Case Name: Hecker v. Mahler
Court: Supreme Court of Ohio
Jurisdiction: Ohio
Decision Date: 1901-04-16
Citations: 64 Ohio St. 398
Docket Number: 
Parties: Hecker v. Mahler.
Judges: Minskatx, C. J., Williams, Bukket, Speae and Shauck, JJ., concur.
Reporter: Ohio State Reports, New Service
Volume: 64
Pages: 398–412

Head Matter:
Hecker v. Mahler.
Promissory note — Signer appearing as original promissor — May, as. between other signers, show he was guarantor or surety —Liability of other signers to surety signing without their knowledge.
1. Where a party to a promissory note so signs the same as to indicate, prima facie, that he was an original promissor, he may, as between himself and the other parties bound for the payment of the note, show that he was in fact a guarantor or additional surety.
2. When it is proved that one who is ostensibly a joint maker of a note, signed the same after the other makers as surety for them, or as guarantor, the principal makers will not be released from liability to indemnify the surety, or guarantor, who has paid the note, because such suretyship, or guaranty, was made without their knowledge or consent. A fortiori when made at the request of an agent of the principal makers, in order to make the paper acceptable for discount.
(Decided April 16, 1901.)
Error to the Circuit Court of Montgomery county.
The defendant in eror wag plaintiff in the court of' common pleas; and in his petition alleged that tire defendants, William C. Mahler, John Cox, Lemuel E. Heckler, Edwin H. Park and William J. Kronauge, with himself as surety, executed and delivered to the City National Bank the following promissory note:
“$500.00:
Dayton, Ohio, Sept. 28, 1894.
Six months after date we promise to pay to the order of City National Bank, Five Hundred Dollars.
At ............................................
Value received.
W. C. MAHLER.
J. C. COX. WM. MAHLER.
L. E. HECKER, M. D.
E. H. PARK.
WM. J. KRONAUGE.”
That at the maturity of the note the defendants did not pay the same, in consequence of which the plaintiff was compelled to and did pay it, and he prayed for judgment for the amount so paid. None of the defendants answered, except the defendant, Lemuel C. Hecker, who denied the allegations of the petition and averred that William Mahler signed the note without the knowledge or consent of Hecker; and all of the defendants signed the note as sureties for the Co-operative Publishing Company, which received the money thereon. The plaintiff replied denying that he signed the note without the knowledge and request of the defendants and averred that he signed the same at their request; and he denied that the Co-operative Publishing Company was in any way a party to the transaction. The verdict was for the defendant, Lemuel E. Hecker. A motion for new trial was overruled and a bill of exceptions taken, from which it appears that the. defendants were directors and stockholders in the Oo-operative Publishing Company ; that the company was “hard pushed for money” and “had to have it or be closed up;” that the defendants made and signed the note and put it into the hands of two of their number, William C. Mahler and Kronauge, and they went to the bank to get the money on it; that the bank refused to accept the note, whereupon the note was taken by Kronauge to the plaintiff, who, according to his own undisputed testimony, thereupon at Kronauge’s request, signed the note as “security for them five — for the five to get the money out of the bank;” but Kronauge then went back to the bank with the . note which was again refused ; and that plaintiff afterwards went to the bank with Kronauge and put up his building association book as collateral security and thereupon the note Avas accepted by the bank and the money paid over. At the maturity of the note the defendants did not pay it and the bank served notice on the plaintiff, and collected the money due to the plaintiff from the building association, kept so much thereof as paid off the note and turned over the surplus to the plaintiff. It does not appear that the defendant, Hecker; had any actual lcnoAvledge, before the final delivery of the note to the bank, of the signing of the note by the plaintiff. It also appears that in the charge to the jury the trial judge said: “I charge you that if Dr. Hecker — L. E. Hecker — defendant in this case, had no knowledge and it was without his consent prion to the discounting of that note at the City National Bank, that there is no liability on his part to Mr. Mahler.” On proceedings in error, the circuit court reversed the judgment of the court of common pleas, for error in the charge to the jury. Hecker now seeks to reverse that judgment of reversal.
Young ct- Young, for plaintiff in error.
The following facts constitute important distinctions between this and many of the reported cases.
1. The note is joint in form, not several, or joint and several.
2. All parties signed on the face of the paper as makers under the words “we promise, etc.” — none signed on the back.
3. Mahler executed no separate contract of guaranty or suretyship. He became a party to the contemporaneous contract of all the makers.
4. The suit is not to enforce the note. It is to recover money which Mahler claims he paid as surety to the use of the defendants as principals.
The material alteration of a bill by a party discharges all parties not consenting to it. 3 Randolph, Com. Taper, Sec. 1742; 2 Daniel, Neg. Inst., Sec. 1373; Wallace v. Jewell, 21 Ohio St., 163; Boalt v. Brown, 13 Ohio St., 364; Patterson v. McNeely, 16 Ohio St., 348; Bery v. Railway Co., 26 Ohio St., 673; Harsh v. Klepper, 28 Ohio St., 200; Jones v. Bangs, 40 Ohio St., 139; Wardlow v. List, 41 Ohio St., 414; Thompson v. Massie, 41 Ohio St., 307; Franklin v. Baker, Extr., 48 Ohio St., 296; Carlile v. Lamb, 9 Circ. Dec., 70, 16 O. C. C., 578; Newman v. King, 54 Ohio St., 273; Pigot’s Case, 11 Coke, 26; Master v. Miller, 4 Term R., 320; 5 Term R., 367; Woodworth v. Bank, 19 Johns., 391; Davidson v. Cooper, 11 Mees. & Wells., 778; Clark v. Blackstock, Holt N. P., 474; Ex parte White, 2 Dec. and Ch., 334; Bank v. Finney, 5 Mon., 25; Pulliam v. Withers, 8 Dana, 98; Note to Holes v. Trumper, 7 Am. Rep., 669; Fay v. Smith, 1 Allen, 477; Draper v. Wood, 112 Mass., 315; 2 Parsons on Notes and Bills, 556-7.
Under the settled law of Ohio, the addition of the name of another maker to a joint or joint and several note after it has once been completed in accordance With the intention and agreement of previous signers, avoids the note as to them. Wallace v. Jewell, 21 Ohio St.,163; 3 Randolph Com. Paper, Sec. 1744; Gardiner v. Walsh, 5 El. and Bl., 83; Shipp’s Adm’r. v. Suggett’s Adm’r., 9 B. Mon., 5, 7, 8; Hamilton v. Hooper, 46 Iowa, 515; Dickerman v. Miner, 43 Iowa, 508; Henry v. Coates, 17 Ind., 161; Byles on Bills, 3 Am. Ed., p. 371. Story on Promissory Notes, Sec. 408a.
Counsel for defendants in error cite Brownell v. Winnie, 29 N. Y., 400, and McCaughey v. Smith, 27 N. Y., 39 and 41. These cases are not authority in Ohio. The former case is opposed to Wallace v. Jeioell, supra, in the construction placed on the note in controversy, and is expressly repudiated as authority by the Supreme Court of Ohio.
The conclusion of the New York court is based upon the premise that the note before it is a several note. McVean v. Scott, 46 Barb., 380.
The law on the subject in New York state is found in Chappel v. Spencer, 23 Barb., 584; Card v. Miller, 1 Hun. (N. Y.), 504.
Mahler’s name, it is true, was added before final delivery to the bank. The note had been once offered as a completed note, and rejected. Mahler’s name was then obtained at the instance of the bank, without Hecker’s knowledge, after which the paper was discounted. In some of the cases the alteration has resulted from a change in terms or parties after delivery to the payee. This however is not essential to .the release, nor is it necessary that the payee should know of the alteration. Jones v. Bangs, 40 Ohio St., 139.
It will be conceded that the guaranty of a third party may be endorsed upon or appended to a note without releasing previous parties. This is so because a guaranty is a separate, collateral contract, merely ancillary to the principal contract. A guarantor does not, as Mahler did in this case, force himself into and become a joint party to a contract already completely executed by other parties. The distinction for which we contend will appear from the following: Deming v. Board of Trustees, 31 Ohio St., 41; Tenney v. Prince, 4 Pick., 385; 26 Mich., 251; Cliitty on Bills, 1854 Ed., p. 915; McCaughey v. Smith, supra; Sullivan v. Rudisill, 63 Iowa, 158.
Properly speaking, none of the parties were principals. The money was borrowed for and paid to a stock company — the Co-operative Publishing Company. Mahler, if he became surety at all, became co-surety with the five original makers for the real beneficiary, the Co-operative Publishing Company.
Suit might have been brought by the bank for the recovery of the money loaned against the Co-operative Publishing Company as undisclosed principal. Merchants’ Nat’l Bank v. Little, Assignee, 2 Circ. Dec., 496, 4 O. C. C., 195.
If Hecker was a co-surety with Mahler, the decisions which hold one co-surety released by the signing of the name of another without his consent, apply in his favor.
A material alteration will work a discharge whether it be prejudicial or beneficial to the party asserting the defense. The theory of the law is that the alteration changes the identity of the contract, and hence the release.
The addition of the name of William Mahler to the note (whether added as a surety or a principal) did materially change the way in which the contract might operate under the laws of Ohio upon the five original makers.
Under the authorities, a change which may affect the question of- jurisdiction in case of a suit on the note, is a material alteration. 3 Randolph Com. Paper, Sec. 1744; Bowers v. Briggs, 20 Ind., 139.
In Ohio the addition of the name of William Mahler to the note as a joint maker with the other parties, whether added as a surety or a principal, had the effect to render it possible for the payee or any subsequent holder to bring a suit on the note in any county in Ohio in which Mahler might reside or be summoned — -whereas previous to his signature the original five signers had the power to restrict the jurisdiction to the courts of counties in which they themselves resided or might be summoned. McArthur v. Ladd, 5 Ohio, 514; Higdon v. Gardner, 1. Circ. Dec., 519, 2 O. C. C., 340; Stokes v. Lewis, 1 Term R., 20; Sections 5031, 5038, Revised Statutes.
Mahler was never requested by Hecker to sign the note as a surety, either expressly or impliedly.
Mahler says he signed as surety, but so far as Hecker is concerned this was a mere statement by Mahler of his own intention in signing, and was incompetent. The testimony shows no contract relation and no privity between them. As between Hecker and Mahler the latter signed and paid the note as a volunteer merely. This being so, the cases are uniform to the effect that after paying the note Mahler could not maintain an action at law against Hecker for the. money so paid. Osborn v. Cunningham, 4 Dev. & Bat., 423; Carter v. Black, 4 Dev. & Bat., 425; Talmage v. Burlingame, 9 Barr. Pa., 21; 2 Am. L. C, 407.
A surety, though a volunteer, may be subrogated in equity to securities held by the creditor, but this is not the relief sought in this case. Carter v. Jones. 5 Iredell (Eq.), 196; 49 Am. Dec., 425, and note.
Mahler, though a stranger to Hecker, was bound to the bank even though Hecker were released. Hamilton v. Hooper, 46 Iowa, 515.
When Mahler paid the bank, therefore, he only did Avhat he had voluntarily agreed to do.
If Mahler could maintain a suit at laAV at all, it Avas against Kronauge.
The note was entrusted to Kronauge as a complete note to have it discounted. He had no authority to obtain other names, and none is shown. Mechem on Agency, Sec. 276.
The application of this rule to the unauthorized alteration of a complete note by one of tAvo promisors before delivery, and Avithout the knoAvledge of the other, is expressly denied in McGrath v. Clark, 56 N. Y., 34, and Aetna National Bank v. Winchester, 43 Conn., 391.
E. H. Kerr and L. B. McTlhenny, for defendant in error.
The judgment of the court below should be affirmed and should be for the defendant in error for the following reasons:
Because the undisputed facts show that the defendant in error signed the note as surety. Signing a note as surety is not a material alteration of the note. Miller v. Finley, 26 Mich., 249; 27 N. Y., 39; 29 N. Y., 400; Mersman v. Werges, 112 U. S., 139; Deming v. Trustees, 31 Ohio St., 41.
The case of Wallace and Park v. Jewell, 21 Ohio St., 163, does not attempt to hold that the signing of a surety is a material alteration, as appears from the opinion of White, J., p. 172, citing Ex parte Yates, 2 De Gex and J., 191. The case of Wallace and Park v. Jewell, supra, merely holds that the signature of another maker constitutes a material alteration. The testimony shows in this case' that the defendant in error did not sign as maker but as surety.
In principle this case is the same as the erasure of the name of a surety, which is held not to be a material alteration. Huntington v. Finch, 3 Ohio St., 445.
While he did not agree to become a joint maker he did agree to become responsible to the payee for a default of payment by the makers at maturity. This makes defendant’s contract one of conditional guar-, anty. This is what defendant intended his contract to be and just what he understood, it to be. When ■plaintiffs did not keep their contract defendant kept his and paid the note accordingly.
When a person not a party writes his name in blank on the back of a note at the time of its execution and delivery the prima facie presumption is that he is the maker of the note and he may accordingly be treated as a surety. This presumption may be rebutted by parol evidence of a different intention and agreement of the parties. When the design is to give additional surety only, parol evidence tending to limit the liability will be construed to effectuate such intention. He will be treated at least as a conditional guarantor. Seymour & Co. v. Mickey, 15 Ohio St., 515.
Endorsement by a stranger is a guaranty. Champion v. Griffith, 13 Ohio, 228; Robinson v. Abell, 17 Ohio, 36.
Endorsement before negotiation may be treated as an endorsement and not as a making. Greenough v. Smead, 3 Ohio St., 415.
Presumption that endorsement before delivery is a making may be rebutted.
The guaranty of the payment of the debt of another made at the time the debt is contracted and without the knowledge of the principal debtor does not alter his contract as to discharge him from liability. A party has the right to make his own contract. Deming v. Board, 31 Ohio St., 41.
The mere endorsement upon a note of a stranger’s name in blank is prima facie evidence of guaranty.
Signing as surety makes an immaterial alteration ; especially is this true where there is no fraud and the liability is not changed. Justice says so. 2 Dan. Neg. Inst., Sec. 1389 and N. 1.
The jury should find whether or not Hecker did not assent to or authorize the addition of another maker or a surety by leaving the note in the hands, of Kronauge to get it discounted, and whether or not he did not ratify the action of Kronauge in getting Mahler to sign the note by subsequent acts, etc. Tiernan v. Fenimore, 17 Ohio, 545.
The contract between the principal and surety, though it may be inferred from the nature of the surety given the contract is not contained therein nor evidenced thereby, but is a collateral contract usually parol, one which may be shown by any competent or satisfactory evidence. McKee v. Hamilton, 33 Ohio St., 7.
Parol evidence of declaration of intentions made at the time of signing before delivery of the paper are part of the res gestae admissible to establish an agree ulent where they do not contradict or vary the rights of prior parties. Oldham v. Broom, 28 Ohio St., 41;
The holder might recover on the original cause, of action. 2-Dan. Neg. Inst., Secs. 1411-1413.
Presumption is that the alteration was made with an honest motive. Franklin v. Baker, 48 Ohio St., 296.
Right of restoration of instrument innocently made is recognized and within the jurisdiction of a court of equity. 2 Dan. Neg. Inst., Sec. 1414; 2 Parsons N. & B., 570; Shepherd v. Whitstom, 51 Iowa, 457; 2 Dan. Neg. Inst., Sec. 1415.
Kronauge was an agent of his company — makers coupled with an interest, and his authority to procure indorsers may he inferred from circumstances and subsequent conduct of principal. Dan. Neg. Inst., Sec. 289; Wilson v. Forder, 20 Ohio St., 89.
The doctrine that a material alteration beneficial to the holder null vitiate the instrument is founded upon a presumption of fraud, and the alteration to have such effect must be such as to effect some change in the'meaning or legal operation of the instrument.
The erasure of the name of a surety on a note by-agreement between surety and payee is not such an alteration.
The- spirit of decisions is against the release in a case like at bar. 2 Dan. Neg. Inst., Sec. 1389.
The benefit cannot be taken without the burden. Weeden v. Railway Co., 14 Ohio, 563; Winpenny v. French, 18 Ohio St., 469; Dan. Neg. Inst., Sec. 322; Woodward v. Suydam, 11 Ohio, 360.
Relates back and binds from inception, Pollock v. Cohen, 32 Ohio St., 514; Holland v. Drake, 29 Ohio St., 441.
Principal must elect within a reasonable time otherwise he affirms. Rolling Stock Co. v. Railroad, 34 Ohio St., 450.
No new consideration is required to support the ratification. Drakely v. Gregg, 75 U. S. (8 Wall.), 242; Brooks v. Hook, 24 L. T., 34; Grant v. Bond, 50 N. H., 129; Pearsoll v. Chapin, 44 Pa. St., 17; Huston v. Railroad Co., 21 Ohio St., 235; Brandt on Suretyship, Sec. 334.
Acceptance of the benefit of a loan or of the. benefits thereof, though made without authority, has been held sufficient ratification. Union Gold Mining Co. v. Rocky Mountain Bank, 96 U. S., 640; Taylor v. Agricultural Co., Ala., 229; Weeden v. Railway Co., 14 Ohio, 563; Dan. Neg. Inst., Sec. 362; Lorie v. Railway Co., 32 Fed. R., 270; Smith v. Sheeley, 79 U. S. (12 Wall.), 358; Frank v. Jenkins, 22 Ohio St., 597; Woodward v. Suydam, 11 Ohio, 360.
Authority of the agent may be inferred from the circumstances of the case. These circumstances, which give rise to the implication, are for the jury to consider. 1 Dan. Neg. Inst., Sec. 289.
Stockholders of a corporation liable for its debts are not its sureties — they are principals. Hager v. McCullough, 2 Denio, 119; Taylor v. Wheel Co., 6 Dec. (Re.), 947 (9 Am. Law Rec., 28); Moss v. McCullough, 7 Bank (N. Y.), 279; Morawetz Pri. Corp., Sec. 879.
The liability of stockholders under statutes imposing personal liability is not that of guarantors, but it is an original liability. 1 Lawson Rights, Rem. & Pr., Sec. 498; Green v. Beekman, 59 Cal., 547; Corning v. McCullough, 49 Am. Dec., 287; Moss v. Averill, 10 N. Y., 459; Jones v. Barlow, 62 N. Y., 210; Wiles v. Suydam, 64 N. Y., 176; Chase v. Ford, 77 N. H., 33. Extension of time does not release stockholders. Taylor v. Wheel Co., 6 Dec. (Re.), 947 (9 Amr. L. Rec., 28).

Opinion:
Davis, J.
It has been settled, in this state, that a promissory note in the form of the one involved in this case is'joint and several; and that after the delivery of a joint and several note the addition of the name of a third person, as maker, with the privity of the holder, but without the consent of the original signers, vitiates the note as to the latter; but that it is otherwise, if the new party, through inadvertence or mistake, signed so as, prima facie, to indicate that his name was added in the character of maker, when in fact such was not the intention. Wallace et al. v. Jewell, 21 Ohio St., 163. In the opinion in the case cited, White, J., says: "If the object had been to guaranty payment, or to furnish additional security, otherwise than by becoming or assuming to become a joint maker, there could be no objection to the accomplishment of such object. The new agreement in such case, would be a collateral one, and it would leave the integrity of the original note unaffected. Nor do we suppose the case would be altered, if, in giving such security, the new party should, by mistake or inadvertence, sign the note in such way as to indicate, prima facie, that he was an original promissor, the real intention being otherwise. Such a case would1 fall within the .principle decided in Ex parte Yates, 2 De Gex and J., 191."
In the present case it was competent for the plaintiff below to show, and he did show, that as between him and the other signers of the note,'he was not a joint maker. He testified, and it is not disputed, that he "signed the note for the five to get the money out of the bank" — "for security for them five." It is conceded that the money which was obtained on the discount of the note went to the benefit of the Co-operative Publishing Company; but that company was in no sense a party to the note and in no way connected with the transaction of obtaining the money. That was the act of the five original signers of the note who had already signed it, and, through the agency of William C. Mahler and Kronauge, presented it at the hank for' discount where it was rejected. The five signers, up to this point, were indisputably principals; for the fact that they intended to apply, and afterwards did apply, the money obtained by discount of the note for the benefit of the publishing company, did not make them sureties. So that the claim that they and the defendant in error were co-sureties of the publishing company is not sustainable. The ehfendant in error "signed the note for the five to get the money out of the bank," — "signed as security for them" — and still the note was not accepted by the bank. He then pledged his building association book, which meant that if the note should not be paid at maturity, his funds in the building association should be applied to the payment of it. By his agreement to sign as security for the five original signers and by his pledge of collateral he made himself a guarantor for them, as distinctly as if he had written above his name these words: "For value received I hereby guaranty the payment of this note at maturity," and so the bank treated the paper. The note not being paid at maturity, notice thereof was given to the defendant in error, who paid it out of the building association fund which had been pledged. The case is therefore clearly referable to the exception stated in Wallace et al. v. Jewell, 21 Ohio St., 163, and Deming v. Trustees, 31 Ohio St., 41. The defendant in error was not a joint promissor with the plaintiff in error; but was bound by a separate and collateral agreement. This view of the case eliminates the question of fact whether the name of the defendant in error was written upon the note with the consent of Hecker or any other of the original signers. The original makers were bound to reimburse the defendant in error, whether they Avere, before the delivery of the note to the bank, without knowledge that the defendant in error had signed it as security or guarantor for them, or Avhether they had such knoAvledge. The note was in fact signed by the defendant in error at the request and with the knowledge of Kronauge, the agent of the five original signers, and so was signed at the request and with the knoAvledge of all. Qui facit per a,Hum, fcieit per se. But in the view Avhich we take of this case that is not essential. The instruction to the jury in respect to knowledge and consent by Hecker was erroneous. The circuit court properly reversed the judgment of the court of common pleas, and, on the facts before it, might have gone further.
.4)(firmed.
Minskatx, C. J., Williams, Bukket, Speae and Shauck, JJ., concur.