Summary
In Bacon v. Burnham, 37 N.Y. 614, it was held that where a prior indorser cannot recover against a subsequent indorser, no person deriving title under such prior indorser with knowledge of the facts can do so.
Summary of this case from Lincoln National Bank v. ButlerOpinion
January Term, 1868
John H. Reynolds, for the plaintiff.
David Rumsey, for the defendant.
There appears to be a misconception on the part of the plaintiff's counsel of the true import of the few facts disclosed upon the trial. He seems to assume, that, nothing being shown upon the trial as to the time when the plaintiff became the owner of the note, it may be taken for granted that he obtained it before maturity, or, if not, that, having received it from Kingsley, who did become the owner before maturity, the title of the plaintiff can no more be impeached than could that of Kingsley.
Now, while it is true that it is not shown at what particular date the plaintiff obtained title to the note, it is very clear that it was after maturity; for it was not transferred to him until after a suit had been brought upon the note by Kingsley; and, at that time, Sweezey's name appeared upon it in no other character than as a guarantor for its collection. And if it be true that the title of plaintiff could no more be impeached than could that of Kingsley, this would not determine the question in controversy between these parties, for the inquiry would still remain, whether, under the facts which are here disclosed, Kingsley could himself maintain any suit against the defendant as second indorser on this note.
In considering this case, we are to remember that we are only concerned now with the cause of action set forth in the first count, and the proof made under it, since no attempt was made to prove any of the facts set up as the special cause of action in the second count. The note is made payable to Sweezey, or his order, and, being indorsed by the defendant, the legal presumption from this simple fact (nothing appearing to show that he intended to assume any other character), is, that his responsibility was that of second indorser, with all the rights, and subject only to the liabilities, of that position. It must be supposed, in the absence of any proof to the contrary, that, perceiving the name of the payee in the note, he indorsed it on the presumption that the name of such payee, to whose order it was made payable, would also, at some time, appear upon the note; for only thus would it become negotiable. When the defendant placed his name upon the note, he did so as a second indorser, with all the rights and responsibilities which attached and belonged to him in that character, and that assumed that he had, or would have, a responsible party before him. The locality of the names was immaterial; and, whether the name of Sweezey should appear above or below his own, or before or after his in point of time, would not change, in any respect, his position as second indorser. As the case stood upon the trial, it is entirely clear that Sweezey could have maintained no suit on the note against the defendant; and the case is thus brought directly within the authority of Herrick v. Carman (12 Johns. 159). That case was this: R., for value received, delivered his note to C., made by R., and payable to C. or order, and indorsed by H. in blank. C. afterward sold the note to B., indorsing it also himself. In an action, brought by B., as indorsee of the note, against H., it was held, that, as C., the original payee, could not maintain an action against H., as indorser, neither could B. recover against him; affirming the principle, that, where a prior indorser cannot maintain an action against a subsequent indorser, no person, deriving title under the prior indorser, with knowledge of the facts, can recover against such subsequent indorser. This case has been uniformly followed and approved in the courts of this State. ( Seabury v. Hungerford, 2 Hill, 80; Ellis v. Brown, 6 Barb. 282; Morse v. Cross, 19 N.Y. 229.)
The case at bar is stronger than the one cited, from the fact that there the name of C., the payee of the note, appeared as indorser before the transfer; while here, when Kingsley took the note, the name of Sweezey was not upon the note, except in a special character, under which alone he could be made liable, and not as indorser, and thus a liability was sought to be charged upon the defendant which he had not assumed, and which could not be created by the transaction of placing the name of Sweezey upon the note long after it had matured. The rights of the defendant must, on the clearest principles, be what they were when the note fell due; and, as Kingsley took the note with only a guaranty, he was chargeable with notice of the legal rule that this was not an indorsement, and was incapable of enforcement as such. The plaintiff, taking the note after maturity, is not a bona fide holder, within the commercial rule, which might otherwise protect him, but is subject to all the equities that existed in favor of the defendant at the time the note passed into his possession.
In the opinion of the court below, it is said, that, under the state of facts set out in the complaint, there is no doubt, if sustained by proof, the plaintiff could recover, as, indeed, Sweezey could, under the authority of Morse v. Cross ( supra). But the difficulty is, that there was no proof offered to sustain this branch of the case; and, until there was, the action stood simply upon the paper itself, and the rights of the parties were to be determined upon only the facts thus made to appear. Upon another trial, a very different question may possibly arise, which need not, and, indeed, cannot, now be determined.
As the case now stands, I do not see how the plaintiff was entitled to recover, and am of opinion that the judgment should be reversed and a new trial ordered, with costs, to abide the event.
The first question for consideration in this case is, whether the defendant could be made liable for the payment of the note in any other position than as second indorser to Sweezey, to whose order the note was made payable. No evidence was given as to the consideration or purpose for which the defendant became indorser. His liability must be determined from the paper alone. That he cannot be charged in any mode other than indorser, was settled in this State in Hull v. Newcomb (7 Hill, 416). The rule settled in this case was re-asserted by this court in Spier v. Gilman (1 Comst. 322), and has since been regarded as the law of the State. The defendant being liable only as indorser, can he be made so liable except as subsequent to Sweezey? This question was substantially decided in Herrick v. Carman (10 Johns. 224). In that case it was held that Herrick, who indorsed the note of one Ryan, payable to Carman Co., or order, in the same way the defendant indorsed the note in suit, was not liable thereon to the payees, and that, consequently, the plaintiff, to whom the payees had indorsed the same for collection, could not recover. The same doctrine was re-affirmed by the court, in Herrick v. Carman (12 Johns. 159). This has been regarded as the law for more than half a century. A rule, governing the rights of parties to commercial paper, of such standing, ought not to be changed by the court. It follows, that Sweezey, the payee, could not have maintained an action against the defendant, upon the note, had he been the owner at the time it became due. But the evidence shows that he was not such owner at that time, but that, before it became due, he transferred it to one Kingsley, accompanied by the following writing thereon, signed by him: "For value received, I hereby guarantee the collection of the within note of the maker and indorser, with costs of collection." The express contract entered into by Sweezey, upon the transfer of the note, it is obvious, was all the obligation incurred by him. That made him the surety of the maker, and of the defendant, to Kingsley, for the collection of the note. It did not make Sweezey surety to the defendant for the payment of the note by the maker. Consequently, had the defendant, upon default of the maker and the service of the proper notices to charge indorsers, voluntarily paid the note to Kingsley, he would have had no remedy against Sweezey upon the contract. But the note, on its face, showed that the defendant had only agreed to assume the responsibility of indorser, upon the contingency of Sweezey becoming liable as first indorser. Kingsley knew this, from the paper, and also knew that Sweezey had not thus become liable. He, therefore, was notified by the paper itself that the contingency had not occurred which was a prerequisite to the liability of the defendant. He could not recover, and, therefore, abandoned the suit brought by him against the defendant for the recovery of the note, procured the indorsement of Sweezey, waiving demand and notice, and transferred the note to the plaintiff. But this indorsement was made, and the note transferred to plaintiff, long after it became due. The plaintiff was not, therefore, a bona fide holder, and took it subject to any defense that was available against Kingsley at the time of the transfer. The question then is, whether, if the defendant was not liable at the time the note became due, he could be so made by any subsequent indorsement of Sweezey. Had Sweezey indorsed and negotiated the note before maturity, and the defendant had been charged with its payment in behalf of any bona fide holder, he would have had the right at once to pay the holder and proceed against Sweezey to recover his indemnity. Any act of the holder, suspending this right, would have discharged the defendant. For the same reasons, any omission to perfect this right, so that it was in full force at the time of maturity, would have the like effect. If the parties, by the indorsement of Sweezey after the note became due, could thereby create a liability against the defendant, they could do the same thing at any time within six years from that time; the defendant having no right, in the mean time, to take any steps for his protection. This was not the contract into which the defendant entered: that was, to become liable as second indorser, with Sweezey as first, with all the rights incident thereto. He was not liable upon the proof given, in which there was no conflict. His motion for a nonsuit should have been granted. Upon a second trial, proof may be given, bringing the case within the principle of Morse v. Cross ( 19 N.Y. 227). In that event, the plaintiff will entitle himself to a recovery.
The judgment appealed from should be reversed, and a new trial ordered; costs to abide event.
All the other judges concurring, except HUNT, Ch. J., who took no part,
Judgment reversed, and new trial ordered.