Rhinehart v. Schall

Irving, J., delivered the opinion of the Court. The promissory note which is the foundation of this action, reads thus: “Baltimore, March 10th, 1886— .8515.00. Four months after date I promise to pay to the order of Isaac Frazer, five hundred and seventy-five dollars at 47 Lexington street, value received— (signed,) A. A. Reinhart.” This note was endorsed “ Isaac Frazer,” “Michael Schall,” and at the trial the words “pay to the order of Michael Schall” were written over Isaac Frazer’s name. The note was discounted at Bank. Frazer failed. Reinhart did not pay the note at maturity. Schall paid the note to the Bank, took it up and now sues the maker for it. Reinhart contends that Schall is not a bona fide holder for value; and that he was a guarantor of the — 356 — note and not an endorser; and that the note was procured from him hy fraud. The history of the transaction as disclosed by the evidence is as follows: Frazer desiring to raise some money by discounting in a Bank, procured from the appellant this note as accommodation paper. Frazer then took the note to the appellee and told him this was a piece of regular business paper, which he could not get discounted without “additional endorser,” whereupon Sehall, to enable Frazer to get it discounted, endorsed the note. When it became due it was protested for non-payment, and Sehall paid it as endorser and got possession of it. Being mercantile paper, the appellee was bound to-the Bank as endorser, and having paid it he is entitled to recover from the maker the whole amount of the note, unless there be something in the transaction to change the relation of the parties to each other, so as to absolve the appellant, either in whole or in part, from liability. Where several person-s endorse a bill of exchange or negotiable instrument, the legal effect is to subject them to each other in the order in which they endorse; the legal inference being that the payee is the prior endorser. This may be rebutted, and the relation of the parties towards each other may be shown, by evidence, to be other than that which the law presumes it is from the character of the instrument and the order of endorsement. Whatever the intention may have been, it will prevail if proven. Daniel on Negotiable Instruments, secs. 703 and 704, and Wood vs. Repold, 3 H. & J., 125. In any of these presumptions and aspects there is no difference between accommodation notes and those negotiated for value. Wood vs. Repold, 3 H. & J., 125; Yates vs. Donaldson, 5 Md., 400 ; Shaw vs. Knox, 98 Mass., 214. “Every endorser,” says Judge Buchanan in Wood vs. Repold, “ is considered in law as — 357 — a several and collateral security.” “An endorsement presupposes a consideration passing from the endorsee to the endorser, and of necessity precludes the presumption of a joint undertaking.” That is the presumption of law growing out of. the nature of the instrument and the apparent relation of the parties to it; and although, in point of fact, in accommodation paper, the endorser may not pay actual value at the time of his endorsement, yet when he meets his mercantile obligation and pays the note to the Bank and gets possession of it, he is a bona fide holder for value. This, the authorities already cited abundantly establish, and they could be multipled indefinitely. There is not the slightest evidence that the parties did not design their relation to this instrument, to be exactly what its form and the order of endorsement import. If Schall intended to be bound as guarantor, of course, what the parties intended will control; but, as already stated, in the absence of proof that he intended to be a guarantor, or to assume a joint liability with the appellant, the presumption is that he intended to bind himself as endorser. Story on Prom. Notes, secs. 479 and 480. The only proof on the subject is, that Erazer told Schallu“ this was business paper which he wished to get discounted, and he could not get the money on it without an” additional endorser “owing to a rule of the Bank requiring two endorsers, and he went on the note as security.” That means just what Judge Buoiianan states the effect of the'endorsement to be, he was becoming a several security to whoever discounted that paper. There is no evidence showing he suspected it even to be other than an actual debt of Reinhart's. He says he paid it as endorser, to the Bank after it had gone to protest for non-payment. It is clear there was no understanding or agreement between the parties that Schall was becoming guarantor — 358 — instead of endorser, or that Schall was assuming a joint liability with the appellant. The appellant and Schall had no interview or communication about it. From what Frazer said to Schall he was entitled to think Reinhart owed the money Avhich the note represented. Reinhart testified that Frazer had, before that time, when he was on a visit to him in Harrisburg, pointed out A^arious properties he OAvned, and had said he was worth a hundred thousand dollars-clear of the world, and that he'Avas living in elegance and luxury; and as he had always dealt promptly Avith him, he gave the note without hesitation; hut that no-representations which he could recall were made tohen he gave the note. That after he discovered Frazer’s insolvent condition he recalled what he said to him as-he left him with the note : “ No matter Avhat happens this note will he taken care of,” and concluded he Avas then insolvent and knew it when he made the statements about his worth and Avhich were false, and that he would not have given him this note if he had known him to he insolvent or that his statements were untrue. Contending that the note was procured from him by fraud, the appellant insists, that, under the decision of Totten vs. Bucy, 57 Md., 446, and Crampton vs. Perkins, 65 Md., 22, Schall loses the benefit of the presumption in his favor, and is put to the proof that he is a bona fide holder for value, and for this reason urges there was error in the refusal of the Court beloAv to grant his second prayer, Avhich asked the Court to instruct the jury that if they found the note was procured by fraud from the appellant, they must find for the defendant (appellant) unless they found “Schall was a bona fide holder of said no.te for valuable consideration, without notice of such fraud, and the jury are instructed that the burden is on the plaintiff to prove that he is a bona fide holder of said note for valuable — 359 — consideration.” It would "have been clearly misleading to tlie jury to grant any such instruction upon the proof in the case. At the instance of the plaintiff the Court had already instructed the jury, and very properly, that there was no legally sufficient evidence, that at the time of endorsing the note, Schall was cognizant of, or had any notice of, any fraud in the procurement of the note from the defendant. As there was no evidence of any such knowledge of fraud in procuring the note, nor any evidence rebutting the evidence of Scliall that he had paid the Bank, and the inference of payment arising from possession of the note, the Court could not properly leave to the jury alternatives of which there was no evidence. It would have heon equivalent to saying to the jury that they might find Schall had-not paid value for the note of which he had possession; and that he did have knowledge of the fraud alleged in the procurement of the note, when there was no evidence on which to base such finding. The legal principle contended for was correct, but the evidence did not allow its application. As defendant’s third prayer involved the same principle it was properly rejected also. The first prayer of the defendant asked that the jury should be instructed that if they found the plaintiff was a guarantor, they should find for the defendant. We have already said that if there was evidence that there was an agreement, and an intention that ho should become guarantor he would he so treated; but there was no evidence tending to rehut the legal inference supplied by the order of endorsement, and the express statement of Schall, and therefore the prayer was rightly rejected. For the like reason the fifth prayer relating to joint liability was properly rejected. The fourth was contradictory of the legal inference the paper supplied, and could not he granted. — 360 — (Decided 22nd November, 1888.) The plaintiff's prayers being consonant with the law of the case as we have already stated, were properly granted. The judgment must he affirmed. Judgment affirmed.