Court Opinion

ID: 7044162
Source: CourtListenerOpinion
Date Created: 2022-07-24 06:53:20.15522+00
Date Added: 2024-06-11T16:11:27.931681
License: Public Domain

On Petition eor a Rehearing.
Woods, J.
A rehearing is asked on the ground that the fact stated in the finding, that John and Samuel Kealing indorsed the note before its delivery to the payee, for the accommodation of James A. Kealing, who alone received of the payee the consideration of the note, is equivalent to a finding that said John and Samuel intended to become, and were accepted by the payee as, original makers, liable jointly with, or as sureties for, said James.
After a careful and painstaking examination of the decisions throughout the United States, and a study of such English cases as they could find, the counsel for the appellee deduce the following rule in reference to the liability of indorsers who sign before an indorsement of the paper by the payee : ‘ ‘Where oral evidence is at all admissible to show the character of the liability of such indorsers, and where the indorsement was made solely to give credit to the maker with the payee, and for the accommodation of the maker, the indorser is regarded holden and bound as a surety for *537the maker;” and, concluding the discussion, the counsel ¡add: “In this case it is utterly indifferent to us whether the rule of prima facie liability be that of makers or that of indorsers-. The vital principle is, that when the indoi’sement is made with the intention to give the maker credit with the payee, then the liability of the indorser is that of a surety for the maker. And this liability is clearly shown by the ¡special finding here.”
The cases cited, and which might be cited, on this subject are numerous, and, if not full of confusion and contradiction, .are, in many respects, variant and difficult to harmonize. We shall not attempt the task. See Chaddock v. Vanness, 35 N. J. 517; S. C., 10 Am. Rep. 256; Vore v. Hurst, 13 Ind. 551; 1 Daniel Negotiable Instruments, secs. 709-716, and notes. The following are the latest cases, besides our own, cited by counsel: Jaffray v. Brown, 74 N. Y. 393; Coulter v. Richmond, 59 N. Y. 478; Fear v. Dunlap, 1 Greene, Iowa, 331; Billingham v. Bryan, 10 Iowa, 317; Arnold v. Bryant, 8 Bush, 668; Jones v. Goodwin, 39 Cal. 493; Ford v. Hendricks, 34 Cal. 673; Eilbert v. Finkbeiner, 68 Pa. St. 243; Collins v. Everett, 4 Ga. 266; Cogswell v. Hayden, 5 Oreg. 22; Milton v. DeYampert, 3 Ala. 648; Jennings v. Thomas, 13 Sm. & M. (Miss.) 617, showing the prima facie liability to be that of an indorser; but the following showing it to be prima facie the liability of maker or guarantor: Killian v. Ashley, 24 Ark. 511; Good v. Martin, 2 Col. 218; Clark v. Merriam, 25 Conn. 576; Gilpin v. Marley, 4 Houst. 284; Parkhurst v. Vail, 73 Ill. 343; Fuller v. Scott, 8 Kan. 25; McGuire v. Bosworth, 1 La. An. 248; Woodman v. Bootldry, 66 Me. 389; Ives v. Bosley, 35 Md. 262; Way v. Butterworth, 108 Mass. 509; Rothschild v. Grix, 31 Mich. 150; Stein v. Passmore, 25 Minn. 256; Western, etc., Association v. Wolff, 45 Mo. 104; Baker v. Robinson, 63 N. C. 191; Seymour v. Mickey, 15 Ohio St. 515; Perkins v. Barstow, 6 R. I. 505; Carpenter v. Oaks, 10 Rich. 17; Harrison v. Sheirburn, 36 *538Tex. 73; Orrick v. Colston, 7 Grat. 189; Burton v. Hansford, 10 W. Va. 470; Sylvester v. Downer, 20 Vt. 355; Gorman v. Ketchum, 33 Wis. 427; McGee v. Connor, 1 Utah, 92; Rey v. Simpson, 22 How. 341; Good v. Martin, 95 U. S. 90; Matthews v. Bloxsome, (Q. B.) 10 L. T. Rep., N. S. 415.
It is well settled, in this State, that the prima facie liability is that of indorsement. Wells v. Jackson, 6 Blackf. 40; Farly v. Foster, 7 Blackf. 35; Harris v. Pierce, 6 Ind. 162; Cecil v. Mix, 6 Ind. 478; Vore v. Hurst, 13 Ind. 551; Sill v. Leslie, 16 Ind. 236; Snyder v. Oatman, 16 Ind. 265; Drake v. Markle, 21 Ind. 433; Dale v. Moffitt, 22 Ind. 113; Houston v. Bruner, 39 Ind. 376; Roberts v. Masters, 40 Ind. 461; Bronson v. Alexander, 48 Ind. 244; Schulz v. Klenk, 49 Ind. 212; Nurre v. Chittenden, 56 Ind. 462; Browning v. Merritt, 61 Ind. 425.
The doctrine, as deduced from a consideration of the Massachusetts, New York and English cases, was stated in Wells v. Jackson, supra, in the following language: “That the-blank indorsement of unnegotiable paper, made at the date-of the contract, and unexplained by extrinsic testimony, confers upon the payee the authority to hold the indorser liable on the original contract, as a surety; and that a similar unexplained indorsement of negotiable paper renders the indorser liable only as indorser, with the original rights and-, privileges incident to that character. But that, in either case,, the liability designed to be assumed, and the authority intended to be given by the indorsement, may be explained by the attendant circumstances, and the prima facie responsibility be changed into one of another kind. And this appears-to us to be also the common-sense view of the subject.”
This statement of the doctrine has been sometimes quoted-, and repeatedly recognized, and never condemned or criticised, in the later cases; but whether it has been uniformly-understood and applied in the sense in which it was understood and applied in the case where it is found, is not clear.. *539As stated, the rule is made ambiguous, or at least capable of two constructions, by reason of a change of the form of the-expression in the two clauses of the first sentence. In the-first clause it reads, “confers on the payee the authority to-hold the indorser liable on the original contract, as a surety but, instead of continuing the same form of expression in the-second clause, and saying, “authorizes the payee to hold,” etc., it says, “renders the indorser liable only as indorser.”'
Just here seems to be the pivotal point of the discussion. The position taken by the counsel for the appellee is, and the cases which support it assume, that such an indorser cam not be liable as an indorser to the payee of the paper. This, of course, implies the further assumption of the corollary proposition, that such an indorser, if liable to the payee at all, must be liable as a joint maker, surety, or guarantor— any thing but indorser. This much assumed, the conclusion is easy and logical, that a finding which shows that the indorsement was made in order to give the maker credit with the payee, is equivalent to a finding that the indorser intended to become liable to the payee; and, as his liability can not be that of indorsement, it is either suretyship or guaranty. In this case we are asked to call it suretyship rather than guaranty, because it was held, in Drake v. Markle, supra, that the statute of frauds forbids parol proof in such a case of an intended guaranty. But the effect of this ruling, if upheld, as we conceive, must be, not that the indorser who may have intended to assume the liability of a guarantor, will be.held as a surety instead, but rather that, the actual intention being nullified by force of the statute, the parties will be remitted to the presumptive prima facie obligation of indorsement.
We might stop here, therefore, and, upon his own theory, hold the appellee not entitled to a judgment in his favor upon the finding made, because it does not appear whether the indorsers intended to accommodate the maker and give *540him credit with the payee as sureties, or as guarantors. If as guarantors, aside from the statute of frauds, they are not liable except upon proof of a demand on the maker, and notice of non-payment within a reasonable time after the default, or proof that no harm had or reasonably could have accrued to them on accouxxt of the failure to make the demand and give them notice thereof. Gaff v. Sims, 45 Ind. 262; Cole v. The Merchants Bank, etc., 60 Ind. 350; 2 Daniel Negotiable Instruments, 662, sec. 1,787.
We prefer, however, not to rest our decision here. We think the assumption that an indorser may not be liable as such to the payee of a note, however seemingly well supported by the authority of decided cases, is not in accordance with sound reason, with “the common-sense view of the subject,” uor with the drift or status of the decisions of this court, especially of the later cases. What is there in the terms or in the nature of the obligation of the contract of iixdorsemeixt, which forbids its operation-in favor of the payee of a note as well as in favor of an indorsee in the strict sense? A regular “indorsement, when made for an adequate consideratioh, passes the interest of the indorser, and amounts to axx undertaking, unless qualified in express tenxis, that if the bill or xxote is not paid at maturity, and the iixdorser has due notice of dishonor, he will pay it, which in law is a contract in favor of the indorsee, and every holder to whom the note or bill .is transíerx’ed.” Chitty Bills, 241 ; Story Notes, sec. 135; Edwards Bills, 272-284; Chaddock v. Vanness, supra. The indorsement of one who signs before indorsement by or delivery to the payee, of course, makes no transfer of interest or title ixx the note, but there is no reason why it may not evidence an undertaking by the indoi'ser to the payee or holder, that if the note is not paid By the maker, and the indorser has due notice of the dishonor, he will pay it to the payee as well as to his indoi’see. 'There can be no doubt that, if written out in full over *541the indorsed name, such a contract would be in all respects-valid and effective, and the liability would be exactly the-same as that of an indorser; and, it being established that parol evidence is admissible to show what contract the parties intended, it should be admissible to show this, as well as a contract of suretyship or of guaranty. The primary presumption, let it be granted, is a strict indorsement, which will not operate in favor of the payee, but of his indorseeonly, such indorser being liable only as second indorser, and entitled to recourse against both the maker and the payee-who becomes the first indorser; but if the evidence show that the indorsement was made before delivery to the payee and for the maker’s accommodation, or to give him credit with the payee, then the indorser is liable directly to the payee, prima facie, as indorser, or if the proof be such as to show it, then as surety.
That such indorser may be liable to the payee as indorsercounsel concede to be the ruling in Alabama and Mississippi. Milton v. DeYampert, 3 Ala. 648, and Jennings v. Thomas, 13 Sm. & M. 617. To the same effect as we understand them, are the decisions in California, where such an indorser is called a guarantor, but his liability, which is enforced in favor of the payee, is held to be the same as that of indorser. Clarke v. Smith, 2 Cal. 605; Ford v. Hendricks, 34 Cal. 673; Jones v. Goodwin, 39 Cal. 493. Besides the quotation already given, the following language is used in Wells v. Jackson,supra, to wit: “The defendant is the last of threeindorsers, and must be presumed, agreeably to the principles laid down, to have placed his name upon the bond in the character of an ordinary indorser, looking to the responsibility of those whose names precede his, including the payee and maker. As the count utider consideration attempts to-to hold the defendant primarily liable, it is defective.” This decides, that the prima facie obligation in such case is as second indorser, but it is not a decision even by implication *542that there may not be a liability as indorser in favor of the payee. In Early v. Foster, 7 Blackf. 35, in an opinion prepared by the same judge who wrote the opinion in Wells v. Jackson, after saying that the “unexplained indorsement of the note, made at its date, did not render” the indorser primarily liable, as a joint maker, to the payee, the court adds : “And he is not shown to be responsible as an indorser, so as to render him jointly liable with the maker, under the statute strongly intimating, if not absolutely implying, an understanding on the part of the court, that he was liable to the payee as indorser, though not shown to be liable jointly with the maker under the statute. The same understanding is manifest in most of the decisions made by this court since that time, while the cases of Bronson v. Alexander, 48 Ind. 244, and Nurre v. Chittenden, 56 Ind. 462, are totally irreconcilable with the position that such an indorsement, made before delivery and for the accommodation of the principal obligor, is an original undertaking or contract of suretyship, but on the contrary they are in entire harmony with, and indeed can be upheld only upon, the doctrine that the indorser may be liable as such to the payee, and if liability to the payee be shown to have been intended, it will be presumed to be as indorser, unless the evidence shows affirmatively that a different contract was intended.
In accord with these views, we subjoin the following quotations from Mr. Daniel’s work on Negotiable Instruments, already cited. He says : “Sec. 710. * * Whatever diversities of interpretation may be found in the authorities on the subject, they very generally concur, though not with entire unanimity, that, as between the immediate parties, the interpretation ought to be, in every case, such as will carry their intention into effect, and that their intention may be made out by parol proof of the facts and circumstances which took place at the time of the transaction. If the person who places his name on the back of the note before the payee in*543tended at the time to be bound to the pajee only as a guarantor of the maker, he shall not be deemed to be a joint promisor, or an absolute promisor to the payee. If he intended to bind himself as a surety or joint maker of the note, he will not be permitted to claim afterward that he was only a guarantor. And if he intended to be bound only as an indorser, the better opinion is that this also may be shown as between him and the payee.
“Sec. 714.. It would seem to us that such a party ought to be regarded as a first indorser. If he intended to be a second indorser, he should have refrained from putting his name on the note until it was first indorsed by the payee. By placing it first he enables the payee to place his own afterward ; and prima facie the facts would seem to indicate such intention. There is nothing in the objection that there is no title in him to indorse away. Prior parties could not be sued without the payee’s indorsement; but he being an indorser can be sued by any one deriving title under him. In fact, his position seems to render his liability strictly analogous to that of the drawer of a bill upon the maker in favor of the payee; and so to regard him simplifies, as it ■seems to us, a question which, unless such analogy be followed, is exceedingly complicated and difficult. *. *
“Sec. 715. What parol evidence determines the liability of the person signing before the payee is also a matter upon which opinion is diverse. Many authorities take the ground that when it appears that the note was intended for the payee, or that the name was placed upon the back of the note before its delivery to the payee, that circumstance fixes the liability contracted as that of joint maker, and excludes further inquiry. But this does not seem to us sufficient,” etc.
“Sec. 716. When the note is sued upon by the payee, it is held that the idea of the party before him being bound as an indorser is excluded. But this doctrine does not seem to us correct. The indorsement, it is true, is an irregular one ; *544but it is quite similar to a bill drawn by the indorser on tbe maker, and to follow that analogy in all regards seems to us the simplest and most reasonable solution of the question. 'And there are a number of cases which regard such a party’s liability as prima facie, that of an indorser.” The cases cited under the last proposition are: Price v. Lavender, 38 Ala. 389; Comparree v. Brockway, 11 Humph. 355; Clouston v. Barbiere, 4 Sneed, 335; Jennings v. Thomas, 13 Sm. & M. 617; Kamm v. Holland, 2 Oreg. 59; and the following of this court already cited supra: Wells v. Jackson; Vore v. Hurst; Sill v. Leslie; Dale v. Moffitt; Roberts v. Masters.
The petition is overruled, with costs.
Elliott, J., absent.