indorsement of a negotiable instrument is a warranty by him who makes it to every subsequent holder in good faith that the instrument itself and all the signatures antecedent to such indorsement are genuine; and when these signatures are forgeries, the indorser is at once liable upon his warranty to such subsequent holder, without any presentment for payment, or notice of nonpayment. 8 c. Warranty of validity of instrument.— An indorser of a negotiable instrument warrants the existence and legality of the contract which he undertakes to assign. And where a promissory note was alleged to have been made on Sunday, it was held that this was immaterial in an action against the indorser, because by his indorsement he is estopped to deny that the note is a valid contract, and as against him it must be presumed it was made and delivered at a time when such business could lawfully be done.10 By such an indorsement the validity of the note is warranted, and also the ability of the maker to pay it." Where a note is invalid, suit may be brought immediately against the indorser, without having sued the maker. 12 Although the general rule is that an indorsement of a negotiable instrument amounts to a contract that the instrument itself and the antecedent signatures thereon are genuine, yet the obligation of such a contract cannot be enforced Kenworthy v. Sawyer, 125 Mass. 28; dorser with the subsequent bona fide v. Caverly, 7 Gray (Mass.), 217; holder that the instrument itself and all the signatures prior to the particular indorsement are genuine; and the fact that the name of the maker was forged will not discharge the indorser. Lennon v. Grauer, 159 N. Y. 433, 54 N. E. 11. 8. Turnbull v. Bowyer, 40 N. Y. 456, 100 Am. Dec. 523; Warren-Scharf Asphalt Pav. Co. v. Commercial Nat. Bank, 97 Fed. 181, 38 C. C. A. 108. 9. Indorser warrants validity of instrument.- Burrill V. Smith, 7 Pick. (Mass.) 291, 294, where the court says: "The indorsee takes it on the credit of the indorser. Thus, if a note void between the promisor and the payee on account of usury or other illegal consideration is indorsed bona fide for valuable consideration, the indorser must make it good; so if the indorsement is of a note made by a minor, or of a feme covert, and even if the name of the promisor is forged, the indorser is held upon his contract to pay the indorsee." See also Veasie v. Willis, 6 Gray (Mass.), 90; Prescott Bank In the case of Binney v. Globe Nat. Bank, 150 Mass. 574, 23 N. E. 380, the court said: "Nor is the liability of the petitioner affected by the fact that she is the wife of the assignor of the note who filled the blanks therein and caused the same to be discounted, receiving the proceeds thereof. While a promissory note between a husband and wife is void between the original parties, an indorser, when sued upon a contract, between him and his indorsee, is not at liberty to deny the validity of the original note, or the capacity of the maker, for the purpose of defeating his or her own liability." 10. Prescott Nat. Bank v. Butler, 157 Mass. 548, 32 N. E. 909. 11. McNeil v. Knott, 11 Ga. 142; Howell v. Wilson, 2 Blackf. (Ind.) 418; Tam v. Shaw, 10 Ind. 469; Furgerson v. Staples, 82 Me. 159, 19 Atl. 158; Bruce v. Burr, 67 N. Y. 237. 12. Tam v. Shaw, 10 Ind. 469; Johnson v. Blake, 3 Ind. 542. by a holder who procured an indorsement upon the forged note, with knowledge of the forgery, and upon a representation to the indorser that it was genuine.13 d. Engagement to pay.- Under the common law, as well as under the statute, an indorser guarantees the payment of an instrument according to its tenor, and engages that if it be dishonored, and the necessary proceedings on dishonor be taken, he will pay the amount thereof to the holder, or to any subsequent indorser who may be compelled to pay it. The liability imposed upon an indorser depends upon the fulfillment of the terms of the contract of indorsement, which is conditioned upon a sufficient demand being made upon the maker, and other necessary proceedings taken upon its dishonor.14 Upon a compliance with the terms of the contract, the indorser is absolutely bound, although the instrument itself is void.15 An indorsement, although in blank, being a contract in writing, its legal effect cannot be varied by parol proof, in the absence of fraud or mistake.16 This rule must 13. Turner v. Keller, 66 N. Y. 66. 14. Lockett v. Howze, 18 Ala. 613; Cassidy v. Kreamer (Pa.), 13 Atl. 744. The obligation of an indorser is widely different from that of a surety, whatever may be the analogy between them in some respects. The latter is bound absolutely to pay in case the debtor does not, while the obligation of the former is one dependent upon certain suspensive conditions. Breedlove v. Fletcher, 7 Mart. (La.) 524; Rushworth v. Moore, 36 N. H. 188. 15. Indorser is absolutely bound upon a compliance by the holder with the terms of the contract, see: Connecticut.- Miller V. Riley, 2 Root, 522. Maryland.-Mudd v. Harper, 1 Md. 110, 54 Am. Dec. 644. Massachusetts.- Van Staphorst v. Pearce, 4 Mass. 258. New Hampshire.- Dow v. Rowell, 12 N. H. 49. New York.- Fassin v. Hubbard, 55 N. Y. 465; Hodges v. Schuler, 22 N. Y. 114; Morford v. Davis, 28 N. Y. 481; Bank of Albion v. Smith, 27 Barb. 489. Ohio. Farr v. Ricker, 46 Ohio St. 265, 21 N. E. 354; Parker v. Riddle, 11 Ohio, 102. South Carolina.- Eccles v. Ballard, 2 McCord, 388. Texas.- Davidson v. Peticoals, 34 Tex. 27. Wisconsin.- Cowles v. McVickar, 3 Illinois.- Bowes v. Industrial Bank, Wis. 725. 58 Ill. App. 498. Indiana.- Holton v. McCormick, 45 Ind. 411; Grimes v. Piersol, 25 Ind. 246. 16. Legal effect of contract of indorsement cannot be varied by parol testimony, Farr v. Rickar, 46 Ohio St. 265, 21 N. E. 354. In the case Iowa.- National Bank v. Green, 33 of Martin v. Cole, 104 U. S. 37, MatIowa, 140. thews, J., said: "The contract created by the indorsement and delivery of a negotiable note even between the immediate parties to it is a commercial contract, and is not in any proper sense a contract implied by the law, much less an inchoate or imperfect contract. It is an express contract, and is in writing, some of be deemed subject to the exception that as between the indorser and the indorsee parol testimony is admissible to show their true relation to each other, according to their own intention and agreement. 17 But this exception is not universally admitted, and in some States it is held that even as between the immediate parties a collateral agreement, modifying the obligation which the law presumes in the case of a blank indorsement, is not admissible.18 An apparent conflict in the authorities as to the admissibility of evidence to vary the terms of a blank indorsement is presumably eradicated by the provisions of the above section of the statute, which makes an indorser absolutely liable to all subsequent holders in due course, unless the indorsement is expressly qualified. e. Liability of indorser on instrument negotiable by delivery; statutory provision.- The Negotiable Instruments Law provides that: "Where a person places his indorsement on an instrument negotiable by delivery, he incurs all the liabilities of an in"dorser." 19 This provision is declaratory of the common law. A note payable to bearer is transferable without indorsement; and if the payee choose to put his name on the back he is as much bound as an indorser as if the note had been made payable to him or to the terms of which, according to the custom of merchants and for the convenience of commerce, are usually omitted, but not the less, on that account, perfectly understood. All its terms are certain, fixed, and definite, and when necessary, supplied by the common knowledge, based on universal custom, which has made it both safe and convenient to rest the rights and obligations of parties to such instruments upon an abbrevia tion, that the mere name of the indorser, signed upon the back of a negotiable instrument, conveys and expresses his meaning and intention as fully and completely as if he has written out the customary obligation of his contract in full." And it was held in that case that parol evidence is not competent to contradict or vary the legal effect of such an instrument; and it is also stated that the cases in support of the rule are too numerous for citation." See also Holt v. Moore, 5 Ala. 521; Stephens v. State, 56 Ga. 604; Johnson v. Glover, 121 Ill. 283, 12 N. E. 257; Smythe v. Scott, 106 Ind. 245, 6 N. E. 145; Holton v. McCormick, 45 Ind. 411; Bowler v. Braun, 63 Minn. 32, 65 N. W. 124; Allen v. Chambers, 13 Wash. 327, 43 Pac. 57; Charles v. Denis, 43 Wis. 56, 24 Am. Rep. 383. 17. Admissibility of par 1 testimony to show terms of agreement between indorser and indorsee, see Lewis v. Long, 102 N. C. 206, 11 Am. Rep. 725; Cole v. Smith, 29 La. Ann. 551, 29 Am. Rep. 343. In the case of Smith v. Morrill, 54 Me. 48, it was held that a blank indorsement of a negotiable promissory note is, as between the immediate parties thereto, only prima facie evidence of the contract implied by law; and it is competent to prove by parol evidence, the agreement which was in fact made at the time of the indorsements. As to third persons without notice of any other contract, the one implied by law is conclusive. See also James v. Smith, 30 Iowa, 55; Sturtevant v. Randall, 53 Me. 149; Holmes v. First Nat. Bank, 38 Neb. 326, 56 N. W. 1011, 41 Am. St. Rep. 733. 18. Dale v. Gear, 38 Conn. 15; Beattie v. Brown, 64 Ill. 360; Hately v. Pike, 162 Ill. 241, 44 N. E. 441. 19. Neg. Inst. L. (N. Y.), § 117. For the same section in the statutes of other States see Appendix. his order.20 The indorser of a note drawn payable to bearer incurs the same liabilities and obligations as the indorser of a negotiable note payable to order.21 § 87. Order in which indorsers are liable. a. Statutory provision.- The Negotiable Instruments Law provides that: "As respects one another, indorsers are liable prima facie in the order in which they indorse; but evidence is admis"sible to show that as between or among themselves they have agreed otherwise. Joint payees or joint indorsees who indorse are deemed to indorse jointly and severally." 19 22 b. Presumption as to order.-Indorsements upon bills of exchange or promissory notes rest upon the theory that the liability of the indorsers to each other is regulated by the position of their names and that the paper is transferred from one to another by indorsement.23 The date of the indorsement does not necessarily control the obligation of the parties to each other; although there may be, as stated in the statute, a prima facie liability dependent upon the order in which the indorsements are made." Where the indorsers are accommodation parties, the same rule is applicable; the indorsers are liable in the order of their indorsement arising from the contract of indorsement itself, and not from any separate agreement which they may have for the joint payment of the instrument.25 Where an instrument is indorsed for transfer by 20. Brush v. Reeves, 3 Johns. (N. Y.) 439; Tam v. Shaw, 10 Ind. 469; Tillman v. Ailles, 13 Miss. 373, 43 Am. Dec. 52. In the case of Leggett v. Raymond, 6 Hill (N. Y.), 639, L. indorsed the words "I guaranty the payment of this note," on the note payable to himself or bearer. It was held in an action brought by R. that L. was liable as indorser on proof of demand and notice, though it did not appear that the guaranty was made to R. Where an instrument which can pass by delivery is indorsed such indorsement must be deemed to have been made for the purpose of guaranteeing the genuineness of the note and its payment, and the presumption is that the indorsement was made for these purposes. Hence the indorser is prima facie liable upon the instrument. Doom v. Sherwin, 20 Colo. 234, 38 Pac. 256. 25. McCarthy v. Roots, 21 How. (U. S.) 432. In this case it was held that the fact that the indorsers were accommodation parties does not make them cosureties, bound to contribute equally to the payment of the bills, without a special agreement to that effect. See also Easterly v. Barber, 66 N. Y. 433. In the case of Kelly v. Burroughs, 102 N. Y. 93, 6 N. E. 109, it was held that where a second indorser of a promissory note has paid and taken it up, he becomes a holder for value, and may maintain an action to re several indorsers, each indorsee is entitled to recover of his immediate indorser the amount of the consideration for the indorse ment.28 The amount to be recovered of an immediate indorser may include the costs in the unsuccessful suit instituted for the collection of a note defective because of usury," and such other damages as may be sustained by him for the failure of the maker to pay the note.28 Where several persons in succession indorse a negotiable note, the act of each, respectively, imports a several and successive, and not a joint obligation, whether done for accommodation or for value, unless there be an agreement aliunde different than that evidenced by the indorsements.2 29 c. Agreement between indorsers.- The statute expressly provides, and the rule has existed at common law, that an agreement may be made between the indorsers of an instrument varying their liabilities as such indorsers, which will be binding among themselves; and in an action brought by an indorser of a promissory note who has paid such note, against a prior indorser, it is competent for the defendant to prove by parol that all the indorsers were accommodation indorsers, and that by agreement they were, cover the amount thereof, of the first indorser, although both are accommodation indorsers. 26. In New York it is the settled rule that an indorsee who buys a note at less than its face value can recover against the indorser no more than the sum for which he purchased the note, with interest; though he may recover the full amount of the note against the maker. This rule applies only as between the parties to the transfer of the note, and does not affect the liability of third persons who indorse for the accommodation of the payee, and who are not parties to the transfer. Ingalls v. Lee, 9 Barb. (N. Y.) 647; Judd v. Seaver, 8 Paige (N. Y.), 548; Cram v. Hendricks, 7 Wend. 569; Munn v. Commission Co., 15 Johns. (N. Y.) 44; Brannan v. Hess, 13 Johns. (N. Y.) 52; Brown v. Mott, 7 Johns. (N. Y.) 361. 15 Me. 163; Hulbert v. Douglas, 94 N. C. 128. 27. Recovery of costs. In the case of Delaware Bank v. Jarvis, 20 N. Y. 226, it appeared that the holder of a note, which had a usurious inception in his hands, transferred it without indorsement and without notice of the facts to the plaintiff. The latter brought an action upon the note to which the defense of usury was successfully interposed. The defendant had notice of the plea and duct of the action, but declined to was called upon to assume the conIt was held that the party accepting the transfer of negotiable ranty of the validity thereof, and paper may act upon the implied warbring an action for its collection; and when defeated he is entitled to recover the costs incurred by him, from his assignor. See also Gilman v. Lewis, 15 Me. 452; Whitney v. National Bank, 45 N. Y. 303. do so. 26. 28. Orono Bank v. Wood, 49 Me. In other States. See Cook v. Cockrell, 1 Stew. (Ala.) 475, 18 Am. Dec. 67; Coye v. Palmer, 16 Cal. 158; Shaeffer v. Hodges, 54 Ill. 337; Short v. Cof- 29. Wolf v. Hostetter, 182 Pa. St. feen, 76 Ill. 245; Hurst v. Chambers, 292, 37 Atl. 988, citing Daniel on 12 Bush (Ky.), 155; Short v. Trabue, Negotiable Instruments, § 703; Russ 4 Metc. (Ky.) 299; French v. Grindle, v. Sadler, 197 Pa. St. 51, 46 Atl. 903. |