a state where commercial paper prevails. Such an indorsement is calculated to create embarrassment, and to render paper less available as negotiable paper. For these reasons a majority of the court are inclined to think that such an indorsement would be sufficient to put the payee or person to whom it is offered on his guard, and require of him, before he relies upon it, to make inquiry. Where an instrument is thus diverted from its lawful purpose one of two parties must suffer loss. The question is, on whom should the loss properly fall. The indorser would have no reason for believing that the note would be filled out in any other way than the usual one of inserting his name as payee. He would not therefore be chargeable with a want of — 388 — due care. The person who should take such a note relying on such an indorsement would be chargeable with some degree of negligence. There would be enough to excite his suspicion that all was not right and lead him to make inquiry. We are inclined therefore to think that between him and the indorser the loss should fall upon him. But as we have already intimated, we do not find this question on the record. The declaration contains two counts, one on the indorsement of a negotiable note in the usual way, the other on the indorsement by the defendants of a note payable to the order of the plaintiff. The only note offered in evidence was one payable to the order of the plaintiff indorsed, by the defendants. It was admitted that the note when indorsed' by the defendants was a blank one, and that it was afterwards filled up by the maker and made payable to the order of the plaintiff and not of the defendants. The motion shows that the only claim which the plaintiff made, on which any question arises, was, “ that the court should instruct the jury that the legal effect of the defendants’ writing their partnership name in blank on the back of the note, notwithstanding there was no special contract between the parties, was that of a guaranty to the plaintiff of the payment of the note and not that of a collateral undertaking as indorsers.” The judge in his charge did not sustain this proposition. We have already seen that by the law of this state he could not. A guaranty imports a promise that the note shall be paid at all events. Assuming that the fact that the note was in blank when indorsed by the defendants made no difference as to their liability, the claim which was. made by the plaintiff was one which could not have been allowed. The refusal therefore of the judge to charge as claimed by the plaintiff was not a ground for a new trial. As the plaintiff did not ask the court to leave this part of the case to the jury on any other principle of law, he can not complain now that it was no.t done. The remarks of the judge with reference to the question whether the indorsement was intentional or not, apply only to the first count. But the admitted facts in the case show that there could be no recovery on that count. The defendants — 389 — evidently could not be charged as ordinary indorsers. The evidence introduced by the plaintiff himself showed also that no legal notice was given. It is unnecessary therefore to inquire whether these remarks were correct or not, as the plaintiff could not have been injured by them. A new trial is not advised. In this opinion Hinman, C. J., and Park, J., concurred. Butler-and McCurdy, Js., dissented. McCurdy, J. In this case the plaintiff, as a condition of taking a new note, required an indorser. McDonald sent and the plaintiff accepted the note in suit. This is payable to the plaintiff or order, signed by McDonald, and indorsed in blank by the defendants. According to the well known law of Connecticut, this instrument is to be treated as a lion-negotiable note indorsed by the defendants for better security. It was taken by the plaintiff before due, for a valuable consideration, and without notice of any other facts affecting it. The plaintiff had a right to consider it as having been indorsed after it was filled up, such being the usual course. The defendants say that when so indorsed the note itself was in blank except the date and name of the maker, and that it was left by them to be filled up by McDonald and passed by him, but they “ supposed ” he would make it payable to their order and use it at the Elm City Bank. The result of this would have been to make them indorsers of a negotiable paper, while the effect of writing it payable to the order of the plaintiff was to make them guarantors of a note not negotiable. But in many parts of the community notes of this kind are nearly as common as negotiable notes, and as well understood and as frequently used in the regular course of business, and in the absence of any particular instructions McDonald had as much right to fill the blank with one kind as with the other. The term “ indorser ” is applied to one who writes his name on the back of either. Under these circumstances I had considered it an elementary proposition, that the defendants having trusted McDonald, and he having acted within the apparent scope of his author — 390 — ity, they could not set up a secret agreement, (much less a hare supposition,) to defeat the action. The law on this point rests upon two principles, (or perhaps forms of the same principle,)—first, that a man is bound by the acts of an agent done within the' apparent scope of his authority, and second, that whenever of two innocent persons one must suffer from the misconduct of a third, it should be the one who has trusted him and enabled him to cheat. These principles are general and'of the highest importance. They apply as well to one kind of note as to the other, and as well to the sale of a horse as to the transfer of a note. It is said, 1 Swift’s Digest, 434, in speaking of non-negotiable notes, that 44 while the indorsement remains in blank and in the hands of the first assignee, it is admissible for the assignor to show any special agreement,” &c., 44 but when it has been filled up, or has been transferred to a/nother person, no such proof would be admissible;” also, that 44 a subsequent indorsee can not be affected by any agreement with a prior indorsee which does not appear on the face of the instrument.” In the case of Mahaiwe Bank v. Douglass, 31 Conn., 170, the court say: 44 The presumed authority of one to whom the indorser intrusts a paper entirely blank to write upon its face either a note or bill for whatever sum he pleases, and in case of an inchoate note or bill his presumed authority to fill all blanks existing in them when indorsed, is conceded; for without the exercise of such authority the paper would be valueless and the indorsement a nugatory act.” In the case of Russel v. Langstaff, Douglass, 514, the plaintiff when he took the notes knew that they were blank at the time of the indorsement and were afterward filled up by Galley, the maker. Lord Mansfield says, 44 The indorsement on a blank note is a letter of credit for an indefinite sum. The defendant said 4 Trust Galley to any amount, and I will be his security.’ It does not lie in his mouth to say the indorsements were irregular.” See also the opinion of Chief Justice Williams in Norwich Bank v. Hyde, 13 Conn., 284. Also Cruchley v. Clarence, 2 Maule & Selw., 90; Montague v. Perkins, 22 Eng. Law & Eq. R., 516; Barker v. Sterne, id., — 391 — 502; Kimbro v. Lytle, 10 Yerg., 417; Torrey v. Fisk, 10 Smedes & Marsh., 590. It will be observed that there, is no claim of any fraud by McDonald, or any agreement or even understanding by him that he was to do differently from what he did, but merely that the defendants “ supposed ” he would. There was no negligence on the part of the plaintiff and nothing to excite his suspicion. He demanded the note of McDonald with another name as security. He received just what he required, and it was immaterial to him whether the note which the defendants indorsed was negotiable or not; the security was the same. Notes of precisely this character are too common all over the country to create doubt or surprise, and McDonald had as we have seen as much authority to fill up the blank in one way as in the other. But the case shows gross laches on the part of the defendants. ' All the other notes indorsed by them at the same time as the one in suit were made payable to their own order at the Elm City Bank before they were indorsed. If this note was to be one of the same kind why should this alone have been left by them in blank to be filled up by McDonald as he might please ? But it is said that the plaintiff requested the court to charge that the contract of the defendants was a guaranty of the payment of the note at all events; and that the law does not imply this. I do not so understand the request. The plaintiff had unquestionably set out in the second count of his declaration exactly the kind of contract which the law implies from the name of the defendants being in blank on the back of the note. This in the case of a note not negotiable is usually and technically called a guaranty, to distinguish it from what is called an indorsement of a negotiable note. The acts to be done by the holders of a note with a guaranty are different from those necessary to be done by the holders of a note with a proper indorsement. The defense was that the plaintiff had not performed the acts required in the case of an indorsement. The reply was that this was not an indorsement, but a guaranty, and that the plaintiff had done every thing which he was bound to do — 392 — in such a case. He therefore requested the court to charge that this contract was one of guaranty, but the court held that it was one of indorsement. The claim was simply that this contract was a guaranty, and not that a guaranty implies payment at all events and without condition. The whole case, setting out the nature of the contract, its incidents, the conditions of a recovery, and a performance of those conditions by him, excludes the idea that the plaintiff claimed or expected the court to charge that the defendants were bound to pay the note unconditionally and at all events. The request was certainly a proper one, and the charge manifestly wrong. It seems to me that the decision in this case will be exceedingly unfortunate in its practical effect, as it is calculated to render valueless a kind of paper extensively used and confidently relied upon among all classes of the community.