Case v. McKinnis

213 P. 422 | Or. | 1923

HARRIS, J.

As previously stated the defendant now concedes that as a result of the trial' he must contribute one third of the amount paid by the plaintiff to the United States National Bank of La Grande on the two notes held by it, but, relying upon Baker County v. Huntington, 48 Or. 593, 603 (87 Pac. 1036, 89 Pac. 144), he contends that the judgment ought not to have included interest from the date of the payment by Case to the date of the rendition of the judgment. This contention cannot be sustained. The amount due the bank was fixed by the terms of the notes. The amount due on each of the two notes was definite. The moment the plaintiff paid such definite sum due on the two notes the defendant became liable to the plaintiff for exactly one third of that definite sum; and since section 7988, Or. L., by force of the amendment of 1917, now provides that interest shall be payable “on all moneys after the same becomes due,” the plaintiff was entitled to recover interest. See Sargent v. American Bank and Trust Co., 80 Or. 16, 42 (154 Pac. 769, 156 Pac. 431), and Ballie v. Columbia Gold Mining Co., 86 Or. 1, 30 (166 Pac. 965, 167 Pac. 1167).

The remainder of the discussion will be confined to the Smith note. The assignments of error are numerous; but we may avoid the necessity of specifically referring to each of them by stating that they present in a variety of forms the contention of the defendant that he is not liable because his status was that of an indorser with only the conditional liability of an indorser; and that since the steps necessary to convert such conditional liability into an absolute liability were neither taken nor waived, he was completely discharged from all liability not only as to the holder but also as to Case. The defendant admits that he and plaintiff signed as joint indorsers, but he denies that he made any other agreement than that which the law writes over joint unqualified irregular indorsements; and he contends that liability on such an agreement does not arise either as to the holder or as to the other joint indorser unless presentment is made to the maker and notice of dishonor is given or waived.

The question of the liability of the defendant presents itself in two general phases: (1) On the note; and (2) on his agreement, express or implied, if any there was, to contribute. The plaintiff avows that this is not an action on the contract of indorsement, or on the note, but is an action to enforce the right of contribution arising out of the fact that he alone paid a liability which both agreed to pay equally, and that therefore defendant ought to be compelled to pay to plaintiff: the share which the defendant ought to have paid to the bank but which the plaintiff was compelled to pay for him. Even though it be assumed that the defendant expressly agreed to indemnify or reimburse the plaintiff or even though this action must be treated as one to enforce the equitable right of contribution, in either event, the liability, if any, of the defendant cannot be ascertained unless we first determine the nature and extent of his liability on the note; and this involves an inquiry concerning his status as a party to the note considered with relation (1) to the State Bank of Imbler, and (2) to Case.

The negotiable instruments law was adopted in this state in 1899 (Laws, 1899, p. 18), and where the act speaks it controls: Hunter v. Harris, 63 Or. 505, 508 (127 Pac. 788); Mechanics etc. Bank v. Katterjohn, 137 Ky. 427 (125 S. W. 1071, Ann. Cas. 1912A, 439); First National Bank v. Bach, 98 Or. 332, 336 (193 Pac. 1041). The section numbers in the act of 1899, with only a few exceptions, conform with the numbering of the uniform negotiable instruments law as it appears in the standard text-books and as it is found in most of the states which have adopted it; and so for convenience a given section when first referred to will be designated by both its Code number and by the number given to it under the act of 1899, but the latter number whenever used, whether alone or in combination with the Code number, will always be placed in parentheses.

Probably no question concerning negotiable instruments has been the subject of more confusion and g’reater diversity of judicial opinion than that of the liability of a third person, not otherwise a party to a promissiry note, who prior to delivery signs the instrument on its back in blank and the note is payable to a specified person or order. Prior to the adoption of the negotiable instruments law the liability as such a signer was variously held to be that of a maker, guarantor, indorser or second indorser. In many of the jurisdictions the liability was that of a maker. This confusion was worse confounded by the fact that in some jurisdictions the liability was only prima facie that of a given relation; so that parol evidence was admissible to show a different intention, while in other jurisdictions the liability was conclusively that of a given relation and parol evidence was not receivable to show a different relation: 8 C. J. 74; Lumbermen’s National Bank v. Campbell, 61 Or. 123, 127 (121 Pac. 427). Although this confusion was not the only reason for the adoption of the negotiable instruments law it was with all the states adopting it one of the very persuasive reasons: Thompson v. Curry, 79 W. Va. 771 (91 S. E. 801). The negotiable instruments law has definitely fixed the relation of such a signer; for sections 7855, Or. L. (§ 63), and 7856, Or. L. (§ 64), read as follows:

Ҥ 7855. Who Deemed to be an Indorser. A person placing his signature upon an instrument otherwise than as a maker, drawer, or acceptor, is deemed to be an indorser, unless he clearly indicates by appropriate words his intention to be bound in some other capacity.

“7856. Blank Indorsement, Liability Thereon. Where a person, not otherwise a party to an instrument, places thereon his signature in blank before delivery, he is liable as indorser, in accordance with the following rules: (1) If the instrument is payable to the order of a third person, he is liable to the payee and to all subsequent parties; (2) if the instrument is payable to the order of the maker or drawer, or is payable to bearer, he is liable to all parties subsequent to the maker or drawer; (3) if he signs for the accommodation of the payee, he is liable to all parties subsequent to the payee.”

Case and McKinnis did not place their names on the note as makers; nor did they indicate by any words an intention to be bound in any capacity other than as indorsers; and therefore by force of section (63) they are deemed to be indorsers: Noble v. Beeman-Spaulding-Woodward Co., 65 Or. 93, 102 (131 Pac. 1006, 46 L. R. A. (N. S.) 162); and not being otherwise a party to the instrument and having placed on the note their signatures in blank before delivery they are by force of section (64) liable as indorsers in accordance with the rules of that section. The negotiable instruments law has made certain and fixed that which was before uncertain and variable. The language of section (63) is to be taken in its literal sense: Lightner v. Roach, 126 Md. 474 (95 Atl. 62). These two sections of the statute conclusively determine the relation sustained by Case and McKinnis to the instrument: Overland Auto Co. v. Winters (Mo. App.), 180 S. W. 562; First National Bank v. Bickel, 143 Ky. 754 (137 S. W. 790); Nolan v. H. E. Wilcox Co., 137 Tenn. 667 (195 S. W. 581). While it has been said that the true fact may always be shown between the original parties (Nolan v. Brown, — La. —, 93 South. 113), no question arises here as to whether the litigants intended as between themselves to assume the liability of a maker, for there is no evidence to support a finding that they intended to bear the burden of a maker. See, also, Lee v. Boykin, 114 S. C. 480 (103 S. E. 777, 11 A. L. R. 1328). Moreover it is alleged by Case and admitted by McKinnis that they signed as joint indorsers, and so far as the State Bank of Xmbler is concerned, they stood in the position of indorsers and not makers. In brief, the position occupied by Case and McKinnis on the note was that of joint indorsers both as to the holder and also as between themselves. Only a very few eases can be found, probably not more than three, holding directly or indirectly that sections (63) and (64) merely create a disputable presumption so that a holder may by oral evidence show that a seemingly irregular indorser is in truth a joint maker and therefore primarily liable to the holder: See Brannan on The Negotiable Instruments Law (3 ed.), 239, 242; Bennet v. Kistler, 163 N. Y. Supp. 555; McDonald v. Lukenbach, 170 Fed. 434 (95 C. C. A. 604). However, one of the three cases has been overruled, one reversed, and the other criticised and not followed; and so it can now be said that in every jurisdiction where the negotiable instruments law is in effect the statute absolutely and conclusively fixes the status of an irregular or anomalous indorser to be that of an indorser and parol evidence of a different intention is not admissible: Baumeister v. Kuntz, 53 Fla. 340 (42 South. 886); Hopkins v. Commercial Bank, 64 Fla. 310 (60 South. 183); Eaves v. Keeton, 196 Mo. App. 424 (193 S. W. 629); Porter v. Moles, 151 Iowa, 279 (131 N. W. 23); Lyons Lumber Co. v. Stewart, 147 Ky. 653 (145 S. W. 376); Neasho Milling Co. v. Farmers’ Co-op. Warehouse Stock Co., 130 La. 949 (58 South. 825); Long v. Gwin, 202 Ala. 358 (80 South. 440); Lightner v. Roach, 126 Md. 474 (95 Atl. 62); Tucker v. Mueller, 287 Ill. 551 (122 N. E. 847); Ensign v. Fogg, 177 Mich. 317 (143 N. W. 82); Meyers v. Battle, 170 N. C. 168 (86 S. E. 1034); Thompson v. Curry, 79 W. Va. 771 (91 S. E. 801); Muntz v. Schmidt, 213 Ill. App. 641; Farmer’s c§ Merchant’s Bank v. Kingwood National Bank, 85 W. Va. 371 (101 S. E. 734); Cole v. George, 86 W. Va. 346 (103 S. E. 201); Geller, Ward & Hasner Hardware Co. v. Drozda, 203 Mo. App. 91 (217 S. W. 557); Deahy v. Choquet, 28 R. I. 338 (67 Atl. 421, 14 L. R. A. (N. S.) 847); Rockfield v. First National Bank, 77 Ohio St. 311 (83 N. E. 392, 14 L. R. A. (N. S.) 842); Bank of Montpelier v. Montpelier Lumber Co., 16 Idaho, 730 (102 Pac. 685). The note was made payable to the order of Smith and indorsed in blank before delivery; and hence Case and Mc-Kinnis were liable as indorsers and only as indorsers to the State Bank of Irnbler, the subsequent party.

Since the liability of Case and of McKinnis to the State Bank of Irnbler was that of an indorser, the next inquiry is: What is the liability of an indorser to such a holder? The question is answered by Section 7858, Or. L. (§ 66), for it is there declared that:

“Every indorser who indorses without qualification warrants to all subsequent holders in due course * * . And, in addition, he engages that, on due presentment, it shall be * * paid, * * according to its tenor, and that if it be dishonored, and the necessary proceedings on dishonor be duly taken, he will pay the amount thereof to the holder or to any subsequent indorser who may be compelled to pay it.”

This section prescribes the terms of the contract of indorsement, and therefore an indorser agrees to pay the amount of the note to the holder, but this agreement to pay is conditioned (1) on due presentment; and (2) notice of dishonor. The indorser is contingently liable; and the fact of maturity plus the fact of nonpayment by the maker do not produce liability. The contract of indorsement calls for presentment for payment and notice of dishonor and these terms of the contract must, unless waived, be complied with in order to render the indorser liable: Grapes v. Willoughby, 93 Vt. 458 (108 Atl. 421); Tucker v. Mueller, 287 Ill. 551 (122 N. E. 847); Ingals v. Marston, 121 Me. 182 (116 Atl. 216); Williams v. Paintsville National Bank, 143 Ky. 781 (137 S. W. 535, Ann. Cas. 1912D, 350); State National Bank v. Vickery, — Tex. —, 206 S. W. 841; Hastings v. Gump, 89 W. Va. 111 (108 S. E. 600). The steps necessary to bind an indorser are presentment for payment, refusal to pay, and notice of dishonor. The contingent liability does not become a consummated liability unless these steps are taken or unless they are waived; and therefore by force of sections (63), (64) and (66) a person who signs in blank before delivery for the accommodation of the maker is now an indorser and is liable to the payee and subsequent parties only after notice of presentment and notice of dishonor: Canada v. Shuttes (Mo. App.), 235 S. W. 624; Peck v. Easton, 74 Conn. 456 (51 Atl. 134); Baumeister v. Kuntz, 53 Fla. 340 (42 South. 886); Thorpe v. White, 188 Mass. 333 (74 N. E. 592); Toole v. Crafts, 193 Mass. 110 (78 N. E. 775, 118 Am. St. Rep. 455); Gibbs v. Guaraglia, 75 N. J. L. 168 (67 Atl. 81); Far Rockaway Bank v. Norton, 186 N. Y. 484 (79 N. E. 709); Perry Co. v. Taylor Bros., 148 N. C. 362 (62 S. E. 423); Farquahar v. Higham, 16 N. D. 106 (112 N. W. 557); McLean v. Bryer, 24 R. I. 599 (54 Atl. 373); Grapes v. Willoughby, 93 Vt. 458 (108 Atl. 421); Ingalls v. Marston, 121 Me. 182 (116 Atl. 216).

Presentment is the first essential step. Presentment for payment is not necessary in order to charge the person primarily liable on the instrument, but section 7862, Or. L. (§ 70) declares that:

“Except as herein otherwise provided, presentment for payment is necessary in order to charge the drawer and indorsers.”

Overland Auto Co. v. Winters (Mo. App.), 180 S. W. 561; First National Bank v. Sandmeyer, 164 Ill. App. 98; Long v. Todd, 207 Mo. 496 (226 S. W. 262); Perry Co. v. Taylor Bros., 148 N. C. 362 (62 S. E. 423); Willard State Bank v. Clark, 111 Kan. 439 (208 Pac. 549). “Where the instrument is not payable on demand, presentment must be made on the day it falls due.” Section 7863, Or. L. (§71). “The instrument must be exhibited”: Section 7866, Or. L. (§ 74); and presentment must be made to the person primarily liable and at the place specified in the instrument: Sections 7864, Or. L. (§72), and 7865 (§ 73). Instruments like the Smith note, when falling due on Saturday are to be presented for payment on the next succeeding business day: Section 7877, Or. L. (§ 85).

If the instrument is not paid notice of dishonor is the second essential step. Section 7881, Or. L. (§89) reads thus:

“Except as herein otherwise provided, when a negotiable instrument has been dishonored by * * non-payment, notice of dishonor must be given to * * each indorser, and any # * indorser to whom such notice is not given is discharged.”

The notice may be oral or written and may be given personally or through the mails: Section 7888, Or. L. (§96); but, although notice may be given as soon as the instrument is dishonored, it must, if the person giving and the person to receive notice reside in the same place, he given on the following’ day, or, if sent by mail, be deposited in the postoffice in time to reach the indorser in the nsnal course on the day following’; but if the parties reside in different places the notice must if sent by mail be deposited in time to go by mail the day following’ the day of dishonor, or if there be no mail at a convenient hour on that day, by the next mail thereafter, or if given otherwise than through the' postoffice then within the time that notice would have been received in due course of mail if it had been deposited in the postoffice within the time specified for giving notice by mail: Sections 7894, Or. L. (§102), 7895, Or. L. (§ 103), 7896, Or. L. (§104). Subject to excuse for delay and to the exceptions specified in the act and to waiver, an indorser does not become liable to the holder unless presentment for payment is made and notice of dishonor is given at the time and place specified in the statute; and therefore notice to the maker before maturity reminding him of the date when the note is to .fall due is not such a presentment for payment as will furnish a basis for the indorser’s liability: Willard State Bank v. Clark, 111 Kan. 439 (208 Pac. 549). Nor is the sending of notice before maturity to all parties to the note such notice of dishonor as is required by the statute: Mechanics’ etc. Bank v. Katterjohn, 137 Ky. 427 (125 S. W. 1071, Ann. Cas. 1912A, 439).

The negotiable instruments law- excuses delay in making presentment or in giving notice of dishonor when, caused by circumstances beyond the control of the holder.: Section 7873, Or. L. (§81), section 7905, Or. L. (§ 113). Presentment may be waived, and the waiver may be express or implied: Section 7874, Or. L. (§82); In re Swift, 106 Fed. 65; Bank of Montpelier v. Montpelier Lumber Co., 16 Idaho, 730 (102 Pac. 685, 33 L. R. A. (N. S.) 868); Helfrich v. Snyder, 269 Pa. 527 (112 Atl. 749). Notice of dishonor may also be expressly or impliedly waived, and the waiver may be either before the time of giving notice has arrived or after the omission to give dne notice: Section 7901, Or. L. (§ 109).

Section (70) commands that presentment is necessary “except as herein otherwise provided”; and Section 7872, Or. L. (§ 80) provides that:

“Presentment for payment is not required in order to charg’e an indorser, where the instrument was made or accepted for his accommodation, and he has no reason to expect that the instrument will be paid if presented.”

Section (89) commands that:

“Except as herein otherwise provided” notice of dishonor must be given to the indorser; and Section 7907, Or. L. (§ 115) provides that:

“Notice of dishonor is not required to be given to an indorser in either of the following eases: * * (3) Where the instrument was made or accepted for his accommodation.”

The holder in order to recover from an indorser must by a proper pleading allege and by sufficient evidence prove that he presented the instrument for payment and gave notice of dishonor at the time and place-prescribed by the statute; or if delayed he must allege and prove sufficient excuse for the delay; or if presentment is not made or notice is not given because of a waiver, the holder ought to allege and prove such waiver: Robinson v. Holmes, 57 Or. 5, 7 (109 Pac. 754); First National Bank v. Bach, 98 Or. 332, 339 (193 Pac. 1041); Galbraith v. Shepard, 43 Wash. 698 (86 Pac. 1113); Hastings v. Gump, 89 W. Va. 111 (108 S. E. 600).

The record in the instant case discloses that dne presentment was not made to the maker; that notice of dishonor was not given to Case; that notice of dishonor was not given to McKinnis at the required time; that the delay in not giving notice to McKinnis until the spring of 1920 cannot he excused; and, consequently, if liability to the holder was ever fastened upon Case and McKinnis, or upon either of them, it was only because of waiver or because they were accommodated rather than accommodation indorsers.

It is not necessary to comment upon whether Case by his conduct waived presentment and notice nor to discuss the rules applicable for determining when waiver is effected, but it is sufficient to direct attention to the following precedents and to state that throughout the discussion we shall assume without deciding that as between the State Bank of Imbler and Case the record contains enough evidence to support a finding of waiver: Mechanics’ etc. Bank v. Katterjohn, 137 Ky. 427 (125 S. W. 1071, Ann. Cas. 1912A, 439); Bank of Montpelier v. Montpelier Lumber Co., 16 Idaho, 730 (102 Pac. 685, 33 L. R. A. (N. S.) 868); Thompson v. Curry, 79 W. Va. 771 (91 S. E. 801); Helfrich v. Snyder, 269 Pa. 527 (112 Atl. 749); Whitney v. Chadsey, 216 Mich. 604 (185 N. W. 826). However, there is nothing from which it can be argued that McKinnis waived presentment or notice, except the fact that he was a stockholder and possibly a director at the time the note matured and knew that the corporation maker was unable to pay; but these facts do not of themselves effect a waiver, and therefore McKinnis’ contingent liability as an indorser was never developed into a complete liability to the bank, unless he was an accommodated indorser: Grandison v. Robertson, 231 Fed. 785 (145 C. C. A. 605); McDonald v. Luckenbach, 170 Fed. 434 (95 C. C. A. 604), overruling Luckenbach v. McDonald, 164 Fed. 296. As was ruled in Nolan v. H. E. Wilcox Motor Co., 137 Tenn. 667, 677 (195 S. W. 581), insolvency of the maker known to the holder and to the indorser does not excuse demand and notice even though the indorser is one of the principal stockholders and president of the corporation maker and even though the indorser indorsed the note of the insolvent for the purpose of giving it credit, for “no such exception is made in the negotiable instruments law.” See, also: Haynes Automobile Co. v. Shepherd, 220 Mich. 231 (189 N. W. 841).

The record makes it plain that neither Case nor McKinnis could have had any reason to expect payment by the maker upon presentment, and if the note was made for their accommodation Section 7872, Or. L (§80) dispensed with presentment; and by force of Section 7907, Or. L. (§115) “notice of dishonor is not required to be given to an indorser * * (3) where the instrument was made or accepted for his accommodation.” The statute advises us who is an accommodation party, and it prescribes his liability. Section 7821, Or. L. (§29) is as follows:

“An accommodation party is one who has signed the instrument .as * * indorser, without receiving value therefor, and for the purpose of lending his name to some other person. Such a person is liable on the instrument to a holder for value, notwithstanding such holder at the time of taking the instrument knew him to be an accommodation party.”

It will be observed that the language is “the instrument * * without receiving value therefor.” Morris County Brick Co. v. Austin, 79 N. J. L. 273 (75 Atl. 550); Brannan’s The Negotiable Instruments Law (3 eel), 115.

Where the officers or stockholders of a corporation acting as individuals indorse its note before delivery and all the proceeds are received by the corporation the note is not made for the accommodation of the individuals even though they happen to be officers or stockholders: First National Bank v. Bickel, 143 Ky. 754 (137 S. W. 790); Nolan v. H. E. Wilcox Motor Co., 137 Tenn. 667, 677 (195 S. W. 581), overruling Mercantile Bank v. Busby, 120 Tenn. 652 (113 S. W. 390); McDonald v. Luckenbach, 170 Fed. 434 (95 C. C. A. 604); Mechanic v. Elgie Iron Works, 98 Misc. Rep. 620, 163 N. Y. Supp. 97; Murray v. Third National Bank, 234 Fed. 481 (148 C. C. A. 247); Bennet v. Kistler, 163 N. Y. Supp. 555; Crane v. Downs, 108 Kan. 599 (196 Pac. 600); Frazee v. Phoenix National Bank, 161 Ky. 175 (170 S. W. 532); Grandinson v. Robertson, 231 Fed. 785 (145 C. C. A. 605). See, also: Overland Auto Co. v. Winters, 277 Mo. 425 (210 S. W. 1), (Mo. App.), 180 S. W. 561); Geller, Ward & Hasner Hardware Co. v. Drozda, 203 Mo. App. 91 (217 S. W. 557); First National Bank v. Bach, 98 Or. 332 (193 Pac. 1041).

It is a question of fact whether an indorser is personally accommodated; and, although the fact may be shown by words on the note or otherwise, the circumstances that he is a stockholder or officer of the corporation maker does not create a presumption that the note indorsed by him was for his. accommodation: Tucker v. Mueller, 287 Ill. 551. The corporation is an entity and in any transaction like the one involved here it is as distinct from its officers and stockholders as it is from third persons with whom it transacts business, and, consequently officers and stockholders who as irreguluar indorsers lend to the corporation maker the credit of their individual names are entitled to the same right of presentment and notice as attaches to any other indorser. The mere fact that the indorser may be indirectly benefited or interested because he is a stockholder does not make him an accommodated party. If the proceeds are received by the corporation maker, the debt is the debt of the corporation and not primarily the debt of the stockholder indorser. In the instant case the corporation received all the money loaned, by Smith; and the stockholder indorsers never received any of it. The value received for the instrument was received by the corporation. The sole purpose of the indorsers was to lend the credit of their names and they did nothing' to indicate any other purpose. Case and McKinnis occupied the status of accommodation indorsers and therefore were entitled to all the rights of indorsers: McDonald v. Luckenbach, 170 Fed. 434 (95 C. C. A. 604); Hauser v. Fayssoux, 168 N. C. 1 (83 S. E. 692, Ann. Cas. 1917B, 835); Crane v. Downs, 108 Kan. 599 (196 Pac. 600). See, also: Frazee v. Phoenix National Bank, 161 Ky. 175 (170 S. W. 532); Geller, Ward & Hasner Hardware Co. v. Drozda, 203 Mo. App. 91 (217 S. W. 557); First Nat. Bank v. Sandmeyer, 164 Ill. App. 98; Nolan v. Brown (La.), 93 South. 113.

The liability of a joint indorser to the holder may under our statute be joint only, or several only, or joint and several, depending upon the facts. Prior to the negotiable instruments law it was generally held that if two or more persons signed as joint indorsers none could be compelled to pay the holder unless notice was given to all or waived by all; because the contract of indorsement involved only a contingent joint liability wbicli was governed by common law principles applicable to joint contracts. Since one of two indorsers was not, unless a partner or specially authorized, an agent of the other, notice to one did not operate as notice to the other; and therefore if only one received notice all were discharged: Willis v. Green, 5 Hill, 232 (40 Am. Dec. 351); Miser v. Trovinger, 7 Ohio St. 281; Sayre v. Frick, 7 Watts & S. 383 (42 Am. Dec. 249); Boyd v. Orton, 16 Wis. 496; Medlock v. Wood, 4 Ga. App. 368 (61 S. E. 516); United States Bank v. Beirne, 1 Gratt. (Va.) 234 (42 Am. Dec. 551); Gantt v. Jones, 9 Fed. Cas. No. 5213 (1 Cranch C. C. 210); Shepard v. Hawley, 1 Conn. 367 (6 Am. Dec. 244); Bowie v. Hume, 13 App. Cas. D. C. 286; Ryhiner v. Flickert, 92 Ill. 365 (34 Am. Rep. 130); State Bank v. Slaughter, 7 Blackf. (Ind.) 133; People’s Bank of Baltimore v. Keech, 26 Md. 521 (90 Am. Dec. 118); Dabney v. Stidger, 12 Miss. 749; Northrup v. Chambers, 90 Mo. App. 61; Cayuga v. Warden, 6 N. Y. 19; 8 C. J. 644.

Usually parol evidence was receivable to show thgrt indorsers signed jointly regardless of the order in which their names appeared, and the result sometimes was that the holder, relying on the appearance of the paper and being ignorant of the real facts, gave notice only to the seemingly last and successively liable indorser and by so doing lost all right of recovery upon proof being made that the indorser so notified signed jointly with one or more 'other indorsers: Williams v. Paintsville National Bank, 143 Ky. 781 (137 S. W. 535, Ann. Cas. 1912D, 350); 8 C. J. 644. The negotiable instruments law in a large measure remedied this situation by Section 7860, Or. L. (§ 68) which reads as follows:

“§ 7860. Order of Indorsers’ Liability. As respects one another, indorsers are liable prima facie in the order in which they indorse, but evidence is admissible 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.”

It will be observed that the language of Section (68) as written in this state is “joint payees or joint indorsees,” and not “joint payees or joint indorsers.” In Alaska and in eight of the states of the Union the language employed in Section (68) is “joint payees or joint indorsers.” Session Laws of Alaska, 1913, Oh. 64, Section 68; Statutes and Amendments to the Codes of California, 1917, p. 1543, See. 3149; Extra Session 1916, Sec. 3149; Revised Code of Delaware (1915), See. 2712; 2 West Virginia Code (C. E. Hogg, 1913), Sec. 4239; The Compiled Statutes of Nebraska (1922), Sec. 4679; Vol. 1, Pell’s Revisal of 1908, North Carolina, Sec. 2217; Ohio General Code, Annotated (Throckmorton), Sec. 8173; Vol. 1, Revised Laws of Oklahoma (1910), Sec. 4118; Compiled Laws of Utah (1917), Sec. 4102. In Illinois the language is, “all parties jointly liable on a negotiable instrument are deemed to be jointly and severally liable.” Vol. 4, Illinois Statutes Annotated, Sec. 7707. However, in all the other states of the Union, as well as in the District of Columbia, Hawaii and the Philippines, Section (68) of the negotiable instruments law is worded exactly the same as it is in Oregon. In this connection it„ is appropriate to observe that in Williams v. Paintsville National Bank, 143 Ky. 781 (137 S. W. 535, Ann. Cas. 1912D, 350), the court quotes Section (68) as reading thus:

“Joint payees or joint indorsers who indorsed are deemed to indorse jointly and severally”;

and based on the assumption that the statute is correctly quoted it is subsequently stated in the opinion, “by our statute all parties jointly liable may be sued severally or jointly.” However, the Kentucky statute is in reality the same as that of Oregon. The negotiable instruments law as originally adopted is found in acts of 1904, page 228, Ch. 102; and Section (68) as there printed, reads:

“Joint payees or joint indorsees who indorse are deemed to indorse jointly and severally.”

Section (68) appears as Section 1937 in Statutes of Kentucky (Eussell 1909), and there the word “indorsers” is found instead of the word “indorsees.” Apparently the quotation appearing in Williams v. Paintsville National Bank was taken from the Code of 1909 and manifestly the compilation of 1909 was incorrect because the word is “indorsees” not only in the act of 1904 but also in the last printed Code, Volume 2, Kentucky Statutes (Carroll 1915), Ch. 90b, § 3720b, Sec. 68. If Case and McKinnis were joint payees or joint indorsees who had indorsed they would be deemed to have indorsed jointly and severally; but before the contingent secondary liability, whether joint or several, could be converted into an absolute joint or several liability notice of dishonor would have to be given. The secondary several liability of a joint indorser coming within Section (68) becomes absolute when he receives notice of dishonor, but the contingent joint liability of the joint indorsers does not become absolute unless notice of dishonor is given to all or waived by all, for Section 7892, Or. L. (§100) provides:

“§ 7892. Notice to Each of Joint Parties. .Notice to joint parties who are not partners must be given to each of them, unless one of them has authority to receive such notice for the others.”

If only one of two or more joint indorsers embraced by Section (68) is notified the contingent joint liability to the holder is dissolved, although the contingent several liability of the indorser notified is transformed into an absolute several liability to the holder. Notice when given only to one joint payee or joint indorsee who indorses binds him but discharges the other joint indorsers from any liability to the holder: Jarnagin v. Stratton, 95 Tenn. 619 (32 S. W. 625, 30 L. R. A. 495); Williams v. Paintsville National Bank, 143 Ky. 781 (137 S. W. 535, Ann. Cas. 1912D, 350); Eaves v. Keeton, 196 Mo. App. 424 (193 S. W. 629); Doherty v. First National Bank, 170 Ky. 810 (186 S. W. 937). Any joint indorser who comes within Section (68) aud waives presentment and notice, renders himself severally liable; but he cannot waive the right of the other joint indorsers and make them either severally or jointly liable to the holder: Deahy v. Choquet, 28 R. I. 338 (67 Atl. 421, 14 L. R. A. (N. S.) 847).

Case and McKinnis did not assume a contingent joint and several liability. They were joint indorsers it is true; but they were not joint indorsees who indorsed, and therefore they assumed no liability except a secondary joint liability, and the failure to give notice of dishonor to McKinnis operated as a discharge of both Case and McKinnis, even though it be assumed that Case waived presentment and notice. If Case and McKinnis were joint payees who indorsed, or if they were joint indorsees who indorsed, then they would by force of Section (68) be deemed to have indorsed jointly and severally with the result that the holder could, by taking the proper steps, have held either or both of them. If our statute employed the word “indorsers” instead of the word “indorsees” as do eight of the states, then the holder could, by taking the necessary steps, have held Case and McKinnis or either of them, but the language of Section (68) does not include Case or Mc-Kinnis because they were neither payees nor indorsees. Case and McKinnis were joint indorsers with a contingent joint liability. Neither of them was severally liable to the holder. The contingent joint liability never became an absolute liability; and, since the holder failed to transform the contingent joint liability into an absolute joint liability, both Case and McKinnis were discharged from all liability to the holder, and payment by Case to the bank was not the payment of a legal liability. Hence, Case cannot recover from McKinnis unless he can show that the latter expressly or impliedly waived presentment and notice and thus, together with a waiver by .Case, created a joint legal liability which the bank could have enforced.

Although Case and McKinnis wrote their names on the back of the Smith note as joint indorsers with only a contingent joint liability, we shall nevertheless assume for the purposes of further discussion that by their indorsement they “are deemed to indorse jointly and severally.” The oral arguments and briefs have proceeded upon the assumption that Case and McKinnis as joint indorsers incurred a contingent joint and several liability. The contention of the plaintiff goes on the theory that he and the defendant by signing as joint indorsers made themselves as between themselves sureties; that when he paid the bank he paid a legal liability; and that under the doctrine of contribution he is entitled to call upon his cosurety, the defendant, to contribute his share, or one half, even though the holder could not have compelled McKinnis to pay. A consideration of the rules regulating the rights and duties of indorsers as between and among themselves and an examination of the doctrine of contribution will aid the investigation of this contention made by the plaintiff.

If indorsers occupy the position of prior and subsequent indorsers with a successive liability and the holder takes the necessary steps to bind the last indorser, then obviously that indorser can in turn bind an indorser antecedent to him even though the holder did nothing to bind such antecedent indorser, for Section 7899, Or. L. (§ 107) provides.:

“§ 7899. Time of Notice by Party to Antecedent Party. Where a party receives notice of dishonor, he has, after the receipt of such {notice, the same time for giving notice to antecedent parties that the holder has after the dishonor.”

Antecedent indorsers successively liable, whether regular or irregular and whether business or accommodation indorsers, may by notice be made liable in solido to a subsequent indorser who pays the note after presentment and notice: Porter v. Huie, 94 Ark. 333 (126 S. W. 1069, 28 L. R. A. (N. S.) 1039). If, however, neither the holder nor the subsequent indorser takes the necessary steps to bind such antecedent indorser, then manifestly the latter, if his liability is successive, is discharged from all liability on the note, and neither the holder nor the subsequent indorser can recover from him.

By force of Section (68) indorsers are prima facie liable in the order in which they indorse; but evidence is admissible 'to show that they have agreed otherwise. They may as to the holder stand in the relation of prior and subsequent indorsers with a successive liability, but by force of an agreement be liable among themselves equally or otherwise; or they may as to the holder stand in the position of joint indorsers but among themselves by agreement make only one or a part of them ultimately liable. It was held in Williams v. Paintsville National Bank, 143 Ky. 781 (137 S. W. 535, Ann. Cas. 1912D, 350), that antecedent parties within the meaning of Section (107) are those antecedent in liability, and to whom the person giving the notice has a right to look for reimbursement; that the section is not confined to those who are antecedently liable for the whole of the debt, but that it applies to all who are antecedent as to any part of it. The doctrine of this case is approved in Eaves v. Keeton, 196 Mo. App. 424 (193 S. W. 629), and is cited as authoritative in Brannan’s Negotiable Instruments Law (3 ed.), 299, and in Crawford’s Negotiable Instruments Law, 181. Under this ruling any joint indorser governed by Section (68) if alone made liable to the holder can protect himself by giving notice of dishonor to other joint indorsers who are liable to or with him, just as he can protect himself by giving notice of dishonor to a prior indorser when the liability of the indorsers among themselves is in solido and successive; and, furthermore, under this ruling notice by the holder to only one indorser discharges the other indorsers from any liability to the holder, and' the indorser so notified by failing to give notice of dishonor to the other joint indorsers discharges all of them, so that the other joint indorsers are themselves discharged from all liability on the contract of indorsement not only as to the holder but also as to the one indorser.

The plaintiff relies upon the doctrine of contribution. This doctrine is founded upon principles of equity and natural justice and in reality is not based upon contract. It had its origin in courts of equity. Equality was deemed to be equity; and so when one was compelled to pay the whole of a debt which two or more owed either jointly or severally or jointly and severally equity equalized the burden by compelling the other obligors to pay their respective shares and thus divide the burden. While the doctrine of contribution originated in courts of equity it was subsequently adopted by courts of law and is now universally applied in such courts. In order to make the doctrine consistent with the forms, theories and practices of courts of law it was said that the law implied a contract by one obligor to contribute to another co-obligor who had been compelled to pay the whole obligation. When resolved to its final analysis the injection of this notion of implied contract is only resorting to a fiction for in reality all the essential elements of a contract are not present.

To entitle one co-obligor to contribution from the other co-obligors the payment made by him must have been compulsory; and this means that he must have been under legal obligation to pay: 13 C. J. 821; 6 R. C. L. 1035; Van Winkle v. Johnson, 11 Or. 469 (5 Pac. 922, 50 Am. Rep. 495); Durbin v. Kuney, 19 Or. 71 (23 Pac. 661). Case did not plead any facts from which the court could induce the legal conclusion that an enforcible legal oblgation existed against him. The complaint merely stated that Case was compelled to pay. Case ought to have pleaded whatever facts he relied upon to show the existence of an enforceable obligation.

Waiver may be (1) before the time for presentment and notice, or (2) after such time. If Case waived notice and presentment and his waiver occurred after the time prescribed by the statute, then it occurred after the discharge of both Case and Mc-Kinnis from liability to the holder. If Case and McKinnis were joint indorsers with only a contingent joint liability to the holder, and they were, then the failure of the holder to give notice to McKinnis discharged both Case and McKinnis, even though Case waived presentment and notice and subsequently paid the bank; and when Case paid the note he did not pay an enforceable legal obligation and consequently cannot have contribution from McKinnis: Willis v. Green, 5 Hill (N. Y.), 232 (40 Am. Dec. 351); Medlock v. Wood, 4 Ga. App. 368 (61 S. E. 516). If it be assumed that Case and McKinnis as joint indorsers subjected themselves to a contingent joint and several liability and that they were both discharged by the omission of presentment and notice and that after such discharge Case waived such omission and paid the note, he nevertheless cannot call upon McKinnis to contribute, even though Case by his own acts revived his own personal liability: Shepard v. Hawley, 1 Conn. 367 (6 Am. Dec. 244); Bowie v. Hume, 13 App. Cas. (D. C.) 286; Bennet v. Kistler, 163 N. Y. Supp. 555; Higgins v. Morrison, 4 Dana (Ky.), 100; Gantt v. Jones, 1 Cranch C. C. 210 (Fed. Cas. No. 5213). If both were discharged by failure to make demand and give notice, one cannot subsequently waive and pay and by such waiver and payment render tlie other liable to contribute. The germ of liability dies with the discharge of both indorsers, and although one indorser may revive it as to himself he cannot resuscitate it as to the other indorser.

If it be assumed that Case and McKinnis were joint indorsers with a contingent joint and several liability, and that Case waived presentment and notice before the time for presentment and notice arrived and thus prevented his own discharge and rendered himself directly and absolutely liable to the holder when at maturity the maker failed to pay, we have a situation where one joint indorser is under a several liability to the holder, while McKinnis the other joint indorser is completely discharged from both a joint and several liability to the holder. Is the right of contribution lost to a paying coindorser unless the other of two coindorsers receives notice of -dis-donor? In a note following the opinion in Owens v. Greenlee, 9 A. L. R. 1188, the editor correctly states

“There is very little authority upon the necessity or protest and notice as between coindorsers of negotiable paper.”

Owens v. Greenlee, 68 Colo. 114 (188 Pac. 721, 9 A. L. R. 1184), is a notable example of the very few precedents which hold that notice is not necessary. There are a few other adjudications which directly or indirectly support the view expressed in' Owens v. Greenlee. Sloan v. Gibbes, 56 S. C. 480 (35 S. E. 408, 76 Am. St. Rep. 559), is relied upon to support the contention of plaintiff; but in that case the court found as a fact that the parties agreed when they indorsed the note to become liable to each other as cosureties in the event of payment by either, and the court held that notice is not necessary if the parties made a special agreement for contribution as a surety. The case of Kerr’s Estate, 17 Pa. Co. Ct. 193 (4 Pa. Dist.’ R. 696), is materially weakened by a strong and well-reasoned dissenting opinion.

There are a few adjudicated eases which at first blush might seem to fall in a class with Owens v. Greenlee, but upon analysis it will be found that they were based upon an agreement made at the time of indorsement dispensing with notice; as, for example, Barclay v. Weaver, 19 Pa. St. 396 (57 Am. Dec. 661), where the holder was permitted to prove that at the time of indorsement it was agreed by the maker, indorser, and holder that payment need not be demanded: Marquardt’s Estate, 251 Pa. St. 73 (95 Atl. 917), where, following Barclay v. Weaver, supra, it was held that—

“A party may prove by oral testimony that at the time of the indorsement of a promissory note, it was agreed that the indorser would be absolutely bound for the payment of it without the usual demand and notice”;

Friedman v. Maltinsky, 260 Pa. St. 312 (103 Atl. 731), where it not only appeared that the jury found that the defendant received notice mailed to him, but it also appeared that the parties at the time of indorsement entered into a written agreement to the effect that among themselves each would pay one sixth of whatever loss might result from the indorsement.

The case of Bennet v. Kistler, 163 N. Y. Supp. 555, is a notable example of the few cases- dealing with the subject, and it is authority for the rule that one of two or more

“indorsers of a note cannot have contribution from the others as cosureties for their proportional share of the amount paid by him on the note, without showing presentment and notice, since he cannot by paying the note, deprive the cosureties of their right to presentment and notice.”

In that precedent Kistler, Douglas and Bennet, who were officers of the corporation maker, indorsed before delivery and for the accommodation of the maker. Bennet paid the two notes and sought contribution from Kistler and Douglas. In the course of the opinion the court said:

“There is no .provision of law that authorizes, as respects cosuretyship indorsers, the omission to make presentment and give notice. The cosuretyship is a matter of agreement between or among the indorsers, which in no way affects the rights or duties of the holder of the note. Nor can one surety by paying the note deprive the other indorsing sureties of their right to presentment and notice of dishonor. Indorsers are relieved from liability, whether as ordinary indorsers or as cosureties, by the omission to make presentment and to give notice of dishonor, unless such requirements are excused.”

In Higgins v. Morrison, 4 Dana (Ky.), 100, an action by one indorser against his coindorser for contribution, it was assumed that there must be .notice of protest to a coindorser. In Bowie v. Hume, 13 App. Cas. D. C. 286, the court said:

“The notice of dishonor to each indorser was required in order to preserve the right of contribution as between them. Demand, protest and notice, however, may be waived, but to make such waiver effectual it must have been by all the indorsers interested in the question of contribution inter sese.”

In the note appended to Owens v. Greenlee, 9 A. L. R. 1189, the editor concludes thus:

“It is there (Williams v. Paintsville National Bank, 143 Ky. 781 (137 S. W. 535, Ann. Cas. 1912D, 350) held that, under that act (Negotiable Instruments Act), a joint indorser to whom alone notice of dishonor is given is not discharged by failure to give notice to the other indorsers, and the court says that if he would hold his coindorsers, he must give notice to them. The Kentucky case is approved and followed in Eaves v. Keeton, 196 Mo. App. 424 (193 S. W. 629), where the court, although not mentioning the right of contribution as between the coindorsers, says, in a case involving joint indorsers, that any indorser to whom notice of dishonor is not given by the holder is discharged so far as such holder is concerned, but the party who is notified is thereby made liable to the holder, ‘and is given the right to protect himself by giving notice to those parties to the note from whom, on his paying the instrument he is entitled to reimbursement.’ The theory of these cases, that an indorser who has received notice of dishonor must notify his coindorser, who is not given notice by the holder of the instrument, if he would preserve his right of contribution, is contrary to the holding in the reported ease (Owens v. Greenlee).”

The facts in Hunter v. Harris, 63 Or. 505 (127 Pac. 786), readily distinguish that precedent from the instant case. Hunter told Hulse, the accommodated maker, that he, Hunter,, would sign the note if Harris would; and Harris agreed to sign if Hunter would. Hunter signed as a maker; he was an accommodation maker. Hulse then took the note to Harris for his signature, and, instead of signing his name on the face of the note, Harris signed on the back, because there was “no place on the face to sign it.” Hunter and Harris agreed that as between themselves they would be makers. See Lumbermen’s National Bank v. Campbell, 61 Or. 123, 127 (121 Pac. 427); Long v. Gwin, 202 Ala. 358 (80 South. 440). Moreover, the liability of Hunter to the holder was primary and absolute, and not secondary and contingent; and, although Harris stood in the position of an indorser as between himself and the holder, he stood in the position of a maker as between himself and Hunter, and the latter was in very truth a maker and as such was liable to the holder even though presentment and notice were omitted. Case and McKinnis signed as indorsers not only as to the holder but also as to the immediate parties. As between themselves and the holder, Case and McKinnis were conclusively presumed to occupy the position of indorsers; and as between themselves Case and McKinnis in very truth occupied the position of indorsers so far as their position on- the note was concerned. They signed jointly, and each put his name down for his part, it is true, but it is also true that each put his name down for his part as an indorser and not as a maker or a guarantor. The question now to be answered is: Which is the better rule, the one which denies the necessity of notice, or the one which requires notice to the coindorser? The basis upon which is rested the rule dispensing with the necessity of notice is well expressed in Owens v. Greenlee as follows:

“There is no merit in this (the claim that an indorser is entitled to notice), because this action is not brought upon the drafts themselves, but is strictly a suit in equity, for reimbursement to plaintiff for his payment of the joint liability.”

It must of course be conceded that the action for contribution is not brought upon the negotiable instrument. However, it cannot be denied that any right of contribution ^must spring out of some obligation which was created by force of the contract of indorsement. It will be difficult successfully to contend that the action is one for reimbursement for the payment of a joint liability, if the defendant coindorser was never legally liable to the holder. If both Case and McKinnis were legally liable to the bank at the time of the payment by Case, then of course Case could have contribution from McKinnis, because every essential element of the doctrine of contribution would be present, including the element of common liability. If both Case and McKinnis had been liable to the bank at the time of the payment by Case then there would have been a joint liability, and in that event payment by Case would have been payment of a joint liability. But the fact is that a joint liability was never brought into existence; nor, indeed, was a several liability brought into existence in favor of the holder and against McKinnis. In truth McKinnis was entirely discharged from all liability whatsoever on the note, and consequently when Case paid the bank he paid that for which Mc-Kinnis was not liable to the bank at all. The doctrine of contribution cannot be made applicable without doing violence to the rights which inured to McKinnis when he entered into the contract of indorsement. There is a vast difference between the position occupied by sureties on a bond, for example, where liability accrues upon the default of the principal, and the position occupied by indorsers on a note where liability does not accrue upon the default of the maker and cannot accrue until presentment is made or notice is given or waived. While there are some analogies between indorsers and sureties, “there are” as said in Stephens v. Monongahela National Bank, 88 Pa. St. 157, 163 (32 Am. Rep. 438):

“some distinctions important to observe lest a principle, exclusively applicable to one, be perverted. Por instance, without due demand and notice, at the maturity of a note, an indorser will be discharged— a surety continues liable upon his contract, though the creditor sleeps.”

To hold that a coindorser can waive presentment and notice, pay, and then have contribution from another coindorser, is to hold that one can deprive the other of substantial rights belonging to him.

The rule which requires notice is the better rule when applied in the light of the construction placed upon section (107) of the negotiable instruments law by Williams v. Paintsville National Bank, 143 Ky. 781 (137 S. W. 535, Ann. Cas. 1912D, 350). Under this rule indorsers who by agreement have fixed the order or amount of their liability as between and among themselves may by giving notice preserve their own rights without in the slightest impairing any of the rights of the other indorsers. It must be remembered that we are dealing with negotiable instruments and that in a large measure they take the place of money in the commercial world; and for that reason their integrity must, whenever possible, be preserved. Suppose that A makes a note payable to the order of B; the note is by B indorsed to C and by the latter transferred to D; the note is then sold by D to joint indorsees 1, 2 and '3, who, being in need of funds, indorse in blank and sell the note to a bank. Before the maturity of the note, indorser 3 without the knowledge or consent of any of the other indorsers waives presentment and notice, and, after the expiration of the time for making presentment and giving notice and without' the knowledge of the other indorsers, pays the note. The maker is insolvent; indorsers B, C and D are each amply able to respond. Indorser 3 was amply able to pay. Indorsers 1 and 2 are persons of small means, and when they indorsed in blank they did so because they knew that if they should be obliged to pay they could compel indorsers B, C and D to reimburse them. Indorsers 1 and 2 lose their right to call upon B, C or D unless notice of dishonor is given. The supposed case is not far-fetched, but is one which may occur frequently under the rule which dispenses with notice and permits one coindorser to waive before maturity, pay, and then compel contribution from a coindorser who, because not having been notified, did not notify prior indorsers and thus lost all right to look to prior indorsers for reimbursement; and the resulting loss to indorsers 1 and 2 cannot be avoided unless the right of contribution accorded to indorser 3 is qualified by the application of equitable principles or by a rule of negligence. But it must be remembered that this is an action at law and not a suit in equity; and it must also be remembered that to charge indorser 3 with negligence is to impose upon him the duty of giving notice, because he could not be guilty of negligence causing loss except by omission to give notice to indorsers 1 and 2 in time for them to prevent loss.

The rule which requires notice preserves to everyindorser every right attaching to an indorser and at the same time enables one coindorser, who after presentment and notice or after presentment and waiver of notice has paid the note, to compel another coindorser to pay his share. The mere fact that indorsers are jointly liable or have agreed between themselves upon the order and amount of liability ought not to be enough to dispense with notice. "When indorsers agree that each will put his name down for his part, meaning an equal share, they do no more than to agree that if each of them is made liable as an indorser then each, as between themselves, will pay an equal share. Each indorser ought to be entitled to insist upon his rights as an indorser, even as between themselves, unless the agreement made between themselves fixing the order and amount of their liability also provides that each shall pay his share, even though not bound by presentment and notice or waiver, if any or part of them is bound and compelled to pay the holder.

The judgment as to the United States National Bank notes is affirmed; but as to the Smith note the judgment is reversed. Although the present record does not disclose a situation rendering Mc-Kinnis liable, and although we are not advised as to whether or not the plaintiff can make out a case against McKinnis on the ground of waiver or otherwise, still it is possible that McKinnis waived presentment and notice; and for that reason the cause so far as it concerns the Smith note is remanded for such further proceedings as may be proper.

Aeeirmed as to the United States National Bank Notes. Reversed and Remanded as to the Smith Note. Costs Retaxed.

Case Details

Case Name: Case v. McKinnis

Court Name: Oregon Supreme Court

Date Published: Feb 27, 1923

Citation: 213 P. 422

Court Abbreviation: Or.