
    Editha H. Corbett et al. v. John C. Fetzer.
    Filed March 3, 1896.
    No. 6164.
    1. Parol Evidence: Negotiable Instbtjjients: Indobsements. The words “without recourse,” following the name of the first, and preceding the name of the second indorser of a hill or note, may he shown by parol evidence to apply to the former instead of the latter.
    2. Negotiable Instruments: Indorsements: Evidence. As against a subsequent dona fide holder, the liability created by the indorsement in blank of a bill or note cannot be varied by parol evidence; but, as between the original parties to such an indorsement, the terms of the contract is a proper subject of inquiry, and may be established by parol evidence. (Holmes ¶. First Flat. Bank of Lincoln, 38 Neb., 326.)
    3. -; -: --. Plaintiffs in error, on the evidence in the record, held, not liable as indorsers.
    Error from tlie district court of Douglas county. Tried below before Irvine, J.
    
      B. G. Burbank, for plaintiffs in error.
    
      J. J. O’Gonnor, contra.
    
   Post, C. J.

This was a proceeding by Fetzer, the defendant in error, in the district court for Douglas county to foreclose fifty-seven different mortgages executed by William B. Cowles and wife to Editha H. Corbett, upon certain property in North Side Addition to the city of Omaha, to secure payment of as many notes of even date therewith, payable by said Cowles to the order of the mortgagee named. It is alleged in the petition that the said Editha H. Corbett, Charles Corbett, Day & Cowles, and R. W. Day, who were made defendants, indorsed said notes and thus became liable thereon. The prayer is for a foreclosure of the mortgages and for personal judgment against Day & Cowles, R. W. Day, and the Corbetts for any balance remaining due on their said indebtedness, after applying thereon the proceeds of the mortgaged property. Of the defendants named the Corbetts (husband and wife) only answered, admitting the allegations of the petition, except as to their personal liability, and charging that the notes above described were indorsed without recourse upon them. The reply is a general denial. The district court, upon the issues joined, found generally for the plaintiff, accompanied by a special finding that the Corbetts were liable as indorsers of said notes, and a decree was entered in accordance therewith, which, has been removed into this court for review.

Practically the only question presented by the motion for a new trial and the petition in error relates to the liability of the Corbetts as indorsers of the notes above described. On the back and near the top of each of said notes appears the following: “E. H. Corbett. Chas. Corbett. Without recourse on us. Day & Cowles. R. W. Day.” Said notes, according to the claim of the Corbetts, had been pledged to Samuel R. Johnson, bearing their indorsement in blank, as collateral security, and shortly before the consummation of the sale thereof to Fetzer the words immediately following their names, as shown above, were added in order to limit their liability thereon. The transaction which resulted in the purchase' of the notes by Fetzer was conducted on the part of the Corbetts by R. W. Day, one of the defendants named, who testified that the indorsements “Day & Cowles” and “R. W. Day” were made during such negotiations at the request of the plaintiff, and that previous to such -indorsement the words “without recourse on us” were written thereon in his presence by C. W. Johnson, a clerk in the office of Mr. Corbett, and in which he is corroborated by both Johnson and Corbett. There are observabie from the record facts which tend strongly to sustain the contention that the words of limitation were intended to apply to the indorsement of the Corbetts rather than to that of Day & Cowles or R. W. Day. They were in the first place written with different ink, apparently at a different time, and certainly in a different hand from that employed in the subsequent indorsements. They were also written by Corbett’s clerk, by his order and direction, pending the negotiations for the sale of the notes and at a time when the question of their liability upon paper of like character would naturally be uppermost in the minds of solvent indorsers, as the Corbetts are shown to have been. Johnson was asked on cross-examination why the words “without recourse” were not written over the names of the indorsers, to which he answered, in substance, that Mrs. Corbett’s name was written so near the upper margin of the note as to leave no room therefor, — an explanation which is shown by the record to be entirely consistent with the facts. Again, the claim that the subsequent parties, instead of the Corbetts, indorsed without qualification finds support in the fact that both R. W. Day and the firm of Day & Cowles were beneficially interested in the sale of the notes, and the further fact that their absolute liability thereon is established by the personal judgment entered against them in this case by default, as also by the admission under oath of Day, who testified in behalf of the defendants. On the part of the plaintiff below, Fetzer, it is shown that when the notes were first exhibited to him by Day, four or five days previous to the close of the transaction, they bore no indorsements aside from the names of the Corbetts, and that when next seen by him they were indorsed as now, except the name of Mr. Day, which was added in his, Fetzer’s, presence at the time they were deliv: ered to him. I-Ie testified also that he purchased the notes described, relying upon the indorsements of the Corbetts, paying therefor seventy-eight per cent of their face value, and that at the same time he purchased other notes executed by Cowles and indorsed by the Corbetts without recourse, at fifty-four per ceut of the amount due thereon. He is also corroborated to some extent by his brother, William Fetzer, and Mr. Martin, who were present during the several interviews with Day. A final analysis of the evidence shows the following facts, as to which there is no substantial controversy: (1.) When the notes were first offered for sale to Fetzer they bore the blank indorsement of the Corbetts. (2.) Afterward, pending negotiations for the sale thereof, Charles Corbett, for the purpose of limiting the liability of himself and wife as indorsers of said notes, caused to be written thereon immediately below their names the words “without recourse on us.” (3.) The names of the said Editha H. Corbett and Chas. Corbett were written so near the margin of said notes and each of them as to leave no room for the words quoted above their names. (4.) R. W. Day, one of the subsequent indorsers, has expressly admitted his liability on said notes, and the absolute liability of the firm of Day & Cowles thereon is established by the decree in this case entered by default. (5.) That said notes, when finally purchased by Fetzer, bore all the indorsements now appearing thereon, except the name of R. W. Day, and were at sáid time indorsed by said Day at his, Fetzer’s, request. (6.) Fetzer purchased said notes, paying therefor ■seventy-eight per cent of their face value, relying upon the indorsement of the Corbetts, who were then solvent.

The remaining questions merely involve the application of the law to the facts, above stated. A case in point is President of Fitchburg Bank v. Greenwood, 84 Mass., 434. Upon the back of the note produced at the trial of that case there appeared in three successive lines the following indorsements: “Greenwood & Nichols — without recourse — Asa Perley, 2d.” Parol evidence was offered by Greenwood & Nichols tending to prove that the words “without recourse” were written hy them for the purpose of limiting their liability as indorsers and rejected in the absence of an •offer to prove notice by the plaintiff, a remote indorsee and alleged bona fide holder. In reversing the judgment of the lower court Bigelow, C. J., said: “There is no rule of law which requires a party to limit or qualify his indorsement by any writing preceding his signature. Such qualification may and often does follow the name of the party. Text-writers of approved authority recognize this mode of limiting the liability of an indorser as regular and appropriate.” The doctrine of- that case is sustained by the following authorities therein cited: Chitty, Bills (10th Am. ed.), 234, 235; Story, Promissory Notes, sec. 138 and! note; and in 2 Randolph, Commercial Paper, sec. 720, we observe it is approved in the following emphatic language: “The words ‘without recourse,’ following the name of an indorser, A,, and preceding the name of indorser B, may be-shown by A to apply to his indorsement, even against a tona fide holder who supposed it to-apply to B’s.” It may be, as intimated, that there existed a purpose, shared by Day and Corbett, to deceive the plaintiff by inducing him to-purchase the notes in the belief that the Corbetts were liable thereon. Such a contention has, however, no foundation either in the pleadings or the-proofs, which show that he, Fetzer, throughout the entire transaction, relied upon his own judgment respecting the , alue of the paper in question; nor is there any force in the objection that the evidence explanatory of the indorsement of the notes by the Corbetts tends to change or vary their written obligation. As bearing upon that question we quote further from the opinion above cited: “It [the evidence offered] had no tendency to vary or control the written contract, or to-change the legal effect of the indorsement. It only proved what the contract really was, at the-time it was entéred into by the defendants. * * * The attempt in this case is not merely to hold the defendants on a contract according tofts meaning and legal effect, but to fasten on them a contract into which they never entered! If the plaintiffs mistook the application of the words which were written for the purpose of qualifying the indorsement of the defendants on the note, this fact furnishes no ground for enlarging or changing their liability on the contract into which they in fact entered.” It will be remembered, too, that this canse presents no question of fraud or estoppel, nor is the action one between the indorser and a Iona fide holder of commercial paper, but between the parties to the contract of indorsement, and, therefore, within the rule recognized in Holmes v. First Nat. Bank of Lincoln, 38 Neb., 326. It was held in the case last cited that, as against a subsequent Iona fide holder, the liability created by the indorsement in blank of a bill or note cannot be varied by parol evidence; but that, as between the original parties thereto, the precise terms of such contract is always a subject of inquiry, and that parol evidence is admissible for that purpose. The conclusion we reach is that the provision of the decree of the district court for a deficiency judgment against Corbett and wife is unsupported by the evidence, for which it should be reversed and the cause dismissed as to the plaintiffs in error.

Reversed.

Irvine, C., not sitting.  