Case 109 — Action upon a Promissory Note.

Feb. 8.

#### Dils v. Bank of Pikeville.

APPEAL FROM PIKE CIRCUIT COURT.

Judgment for Plaintiff against Ann Dils and she Appeals.

Affirmed.

Pleading — Averment upon Information and Belief — Escrow—Delivery of Note to Bank Officer — Breach of Agreement to Produce Additional Endorser.

Field: 1. An averment by defendant upon information and belief that a certain contract was made shows conclusively that defendant was not a party to the contract, as he was bound to have personal knowledge of the contract if such had been the fact.

2. Accommodation indorsers of a note made payable to themselves, can not escape liability to plaintiff bank on the ground that the note was delivered by them to the vice president and general manager of the bank upon the faith of his agreement that the note was not to be accepted or discounted by him for the bank until it had been indorsed by another person,, as the bank is to be regarded as the payee, and a note can not be delivered. *758to the payee as an escrow; but defendant may, by counterclaim, recover damages for breach of the agreement.

.WALTER S. HARKINS, fou appellant.

O. C. Bowles applied to John W. Ford and this appellant to endorse a note for him for $1,550 with vhich to renew a note maturing in the Bank of Pikeville. This they agreed to do upon ■the condition that said Bowles would have his son, John C. Bowles, to endorse the note with the other endorsers. This fact was known to .the acting cashier and manager of the bank, Mr. James Sowards, who was informed at the time said note was drawn up and signed that he was not to accept it, or discount it until .that condition was complied with, and the note was left with O. C. Bowles for that purpose; but the Bank of Pike-ville, disregarding this notification and request, took said note and cancelled .the other one, .and the appellant and Ford were not aware that the condition had not been complied with until they were called on to pay the note at maturity.

Suit was instituted thereon and appellant, Mrs. Dils, filed an answer .setting up the facts above stated as her defense. To this answer the court sustained a demurrer and rendered a judgment against her for the full amount of said note.

It is an elementary proposition that I need not discuss, that the delivery of ,a note by .the makers and endorsers is essential to bind either, and where a condition is imposed, no delivery of the bill, until the conditions 'complied with, will bind the in-dorsers; and especially is this true where a knowledge and a notice not to accept it, unless the condition is complied with, is brought home to the payee, as in this case.

AUTHORITIES CITED.

Daniels on Negotiable Instruments, p. 86, secs. 65 and 67; Jackson v. Cooper, 19 Ky. Law Rep., p. 9; Daniel on Negotiable Instruments, sec. 854; Smith v. Moberly & C., 10 B. Monroe, pp. 266 and 268; Millett v. Parker, 2 Met., p. 609; Garvin & Co. v. Mobley, &c., 1 Bush, p. 52; Burke v. Dulaney, 153 U. S. Rep., p. 237; Benton v. Martin, 52 N. Y., pp. 570 and 574; Perry v. Patterson, 42 Am. Dec., p. 424.

SAMUEL J. SALYER, Attop.ney foe appellee.

The note sued on reads at follows:

“$1,550. Pikeville, Ky., Dec. 24, 1895.

“Four months after date I promise to pay to the order of John W. Ford and Ann Dils fifteen hundred .and fifty dollars at Bank of Pikeville, Ky., value received. O. C. Bowles.”

*759This note was endorsed by Ann Dus and J. W. Ford as, and for an accommodation for, the maker, O. C. Bowles.

A demurrer was properly sustained to the answer and amended answer of Dils because it nowhere appears in her answer, who wrote the note sued on, who inserted the names in the face of the note or at whose request same was done, or whether or not she endorsed it in blank, that is with no name or names in the face thereof, whether or not she endorsed it first, whether or not she was induced to endorse it because Ford had previously endorsed it, or whether or not she endorsed it because of any representations made to her by any person, either the maker Bowles or Bank of Pikeville, or any person whatsoever, or whether she and Ford had previously, or at any time, agreed to endorse it and become jointly bound thereon with any other person whatsoever.

The only attempted allegation is: That at the time she endorsed it she then believed that her co-defendant, John W. Ford, was jointly liable for .the amount thereof. And .she then goes on to say that “she is informed and charges to be true,” as to what occurred at the time Ford endorsed the note between the maker, Bowles, and Ford and Sowards, vice-president of the bank, and that said Ford relied upon said agreement being carried out, etc.

To this plea we contend the demurrer was properly sustained.

AUTHORITIES CITED.

Cartwell v. The John Williamson Co., 10 Ky. Law Rep., 1062; Scott v. Doneghy, 17 B. Monroe, 324, 325; Moody v. Findley, 43 Ala., 167; Clapp v. Rice, 13 Gray, 403; 74 Am. Dec., 639; Easterly v. Barber, 66 N. Y., 433; Shaw v. Knox, 98 Mass., 214; Ker-schner v. Conklin, 40 Conn., 77.

EDWARD W. HINES, por appellant.

Appellant seeks to be released as indorser on the note sued on, upon the ground that her co-endorser, John W. Ford, is not bound because he endorsed the note upon condition that John C. Bowles was also to become endorser, which he failed to do. She fails to allege that .she endorsed the note on such condition or upon the condition that John W. Ford was to endorse it. Nor does she allege that John W. Ford had endorsed it before she did. Her name appears first on the back of the note and the presumption is she endorsed first, especially as she does not allege that J. W. Ford’s name appeared on the note when she endorsed it.

*760Opinion op the court by

JUDGE DuRELLE

Affirming.

The ap-pellee bank brought suit against appellant, Ann Dils, and J. W. Ford upon a note for $1,550, signed by O. C. Bowles, payable to the order of John W. Ford and Ann Dils, and by them indorsed. A demurrer to the separate answer of Mrs. Dils was sustained, and the only question presented in argument is as to the sufficiency as a defense of the following averment: “. . . That at the time she indorsed1 said note she then believed that her co-defendant, John W. Ford, was jointly liable for the amount thereof, and that nothing had been done or would be suffered to be done by the plaintiff, its officer or agent, whereby the liabilities of said Ford as accommodation in-dorser would be diminished. She now says that she is informed, believes, and charges to be true at the time he, the said John W. Ford, indorsed said note, and before the same was discounted' to or by the Bank of Pikeville, it was understood and agreed by and between this defendant, 0. O. Bowles, and the officer of the bank, Jas. Sowards, vice president and general manager, with whom the negotiations of the sale of said note to said bank was being negotiated, that John G. Bowles, a son of the maker, who was then and is now a man of considerable property, was also to be made and named as a payee in said note, and was to indorse said note with these defendants, and it was so understood and agreed by and between the parties above that said note was not to be accepted or discounted by said James So wards for said Bank of Pike-ville until the same had been indorsed by said John C. Bowles as payee and as' aforesaid; that said defendant Ford relied upon said agreement being carried out, and believed that the same had been done, and was not advised, nor did not- know, that said note had not been made *761payable to tbe order of said John C. Bowles, and indorsed by him, until the maturity of said note; that in violation of said agreement and contract the said James Sowards, vice president and general manager of the Bank of Pike-ville, without the knowledge or consent of these defendants, or either of them, against their will or consent, discounted said note for O. C. Bowles without the said John C. Bowles having indorsed the same as one of the payees or otherwise; that by reason of the liabilities on said note, these defendants, by reason thereof, their liabilities was and is increased, and she is- released from any and all liability thereon because thereof.” Clearly, this is an averment of an agreement made by the bank with her co-d'e-fendant. It can not be that if was an agreement made with her, for she avers it upon information and belief, which is not a good averment of a contract to which she was a party, and of w’hich she was bound to have personal knowledge. But whether it was1 intended as a statement of an agreement with her, or only with her co-indorser, makes little difference. The intention of the averment is to rely upon matter alleged as operating to release her co-defendant from liability upon the note. Whether the pleading is sufficient to show that Ford’s release would operate to release Mrs. Dils is not material, for the aver-ments as to Ford do not show’ a state of facts which he could plead as matters of defense ¡to this action. The legal relations of these co-indorsers are exactly those of cosureties. Daniel, Neg. Inst. (4th Ed.), section 1303. From the record it appears that they indorsed the paper, and delivered it to the bank; that is to say, they delivered it to the bank, the indorsee, w’hich thereby became the payee upon that payee’s, agreement with Ford that it would secure an additional name as co-indorser with *762them. This is not the case of a delivery in escrow by sureties to the principal obligor upon his representation that he would secure the signature of additional sureties. It may be freely conceded that in such case the liability of the sureties would depend upon the knowledge which the obligee had of the conditions upon which the delivery in escrow was made. If the payee or obligee had notice of such conditions or agreements, the fact of the agreement and the knowledge thereof on the part of the obligee or payee would constitute, under the decisions of this court, a valid defense, whether such knowledge was- the result of direct notice of the agreement or was imputed to the obligee from matter appearing upon the face of the paper of which he was bound to take notice. But in this case there was no delivery in escrow upon condition, nor could there be, for an obligation can not be delivered in escrow to the obligee himself. And when the obligation was delivered to the payee a contemporaneous condition in parol could not operate to vary the terms of the written contract, though it might be available upon proper allegations of facts showing damage as a. basis for a counterclaim. Daniel, Neg. Inst. (4th Ed.), section 159.

This question was decided in Hubble v. Murphy, 62 Ky., 280. After distinguishing the cases of Smith v. Moberly, 10 B. Mon., 266, and Jones v. Insurance Co., 1 Metc., 58, in which it was held that “a payee will not be permitted to defraud a surety by receiving a note from a principal with notice that he has no authority to deliver it,” this court, in an opinion by Chief Justice Bullitt, said: “But in the case under consideration the'note, according to the statements of the answer, was- delivered by the surety to the payee upon the payee’s agreeing to obtain the signature of another person thereto. Whether or not the *763plaintiff’s failure to obtain Goode’s signature would have entitled the defendant to recover damages upon a counter claim with proper averments, we need not decide because the defendant does not allege that he sustained any damage by reason of said failure. He pleads said failure merely as a defense to the action. The only ground of defense which the answer can possibly be regarded as designed to present is, either that the plaintiff agreed that the note should not be obligatory on the defendant unless Goode’s signature should be procured, or that the note was delivered to the plaintiff on condition that it should not be obligatory on the defendant unless said signature should be procured. The answer, as copied in the record, does not expressly aver such an agreement or such a condition. But,if such an agreement or condition could be implied from its statements, still it presents no defense; because such an agreement by panol, being contradictory of the writing, could not destroy its obligation, and such a condition would be void, because a note or bond can not be delivered to the payee or obligor as an escrow. Badcock v. Steadman, 1 Root, 87; Moss v. Riddle, 5 Cranch, 351; (3 L. Ed., 123.”) In Murphy v. Hubble, 63 Ky., 249, upon the second appeal of the same case, it appeared that an amended answer and counterclaim had been filed, seeking damages for a breach of agreement by the payee to procure the signature of another as co-surety. The case was decided upon demurrer to the counterclaim. In the opinion by Chief Justice Marshall it was said: “But, although it has been decided in numerous cases, and in this case when formerly here, that the obligatory effect of a note or bond can not be destroyed (nor impaired) by a contemporaneous parol agreement between obligor and obligee relating to and purporting to restrain iis obli*764gation, and that such note or bond delivered by the obligor to the obligee can not be made' an escrow by a parol agreement between them made at the time of the delivery that it shall not be obligatory unless some specified act be done by the obligee, it does not follow that such an agreement, and especially if it comprise an undertaking by the obligee to procure another surety, must, because it is ineffectual for certain purposes, and even for that for which it appears to have been primarily designed, therefore be deemed utterly invalid and ineffectual for all purposes. The law will not enforce such an agreement for the attainment of its direct and immediate or expressed object of changing the terms' or legal effect of a written instrument which is the act and deed of the party who seeks enforcement, or of defeating the legal effect of the delivery, by which, according to law, it has become his act and deed. The agreement, therefore, can not be specifically enforced upon or against the instrument to which it relates, and which remains obligatory, notwithstanding the agreement. But, although to this extent unenforceable, it is not prohibited by law. It is not illegal, but merely insufficient in its form to operate coercively in the particular manner designated; and the obligee in the bond might observe and1 give effect to it without any violation of the law or public policy. If such an agreement be founded upon a legal and sufficient consideration — for instance, if' it be made as the inducement to one of the parties to become bound to the other as surety for his debtor (a third person) in a new obligation, whereby his responsibility is created or prolonged — and if actual damage accrue to the party thus induced in consequence of the failure of the creditor to perform his part of the agreement by procuring the additional surety, we do not perceive or admit that the in*765competency of tbe agreement to impair tbe force of tbe instrument executed by tbe surety should deprive him of all remedy for redress of the injury be sustains by tbe nonperformance of the obligee’s undertaking, by the performance of which tbe responsibility upon tbe note would have been divided between two, and bis own loss would have been reduced one-half.” So, in Gaar v. Banking Co., 74 Ky., 188, the same question was decided in an elaborate opinion by Judge Gofer- “It was averred in the second amendment offered and rejected that it was agreed between tbe appellants and tbe bank that, before the bill should become obligatory upon them, all the indorsers and tbe drawer and acceptors should -sign tbe agreement indorsed on tbe bill, and thus become bound as between themselves, as if they were joint sureties on a promissory note; and that tbe bank bad failed to secure tbe signature of «Kelsey to that agreement. These facts constituted no defense to the action on tbe bill. Hubble v. Murphy, 62 Ky., 278. It is not alleged in those amendments that Kelsey was solvent either at the date of maturity of the bill or at the time of tendering the answer; and conceding, as we are inclined to do. that, if Kelsey had been alleged to be solvent, the breach of such an agreement would have given the appellants a cause of action against the bank which might have been made available as a counterclaim, we think the court properly rejected the amendment, because, unless Ivelsev was solvent, no injury resulted to the appellants from the failure of the bank to obtain his signature to the agreement.” We have found' no case in conflict with the doctrine laid down in the cases cited. From these decisions it follows necessarily that, whatever might have been Ford’s right of recovery upon a counterclaim against the bank, the *766averments as to him in appellant’s answer constitute no defense to an action against him, and consequently none to the action against her. Nor, it would seem, would the successful prosecution of such counterclaim by Ford deprive Mrs. Dils of her right of contribution against him. Perceiving no error in the judgment appealed from, the same is affirmed.