James Coulter, Respondent, v. Theodore C. Richmond et al., Administrators, Appellants

James Coulter, Respondent, v. Theodore C. Richmond et al., Administrators, Appellants. The presumption that one who has indorsed a promissory note in blank, before delivery to the payee, intended to become liable simply as second indorser and so not liable to the payee, may be rebutted by parol proof that the indorsement was made to give the maker credit with the payee. In an action upon a promissory note payable to plaintiff one year from date, indorsed by I., defendants’ intestate, before delivery, it appeared that I. was brother of the maker; that the note was given on the pur-' chase by the maker of certain United States bonds; for three years prior to the transaction, the maker had borrowed of plaintiff the same bonds, giving each year as security for their return, a note of the same amount and time signed by himself and I., the latter being surety. Upon each delivery of a new note, the prior one was taken up; the last note delivered upon the loan being taken up when the purchase was made and the note in suit delivered. Held (Grover, J., dissenting), that this evidence was sufficient to sustain a finding that the note was indorsed by I. at the maker’s request, to enable him to purchase the bonds, and that he was liable to plaintiff as first indorser; that it was immaterial whether he knew the precise nature of the credit, it was sufficient if he knew credit was to he obtained of the payee on the strength of his indorsement. The maker of the note having been declared a bankrupt, an arrangement was made by which one M. was to take the property of the bankrupt and advance to the creditors a percentage of their claims. Plaintiff consented at'the instance of defendants; to enable M. to obtain the property from the receiver in bankruptcy, the creditors assigned their claims to him. Plaintiff’s assignment of the note provided that it was not to prejudice the collection of the note of I.; the percentage received was indorsed upon the note. The receipt in terms discharged the maker without prejudice to the claim against the indorser, and the same was retained by plaintiff. Held (Grover, J., dissenting), that as the assignment was but one of the steps taken to effect a compromise for defendants’ benefit, plaintiff did not thereby transfer his claim- against them; but that they were liable to him for the balance unpaid. (Argued December 15, 1874; decided January 19, 1875.) Appeal from judgment of the General Term of the Supreme Court in the third judicial department, affirming a judgment in favor of plaintiff entered upon a verdict. This action was brought upon a promissory note bearing date April 1st, 1871, made by one Anson Ingraham and indorsed by George Ingraham, defendants’ intestate, payable to the order •of plaintiff one year after date, at his house in Jackson, N. Y. The court, after finding the making- and indorsement of the note, the due presentment, protest and notice, found the following facts : In the early part of the year 1868, Anson Ingraham borrowed of the plaintiff five United States five-twenty bonds of $1,000 each, to be returned in one year, and as security gave a note for $5,000, made by said Anson as principal and George Ingraham, the intestate, as surety. At the expiration of said year said Anson returned said bonds and took up said note; that plaintiff again loaned said bonds to said Anson for one year and took from him as security therefor his note for $5,000, signed by said George as surety, and at the expiration of the year said bonds were returned and said note taken up; that plaitftiff again loaned said bonds to said Anson for another year and received as security therefor said Anson’s note for $5,000, signed by said George as surety; said bonds were returned at the end of the year and said last note taken up; at this time said Anson proposed to plaintiff to buy said bonds at $5,000, on one year’s time with interest, and to secure him therefor by his (said Anson’s) note, indorsed by said George Ingraham as surety ; that plaintiff accepted said proposition, and thereupon, on the same day, said Anson delivered to the plaintiff the note in-suit, and received therefor the aforesaid bonds; and thereupon it was found that said note was indorsed by said George, at said Anson’s request, to enable said Anson to purchase said bonds on credit from the plaintiff. In February, 1872; said Anson went into bankruptcy ; a receiver was appointed and took charge of his estate; subsequently an agreement was made with the creditors, plaintiff among others, to take a certain per cent upon the indebtedness and discharge said Anson from his debts; that said arrangement was subsequently consummated, and plaintiff received on said note in suit twenty-five per cent, credited the amount upon the note and discharged said Anson from all further liability thereon ; that said compromise and discharge of Anson was with the written consent and agreement of the defendants as administrators of said George, with the further agreement that said compromise and discharge should not operate to discharge the estate of said George from any liability as an indorser on said note, or in any way prejudice the plaintiff’s rights thereon against said estate. To carry out the projected compromise, it appeared that plaintiff assigned the note, with other claims, to one John O. Merriam, who was acting on behalf of Anson Ingraham. The assignment, which was in writing, stated that it should in no way prejudice the collection of the amount due from the estate of George Ingraham as indorser on the note. The other creditors also assigned their claims to Merriam, who thereupon bought and received a transfer of the property by order of the court in which the bankruptcy proceedings were pending. Merriam paid to J. W. Masten, plaintiff’s attorney, the percentage agreed upon and the latter signed a receipt, indorsed upon the note, which stated that it was in full of all claims against the maker, but the same to be without prejudice to plaintiff’s claim for the balance against the estate of George Ingraham, the indorser.' Further facts appear in the opinion. Esek Cowen for the appellants. An indorser of a note payable to the order of another is presumed, to intend to become a second indorser, .and no action can be maintained upon the note itself in the absence of other evidence against such indorser by the payee. (Phelps v. Vischer, 50 N. Y., 69; Bacon v. Burnham, 37 id., 614; Moore v. Cross, 19 id., 227; Tillman v. Wheeler, 17 J. R., 326; Herrick v. Carman, 12 id., 159; Abb. Dig., 439, note.) Plaintiff could not maintain this action. (Merritt v. Bartholomew, 36 N. Y., 44.) A. D. Wait for the respondent. The presumption is that defendants’ intestate indorsed the note in blank at the time it was made. (Deming v. Dana, 2 Cush., 172; Higgins v. Watson, 1 Mich., 428.) Defendants, are liable as administrators, by reason of the indorsement of their intestate. (Tillman v. Wheeler, 17 J. R., 328; Moon v. Cross, 19 N. Y., 227, 230; Cromwell v. Hewitt, 40 id., 492; Meyer v. Hibsher, 47 id., 265, 268, 269.) [MAJORITY — Church, Ch. J.] Church, Ch. J. There is considerable, diversity of sentiment among the courts of the different States as to the nature of the contract implied by a blank' indorsement of a negotiable note before delivery to the payee. In some of the States such an indorser is prima facie regarded as a guarantor, in others an indorser, and in others a joint promisor. (Parsons on Xotes, 119, and notes e, f, g, and cases there cited; 40 N. Y., 492, reporter’s note.) In this State, it has been repeatedly held, and is too strongly settled by authority to be disturbed, that a person making such an indorsement is presumed to have intended to become liable as second indorser, and that on the face of the paper, without explanation, he is to be regarded as second indorser, and, of course, not liable upon the note to the payee, who is supposed to be the first indorser. (12 J. R., 159; 17 id., 326; 37 N. Y., 614; 50 id., 69.) As the paper itself furnishes only prima facie evidence of this intention,.it is competent to rebut the presumption, by parol proof that the indorsement was made to give the maker credit with the payee. (Id.) Such, among others, was the case of Moore v. Cross (19 N. Y., 227), where the indorsement was made to enable the maker to purchase coal of the payee ; and it was held thatthe person making it was liable as first indorser, and that the payee could maintain an action against him upon the note, or, if the payee transferred it, he might indorse it without recourse. In this case the judge before whom it was tried found that the note was indorsed by the defendants’ intestate at the maker’s request, and to enable him to purchase of the payee $5,000 of United States bonds, and that the note was used for that purpose, and it is insisted by the learned counsel for the defendants, that there was no evidence to justify this finding. We are called upon, therefore, not to determine the .fact, but to say whether the circumstances proved were sufficient to justify the inference that the fact existed, or, in other words, whether the evidence tended to prove it; if so we are foreclosed by the finding. The principal facts bearing upon this point were, that the defendants’ intestate and the maker were brothers, and that for three years respectively, prior to the making and delivering of the note in question, the maker had borrowed of the payee the same bonds, and secured their return each year by a note of $5,000, signed by himself and the defendants’ intestate as makers, the latter being surety, and that as each note was delivered, the prior note was taken up, and that when the note in suit was delivered the bonds were purchased, and the last note given for the loan of the bonds was taken up. The defendants’ intestate had been for three years the surety to the payee for his brother in respect to the bonds. The form of that paper indicated that it was intended to he used to obtain a credit with the payee, and the surety was chargeable with notice of that purpose, and when he became surety upon the fourth note, although in a different form, for the same amount at the end of the last year, is it not a legitimate inference that he knew the purpose of this note, and supposed that it was to be used, as it was, to take up his other note and obtain a like credit ? The change in form of the suretyship to that of indorser is not inconsistent with such inference. This may have been done to secure notice of demand and non-payment. In substance the transaction was a continued suretyship for the benefit of the maker to procure a credit with the payee. The notes were alike in all respects, and given at regular intervals, and the presumption of an intention to become an indorser to the payee seems a reasonable, if not an irresistible one. It is not necessary that the indorser should know the precise nature of the credit to be procured. It is sufficient that he knows that a credit is to he obtained of the payee. If he sujiposed that the bonds were to be again loaned instead of purchased, the intention to become a second indorser would he as effectually repelled as if he knew they' were to be purchased. If he signed as surety or indorser to the payee he did not sign as second indorser, and we think the circumstances sufficient at least to change the onus upon that question, and that the judge might properly infer that he intended to continue to do what he had for three years before done, viz., to become surety for his brother to the plaintiff for $5,000, and that the circumstance of changing the form of executing the paper ought not to impair the force of the inference. This intention is confirmed by the terms of the note. It ran a year, which is longer than ordinary commercial paper, and it was payable at the house of the payee, thus indicating a purpose or expectation that the payee would hold it until it was due, a circumstance inconsistent with the idea that the payee was to become a mere indorser. It is also objected that the plaintiff had no title to the note, it having been assigned to one Merriam on the 27th of June, 1872. The assignment provides in effect that it is not to prejudice the collection of the note against the indorser, thereby evincing an intention not to part with or relinquish this claim, and to make the transfer subordinate to it. It is unnecessary to consider whether the obligation against the maker and indorser could be separated, and owned by different persons, or whether, if not, the transfer or the reservation would be nugatory. It is evident that the transfer was for a particular purpose, and was one of the steps taken to effect a compromise of the demand against the maker which the defendants had consented to in writing. On the same day of the assignment an indorsement was written by Merriam and signed by the plaintiff’s attorney on the note acknowledging the receipt of the percentage agreed upon, and discharging in terms all claim on the note, but without prejudice to the claim against the indorser and the note was retained by the plaintiff. Merriam was acting in the interest of, and for the benefit of the maker, and. he could not have enforced the note against the maker beyond the amount paid. The maker had gone into bankruptcy and the transfer to Merriam was for the purpose of enabling him to represent all the creditors, in procuring a title to the property held by the assignee in bankruptcy, which it seems he did under an order of the court. In substance the transaction was that Merriam took the property of the maker and advanced to the creditors the percentage agreed upon to compromise the debts, and the legal effect of it is in no respect different as to these defendants than it would have been if he had paid the money himself. The transfer might have been more explicit, but an examination of all the papers leaves no room for misapprehension as to the character of the transaction. The compromise was for the benefit of, and at the instance of, the defendants, and although some circumlocution became necessary in consequence of the bankrupt proceedings,, the same result was attained, as though it had been accomplished directly with the maker, and they have no reason to complain. Indeed it might be inferred that they contemplated this mode of doing the business, when they gave their consent. At all events they have not been injured by the course pursued. The judgment must be affirmed. All concur, except Grover, J., dissenting. Judgment affirmed.