Hamburger v. Miller

Alvey, J., delivered the opinion of the Court. The note sued on in this case was made by the Building Association on the 22nd of May, 1872, payable to Conrad Meise, or order, twelve months after date. It is in the ordinary form of a promissory note, and was signed by the President, Secretary, Treasurer, and two directors of the Company. It appears to have had the impress of the corporate seal affixed at the foot of the note, but there is no reference made to the seal in any part of the instrument itself, and there is nothing appearing to indicate the purpose of affixing the seal. The note was indorsed in blank by the payee, and also by the defendant, Hamburger; and not being paid at maturity, it was protested tor nonpayment. The note, notwithstanding the mark of the seal affixed, must be taken as a negotiable promissory note, and that, too, without regard to extrinsic facts. It was manifestly — 324 — issued as a promissory note and was intended to be discounted for the benefit of the payee. Without negotiable quality it would not have subserved the purpose for which it was made. Upon successful negotiation of the note the payee was made to depend for the money for which he gave the Building Association a mortgage on his house. The question of the liability of the defendant on his indorsement was raised by prayers offered in the Court below, and by the ruling thereon, the plaintiff obtained a verdict and judgment for the amount of the note. The defence relied on by the defendant is, that he indorsed the note for a special purpose, and that such indorsement was made by him without consideration, to the knowledge of the plaintiff. And for the purpose of showing under what circumstances the indorsement was made, and the note placed in the hands of the plaintiff to be discounted, and in what manner the note was used by the plaintiff to raise the money thereon, and the way in which it again came to the possession of the plaintiff, both parties were examined as witnesses ; and, with a material discrepancy in their testimony as to the purpose for which the indorsement was placed on the note, the facts about which they both agree appear to be these: After the note was made by the Association, and indorsed by the payee, it was left with the defendant, as the treasurer of the corporation, with the understanding that it should be discounted, and after deducting certain charges due the Association, the balance of tbe proceeds to be paid over to Meise, the payee of the note. The plaintiff had been in the habit of procuring notes of a similar character to be discounted at the instance of the defendant, for a certain commission ; • and in this instance he was applied to by the defendant to get the note discounted, and for that purpose the note was placed in his hands, without any other indorsement than that of the payee. Finding some difficulty in procuring discount of — 325 — the note, the plaintiff returned to the defendant and informed him that it was necessary that he, the defendant, should put his name on the note, in order, as the defendant testifies, to his receiving the money, the product of the discount, and for that purpose alone ; though the plaintiff swears that the indorsement was made to give additional security to the note. Whereupon the note was indorsed by the defendant, and again placed in the hands of the plaintiff to be negotiated. The plaintiff then passed the note to a Mrs. Aberle, without any indorsement of his own, and, the note being for $500, received from her $480, which he paid over to the defendant, less a commission of one per cent. It appears that the money obtained from Mrs. Aberle was not obtained by regular discount and upon the credit of the note; but the plaintiff pledged his own individual responsibility for the money, and the note was passed as collateral security only. As we have already stated, the money not being paid at the maturity of the note, the note was duly protested for nonpayment, and notice given the indorsers. After this, instead of bringing suit against the parties to the note, suit was brought by Mrs. Aberle against the plaintiff on his separate undertaking for the re-payment of the money, and judgment being recovered for the amount, he paid it, when the note was returned to him by Mrs. Aberle, through her attorney. And the sole question is, whether the plaintiff is such holder of the note as entitles him to recover on the indorsement of the defendant ? In an action by the holder of negotiable paper against the immediate indorser, the title of no innocent third person intervening, it is always competent to the defendant to show, by parol evidence, either the want or failure of consideration as between himself and the plaintiff, or that the indorsement was procured by fraud, or that it was made upon some special trust, or for a special purpose, as to an agent to enable him to use the paper or the money in some — 326 — particular way, or to make collection, or have the paper discounted, for the benefit of the principal; or that the note was indorsed and delivered to the plaintiff to he used only upon some express condition that has not been complied with. In these and similar instances, the parol evidence is admitted to show the absence of any valid or sufficient consideration for the alleged liability of the defendant to the plaintiff, and its admission violates no principle established for the protection of third persons as bona fide holders of negotiable paper. Ricketts vs. Pendleton, 14 Md., 320 ; 2 Pars. N. & B., (1st Ed.,) 518 to 522, inclusive; 1 Dan. Neg. Ins., p. 536, secs. 721, 722, and cases there cited. The principle controlling in the instances just stated is not only applicable to this case, but quite decisive of it, upon the assumption* of the truth of the defendant’s evidence. Upon that assumption, the plaintiff certainly acquired no title to the note by the indorsement of the defendant. Nor did the subsequent facts of his raising the money on his own credit, simply using the note as collateral security, and his being required to pay the money and take up the note, invest him with such title, as against the defendant, as to afford a right of action on the indorsement. If he had advanced the money himself, instead of obtaining it on his credit, with the note as collateral security, he could not, if the defendant’s evidence he true, maintain the position of a bona fide holder as against the defendant; and the manner of his obtaining the money, and subsequent payment of it, did not constitute him a purchaser of the note, and clothe him with the right and title of the party with whom the note had been deposited as collateral security, and thus bring his case within the principle of Boyd vs. McCann, 10 Md., 118. Upon his repaying the money and obtaining the note, he occupied the position'that he would have occupied if he had advanced the money on the note himself, and that — 327 — position gave him the rights of holder only as against the maker and the first indorser ; supposing the defendant to have indorsed the note for the purpose and under the circumstances stated by him. All this, however, is said upon the assumption that the defendant’s evidence he adopted to the exclusion of that given hy the plaintiff. The latter states that the defendant indorsed the note for the purpose of giving it additional credit, and thus facilitating its negotiation; and not, as the defendant states, for the simple purpose of enabling the latter to receive the money. If this should be found to he the fact, then the plaintiff's right of action would he good as against the defendant, as well as against the maker and first indorser. This being a question of fact, it should have been submitted to the jury; and as it was not so submitted, hy any of the prayers granted, it follows that the judgment appealed from must he reversed. In the first prayer granted on the part of the plaintiff there was no error of which the defendant can complain. It required the jury to find that notes of a similar character to that in suit were regarded hy the commercial community as promissory notes, as a fact to determine the nature of the note in question. This was quite unnecessary ; the nature and qualities of the note being matter of law for the Court to determine hut the submission of the fact to the jury did not in any manner operate to the prejudice of the defendant. The plaintiff’s next prayer, designated as the fourth, which was granted, is defective in placing the defendant’s liability on a guaranty instead of an ordinary indorsement. The payee had indorsed the note, and if the defendant subsequently indorsed it for the purpose of adding credit to the note, and thus aiding in the negotiation of it, he must he taken as a second indorser, and not a guarantor. This is the legal import of a blank indorsement, under such circumstances. 1 Dan. Neg. Ins., p. 534, sec. 719. — 328 — (Decided 26th March, 1878.) We think the defendant’s first prayer should have been granted. It was based upon the evidence given by the defendant himself, and if that should be found to he in accordance with the truth of the. transaction, it will necessarily negative the evidence given by the plaintiff; and, in that event, as we have said, the defendant will have made good his defence. In view of what we have said of the whole case, the defendant’s second prayer, which was also refused, may he regarded as immaterial in the final decision of the question involved. Judgment reversed, and new trial awarded.