Smith v. Barner

JOHNS, J. 1. It is very apparent that this case was tried in the Circuit Court on the theory that the note in question was a negotiable instrument, and was indorsed in writing by the defendant “without recourse.” The complaint alleges that the defendant “by a written transfer and assignment sold, assigned, and delivered to the plaintiff a certain promissory note in writing executed on the eighteenth day of August, 1913, for value received, by Frank H. Green-man and Olive E. Greenman, his wife, to B. B. Burner. ” The note is not pleaded in haec verba, and the allegation quoted is not equivalent to saying that it was a negotiable instrument or that it was indorsed “without recourse.” The answer admits that the “defendant transferred the said note without recourse to himself.” That is not an admission that it was indorsed “without recourse.” 2. The writer was under the impression that in the original argument here it was conceded by appellant’s counsel that the note was negotiable and that it was indorsed “without recourse” in writing. On reargument counsel for defendant disclaimed any such admission and advised this court that he stood on his legal rights as they appeared ifrom the pleadings. The distinction is important. For failure to make such allegations in the complaint, and in the absence [495] of such admission, the case would not come within the terms and provisions of the Negotiable Instruments Act (Section 5898, et seq., L. O. L.), or the legal effect of an implied warranty as therein defined; and for such reason the demurrer to the defendant’s further and separate answer should have been overruled. The defendant cites and relies upon Carroll v. Nodine, 41 Or. 412 (69 Pac. 51, 93 Am. St. Rep. 743), where it was held: “An indorsement without recourse is not a contract, but merely operates to transfer the title; and hence parol evidence is admissible, to show that at the time of the transfer of a note by indorsement without recourse the buyer agreed to take the paper at his own risk, absolutely relieving the indorser even from the implied warranty of genuineness attending such a transfer.” That decision was founded upon a cause of action which arose before the negotiable instruments law was enacted and under the law-merchant as it then existed, and it is alleged in the answer: “That at the time the defendant sold and indorsed the note to plaintiff, he was fully informed of all matters concerning the credit made thereon of date October 26, 1893, and that the same was a valid and genuine payment; that he then guaranteed that she should never at any time be held liable upon said note in any capacity, or for any part thereof; and that her indorsement of said note without recourse would, and in fact did, forever relieve and protect her from all liability thereon.” 3. As we construe Section 5898, L. O. L., there is a vital distinction between the defenses which may be pleaded to an action upon a negotiable promissory note where the title passes by delivery and where it is [496] acquired by indorsement “without recourse.” When it is transferred by delivery only, the transaction rests in parol, and a defense in parol may then be made. Under the negotiable instruments law, when such a note is indorsed “without recourse,” it then becomes and is a written contract. The statutory terms and provisions are incorporated in and made a part thereof, and parol evidence is not admissible to explain or vary the written indorsement. The case is reversed and remanded, with leave to each party to apply to the Circuit Court to file amended pleadings. Reversed and Remanded.