Ætna National Bank v. Winchester

Pardee, J. On the 7th day of July, 1873, the defendant, having at the request and for the accommodation of one James H. Conklin endorsed a note made by him for $2,000, payable four months from date, returned the same to him to — 405 — be negotiated for the purpose of taking up other notes previously endorsed by the defendant and held by the plaintiffs. After the endorsement and delivery of this note to Conklin, he, without the consent or knowledge of the defendant, and with fraudulent intent, altered the sum named therein to #5,000, and subsequently negotiated it in this form to the plaintiffs, and they seek to recover of the defendant the amount .of the altered note in the present action. The defendant began to endorse for the accommodation of Conklin in 1867, and did so endorse several notes, aggregating #7,000. These notes, as they became due, were renewed or provided for by other notes endorsed in like manner and returned to Conklin to be negotiated for that purpose; and thus the succession of endorsements continued to 1873. In 1869 the plaintiffs discounted upon the request of Conklin these endorsed notes to the extent of #5,000; and this line of discounts was continued by the plaintiffs from September, 1869, to July, 1873, and included thirty-five different notes, upon all of which the defendant was an accommodation endorser. Of these the note in suit purported to be one; and this was discounted by them in the usual course of business, without knowledge or suspicion on their part that it had been, altered. The plaintiffs concede that, as a general rule, he who' places his name as endorser for the accommodation of the maker upon a note and returns the same to him complete in form, without blanks thereafter to be filled by any person, having therein named a sum, with time and place of payment, all certain, cannot be held to any liability thereon if it is materially altered without his consent or knowledge after it has been returned by him to the maker, unless there be some fault or negligence on his part in reference to such change; inasmuch as it is not the contract which he signed, and the negotiation thereof subsequent to the alteration cannot give even a bond fide holder any right of action against him. But, they say that the defendant is not entitled to the protection of this rule, for the reason that the alteration was made by his agent in the course and business of the agency, — 406 — and therefore he is estopped from pleading it in his defence. We have in this case the naked fact of a series of accommodation endorsements, the last of which were made with the expectation that they would be used by the maker of the note to supply the place of those previously negotiated. The act of making and delivering these to Conklin did not of itself, as a matter of law, establish any such agency as would enable him to bind the endorser to a subsequent fraudulent alteration of the note; nor do we know of any rule which declares that in or because of repeated endorsements the law will find an agency which did not exist in the first or second. Inasmuch as the committee has not found the agency as a matter of fact, we cannot establish it upon inference. It is suggested that in presenting, transferring and delivering the indorsement to the plaintiffs Conklin was in the apparent exercise and execution of his agency and within its apparent scope. But, he had previously destroyed the contract which he had power to deliver, and had forged another; he came to them with this last without any authority from the defendant in reference to it; in this he was acting for himself solely; he was the principal; and we do not understand that because authority had been given to him to deliver a genuine endorsement to the plaintiffs, he is in any sense to be considered as executing that power when he offered a forged one. Nor do we think that the case presents any opportunity for the application of the plaintiffs’ argument, “that if one of two innocent persons must suffer from the fraud of a third, he who sends out that third to act on his behalf and equips him with the means of committing that fraud should, no matter how innocent himself, take the consequences.” It is found that when the note was delivered by the defendant to Conklin it was complete; nothing was required by way of addition or alteration to perfect it; every blank space in the printed form having been filled there was nothing to suggest any implied authority to Conklin to write a word upon it; nothing to tempt him to alter it; nothing to facilitate the work of forgery; and, if we were at liberty to impute to the — 407 — defendant negligence upon this part of the case, we can conceive no state of facts which would relieve an endorser from liability upon an altered note; but the finding is silent as to any such fault or negligence, and we cannpt find it. Of course, the fact that there are repeated pecuniary transactions between two persons implies that each possesses the confidence of the other to a certain degree. The fact that this defendant became an accommodation endorser to the extent herein stated is proof that he had confidence in Conklin’s integrity; and although Conklin came into possession of the endorsement as the result of that confidence, we are unable to see as a matter of law that therefore it draws to itself responsibility for the fraudulent alteration of the note'. For reasons growing out of efforts to facilitate the business of the world by giving currency to negotiable paper, endorsers have been compelled to respond to their engagements in instances where there had been an unauthorized use of the note; compelled to respond even when the note had been stolen and negotiated by the thief. But in all of these cases suits were based upon their genuine negotiable contracts; only the manner of negotiation was contrary to their secret instructions. This falls far short of imposing upon them liabilities upon contracts which they have never made; and while an endorser is fairly chargeable with knowledge that his endorsement will be put in circulation and used for the purpose of raising money, he is not chargeable even with a suspicion that the amount of the note upon which it is placed will be fraudulently doubled; and we know of no case in which, even under the pressure of the necessity for free circulation for commercial paper, the law has taken under its protection notes fraudulently altered, as was the one now in suit. To do this would be to put an end to endorsements; for, if men cannot by the use of every precaution put any limit to their responsibility, they must cease to assume any. Every ordinary endorsement implies trust in some one. As soon as, and as long as, a note, a deed, or any other writing is in existence, there goes with it the possibility of a fraudulent alteration; and although, speaking in a physical sense, the act of — 408 — the defendant made it possible for some one to alter the face of a note which had his name upon the back, it is not true as a legal proposition that his act, by and of itself, clothed Conklin with any authority to alter the note, or put it in his power to do so in any such sense as would require the court to apply the suggested rule to the defendant and declare that he should bear the loss, rather than the plaintiffs upon whom it was originally imposed. Indeed we regard this as a misfortune which the law must leave where it fell; and we cannot see that either legal or equitable considerations require the defendant to reimburse the plaintiffs. Their claim seems to rest upon no firmer foundation than would an effort to enforce redemption of an altered bill against the bank whose name had been fraudulently used. Although the law goes far in aid of unrestricted circulation of endorsed notes, it has not insured even the bond fide holder against all possible chances of loss by fraud. When he discounts what to the eye presents itself as a note perfect in form, there yet remains an element of risk in the transaction. At the instance of the plaintiffs the committee has found that all of the thirty-five notes which in a series of years had been discounted by them, were made payable to the order of the defendant; that they were upon printed forms, the blanks being filled by Conklin; that the defendant in perhaps sis instances had endorsed notes having no time of payment therein specified and had delivered them to Conklin with leave to fill this blank in such manner as would best suit his convenience; that prior to January 1st, 1873, the defendant kept no memorandum of the notes endorsed by him other than the letters of Conklin accompanying the notes when they were sent for endorsement; that during the time of these endorsements Conklin resided three miles, and had his place of business about one mile from the defendant; and that he had been a book-keeper for him about a year before the endorsements commenced and had performed his duty honestly and faithfully so far as the defendant knew. These facts have all been weighed by the committee, and they failed to convince him that the defendant had been guilty — 409 — of any negligence in the matter of the indorsement. There is therefore nothing in them which should estop him from saying that he never made the contract offered in evidence. We advise the Superior Court to render judgment for the defendant. In this opinion the other judges concurred.