Case ID: ad_118/html/0412-01.html
Source: Caselaw Access Project
Author: {"author": "Kellogg, J.: Smith, P.,I. .(dissenting) :", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

Haddock, Blanchard & Company, Inc., Respondent, v. John C. Haddock, Appellant.
    Third Department,
    March 13,1907.
    Bills-and notes—irregular indorser — when liable — s'ections 114 aüd 118 of the Negotiable Instruments Law construed.'
    Subdivisión 3 of section 114 of the Negotiable Instruments Law, providing that ■ an irregular -indorser, when the instrument is payable to the. order of the , maker, the drawer or bearer, is liable to all parties subsequent to the maker or drawer, does not purport to fix the rights of the various indorsers as between themselves. The latter liability is governed by section1 "118 of the act which provides that, as respects one another;, indorsers are liable prima facie in the order in which they indorse,' but evidence is admissible to show that as ■between or among themselves they have agreed otherwise.
    Hence, an irregular indorser of drafts who indorses in order to give credit to the acceptors under an agreement that he should be liable for goods furnished the acceptors, is liable upon his indorsement when the acceptors fail to pay." Smith, P. J., dissented, with opinion.'
    Appeal by the defendant, John C. Haddock, from a judgment- of the Supreme Court in favor óf the plaintiff, entered in the office of the -clerk of tlie county of Broome on the lYth day o.f September, 1906, upon- the decision of- the court rendered after a tidal at the Broome'Trial Term, tlie jury having. been discharged'.
    Haddock, Blanchard & Company was1 a corporation doing a wholesale coal business at Binghamton. The Lenape Coal Cony pahy, the Livingston Coal Company and the LÍontauk .Coal- Company were corporations retailing coal. The majority of the stock of' those corporations was owned by J oh-n G. Haddock, tlie defendant. The plaintiff sold these several companies coal and in' payment therefor signed drafts upon them for the- amount of the consideration. These drafts were payable to the order of the plaintiff, which was the drawer. _. These drafts were accepted' by tlie respect tive coal companies and thereafter and before delivery to the plaintiff were indorsed by the defendant Haddock; They were indorsed by him for the purpose of giving credit to the acceptors and under an agreement that he should become liable for the coal furnished by tlie_plaintiff to the said companies. Among these drafts was one note in which one of these companies was the maker and the defendant was an irregular indorser. Tli'e indorsement of that note was made under the same "circumstances and agreement. These drafts were discounted by the plaintiff and upon failure of the acceptors to pay the same they were duly protested and the plaintiff was compelled to take them _ up. This the plaintiff did, and now brings action, against the defendant Haddock upon his indorsement. At Special Term the facts were found practically as above stated, and the defendant was held liable both upon the drafts and upon the note. From the judgment entered upon that decision this appeal is taken by defendant.
    
      M. Edward Kelley, for the appellant.
    
      Israel T. Deyo and A. J. McCrary, for the respondent.
   Kellogg, J.:

By section 114 of the negotiable Instruments Law (Laws of 1897, chap. 612) the liability of an irregular indorser is defined. It is there declared: “ Where a person, not otherwise a party to an instrument, places thereon his signature in blank before delivery, he is liable as indorser in accordance with the following rules:

“ 1. If the instrument is payable to the order of a third person, he is liable to the payee and to all subsequent parties.
“ 2. If the instrument is payable to the order of the maker, or drawer, or is payable to bearer, he is liable to all parties subsequent to the maker or drawer.
3. If he signs for the accommodation of the payee, he is liable to all parties subsequent to the payee.” ,

Prior to the statute an irregular indorser upon a note was presumptively not liable to the payee.

Section 118 of that law provides: As. respects one another, indorsers are liable prima facie in the order in which they indorse; but evidence is admissible to show that as between or among .themselves they have agreed otherwise. Joint payees ór joint indorsees who indorse are deemed to indorse jointly and severally.”

This statute is substantially a re-enactment of the law as established by the cases. (Moore v. Cross, 19 N. Y. 227; Coulter v. Richmond, 59 id. 478; Culliford v. Walser, 158 id. 65 ; Davis v. Bly, 164 id. 527.)

It is an 'exception to tlie rule that the terms or legal effect of a written instrument cannot be changed by parol. This case is squarely within the terms of section 118 and the above authorities. Subdivision 2 of section 114 of that statute does not purport to fix the rights of the various indorsers as between, themselves, but declares that the irregular indorser is liable to all the parties subsequent to the “ drawer,” not subsequent to the “ payee.” The drawer," the payee and the indorser are. different parties' to a bill, but the same person may occupy all those positions upon -it. This section does not refer to persons but to the parties to the bill. This-statute,, as the defendant construes it, destroys a legal right formerly existing under thé rules of the law merchant, -which rules section 7 preserves in any case not provided for by the. statute; it should,' therefore, be strictly construed. If it was the intent to prevent the payee from recovering against the indorser, he and-not the drawer would have been mentioned. In any event the section does not purport to define'-the liability of one indorser to another. That matter is governed entirely by section 118.. The. two sections read well together, one as showing the position of the parties while the paper is With the public as a negotiable instrument; the .other as defining the rights of the indorsers as between themselves where the negotiable character of the instrument is unimportant. The judgment should be affirmed. .

All concurred, except. Smith, P. J., dissenting in opinion ; Sewell, ' J., not sitting;

Smith, P.,I. .(dissenting) :

Prior to the Negotiable Instruments Law an irregular indorser upon a note was presumptively not liable to the payee. Evidence was permitted, hovvever, to show that he indorsed to give the maker credit with the payee and thus was liable to such payee. In Daniel on Negotiable Instruments (5th ed. § 711), it is stated that parol' proof of the intentions of the parties was ' admitted in such a case for the reason that the position of the name upon the paper is one of ambiguity in itself. .In no case, as I understand, is parol evidence admissible, to vary.the,relations of the parties as defined by- the paper. (Martin v. Cole, 104 U. S. 30.) In Steele v. M' Kinlay (L. R. 5. App. Cas. 754) it was held by the House of Lords, before the passage of the Bills of Exchange Act in England, that in a case similar to the case at bar the indorser could not be held liable to the drawer even upon parol proof that the indorsement was made for the purpose of giving the acceptor credit with him. (See, also, Jenkins v. Coomber, L. R. 1898, 2 Q. B. 168; 67 L. J. Q. B. 780; also First National Bank of St. Charles v. Payne, 111 Mo. 291; Dubois v. Mason, 127 Mass. 37.) At no time, therefore, under the common law 'was there authority for ■holding this defendant liable, even upon proof that the indorsement was for the purpose of giving credit to the acceptor.

But whatever may have been the law prior to the enactment of our Negotiable Instruments Law I can see. no escape from the defendant’s contention that that law absolutely fixes his liability upon the paper. The liability of an irregular indorser upon a promissory note payable to a third party is there stated in section 114 to be primarily a liability to the payee; I say primarily, because in the 3d subdivision of the same section it is permitted to show that, he indorsed for the purpose of giving credit to the payee, to whom he would not then be liable. The liability - of an irregular indorser upon a draft payable to the order of the drawer is explicitly defined in the same section, but no different liability is therein provided in case of an indorsement for the purpose of giving credit to the . acceptor with a drawer. The omission could not have been unintentional. To my mind such omission convincingly negatives the legal liability of the defendant upon those drafts. This interpretation of the statute is not affected by the provisions of section 118, which provides that evidence is admissible to show the relations of indorsers among themselves, nor by section 55 of the same act (as amd. by Laws of 1898, chap. 336), which provides that an accommodation party is liable on the instrument to a holder for value. Both these sections are but declarations of the.common law. Steele v. M'Kinlay (supra) was decided under the common law. If either of these sections could otherwise be held applicable they, as general provisions, must yield to the specific rule of liability imposed upon the defendant by section 114 of the act. It cannot be held that the negotiable Instruments Law states only a rule of prima facie liability. One placing his name upon commercial paper has the right to rely upon the measure of his liability imposed by that act, and he cari he' subjected to no greater liability by parol proof that the paper was executed with the intention’ of assuming such greater liability.

No case is cited in this State holding a contrary rule. Both the case of Kohn v. Consotidated Butter & Egg Co. (30 Misc. Rep. 725) and the case of Corn v. Levy (97 App. Div. 48) refer to the liability of an irregular indorser of a promissory note payable to-a third party. That tile liability of "such ail indorser is open to explanation by parol is explicitly-provided for. by subdivision 3 of the section.

, H this defendant, for a valuable consideration, legally assumed payment of this debt by contract other than is evidenced by this draft, plaintiff might recover. Under the Statute of Frauds the signing of the draft would not be sufficient to fasten liability upon him unless his liability could be made to come within the law merchant, which is Codified in. oür negotiable Instruments Law. As to the drafts, then, I"think the judgment erroneously charged the defendant, there with, A's to the note, defendant was clearly hablé; under the negotiable Instruments Law.

The judgment should thus be modified and as modified affirmed, without costs to either party. • .

Judgment affirmed, with costs.