Swartz v. Redfield

The opinion of the court was delivered by Breweb, J.: The material facts of this case are as follows: On the 8th of June 1871 J. L. Landreth executed his note due in one day after date to Eedfield & Co. Thereafter Eedfield & Co. indorsed to E. F. Wright, one of the partners in the firm of Eedfield & Co., and on July 10th 1872 Wright indorsed it to the plaintiff. At the time of the indorsement to plaintiff, and for months prior, Eedfield & Co. were prosecuting their claim on said note against the maker. This action (or their said claim,) was terminated adversely to them on the 18th of November 1872, on the ground, as appears from the report of the referees, that they had no interest in the claim. On the 16th of January 1873 this action was instituted by plaintiff, seeking to charge both the maker and the indorsers. No proof was made of demand by the plaintiff of payment from the maker, or notice to the indorsers. Were the latter liable? It is conceded that a bill or note indorsed after maturity is in the nature of a new bill, payable on demand, and that to hold an indorser thereon, the same strictness as to demand and notice is required as in the case of the drawer of an ordinary inland bill; but it is insisted that upon the facts shown the indorsers were not entitled to notice; that the rule is, that if the drawer had not at the time reasonable grounds to expect that the bill would be honored he is not [556] entitled to notice, and that as at the time of the indorsement the indorsers were vainly attempting to collect the note by suit they had no reasonable grounds to expect that the maker would pay it to the indorser. We are inclined to think that the facts as stated do not make an exception to the ordinary rule, and that no demand and notice having been shown the indorsers were not liable. The principle is thus stated in 2 Smith’s Leading Cases, 61: “The whole principle of exception, then appears to be, that where the non-acceptance or nonpayment of the bill is caused by the fraudulent act of the drawer or indorser, or in other words, where the drawing or issuing of the bill, or the leaving it to be presented, is a fraud in any party liable on the bill, such fraudulent party is not entitled to notice, and it is believed that there are no other exceptions to the general rule requiring demand and notice. In some of the cases the rule is stated to be, that notice is excused wherever the drawer or indorser could not possibly be injured by the want of it; Commercial Bank of Albany v. Hughes, 17 Wend., 94; but practically that amounts to the same thing, for there is always in law a possibility of being injured by the want of notice, and the law will never refuse to take notice of that possibility except in case of a fraudulent drawer or indorser. The well-settled principle that bankruptcy, or notorious insolvency of the drawer, will not excuse notice, that having actual knowledge will not excuse regular legal notice, and that the holder neglecting to give legal notice is not permitted to show that no injury has in fact been sustained, all of which points are settled beyond the possibility of question, clearly show that the application of the fixed rule as to notice is no longer affected by what may once have been the reason for it.” In the 1st vol. of Parsons on Notes and Bills, on page 535, the rule is differently stated, and in these words: “The true test in our opinion in each case is this: Had the drawer under the circumstances of the case a right to draw? This depends upon the fact whether he had a reasonable ground to expect that the bill would be honored, or not. If he had such reason to expect it to be honored, he is [557] entitled to a regular presentment and notice, and refusal to accept or pay; and if not so entitled, he cannot complain either for negligence in presenting and in forwarding notice, or for entire neglect to do either. The reasonable grounds required by law are not such as would excite an idle hope, a wild expectation, or a remote probability that the bill might be honored, but such as create a full expectation and a strong probability of its payment, such indeed as would induce a merchant of common prudence and ordinary regard for his commercial credit to draw a like bill.” Now there was certainly no fraud in the indorsement of this note. It was a valid instrument, a legal promise to pay. No suggestion is made of anything tending to impeach it. Being a contract in writing, it, under our statutes, imported a consideration; (Gen. Stat., 183, §7.;) and there is nothing to raise a suspicion that full value was not given for it. To transfer a valid obligation given for value, involves nothing of fraud. If it be regarded as a new bill, it is a draft on funds, and an accepted draft at that. If it be said that there was no reasonable grounds to expect payment, no more is there when the maker or acceptor is notoriously insolvent,; yet demand and notice in such a case are unquestionably necessary. Many of the most eminent English judges have expressed regrets that there was ever any exception made to the rule of demand and notice to charge a drawer, or indorser; and the current of authority tends to limit rather than extend the cases of exception. The indorsement effectuates two things — it transfers the title, and -creates a conditional liability. The first is often in the contemplation of the parties at the time of the transfer, the only thing sought; and if afterward recourse is sought on the indorser, he may well insist on an exact compliance with all the steps necessary to change the conditional to an absolute liability. See further on this subject, By les on Bills, pages 232, 234, and notes; Story on Prom. Notes, §367; 3 Kent’s Com., marginal page 110, and note. In this last citation the author says: “ Nor does knowledge in the indorser, when he indorsed. .the paper of the insolvency of the maker of the note, or drawer [558] of the bill, do away the necessity of notice in order to charge him.” The judgment will be affirmed. All the Justices concurring.