Thacher v. Stevens

Pardee, J. N. W. Taylor made his promissory note for 1500 payable at bank two months from date to the order of James Gill; at the request and for the accommodation of the maker the defendant indorsed it in blank; then it was delivered to the payee, who placed his own blank indorsement above that of the defendant, and transferred it to a third person, who transferred it to a fourth in the city of New York, from whom the plaintiff purchased it for a valuable consideration before maturity, believing the indorsements to be in order of time as they were in order of place. Presentment and demand were made; notice of non-payment was given to the defendant as the second indorser, and this suit is instituted against him in that character. The defendant insists that he is a guarantor that the note [565] is due and payable according to its tenor, that the maker shall be able to pay it at maturity, and that it is collectible by the use of due diligence; that therefore there is a variance between the contract alleged and that which he made, and that he has a right to prove the variance by parol testimony. The case is reserved for the advice of this court. The evidence is inadmissible. The office of a negotiable note is to pass from holder to holder as a medium of payment. The defendant is to be charged with knowledge, when he made his unrestricted indorsement for the accommodation of the maker and the security of the payee, that the latter intended to and would perfect the negotiability of the note by indorsing it in due order of place above that of his own, and transfer it in open market ,• and the defendant is to be held as having authorized the payee to make him responsible as second indorser, and therefore to have barred himself from putting parol restrictions upon the contract implied from the place of his name, as against a purchaser before maturity for a valuable consideration without notice. Of such an indorser, in Crozer v. Chambers, Spencer’s Rep., (N. Jersey,) 256, Chief Justice Hornblower said, that the “ mere signature creates no commercial contract whatever, though it may subject Mm to the liability of second indorser if the payee thinks proper to indorse it and put it in circulation and the note should get into the hands of an innocent bond fide holder.” In Schneider v. Schiffran, 20 Missouri, 511, the defendant having been sued upon his blank indorsement of a note of which he was not the payee, offered parol testimony as to the real contract wliich ho had entered into. The court refused to receive it, saying “ the question in the present case is whether tliis may also be shown- against a party who took the note before it was due,-in the usual course of business, and for value and without notice ; and we are of opimon that it cannot, and that such a decision’would be contrary to the principles and policy of the law in relation to negotiable' paper, and generally result in throwing the loss from the party who occasioned it by his own act, upon a stranger, wlio relied upon what he found upon the note.” [566] In Sturtevant v. Randall, 53 Maine, 157, it is said as follows: “ Undoubtedly tlie order in whicli the names stand upon the back of the note would be primá facie evidence of the relative time at which the indorsements were made, and it may well be that, as against an innocent indorsee for value, in regular course of business, the policy which aims to facilitate commercial intercourse by means of negotiable paper would prohibit a defendant from asserting any extrinsic matter to vary the apparent liability; but, as between the original and immediate parties to the contract, or those occupying their position and having their rights only, the consideration of the contract is always the subject of inquiry until once judicially determined.” In Phelps v. Vischer, 50 N. York, 69, S & R made a note payable to the order of Brown, which was indorsed before delivery to the payee by Bennett, the defendant’s testator ; then the payee wrote upon the back these words :—" For the purpose of making this note negotiable I indorse the same payable to the order of Solomon Bennett without recourse to me as indorser ; ” signed his name thereto, and transfesred the note to the plaintiff, who had knowledge that Bennett’s indorsement was prior in time to that of the payee. The court said that “ if the plaintiff had purchased the note without knowledge of the order of indorsements he might have supposed that Brown first indorsed it and would then have been a bond fide holder.” We do not deny the admissibility of the evidence as between the defendant and the payee. In Beckwith v. Angell, 6 Conn., 323, the defendant made a blank indorsement upon a note long overdue, upon the agreement of the plaintiff, the holder, to give further time ; the latter wrote a guaranty over the defendant’s name; and as between them he was allowed to prove the contract by parol. In Perkins v. Catlin, 11 Conn., 213, the plaintiff was the payee, under a special agreement with whom the defendant made the blank indorsement sued upon. In Laflin v. Pomeroy, 11 Conn., 440, the plaintiffs, payees, paid the defendant for his blank indorsement. In Castle v. Candee, 16 Conn., 234, the plaintiff was the payee. In Holbrook v. Camp, 38 Conn., 23, Holbrook indorsed in [567] blank a note payable to one Downs for the accommodation of the maker. Camp bought it after maturity and undertook to use it by way of set-off against a claim in favor of Holbrook. In a note to section 188 in the last edition of Story on Promissory Notes there are cited a large number of decisions by courts in our own country and in England as to the legal effect of an indorsement in blank upon a promissory note payable to order by a person who at the time of indorsing is neither payee nor holder. We believe we are not mistaken in saying that in every case cited the plaintiff was either the payee or the holder of the note with notice as to the time when and the contract under which the' defendant made his irregular indorsement; therefore the author must be understood as treating only of such instances. In Daniel on Negotiable Instruments, sec. 712, it is said: “Whether or not there is the same liberty in the use of parol proof when the note has been passed to a bond fide holder for value, and without notice, is a question upon which the authorities are by no means uniform. Some of them confine parol proof to cases in which the note is still in the hands of the original party to whom it was first delivered as a valid instrument; but others declare that it is equally competent in a suit by a bond fide holder.” Several cases are cited in support of the test. But we think we are not mistaken when we say that in every one of these the plaintiff, at the taking of the note, had notice of the irregular indorsement; therefore no one of them is an authority for the proposition that the defendant in the case before us is not liable in this action to the plaintiff, a bond fide holder without notice. Our attention has also been called to the case of Good v. Martin, 5 Otto, 90, in which the marginal note is that “where a promissory note made payable to a particular person or order is first indorsed by a third person, such third person is held to be an original promissor, guarantor, or indorser, according to the nature of the transaction and the understanding of the parties at the time the transaction took place;” and that “parol evidence is admissible to show the circumstances under which he signed, as they bear upon the foregoing rule.” [568] But this case is of the same class, and we believe that in every case cited therein as an authority the plaintiff was either payee or holder with notice. It is error to the Supreme Court of Colorado. From 1 Colorado Reports, 165, it appears that the note was transferred by the payee directly to Martin, the plaintiff below; of course, in this fact there was actual notice to the latter that the indorsement of Good was irregular and open to parol explanation. In Third National Bank of Baltimore v. Lange, 7 Reporter, No. 19, May 7th, 1879, (to appear in 48 Maryland Reps.,) the marginal note is, that “parol proof is admissible to show the character in which indorsers stand relative to the note.” The plaintiff bought the note of the payee, and the court cites (Good v. Martin, supra. Neither of these eases is an authority for any other proposition than that parol proof is admissible as between parties who have notice of the irregularity of the indorsement. In the case at bar the payee embraced the opportunity afforded by the defendant and perfected the negotiability of. the note by making his indorsement to stand as the first and. that of the defendant as the second, so far as a stranger could know, and put it into circulation; the plaintiff bought it in the market apparently of the second holder after the defendant, possibly a bill-broker, under such circumstances as gave, him no knowledge either actual or constructive of any irregularity. If, as between himself and all persons to whom the payee, may transfer a note, the irregular indorser prefers one of the two positions of guarantor or second indorser to the other, he can easily secure his preference by stating it in writing in connection with his indorsement; and in the interest of the negotiability of commercial paper it is better to compel him thus to state it than to require the holder without notice to. discover it at the price of a bill of costs. We advise the Court of Common Pleas to render judgment for the plaintiff. In this opinion the other judges concurred; except Pakk, C. J., who did not sit.