BILLS AND NOTES.

[Franklin Circuit Court,

January Term, 1890.]

Shauck, Shearer and Stewart, JJ.

#### *DAVID MACKEY v. P. A. BURWELL ET AL.

Recovery of Endorsee not Limited to what He Paid.

The *hona fide*indorsee of a negotiable promissory note, upon giving due notice of dishonor, is entitled to recover the full amount of the note from his indorser.

Appeal from the Court of Common Pleas of Franklin county.

This cause is submitted to the court upon the issues joined between Abram Sharp and Harvey and Emma Cockell upon an agreed statement of facts, which is in substance as follows:

That Harvey and Emma Cockell, being the owners of sixteen promissory notes given by Phoebe A. Burwell and husband to one David Mackey, sold the same in October, 1888, to Abram Sharp. Eight of said notes for $100 each, secured by mortgage on a lot and a half in Columbus, were assigned with the mortgage, without recourse. The other eight notes of $400 each, secured by mortgage on other property, were indorsed by the Cockells waiving demand and notice; and said indorsement was guaranteed by executing a mortgage on other property belonging to and in the possession of said Cockells, to Sharp.

The condition of that mortgage was as follows:

“Provided always and these presents are upon this condition, that whereas the said Harvey and Emma Cockell for valuable consideration, have this dáv sold and transferred by indorsement, and thus guaranteed the payment of eight promissory notes, secured by mortgage, for $400 each, executed by Phoebe Ann and Walter Burwell to David Mackey, on the 8th of February, 1886, and payable respectively in 1, 2, 3, 4, 5, 6, 7 and 8 years after date, with interest from February 1, 1886, payable annually, which interest has been paid to February 1, 1887. The above notes and mortgage, securing the same were assigned by said David Mackey to said Harvey Cockell and Emma Cockell, and by them assigned to said Abram Sharp, as above stated. And whereas said Abram Sharp has agreed to commence an action to foreclose said mortgage six months from this date, unless said Burwells shall before that time pay all interest previously due, and apply proceeds to payment of notes and interest secured thereby; and whereas the said Harvey and Emma Cockell have obligated themselves as above to pay any balance of said notes and interest. Now, if said Harvey and Emma Cockell shall perform their guarantee aforesaid, and shall, well and truly pay the balance of said notes and interest, after application of the proceeds of foreclosure of said mortgage to payment of same; then these presents shall be void, otherwise to be and remain in full force and virtue in law forever.”

The consideration paid by said Sharp for the sixteen notes was $3,000.

Suit has been commenced by Mackey to foreclose the Burwell mortgage before he sold the notes to the Cockells, and this suit was pending at the time of the sale of the notes to Sharp, but neither the Cockells nor Sharp had any knowledge of the pendency of the suit. In December, 1888, Sharp had himself substituted as plaintiff in this pending suit, and prosecuted the same to judgment and decree. Afterwards the Cockells were made parties, and filed the pleadings upon which the issues were made, which are now submitted to the court. *589'he property mortgaged by the Burwells to secure the eight notes of $400 each, uas been sold in the foreclosure proceedings, and Sharp realized therefrom $2,559.95; the property mortgaged to secure the eight notes of $100 each, has also been sold, and Sharp realized therefrom $865.61.

*

 This case was dismissed by the supreme court for failure to file a printed record, December 2, 1890.

Stewart J.

It is claimed on behalf of the Cockells that they are liable upon their indorsement and mortgage only for the difference between the amount realized by Sharp upon the sale of the mortgaged premises and the amount paid by him for the notes, viz.: $3,000 and interest from October 6, 1888, and "as they claim that amount, and more, has been realized by Sharp, they ask to have their mortgage canceled, and they have cited authorities to support their claim.

There is no evidence of any fraud or mistake in the sale of notes or in the sale of the mortgaged premises.

An examination of the authorities cited by counsel for the Cockells shows that the most of-them are cases decided in New York, or based solely upon the authority of the New York decisions. The principal case in New York on this subject is Cram v. Hendricks, 7 Wend., 569. In this case, the doctrine is clearly laid down that the contract of an indorser, where the transaction is free from fraud or mistake, is that upon default of the maker, he will pay to his indorsee, not the face of the note, but the amount paid -therefor by the indorsee, with interest. This is said to be the well-settled law of that state, and the case of Brown v. Mott, 7 Johns., 361, is cited as the case which establishes that principle. An examination of that case shows that the only foundation for such a claim is the remark made by the chancellor in the course of his opinion that “it" seems that an indorsee can only recover from his indorser, the sum paid by him- for the note,” and refers to the case of Wiffen v. Roberts, 1 Esp. N. P., 261, as authority for that statement. We do not think that case warranted such a statement, for that was a case where a bill was indorsed for the accommodation of the maker, and 'all the facts were known to the indorsee. In the case of French v. Grindle, 15 Me., 163, the plaintiff only sought to recover the amount paid by him, and while the court say that they are of the opinion that his recovery should be limited to that amount, they cite no authorities in support of their opinion. And yet-in the 16 Me., the court say, upon the authority of French v. Grindle, *supra,*that that doctriné is well settled in Maine.

In other states the decisions are based upon the provisions of their statutes with reference to the assignment of negotiable instruments.

The authorities cited by Edwards on Notes & Bills, sec. 493, to support the text, are not in point. One not relating to the subject, and the other being a case where a note was assigned as collateral security for a pre-existing debt. That the holder could only recover the amount intended to be secured by the transfer is settled in this state by the case of Handy v. Sibley, 46 O. S., 9.

And the same is true of the authorities cited by Randolph Commercial Paper, sec. 526. Other authorities, notably Massachusetts, hold to this doctrine upon the theory that such contracts are in contravention of the usury laws of the state.

While these authorities are numerous, we think that they are not founded in reason, nor are they approved by such text writers as Mr. Parsons and Mr. Daniels. 2 Parsons Notes & Bills, 428; Daniels on Negotiable Instruments, secs. 767, 768, and authorities there cited.

That the sale of commercial paper does not come within the inhibitions of the usury statutes is settled in Ohio by the case of Bailey v. Smith, 14 O. S., 396.

And the purchaser is a holder for value, in the usual course of trade if he paid cash therefor, notwithstanding he paid less than its fair and reasonable value. Tod v. Wick, 36 O. S., 370.

That there is nothing in our statutes which would forbid the recovery by *590the indorsee of the full amount of the note from his indorser, is apparent upon examination. Section 3172, Rev. Stat. An indorsee, or holder, to whom any such bojid, note, bill of exchange, or check is made payable by such indorsement or delivery, may in his own name, institute and maintain an action thereon for the recovery of the money due on th,e same, against the maker, drawer or obligor; or after the use of due diligence to obtain the money of the maker, drawer, obligor or acceptor, such action may be instituted against the indorser.

F. W. Wood, for A. Sharp.

B. F. Martz, and L. J. Ci'itchfield, for H. & E. Cockells.

To hold the indorser in such a case liable for the amount of the note, is simply holding him to his contract, which is:

> “(1) That the instrument itself and the antecedent signature thereon are genuine; (2) That he, the indorser, has a good title to the instrument; (3) That he is competent to bind himself by the indorsement as indorser; (4) That the maker is competent to bind himself to the payment, and will, upon due presentment of the note, pay it at maturity, or when it is due. -(5) That if, when duly presented, it is not paid by the maker, he, the indorser, will, upon due and reasonable notice given him of the dishonor, pay the same to the indorsee or other holder.” Story on Prom. Notes, sec. 135.

And that such is the law of this state is clear from the case of Farr v. Ricker, 46 O. S., 265.

The first proposition of the syllabus in that case is as follows:

> “The indorsement of a negotiable promissory note, made to transfer the title to one who has purchased it for value, is, though in blank, an abbreviated contract in writing, whereby the indorser binds himself to pay the note if on presentment the maker does not, and due notice is given him of such non-payment.”

It will thus be seen that in this state, the doctrine contended for by counsel for the Cockells, is not supported by authority.

. We have examined' the authorities cited by counsel for the Cockells carefully, and have given our reasons for not following them, and if the case stood simply upon the indorsement of the note, we would have to hold against them. But we think there is. another reason why their claim to relief by having their mortgage canceled is intenable. The condition- of that mortgage has been set forth; its terms are clear and distinct; it not only recites that the Cockells have indorsed these notes, but that Sharp is to foreclose'the mortgage given by Bur-well before he can enforce this mortgage against them. Thus they have put upon Sharp the responsibility, trouble and expénse of pursuing the maker before their liability attaches, and have expressly agreed in consideration of that, to indemnify him from loss. He has fulfilled his part of the contract, and it is evident that this was an important part of the contract so far as the Cockells are concerned.

It follows that they are not entitled to the relief they- ask for, and their answer and cross-petition will be dismissed at their costs.