Case ID: ohio-st_43/html/0346-01.html
Source: Caselaw Access Project
Author: {"author": "\n      McIlvaine, C. J. Johnson, J.,", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

House, Assignee, v. Vinton National Bank.
    
      Sills and notes — Notice of demand and non-paym.ent — Upon whom, to he ^ made where indorser assigns for benefit of creditors.
    
    1. Where an indorser of a promissory note assigns all his property for the benefit of his creditors before the maturity of the note, notice of the demand of payment and non-payment at maturity should be given to the indorser.
    2. Notice of demand and non-payment given to the assignee in insolvency is not sufficient to fix the liability of the indorser.
    ,3. Unless the liability of the indorser be fixed by demand and notice of non-payment, the indorsed note can not be proved as a claim against the estate in insolvency.
    Error to the Court of Common Pleas of Gallia county. Reserved by the District Court of Gallia county.
    On March 26, 1881, Reuben Aleshire became accommodation indorser for James A. Simmons & Co. to the Yinton County National Bank on a note of $1,500, payable to his own order four months after date at the banking house of the indorsee. The indorsement was in. blank. Before the maturity of the note, Reuben Aleshire assigned to George House all his property for the benefit of his creditors, under the laws of the state of Ohio. At the maturity of the note the bank duly presented the note for payment, but it was not paid for want of funds. Notice of the demand and non-payment was not given to Reuben Aleshire, the indorser, but was served, within a reasonable time, upon George House, as assignee of the indorser. The note, verified as a claim against the estate of Ale-shire, was afterward presented by the plaintiff to the assignee for allowance, but was rejected and disallowed by the assignee
    The original action was afterward brought on the note by the Yinton County Natioual Bank, as indorsee, against James A. Simmons & Co., as makers, Reuben Aleshire, as indorser, and George House, as- assignee of Reuben Aleshire.
    A demurrer by Reuben Aleshire, on the ground that the petition did not state facts sufficient to constitute a cause of action against him, was sustained by the court of common pleas, but no final judgment was rendered in his favor, nor was judgment rendered against the makers of the note. Final judgment was, however, rendered in .favor of the bank and against George House, as assignee of Ale-shire, on the ground that notice to him of demand of payment on the makers and non-payment by them, was sufficient to charge the assets in his hands with the payment of* the note in the hands of the indorsee.
    To reverse this judgment a petition in error was prosecuted in the district court by George House, as assignee, which was reserved by that court for decision here, and is the case now under consideration.
    
      L). B. Hebard and C. O. Aleshire, for plaintiff in error.
    The statutes recognize the lawfulness of voluntary assignments by debtors in failing circumstances; and contemplate that dividends shall be paid only upon lawful claims against the assignor. Revised Statutes, sections 6338, 6355, 6356.
    Reuben Aleshire was merely an accommodation indorser, and knowm to the defendant in error to be such when it discounted the note. As such indorser his liability to pay it was conditional or contingent, depending upon notice to him of demand and non-payment, or due diligence in that behalf. 2 Smith’s Lead. Cas. 70, 73; Smith v. McLean, 7 Am. Dec. 693; Edw. B. & N. 639 ; Smith’s Mer. Law, 332.
    Insolvency is not a waiver, nor does it excuse the necessity, of demand and non-payment. 2 Dan. Neg. Inst., § 1171; Edw. B. & N. 455 ; 3 Kent’s Com. 111.
    The simple act of the indorser surrendering his property to a trustee to pay his debts does not qualify the legal significance of the fact of his insolvency, -neither does it change the condition of the contract of his simple indorsement into an unconditional and absolute contract to pay the indorsed paper, nor does it perform the condition of the indorsement. The surrender, in trust, respecting the rights of others against the assignor, is but a deposit of the property, and the trustee, respecting those rights, is the depositary or. custodian merely.
    The assignee is not the agent of the assignor within the sense of the rule which, in certain cases, regards notice to a general agent as sufficient. He is trustee with limited powers and duties, which are defined and regulated by statute. He has no power, active or passive, to be the instrument of increasing into lawful indebtedness or lawful liability any supposed claim against the assignor.
    There is no similarity to the case of notice to an administrator. Notice of non-payment can not in fact be given to the dead indorser, but can be given to the living assignor indorser. In case of the indorsers death, diligence in attempting to do what can not in fact be done, is accepted, in law, as doing it to the extent of fixing liability. Due diligence, in such case, is notice. In ease of death, due notice to him who succeeds to and represents the right to proceed is, in ordinary language, diligence to fix liability. Hence, if the indorser assignor were dead when timely notice was given by the holder to the assignee alone, there would then be some show of similarity, since all right in action, as well those conditional as absolute, being, in law, if not in fact, surrendered to the assignee in trust to pay debts. But Aleshire, when notice was given to his assignee was, and is, alive, and to make the reason of the similitude authority, notice must have been given, or acts of diligence used, to him, the living indorser, to charge or fix liability. There is a continued liability of the living assignor for the balance after the application of the trust assets; but in case of death of the indorser there is no further liability to pay the balance after the application of his estate.
    There is no analogy to cases in bankruptcy. Notice to the .assignee in such cases is dependent, for its validity, upon the bankrupt statute. Our assignment statute contains no such provision.. In bankruptcy the debtor creates no trust, makes no deed transferring his effects, and there is no trust relation between the assignee and bankrupt. The law seizes his property, and upon adjudication to be a bankrupt, and assignee appointed, the title to the estate vests in the assignee, and he goes discharged from debts and liabilities.
    
      Nash Jones and H. C. Jones, for defendant in error.
    There is an absence, in the text-books, of any good, clean-cut statement of the law with respect to notice of demand and non-payment in'the case of an assignment for the benefit of creditors by the indorser of a' negotiable promissory note before its maturity. But the highest authorities, in treating upon the subject, say nothing to the contrary of the proposition that notice to the assignee is sufficient. 2 Dan. Neg. Inst., § 1002; 1 Par. B. & N. 500.
    .The substance of their examination of the subject seems to be : Service upon the assignee is certainly proper, and it can not do any harm to notify the assignor.
    So far as the assets were concerned, House was the general agent of Aleshire; subject to the supervision and orders of the probate court, he had full control of and represented the assets. Under the form of a deed of assignment for the benefit of his creditors, Aleshire made House his general representative as to his indebtedness; and while an agent to receive and discharge debts may not have the power to accept or indorse bills so as to bind the principal, yet it is well settled that notice of their dishonor given to a general agent is valid as fto the principal. 2 Dan. Neg. Inst., § 998; Byles on Bills, 293 ; 1 Par. B. & N. 499 ; Fassin v. Hubbard, 55 N. Y. 465.
    But the recent case of Callahan v. Bank of Kentucky, 6 Ken. Law Rep. 188, in which these questions áre for the first time fully and ably reviewed and decided, seems to obviate the necessity of further discussion.
   McIlvaine, C. J.

The question in this case is whether notice of the dishonor of a promissory note, at its maturity, given by the indorsee to the assignee in insolvency of the indorser, when no such notice is given to the indorser, is sufficient to charge the indorser, or the assigned estate, with the payment of the claim in the hands of the indorsee.

By the assignment a trust is created in the assignee. Beneficiaries of the trust are, first, those having liens upon the ti’ust estate; second, the creditors of the assignor; third, the assignor himself. The mode of administering the trust is regulated by statute.

It is not contended in this case that the claim of the bank, as indorsee, is in any sense a lien on the trust property, or should be preferred to the claims of general creditors.

In the administration of an assignment, the assignee or trustee is required to file accounts in the probate court, and section 6356 of Revised Statutes provides : “ Whenever, on settlement, the same shall show a balance remaining in the hands of said assignee or trustee, subject to distribution among the general creditors, a dividend shall be declared by the probate judge, payable out of such balance, equally among all the creditors entitled, in proportion to the amount of their respective claims against the assignor, including those disallowed, as to which the claimant has begun proceedings to establish, the same as hereinbefore required, and claims held under advisement; of the making of which dividend and of the time and place of payment thereof, notice shall be given by advertisement once, in a newspaper published and of general circulation in the county in which such trust is being administered, and in such other way as the court may order; of the payment of which dividends and those remaining uncalled for and unpaid at that time, report shall be made within sixty days after the day fixed for the payment of the same ; the court shall then cause a new notice to be given to the owners of the unpaid dividends, in such way as the court may direct; and if the same are not demanded within twelve months thereafter, the same shall be divided pro rata among the other creditors, until they are paid in full, and the remainder, if any, to the assignor or his legal representatives. The dividends reserved for claims disallowed, or held under advisement, when the proceedings to enforce their allowance have been commenced, as to claims disallowed, shall be held until said proceedings have terminated, when they shall be paid, if the allowance of the claim has been ordered, on the same; otherwise they shall be distributed pro rata among other creditors not paid in full, or refunded to the assignor, as the case may require.”

It appears to me too plain for discussion, that the fund subject to the payment of general creditors of the assignor,can be used for no other purpose, and that any balance not so used must be refunded to the assignor. It therefore follows that, inasmuch as the bank has no lien on the property assigned which constitutes it a preferred claimant, if it be not a creditor of the assignor, it would be palpably unjust to the general creditors as well as to the assignor himself, to appropriate a portion of this fund to the payment of the note in suit.

It is certainly unnecessary to say any thing more to show that the trust property is not liable for the payment of this note, unless the liability of Aleshire, the indorser and assignor, has been-fixed by the notice of dishonor given his assignee. To so hold would be equivalent to holding that Aleshire is liable for the debt of another for which he is not responsible, either in law or by contract.

The liability of Aleshire by his contract was conditional. His contract was that he would pay the note, if the maker, on demand, at maturity, should fail to pay it, provided the holder of the note should duly notify him of such demand and non-payment. There is no pretense that such notice was given to Aleshire, or that by the exercise of reasonable diligence, it could not have been given. The claim is, that the giving of such notice to Ales'hire’s assignee was a reasonable compliance with the conditions o.f the contract of indorsement, or,'if not such compliance with conditions as would render Aleshire personally liable, it would, at least, bind the property in the hands of the assignee.

The last proposition has been sufficiently considered. It may, however, be well to add that the power of the assignee was confined to the care of the assets placed in his hands, and the payment of debts already existing, conditionally or unconditionally, against the property or the assignor, but did not include the right to create new and additional debts, either against the assignor or the property which had been placed in his hands, other than expenses of the administration.

I admit that the contract of indorsement must be fairly and reasonably interpreted. A literal compliance with its terms will be excused where it would be unreasonable to exact it. For instance, if the indorser be dead at the time notice of dishonor should be served, notice to his personal representative is sufficient. Notice to the general agent of the indorser is sufficient. If, under the circumstances, notice be impossible or impracticable, it is excused altogether. In such cases the liability of the indorser becomes fixed.

But we can see no ground upon which the personal liability of'the indorser should be fixed by notice to his assignee in insolvency. The statute makes no such provision. Such notice is not expressly or impliedly authorized by the deed of assignment, If the assignee can be considered the agent of the assignor for any purpose, his power is limited, not general. By the administration of the assignment the assignor is not discharged from any of his unpaid debts. The service of notice on the indorser is not rendered impracticable by the assignment, nor is the service of notice thereby waived.

If, therefore, the personal liability of the indorser, who is also assignor in insolvency, be desired by the holder of the indorsed paper, the notice of its dishonor by the makers should be given to. the indorser, and not to his assignee in insolvency. If the liability of the indorser be thus fixed, it appears to me, as a necessary result, that the claim may be proved against the assignee, whether he has or has not received notice of the dishonor. The claim being thus, fixed as a debt against the assignor, the holder becomes a beneficiary under the express terms of the assignment.

If the doctrine last stated needed any authority to sustain it, it is abundantly supported by the reasoning in the recent case of Ex parte Baker and In re Bellman, 4 Ch. D. 795.

If it be true, and it certainly is, that the claim, if notice of dishonor be given to the indorser, can be proved against the assignee, although he has not been notified of its dishonor, it follows that notice to the assignee must be regarded as given solely for the purpose of fixing the liability of the indorser by his contract of indorsement. Such notice, however, as we have seen, is not a literal performance of the condition in the contract. Is it a reasonable performance of such condition ? The reason that underlies the necessity for the notice is, that the indorser, when liability is thus fixed, may protect himself against loss by compelling the makers, for whom he is thus placed in the relation of surety, to discharge the indebtedness. Notice to the assignee does not place the indorser in this condition. We have already stated that the assignee can'not be considered as the general agent of the assignor. In the discharge of his duty he acts as representative of the beneficiaries. He is under no obligation to give notice of the dishonor to his assignor. Hence, if notice to the assignee were held to be sufficient to charge the indorser, he would be deprived of the means of indemnity and protection which notice of the dishonor is intended to afford.

It is no answer to this proposition to say that the assignee has power to protect the trust estate by compelling the makers to discharge the debt. The same power and duty would devolve on the assignee if the notice of dishonor were served on the indorser. But the true solution of the question lies in the fact that the liability fixed by demand and notice of non-payment is a personal liability. Such a liability is based on the contract of indorsement, and can attach only to the indorser, and not to his assignee. If the assigned property be charged with the debt, it can only be by first charging the assignor with personal liability, whereby th.e property, in course- of the administration of the trust, becomes liable for the payment of.the debt. Demand and notice of dishonor is not a means of creating a lien on the property of the indorser, whether assigned or not assigned.

It is clear, therefore, that the indorser must be charged, and notice must be served upon him, or his agent, or his personal representative, or be excused altogether. In this case neither alternative has been complied with.

But little, aid in the solution of this question has been derived from books. The writers of text-books have generally recommended the giving of notice of dishonor to both the assignor and assignee. We think such double notice to be unnecessary. It has never been- said by court or text-writer that notice to the indorser is not sufficient. But that such notice is sufficient to bind the assignee in bankruptcy or insolvency in the administration of his trust, has frequently been said and adjudged. That notice to the assignee is sufficient has been adjudged,’as far as we are informed, only in a single reported case, Callahan v. Bank of Kentucky, by the court of appeals of Kentucky, 6 Ken. Law Rep. 188. While we entertain the highest respect for that court, we are not satisfied with the conclusion or logic of that case. We think that case should not be followed, especially in a state where an assignment does not absolve a debtor from his personal liability on his debts, or any portion thereof, which remains unprovided for or unpaid by the assignee.

My attention has been • called to Ex parte Tremont National Bank, 2 Lowell’s Dec. 409, in which it was held by the district court • of the United States for the district of Massachusetts, under the bankrupt- act, that a bankrupt, after adjudication in bankruptcy and before the appointment of an assignee, may waive demand and notice as to a note indorsed by him and maturing during that interval, and that such waiver binds the assignee afterward appointed. That case is relied on as militating against the doctrine above announced. If any thing contained in the opinion in that case can be so construed, it is by mere implication. Certainly the case itself did not require such holding, as the decision arrived at is perfectly consistent with the conclusion announced in this case.

And again, the difference between the bankrupt law, which absolves the bankrupt from all future liability on debts provable against his estate,, and our insolvent laws, might, possibly,.require different conclusions in respect to the effect to be given to notice served on the assignee. As to this, however, I express no opinion.

Judgment reversed.

Johnson, J.,

dissenting. This action below was a special statutory proceeding under section 6352 of the Revised Statutes, which provides a method of proving rejected claims against an insolvent’s estate. "While the maker of the note and Aleshire, as indorser, were parties, they were only nominally so. No relief was sought or taken against either. The judgment was not for money, even against the assignee, but was that the assignee allow said claim on the settlement of his trust.” The case does not involve the personal liability of Aleshire.

The sole question, therefore, is: When the accommodation indorser of a note which is outstanding in the hands of a bona fide holder, makes an assignment under the insolvent laws of this state and his assignee, chosen by himself, has been qualified and is in the discharge of his duties as such, before the maturity of the note, is notice of dishonor given to the assignee sufficient to charge the note as a legal claim against the estate in his hands, and to entitle the holder to a judgment allowing such claim against such estate ?

It is a mistake to say that in all cases it must be a valid claim against the assignor. The statute, section 6354? says: “ Every person presenting and filing a claim against the estate of the debtor” shall verify the same, etc. It does not say a claim against the debtor.

In Lindemann v. Ingham, 36 Ohio St. 1, it was held that a mortgagor in possession of personal property may, by a general assignment, vest the same in his assignee as against the mortgagee who was entitled to the possession, and that the latter must proceed against the funds in the hands of the assignee.

This case establishes the authority of an assignee over property of the assignor covered by mortgages or other liens, although the assignor may not be the debtor, nor the lienholder a creditor of the assignor. The assumption, therefore, that to enable a party to prove a claim against the estate in the hands of the assignee he must be a creditor of the assignor, is erroneous. The mortgage or other lien may be to secure the debt of some prior owner of the property which by the assignment passes to the assignee subject to such incumbrance. In such a case it is the duty of the assignee to sell the property without regard to the wishes of the mortgagee or lienholders, and the latter is a creditor of the estate, but not of the assignor. Their interest is transferred to the fund arising from the sale, and they have a claim against the estate, though not as creditor of the assignor.

Returning now to the question of notice. . This is a vexed question, in the solution of which the text-books furnish us little aid. The undertaking of an indorser is collateral and conditional. If he is not duly notified of the non-payment of the note, and there is no valid excuse for such want of notice, he is discharged. The object of this notice is to put him on the alert, to enable him to look to the prior pai’ties on the note to save himself from such liability. This is the assignee’s duty, and therefore he should be notified. The question here is, in case the indorser has assigned all his property that is subject to execution, to his chosen assignee, whether the notice to such assignee is sufficient to charge the estate in his hands.

In Parsons on Notes and Bills; 499, 500, it is said: “ If a person entitled to notice be bankrupt, notice should be given to him if his assignee is not yet appointed.” This is a strong implication that if he has been appointed notice to him would be sufficient. He leaves the question in doubt, however, by saying the safest course is to give notice to both, but he adds that: If the insolvent has absconded, notice should be given to the assignees, and if they are not appointed, a delay until an appointment is made would-not discharge any one, and although notice may be given to any one holding or representing the estate, we should think it better to notify the assignees when appointed.”

Story on Bills, sections 305 and 389, says: “If the party entitled to notice has become bankrupt and assignees have been chosen or appointed, notice to the assignees is proper, and will be sufficient.”

Chitty on Bills, 228, says: “ If the party entitled to notice be a bankrupt, notice should be given to him before the choice of assignees, and after such choice, to them.”

Byles on Bills, *289, leaves the matter in doubt by saying : “ If the assignees are appointed, perhaps notice should be given to them.”

Daniels’ Negotiable Instruments, section 1002, says it is best to give notice to both, but if no assignee is appointed, notice to the bankrupt is sufficient, and perhaps it might be sufficient if one had been appointed.

In Ex parte Tremont National Bank, 2 Low. Dec. 409, the question arose as to the power of a bankrupt after adjudication and before the appointment of the assignee to waive demand and notice on commercial papér. It was there held, upon the authority of Lord Elden, 19 Yesey, 261, that until an assignee was appointed, the bankrupt is the trustee of his estate, and Judge Lowell quotes from Robson on Bankruptcy, 178, that notice should be given to the-trustee or assignee.

This precise question arose and was determined by the court of appeals of Kentucky, in Callahan v. The Bank of Kentucky, 6 Ken. Law Rep. 188. All the authorities are there reviewed, and it was held that notice to the assignee was sufficient. It was said in that ease, as it can be here, that where the insolvent chooses his own assignee, the latter is charged with the duty of acting as his trustee or agent to settle up the estate, and being thus clothed with full power to act as his general representative, notice given to him is notice given to his general agent, and is valid as to the principal. This case is an exhaustive examination of the point here involved, and should have great weight, especially as no case can be found to the contrary. In view of the importance of an uniform rule of commercial law, and of the high character of the court of appeals of Kentucky, this case is entitled to respect. To this proposition all the authorities agree. Dan. Neg. Ins., sec. 2998; 1 Par. N. & B. 499; Fassin v. Hubbard, 55 N. Y. 465; Wilkins v. Commercial Bank, 6 How. (Miss.) 217; Bank of Auburn v. Putnam, 3 Keyes, 343.

The majority opinion concedes that if House was the general agent of Aleshire, then notice to him was sufficient^ but it is said he was only a special agent. A general agent is one authorized to take charge of a particular line of business. A man may have several general agents, as, for instance, if he is a manufacturer, he may have a general agent for selling, another for buying, and another for running his mills, and still another to manage his financial affairs, while a “special agent is one authorized to do a particular insulated act.” Wharton on Agency, sections 117, 118. In Fassin v. Hubbard, 55 N. Y. 465, one Burke was appointed the agent of a firm in liquidation to wind up its affairs. This agent was notified of the dishonor of commercial paper of which they were indorsers. The court held notice to him as such agent was sufficient to charge them, and add: “ He was the general agent for liquidating the affairs of the firm, and the notice related to those affairs.”

In Bank of Auburn v. Putnam, supra, it was held, notice to a general agent was notice to the indorser, whose agent he was.

An examination of our statute relating to insolvent debtors demonstrates that the assignee is the trustee or general agent of the assignor, fully authorized to represent him in every matter pertaining to the settlement of the estate, and by all the authorities, as well as upon principle, notice to such trustee or agent is notice to the principal. In the case at bar it was the duty of House, as assignee, to take any steps that were necessary to secure the payment of this note by the makers, and thus protect his assignor’s estate from liability. It is doubtful if the assignor could do this in his own name, but if he could, whatever he realized in money or securities from the makers could only be paid on this claim through his assignee.

The opinion seems to concede, that in case of a bankrupt, notice to his assignee is sufficient, but it is said, this rule should not apply to the assignee of an insolvent, because he is not discharged from the debts, while he is discharged if a bankrupt. No reason exists for a different rule in the two cases.

If any such reason can be found, it is strongest in favor of notice to the assignee of the insolvent, as the assignee is his chosen agent or trustee to wind up his business, while the assignee in bankruptcy is not so chosen, and he is the agent of the law.

The conclusion reached is, the judgment of the court of common pleas that notice to the assignee is sufficient to charge the estate in his hands, should be affirmed.

Owen, J., concurred in the dissenting opinion.