Case ID: ohio-st_16/html/0490-01.html
Source: Caselaw Access Project
Author: {"author": "Day, J.", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

*John W. Erwin et al. v. Matthew G. Lynn et al.
    1. Where a negotiable note is indorsed in blank for the accommodation of the maker, the contract of the indorser is single and entire, and the holder of the note can not fill np the indorsement so as to make the note payable part to one person and part to another, without the consent of the parties to the note.
    2. Where the makers of a note so indorsed, delivered it to a party as security for their note of a less sum, between both of whom and a second party it was subsequently agreed that the note should also be held by the first party as security for a note of the makers to such second party, a judgment recovered against the indorsers, in a suit by such first party, for the amount due on his note, without including the amount due on that of the second party, merges the contract of indorsement, and such second party can not maintain an action thereon, against the indorsers, for the amount for which it was so held as security for him.
    Error to the district court of Butler county.
    Matthew G. Lynn and Jamos M. Young, partners under the firm name of Lynn & Young, filed their petition in the court of common pleas of Butler county, February 9,1854, against William A. Cal-lender, Thomas W. Waterson, and George Seward, partners under the firm name of Callender, Waterson & Seward, and John W. Erwin and Clark Lane. The petition states:
    That Callender, Waterson & Seward executed their promissory note, a copy of which is as follows :
    “ $800. , Hamilton, November 4,1853.
    “ Sixty days after date, we promise to pay to the order of Lynn & Young eight hundred dollars, for value received, at Shaffer & Curtis’ bank, Hamilton, Ohio.
    “ Callender, Waterson & Seward.” Indorsed: “Lynn A Young.”
    That Lynn & Young, with the consent of Callender, Waterson & Seward, assigned the note to Shaffer & Curtis; that Callender, Waterson & Seward, at the same time, to secure payment of the note at maturity, and to induce Lynn & Young to indorse it, left with Shaffer & Curtis, for the use of Lynn & Young, a certain other note, of which the following is a copy:
    *“■$2,000. Hamilton, October 29,1853.
    Ninety days after date, we promise to pay. to the order of John W. Erwin, two thousand dollars, value received.
    “ Callender, Waterson & Seward.” Indorsed^ “John W. Erwin,” “Clark Lane.”
    That the $800 note was duly protested at its maturity, and is unpaid; and that the $2,000 note, at maturity, was duly protested. Judgment is asked against Callender, Waterson & Seward as makers of both notes, and against Erwin and Lane as indorsers of the $2,000 note, for $800 and interest.
    No defense is made by Callender, Waterson & Seward.
    The first defense by Erwin and Lane denies all the material averments in the petition, except the execution of the notes and the discount of the $800 note; and denies that Lynn & Young had any title or interest in the $2,000 note.
    The second defense sets up that Erwin and Lane were accommodation indorsers merely for Callender, Waterson & Seward on the $2,000 note; that on 29th October, 1853, said note was held by Cal-lender, Waterson & Seward, and was by them given to Shaffer & Curtis as collateral security for a note of $1,000 of Callender, Water-son & Seward, then held by Shaffer & Curtis; that Shaffer & Curtis held said $2,000 note as such collateral at the time Lynn & Young claim it was agreed to be held as collateral forthe$800 note, which was known to Lynn & Young at the time; that, on February 3, 1854, Shaffer & Curtis commenced suit against Callender, Waterson & Seward, as makers, and Erwin and Lane as indorsers, upon the $2,000 note to recover its amount, and such proceedings were had that, on appeal, in the district court of Butler county, at May term, 1856, judgment was rendered in favor of Shaffer & Curtis and against Callender, Waterson & Seward as principals, and against Erwin and Lane as accommodation indorsers, uj>on the $2,000 note, which judgment, being in full force, was paid by Erwin and Lane. That Lynn & Young knew of the pendency of said suit before they began this suit. Said judgment of Shaffer & Curtis is relied upon as a bar to any other suit upon the $2,000 note.
    To these defenses no reply is interposed by Lynn & Young. *From the bill of exceptions embodying all the evidence, the following facts appear:
    Callender, Waterson & Seward, about the 29th of October, 1853, came to Shaffer & Curtis’ bank, and wanted them to discount the $2,000 note, and give them the money for it. Shaffer & Curtis declined, on account of tho length of time it had to run. After such refusal, Shaffer & Curtis took and held the $2,000 note as collateral security for a $1,000 note of Callender, Waterson & Seward, for sixty days, payable to Shaffer & Curtis. Erwin and Lane were accommodation indorsers on the $2,000 note, which Shaffer & Curtis knew when it was first presented for discount, from its being presented by the makers. The indorsers were not present. Shaffer & Curtis had no conversation with either of them. On January 15,1854, Callender, Waterson & Seward failed, and made an'assignment.
    On November 4, 1853, Lynn & Young came with Waterson to the bank. At the request of Lynn & Young, Shaffer & Curtis discounted the $800 note, and Lynn & Young were to have a lion on said $2,000 note, to secure the payment of the $800 note at maturity.
    Lynn & Young knew Shaffer & Curtis held the $2,000 note as collateral for the $1,000 note, and that it was so deposited by Cal-lender, Waterson & Seward.
    Shaffer & Curtis gave a receipt to Lynn & Young for their part of the $2,000 note pledged to them, but the note was never delivered to them.
    The $2,000 note was protested by Shaffer & Curtis, and the $800 note was paid to them by Lynn & Young.
    Judgment was rendered in the district court, to which the caso had been taken by appeal, in favor of Lynn & Young. A motion for a new trial was overruled, and a bill of exceptions was taken embodying all the evidence. This petition in error is brought to reverse this judgment, assigning for error the overruling said motion, and the rendition of the judgment on the pleadings and evidence.
    
      Thomas Millikin, for plaintiffs in error:
    It is conceded that Erwin and Lane were mere accommodation ^indorsers for Callender, Waterson & Seward on the $2,000 note. This fact was known to Shaffer & Curtis when the note was offered to them for discount, and received by them as collateral. This fact was also known to Lynn & Young at the time they pretend to have acquired a lien on the note. This proposition is clearly established by the pleadings and proof.
    The law’will imply such knowledge on the part of Shaffer & Curtis, and Lynn & Young, under the circumstances, from the fact that the note was presented for discount by the makers, and was deposited by the makers as collateral security for the $1,000 note, as well as the $800 note. This is expressly decided. Brown v. Taber, 5 Wend. 567; Wallace v. Branch Bank, 1 Ala. 565; Mauldin v. Branch Bank, 2 Ala. 504; U. S. Dig. 611, secs. 204, 205; 9 Ohio St. 48.
    Erwin and Lane being then mere accommodation indorsers upon the $2,000 note, and this fact being at the time known to Lynn & Young, the question remains whether Lynn & Young, by the agreement made on November 4, 1853, acquired any interest in said note, and whether, if they did acquire such an interest, the same has been lost.
    1. I claim that the judgment recovered upon the $2,000 note by Shaffer & Curtis, against Erwin and Lane, merges the instrument, and that no other action can be maintained thereon. One judgment rightfully obtained merges the instrument.
    2. Lynn & Young were not owners of the $2,000 note, nor had they such interest therein as authorized them to maintain suit upon it at the time they began the suit.
    
      3. The $2,000 note was indorsed by Erwin and Lane for the purpose of being discounted and raising money on it; discount refused; no right existed to use the note for any other purpose. It is clear that such was the purpose in making and indorsing the note, and that Shaffer & Curtis knew it. They then are chargeable with notice that such was its purpose, and notice to them was no tice to Lynn & Young, who can not be regarded, under all the circumstances, as innocent holders.
    The law is settled that an accommodation note made' and indorsed to be discounted at a bank, where its discount is ^refused, can not be transferred as a business note to one having knowledge,- and the amount recovered of the indorser. Stone v. Vance, 6 Ohio, 246; 8 Ohio, 528; 5 Wend. 566.
    If the note is not discounted, it must be restored to the makers. 6 Ohio, 246 ; 17 Wend. 422.
    4. The $2,000 note was used for a less amount than its face, without the knowledge or consent of Erwin and Lane, the accommodation indorsers.
    They are entitled to stand upon the exact letter of their contract. State v. Medary, 17 Ohio, 554; Bank of Steubenville v. Leavitt, 5 Ohio, 207. And it makes no difference whether they have or have not been injured by the change in the contract. Smith’s Mer. Law, 582 (note); 2 Am. Lead. Cas. 129, 176. See also Portage County Bank v. Lane, 8 Ohio St. 406; 6 Hill, 540; 4 Hill, 200.
    5. There was no consideration for the transfer of the $2,000 note to Lynn & Young, and it was not taken by them in the usual course of trade; and, therefore, they stand in' no better position than Cal-lander, Waterson & Seward, to collect the note. Roxborough v. Messick, 6 Ohio St. 451; 3 Ohio St. 157.
    IF. G. McFarland, for defendants in error:
    1. Upon the proposition that Callender, Waterson & Seward had the right to use the $2,000 note as they did, or in any legitimate manner to raise money or sustain their credit, I refer to Erwin and Lane v. Shaffer & Curtis, 9 Ohio St. 51, 52.
    2. Are Lynn & Young the proper parties to sue?
    I say they may maintain the suit, even though Shaffer & Curtis are the real parties in interest, for the reason that, by the contract with Callender, Waterson & Seward, they (L. & Y.) were to have the lien on the $2,000. The contract was made with them, and they may maintain the suit, though it was for the benefit of another. Code, sec. 27.
    Again, they are the only parties who can maintain the action; for, by the agreement of all the parties, Shaffer & Curtis took Lynn & Young as their security, and Lynn & Young were to have a lien
    on the $2,000 note to indemnify them. By *this agreement, Shaffer & Curtis have deprived themselves of any interest in the note, so far as the $800 is concerned, and Lynn & Young have become the real parties in interest. Lynn & Young may maintain their action upon it as soon as it becomes due, and their liability is fixed. The $2,000 note becomes their principal; it is to stand between them and danger; and they may bring suit upon it, even though they may not have paid the money. Code, sec. 500 ; Deas v. Harvie, 2 Barb. Ch. 448; 9 Kinne’s Law Com. 105.
    The consideration passing between Lynn & Young and Shaffer & Curtis, for which Shaffer & Curtis relinquished all claim to the collateral security for the $800, was the discount received for sixty days, which was something more than a “ mere nominal consideration.”
    But the collateral being taken by Lynn & Young to secure the payment of a pre-existing debt, there must be some consideration; and that is to be found in the extension of time (sixty days) granted by Lynn & Young to Callender, Waterson & Seward for the payment of the $800. Upon the faith of the collateral, Lynn & Young relinqxiished their right to sue Callender, Waterson & Seward for that length of time, and this is sufficient consideration.
    3. Lynn & Young received the $2,000 note as their collateral, as much in the ordinary course of business as Shaffer & Curtis did for their protection of the $1,000. Callender, Waterson & Seward had not so negotiated the note that they had no control over it. They had deposited it as collateral security for the payment of $1,000 only. If that is such a negotiation as would prevent the further use of it, then the second pledge of it, for the payment of the renewal of the $1,000 note of Shaffer & Curtis, was invalid, and they could not recover on it. But the Supreme Court has decided they could recover. 9 Ohio St. 51, 52.
    4. Whether or not the judgment of Shaffer & Curtis for $1,000, on the $2,000 note, so merged the instrument that no further judgment can be had upon it, depends altogether on the right of Cal-lender, Waterson & Seward to pledge it at all to Lynn & Young, wbicb is the point I have just considered. If they had a right to pledge it to us, we have a right to ^recover judgment upon it. If A gives to B a general letter of credit, and promises to pay upon his purchases to the extent of §2,000, and B, upon the strength of it, purchases §1,000 worth of O and a like amount of D, would it be any defense to D’s suit upon the promise, that C had already recovered §1,000 upon it? Certainly not. And what was this but a letter of “general credit? ” It is so called by this court. It was indorsed by Erwin and Lane, without any restriction, limitation, or condition, directed to nobody in particular, put in the hands of Cal-lender, Waterson & Seward, and by them thrown on the market, to raise money as best they could.
   Day, J.

John W. Erwin and Clark Lane indorsed a note for §2,000, for the accommodation of the makers, Callender & Co., to enable them to get it discounted, but without any particular agreement what usé should be made of the paper. The note indorsed by them was commercial paper, and their liability thereon is clearly defined by law. No party thereto could change the legal effect of the instrument, as to them, without their assent. Their' indorsement was in blank, the legal effect of which, when negotiated by the makers as contemplated by them, was, that if, when duly presented, it was not paid by the makers, they, the indorsers, would, upon due notice given them of the dishonor, pay the same to the holders. Story on Prom. Notes, sec. 135.

The indorsee or holder of the note might fill up the blank indorsement, and make the note payable to himself, or to his order ; but he would not be at liberty to write over the indorsement any words changing the legal liability of the indorsers, there being no agreement by them to the contrary. Story on Prom. Notes, sec. 138.

Their contract was single and entire, and could not be split up, by writing over their indorsement a promise to pay part of the note to one person, and part to another. Edw. on Bills, *280; Douglas v. Wilkeson, 6 Wend. 637; Gibson v. Cook, 20 Pick. 18.

When the note was negotiated and delivered to Shaffer & Curtis, whatever right they obtained therein, was a right to *the entire note; they were the indorsees and owners thereof. Neither they, nor Callender & Co., could transfer a portion of the note, “so as to give the transferee a right of action for that portion in his own name ” against the indorsers. Parsons’ Mer. Law, 127.

The note was neither indorsed nor delivered to Lynn & Young.. They were not, therefore, the owners of any part thereof; nor was there any privity of contract between them and the indorsers. At most, there was but a contract between Lynn & Young and the indorsees and makers of the note, that $800 of its avails should be held for their benefit, by Shaffer & Curtis, who gave them their “ receipt for the part of the note so pledged ” to them.

From the arrangement between the parties (to which, however, the indorsers were not parties), it would seem that Shaffer & Curtis held the note for their own benefit, and also that of Lynn & Young.

Shaffer & Curtis sued the makers and indorsers of the note; and, as may be fairly inferred from the undenied allegations in the second defense, recovered the full amount of $2,000, which was duly paid by the indorsers..

If this be so, Lynn & Young possibly have a remedy against the parties with whom they contracted, and who hold the' money to-respond to the receipt given for their part of the note.”

But it is said dehors the record, that Shaffer & Curtis sued for and recovered only $1,000, the amount of the note of Callender &. Co., payable directly to themselves. Still the rights of the indorsers against Lynn & Young remain the same. If anybody had. a right to recover the $800 in controversy against the indorsers, it was Shaffer & Curtis in their suit against them on the note; for they held the legal title to the entire note 'for themselves, and, as to the $800, in trust for Lynn & Young.

Whether they recovered a judgment for the full amount or not,, having recovered a judgment on the note, they are estopped from another recovery thereon ; and, as Lynn & Young claim title, not as indorsees of the note, but as holding an interest therein under Shaffer & Curtis, they are in ^privity with them, and are also estopped. 19 Wend. 207; 16 N. Y. 548 ; 2 Smith’s Lead. Cases, 756.

While it does not .appear that the indorsers of the note, either by . the protest or otherwise, had notice of the claim of Lynn & Young, it is admitted by the pleadings that the latter had full knowledge-of the rights of Shaffer & Curtis in the note when they obtained their interest therein, and had full knowledge of the progress of their suit thereon against the indorsers.

Whatever interest they had in the note, they had intrusted to Shaffer & Curtis, and if they continued to do so, without coming in themselves and asserting their rights in that action, we think they ■must abide the result. For, as already stated, the contract of the •indorsers was entire, and could not be so changed by the indorsees :as to subject them to a multiplicity of suits thereon in favor of different parties.

This was commercial paper, subject to well-defined usages and rules, and not the assignment, to different parties, of a chose in action becoming due iu the future and in installments, where, doubtless, as held in the case of Field v. The Mayor, etc., of New York, 2 Selden, 179, one of the assignees may bring in all the parties in equity and obtain relief; but it is rather the case, where it as conceded in the opinion in that case, that a recovery by one assignee would be final as to all.

It was not a part of the note only that was merged in the judgment, but as the contract was entire, the merger was entire. Whatever interest Lynn & Young took in the note, they took it ■subject to the contingency of a single action upon a single contract

We think the language of Judge Story, in an analogous case -may be applied to an indorser standing like those in this case: “ He has a right to stand upon the singleness of his original contract ;and to decline any legal or equitable assignments by which it may be broken into fragments. When he undertakes to pay an integral sum to his creditor, it is no part of his contract that he shall be ■obliged to pay in fractions to any other persons.” Mandeville v. Welch, 5 Wheat. 277.

*This view of the case renders it unnecessary to consider «other questions presented in argument.

The judgment must be reversed.

White, Welch, and Brinkerhoee, JJ., concurred.

•Scott, C. J., having been of counsel, did not sit in the case.