De Pauw v. Bank of Salem

Mitchell, J. — The decision in this case depends upon the conclusions of law to be drawn from the following facts: In April, 1884, Andrew J. McIntosh executed a promissory note for $1,500 to the Bank of Salem, Indiana, the bank being named therein as payee. The note was negotiated and payable at the Bank of Salem, Indiana, and was given as a second renewal of a note similarly signed, which had been executed in consideration of money loaned to Andrew J. McIntosh. The name of Newland T. Be Pauw was endorsed on the back of the note before it was delivered by McIntosh, the latter having signed on the face as maker. The note was delivered to the bank in the absence of the endorser. Without finding that there was any agreement, either ex [554] press or implied, concerning the character of the obligation to be assumed by the endorser, the court found that the officers of the bank and McIntosh intended, at the time the note was delivered and accepted, that De Pauw should be liable as surety, but that the latter intended to assume the character and liability of an endorser, in order to give the former credit with the bank, but that he did not inform the officers of the bank of his intention in that regard. The note was never protested for non-payment, nor was the endorser ever notified of the dishonor of the paper. Both maker and endorser knew that it was a requirement of the bank that all notes should have two names before they could be accepted for loans. The notes for which the one in suit ha.d been given in renewal had run until they were from three months to a year or more past due before renewal notes were given.. McIntosh is insolvent. It was the opinion of the learned circuit court that upon the foregoing facts the appellant was liable as a surety or joint maker. If the defendant, by signing his name on the back of the note before its inception, did so under such circumstances as to impose upon him the liability of a maker, then he was not entitled to notice, as the rule is that a surety or joint promisor is bound to take notice of the default of his principal ; while, on the other hand, if his liability was that of an endorser, the failure of the bank to give notice of the dishonor of the paper resulted in his discharge. It was settled as the law of this State, in Wells v. Jackson, 6 Blackf. 40, that where one, not the payee of a note, not negotiable as an inland bill of exchange, wrote his name upon the back of the paper, prior to or at the time of its inception, without any agreement expressing the real nature of the obligation intended to be assumed, he thereby conferred authority upon the payee to treat him as a surety or joint promisor, while a similar act in respect to a note ne [555] gotiable as an inland bill of exchange subjected the person so signing presumably to the liability, as well as to the privileges and immunities, of an endorser. Whatever apparent fluctuations there may appear to be in the decisions, the rule as enunciated in Wells v. Jackson, supra, must be regarded as the settled law of this State. For the purpose of carrying into effect the intention of the parties to the contract, parol evidence of the facts and circumstances attending the transaction is admissible, and the prima facie liability of one who thus signs his name may be shown to be, in fact, that of a maker instead of an endorser, but the rule is, in the absence of evidence showing an intention on the part of one who signs in blank to be bound as maker, that he will be held liable only as endorser. Pool v. Anderson, 116 Ind. 88, and cases cited; Moorman v. Wood, 117 Ind. 144, and cases cited; Good v. Martin, 95 U. S. 90. The significance of the rule lies wholly in determining in each case the necessity of giving or not giving notice to the person whose name has been thus signed, of the non-payment of the note. If his liability is in fact that of a maker no notice is necessary. If liable as an endorser, failure to give notice of non-payment is equivalent to a discharge. Bronson v. Alexander, 48 Ind. 244. The note with which we are here concerned is payable to order at a bank in this State, and is, therefore, negotiable as an inland bill of exchange within the express terms of the statute. Section 5506, R. S. 1881. We are not aware of any authority which holds, nor have we discovered any reason for holding, that because the bank at which the note was made payable and negotiable is also the payee, the commercial quality which the statute gives to paper payable at a bank in this State is thereby destroyed. The note having, therefore, the character of mercantile paper, and having been endorsed before it was delivered in order to give the maker credit with the payee, the liability of the endorser, while the paper remains in the hands of the payee, is prima [556] facie that of one who agrees to pay the debt in case of the default of his principal upon being duly notified. It is competent in such a case, according to some of the cases, to control the prima facie liability of the endorser by parol evidence, by proving a mutual agreement on the part of the payee and the endorser that the latter should assume the liability of a surety or joint maker. “ Whether the contract was one of endorsement or suretyship depended, not upon the intent of one of the parties, but on the mutual understanding and intent of both.” Kealing v. Vansickle, 74 Ind. 529 (533). It was, therefore, wholly immaterial what the bank and the maker of the note may hav.e intended, since it appears that there was no agreement one way or the other with the endorser, whose intention was to assume precisely the liability which his name on the back of the note implied. The facts found in the present case show that the bank and the principal in the note intended that the appellant should be bound as surety, but they also show quite as distinctly that the appellant signed the note, intending at the time to assume the liability of an endorser, in order to give his principal credit with the bank. This, of course, gave the bank the security of both names, according to the requirement of its rules, provided, however, it took the necessary steps to fix the liability of the endorser by giving notice, according to the rules of commercial law. If the endorser, for his own protection, elected to assume such a relation to the paper, as to require the bank to give notice of non-payment when the note matured, why should the bank complain if, because of its neglect, the appellant now insists upon his contract as he made it, and as it was accepted by the bank. It results that the court erred in its conclusions of law upon the facts found. The judgment is reversed, with costs, with directions to> [557] the court below to re-state its conclusions of law, and to render judgment in consonance with the foregoing opinion. Filed Nov. 11, 1890.