
    Bank v. Bank.
    
      Promissory notes — Duty of bank that holds for collection — How endorsers bound — Notice to — When released — When subsequent promise to pay by discharged endorser, does not bind — Defenses by endorser.
    
    1. 'Where a promissorj’- note, in the hands of an agent’ for collection, is dishonored at maturity by the maker, it is the duty of the agent to take the usual and proper action required to charge the endorsers, and if by reason of his neglect in this respect an endorser is discharged, the agent becomes liable to his principal for the resulting damages.
    
      2. Where a promissory note, successively endorsed by more than one, is dishonored by the maker, the holder thereof may select any one of the endorsers whom he may wish to charge with liability and notify him only; but if he passes by one or more of the later endorsers, and gives notice to an earlier -one, he is not for that reason entitled to any longer time, within which to give the notice, than he would have had to -notify his immediate endorser.
    3. Where an endorser of a promissory note has been discharged by the laches of the holder, a subsequent promise by him to pay the note will not be binding unless shown to have been made with knowledge of the laches.
    4. Where a bank, the holder for collection of a promissory note, by its negligence discharges an endorser, the latter is not estopped to set up his discharge, though the bank had at the time on deposit funds of the makers, which it afterwards paid out on the faith of an extension of time granted to the makers by the endorser, if, at the time the extension is granted, the endorser was ignorant of his discharge, and that the bank had indemnity within its control.
    (Decided April 26, 1892.)
    ERROR, to the Circuit Court of Clinton county.
    The plaintiff in error, on the 3rd day of December, A. D. 1888, filed in the Court of Common Pleas of Clinton county a petition, wherein, after averring the corporate character of the plaintiff and defendant, it sets forth as the grounds for the relief which it sought against the defendant in error: That in the due course of its business it purchased before due, of S. J. Patterson, the payee thereof, a certain promissory note, which was payable at the banking house of the defendant in error; that said S. J. Patterson endorsed the same; that after said purchase and before the note became due, the plaintiff in error forwarded it to the defendant in error for collection; that defendant in error undertook to collect the same, or if not collected, to take such steps as were necessary to fix the liability of the endorser; that the note was not paid when due; that the defendant in error did not protest the same so as to fix the liability of the endorser; that the makers were insolvent, and praying damages for the amount of the note with interest.
    
      The defendant in error answered the petition, denying that the note was purchased by the plaintiff in error in the due course of its business, but on the contrary alleging that the plaintiff in error was merely the agent of' the endorser, S. J. Patterson, for its collection. It also set up as a defense: “That if in fact said plaintiff, in the due course of its business, did purchase from the payee and become, before due, the owner and holder of said note, the said S. J. Patterson as an endorser thereof has not been released and discharged from his liability to the plaintiff as such endorser for the following reasons of fact:
    
      “First. — This defendant duly presented to, and made demand for payment of said note by the makers, Fulton & Peters, of all which said plaintiff and said endorser, S. J. Patterson, had due notice; and on said presentation and demand this defendant made arrangement for the payment of said note, and the same would have been paid but for the reasons hereinafter stated.
    “ Second. — Said S. J. Patterson, after receiving notice that said note had deen duly presented to said makers, Fulton & Peters, and demand of payment duly made by this defendant, assumed to and did extend the time of payment thereof for a-fixed and definite time, to-wit: to October 25, 1887; said endorser, S. 'J. Patterson, thereby waived formal protest and notice by a notary public, all of which said plaintiff then well knew.
    “ Third. — After the assignment of said makers, Fulton & Peters, the said endorser, S. J. Patterson, admitted to this defendant his liability on said note, and made no claim of release by reason of any negligence on the part of this defendant in not formally protesting said note by and through a notary public.
    “This defendant denies that it has been guilty of any negligence whatever, and on the contrary avers that it used due diligence for the collection of said note, and that the same would have been collected but for the reasons herein before stated.”
    The affirmative matters of the answer were denied by the reply.
    
      The cause was tried to the court without the intervention of a jury, and, a judgment rendered for the defendant in error. The evidence, and the rulings of the court in admitting and rejecting evidence, were embodied in a bill of exceptions. The cause was taken to the circuit court by the plaintiff in error where the judgment of the court of common pleas was affirmed; whereupon proceedings were instituted in this court to obtain a reversal of both of said judgments.
    
      Gunckel & Rowe, and Mills & Van Pelt, for plaintiff in error.
    1. The extension was not by the agreement of all parties. Plaintiff (the owner) never consented to, nor authorized, an extension. There was no protest, or notice to it, of the nonpayment. Patterson was released. Defendant seemed to rely wholly on Fulton and Patterson, as the arrangement was made independent of the banks. Defendant took the risk; it could have insisted upon payment. Fulton & Peters would have paid, if it had been demanded. A large balance was then to their account in the bank of defendant. The bank was in a position to protect the plaintiff and itself, and it was bound to perform its duty; but it did neither, and yet the courts below say that defendant should not be held liable. What fault, or wrong, did the plaintiff commit, that it should suffer and pay the penalty ? Why should the defendant, who permitted and did wrong, and failed to perform its duty, be free ? A proper reason or answer would be impossible.
    Again, the time had gone by when the letter of Fulton was written, and no protest was made. Patterson had the right to assume that he had been legally charged and upon that condition wrote his letter agreeing to extend the time to October 25. He did not agree before the paper was due to waive protest, nor did he do anything to induce defendant to dispense with the necessity of it. The bank was not thrown off its guard, for the time had gone by, three or four days before Fulton presented the letter of October 20. The case is not like Boyd v. Bank, 32 Ohio St., 526.
    There was no mutual agreement beforehand for the extension as in the case of McMonigal v. Brown, 45 Ohio St., 499.
    
      Patterson bound himself, by his sale and indorsement (in blank) of this note, to the City National Bank, to pay same if on presentment the maker did not, and due notice of such non-payment should he given him. Farr v. Ricker, 46 Ohio St, 265.
    Again, the holder never gave its consent to an extension— in fact, knew nothing of the action of the other parties nor of the defendant, to whom the holder sent the note for collection, for some time thereafter. The case differs from He-man v. Franch, 2 Cin. Sup. Ct., 561, for the reason that the holder — the owner- — did not consent. Even if there had been legal extension to October 25, the defendant again neglected its duty — it having failed to protest same for non-payment and failed to give notice. Sec 3176, Revised Statutes.
    2. This note was placed in the bank of defendant for collection, and it then became defendant’s duty to take the necessary measures to charge the indorsers upon default. Huff v. Hatch, 2 Dis., 63; Blam v. Bank, 26 A. Rept., 120,121.
    The duty of the defendant, in-this case, was plain. Lawson v. Bank, 1 Ohio St., 206; Bank v. McGwire, 33 Ohio St., 295, 303, 304; Dan’l Neg. Inst., Sec 1039 and note.'
    The letter of Fulton cannot be regarded as a notice to the indorser. Townsend v. Bank\ 2 Ohio St., 345, 360. It only asked for an extension, and the endorser might well regard that he had already been charged and his liability fixed. He never received any other notice of non-payment on October 17, or October 25, (28). If the letter was a proper notice, then it was not within time. But if within time, then there was no presentment and notice of dishonor on October 25 (October 28), the time of the alleged extension.
    In McMonigal v. Brown, 45 Ohio St., 499, 504, 505, the extension was not definite. The decision would have been otherwise if a time certain had been agreed upon, as in Mich- and v. Laogarde, 4 Minn.; 43.
    If Patterson is to be held by his letter of extension, and charged as an endorser, the court must find from the evidence that he was fully advised of all the facts; that he had full knowledge of what had been done; that Fulton & Peters had funds; that the note would have been paid, if insisted upon; and that be bad knowledge of the neglect of the bank, and its failure to protest the note. His consent, under such circumstances, could alone make him liable as an endorser (if again protested for non-payment on October 25). Patterson bad no advices, no information, or knowledge, except the letter of October 19. The authorities are numerous upon this question. See 2 Dan’l Neg. Inst., Sec. 1147, 1149 and note; 2 Dan’l Neg. Inst., Sec. 1157, 1163; Abb. Trial Ev., pp. 434-5; Ross v. Hurd, 71 N. Y., 14; Freeman v. O’Brien, 38 Iowa, 406; Lardy v. Boyd, 26 Gratt (Va.) 631; Lilly v. Petteway, 73 N. C., 358; Wade on Notice, Sec. 974.
    Patterson, under such a state of facts, could not be held as endorser; and if not liable, plaintiff ought to have had a recovery, instead of a judgment against it. Hunter v. Hook, 64 Barb., 469; Bank v. Crittenden, 2 Thompson (N. Y.), 86; Williams v. Bank, 9 Heisk. (Tenn.), 441.
    It was incumbent upon defendent to prove the endorser’s consent with knowledge in order to hold him. There was no such proof, and no intimation that he had any information whatever of the circumstances or facts. Johnson v. Am-gan, 5 Oreg., 485.
    Such promise, without, knowledge, was not obligatory on Patterson. Lilly v. Petteway, 73 N. C., 358.
    Again, plaintiff never made any agreement with the endorser for a waiver. Nor did it consent to an extension. Defendant had no authority to extend payment, and if it acted injuriously to plaintiff, it should pay the penalty. Jac-card v. Anderson, 37 Mo.
    
      Smith & Savage, for defendant in error.
    1. Was formal protest of this paper necessary? We claim that this being an inland bill no formal protest was necessary, and the facts to charge the indorser may be shown by evidence other than a protest. Protest is only necessary upon foreign bills. -Edwards on Bills and Notes, 550, 564; Am. and Eng. Encyc. of Law, vol. 2, p. 405 (note 3); Union Bank v. Plyde, 6 Wheat. (U. S.) 372; Smith v. Curlee, 59 Ill. 221; Ocean Nat. Bank v. Williams, 102 Mass., 141; Bank of U S. v. Leathers, 10 B. Mon. (Ky.) 64.
    
      Though it may be proper, or even .customary, to protest both promissory notes and inland bills it is not necessary, and the cost of protest can only be recovered upon foreign bills. Am. and Eng. Encyc. of Raw, Vol. 2, p. 405, (Note 8); 1 Parsons, N. & B. 646; Johnson v. Bank of Fulton, 29 Ga. 260.
    2. We further maintain that in this case formal demand of payment was not necessary. Woodbridge v. Brigham, 13 Mass., 558; Nichols v. Goldsmith, 7 Wend., 160.
    That, as a matter of fact, there was a proper presentment and demand of payment made, we think the plaintiff in error will hardly deny. The next inquiry then is, did the letter of Eulton to Patterson of date October 19, 1887, sufficiently apprise Patterson in what it “ positively expressed,” or in what it fairly implied, of: 1. The identity of the note. 2. That it had been fully presented (if presentation were necessary) to the maker and dishonored. If it did, then the notice was sufficient and a substantial protest was made. Townsend v. Bank, 2 Ohio St., 360-61.
    3. We maintain as a next proposition: That even if protest in all its rigor were necessary in this case, and that no steps whatever were taken by the defendant bank in that direction, still Patterson is not discharged, but is still liable as indorser, for the reason that protest was waived by Patterson; or if, technically speaking, Patterson could not waive protest he at least clearly consented to his further and continued liability on said note. Protest and notice could have effected no one but Patterson. 2 Daniels on Neg. Inst., Sec. 1090, 1103, 1104, 1105, 1106: Spencer v. Harvey, 17 Wend., 489; Boyd v. Bank of Toledo, .32 Ohio St., 526; 5 Johnson, 249.
    This waiver may be made after the maturity of the note as well as before its maturity. Brandt on Suretyship and Guaranty, Sec. 300; 2 Daniels on Neg. Inst., Secs. 1147, 1148,1150 and notes 1152 and 1153.
    We further maintain that knowledge’of the fact that formal protest had not been made is not essential to be shown a~> against Patterson; it is sufficient if he knew the makers had failed to pay. 2 Daniels on Neg. Inst., Sec. 1108; Yeager 
      v. Farwell, 13 Wallace, 12, per Davis, J.; 2 Daniels’ Neg. Inst., Secs. 1147, 1156,1159.
   BRADBURY, J.

There is no conflict in the evidence relating to any material fact in this case. The petition avers that the plaintiff in error had purchased the note, which is the subject of controversy between the parties hereto, in due course of business before it became due. This, it is true, the answer of the defendant in error denies, but the cashier of the plaintiff in error, G. B. Harman, states directly and unequivocally in his deposition, that his bank purchased the paper of the payee, S. J. Patterson, on August 20, 1888, five days after its date, at a discount of seven per cent.; that the discount amounted to $5.07, all which he says is shown by the books of the bank. Mr. Eichelbérger, book-keeper for Mr. Patterson, is equally explicit. No attempt is made by the cross-examination or otherwise, to cast a suspicion upon, or to discredit these two witnesses, or impeach the correctness of the books of the bank; nor is any evidence adduced that in the slightest degree contradicts their statements. Under these circumstances it cannot be presumed, even to support the judgment rendered, that the court of common pleas found this evidence to be false and totally disregarded it in making up its judgment.

The real contention between the parties was whether Patterson, the endorser of the promissory note, had been discharged from liability to the plaintiff in error by reason of the negligence of the defendant in error. The note had been transmitted to defendent in error for collection and was not paid at maturity. If defendant in error, by its negligence, had discharged the endorser, then it should be held liable for the damages it thereby caused; but if, notwithstanding this alleged negligence, Patterson remained liable, it should be exonerated, for all the duty it owed to the plaintiff in error, in case the note was not paid, was to take such action as would charge the endorser.

When the note matured the defendant in error notified the makers and one of them came to its banking house. A plain and simple duty then confronted the defendant in error; either to require payment of the note, or in default thereof, to take such action, as by the law merchant, was necessary to charge the endorser. It did neither. That the note was conditionally paid, is suggested; what that may mean in this connection is not clear. No doubt, that, as between the holder and the maker of a promisory note, a conditional payment may be made; but the rules of the commercial law require a holder, who intends to hold an endorser liable, to give notice to the latter of the default of the maker. Anything less than a full and absolute payment is a default, for nothing less than that measures the duty of the maker. In this case, however, there was no conditional payment made. True, the defendant in error had in its hands the means of enforcing .payment but did nothing; it simply accepted the maker’s' promise that, if Patterson did not give further time, they would pay the note. If the defendant in error had given notice to the plaintiff in error of the default of the maker, it would have discharged its duty, for it would have afforded the latter an opportunity to give notice to Patterson. Lawson et al. v. Bank, 1 Ohio St. 206.

Where, however, a holder of a promissory note passes by an immediate endorser, and serves notice of non-payment upon one more remote, he cannot avail himself of the time the immediate endorser would have had to serve the remote one, if the holder had given notice to the former; but the holder in that case must give notice to the remote endorser within the same time that he is required to give it to the immediate endorser. 1 Parsons on N. & B. 514; Dobree v. Eastwood, 3 Car. & P. 250; Simpson v. Turney, 5 Hump. 419; Rowe v. Tipper, 13 C. B. 249; Marsh v. Maxwell, 2 Camp. 210. Therefore, if the letter of Fulton & Peters, had been sufficient in form and substance to fix the liability of Patterson, it was mailed too late, and for that reason he was discharged.

This release of Patterson was an-accomplished fact before the makers of the note applied to him to extend the time of payment. The omission of the bank to require payment, or in default therof to give the necessary notice to charge Patterson was caused by tlie solicitations of the makers, Fulton & Peters. The most careful scrutiny of the record fails to disclose that Patterson, up to this time, said or did anything' to mislead the bank or to induce it to relax its •vigilence, or omit any step necessary in law to charge him as endorser.

Patterson, therefore, had a perfect defense against any .action to charge him as an endorser, unless, by his subsequent conduct, he has forfeited his right to set up this discharge.

A subsequent promise to pay, when made with full ^knowledge of the facts, has been held to be evidence of a •demand and notipe, or to imply a previous waiver thereof. Myers et al. v. Standart et al, 11 Ohio St. 29; Hibbard v. Russell, 16 N. H. 410; Robbins et al. v. Pinckard et al., 5 Sm. & M. (Miss.) 51; Lewis et al. v. Brehme, 33 Md. 412; McPhetres v. Plalley's Executor, 82 Me. 72; Mense v. Osbern, 5 Mo. 544; Loose v. Loose, 36 Penn. St. 538; Kilby v. Rochussen, 18 C. B. (N. S.) 357.

In the case under consideration, however, no promise to pay was made by Patterson, unless the following letter written by him to Fulton & Peters in reply to theirs of the 19th of October, asking for an extension of the time of payment can be construed into such promise:

Dayton, O., October 20, 1887.
'“Messrs. Fueton & Peters, Wilmington, Ohio.
“Gentlemen: — -Yours of 19th at hand, and we have instructed our bank (to whom the note belongs, we having-discounted same) to grant extension to October 25th. Please honor it at that time, and much oblige,
“Yours truly,
“S. J. PATTERSON.”

If this letter should be construed to contain an implied promise to pay the note, yet as it was written without any knowledge on the part of the writer that he had been discharged from liability it does hot fall within the principles upon which a subsequent promise to pay has been held to bind an indorser. Tibbetts et al. v. Dowd, 23 Wendell, 379.

Is Patterson estopped to set up bis discharge by reason of his letter of the 20th of October, 1888, granting an extension to the makers of the note?

It is true that the defendant in error could have passed by the plaintiff in error, and given notice of the maker’s default directly to the endorser, Patterson, and thus fixed the latter’s liability; this the defendant in error also failed to do. It is suggested that this failure was on account'of ignorance of the residence or address of Patterson. If this, was true it constitutes ho excuse; for (1.) the defendant in error, in that contingency, not being able to discharge its-duty in any other way than by a notice to the plaintiff in error was bound the more strongly to notify the latter.. And (2.) the means of knowledge were at hand. Fulton, one of the makers of the note, was at the bank, and announced his intention to write to Patterson to obtain an extension of the time of payment. It was apparant from the conversation that he had with the officers of defendant in error, that he knew Patterson’s address, and an enquiry of him would have enlightened those officers, but the en-quiry was not made.

The makers of the note, Fulton and Peters, in fact wrote to Patterson for an extension in the following terms:

“Wiemington, O., October 19, 1887.
“Me. S. J. Patterson, Dayton, O.
“Dear Sir — We wish you would advise the Clinton County Bank to hold our note until November 5th, or if you cannot do that, anyhow until the 25th inst. We cannot possibly meet it until at least that time, and oblige,
“Yours,
“Fueton & Peters.”

This is the only notice that Patterson received.

Whether a notice of the non-payment of a promissory note, given by the maker to the endorser, is sufficient to fix the liability of the latter has not been determined by this court. The authorities upon the question are in conflict. The cases of Johnson v. Harth, 1 Bail. (S. Car.) 482; Rosher v. Kieran, 4 Camp. 87; and Chitty on Bills, 495,. note u, with, some other authorities, seem to support the doctrine of the sufficiency of such notice, while the following cases deny it. Stanton et al. v. Blossom et al., 14 Mass. 116; Tindal et. al. v. Brown, 1 D. & E. 167, per WiRKES’ opinion 169, and Buller, J., 170; Stewart v. Kennett, 2 Camp. 177. Nor is the determination of this queston necessary now; for if a notice given by- the maker to an endorser should be held sufficient to charge the latter, yet this letter of the maker, is faulty in that it neither states that any demand of payment had been made, that the note had been forwarded to and was at the place of payment, or that it was due. If the court should go to the extent of holding that the endorser is bound to carry in his memory the due date of a note that he endorses, and must presume that its payment has been demanded at the proper time and place, all which is necessary to make this letter sufficient notice, was due diligence shown in giving the notice? The last day of grace was October 17, and the letter was not written until the 19, two days later. To constitute due diligence it should have been deposited in the post office in time to have departed in the earliest mail to the residence of Patterson that departed after business hours on the 18. Lawson et al. v. Bank, 1 Ohio St. 206. It is true that if the defendant in error had chosen to give notice of non-payment to the plaintiff in error, that the plaintiff in error would have had one day after it received notice within which to give notice to Patterson, and in that case a notice given to the plaintiff in error to Patterson on the 19th of October would have been in time. 1 Par. on N. & B. 513; Lawson et. al v. Bank, 1 Ohio St. 206.

On October 17, 1888, the day the note matured, one of the makers, Fulton, was called into the bank and his attention directed to it; the makers then had funds in the bank which could have been applied to its payment, but upon Mr. Fulton’s representation, that his firm was pressed for means it was induced to indulge them until they could apply to Patterson for a short extension of the time of payment, promising to pay it if Patterson refused to extend the time. After two day’s delay, they wrote the letter of October 19, to which they received, in answer, Patterson’s letter of the 20, granting the favor, of which the bank was at once advised; it thereupon continued to receive and pay out for the makers large sums of money until November 1, 1888, on which day the makers assigned their property in trust for their creditors, having assets sufficient to pay only a few .cents on the dollar of their indebtedness. No doubt, but for this letter of Patterson’s, the bank would have charged this note against the maker’s deposits, and in that way secured its payment.

If Patterson had been informed of these facts, and chose to grant an extension to the makers, and the bank relying thereon had paid out all the funds of the makers before the assignment was made and thus lost its means of indemnity, he should be held to abide the consequences. But he had no such knowledge. He neither knew that he had been discharged by the bank’s neglect, nor that the bank had indemnity within its control. His granting the extension was an innocent act in itself, and he should not be charged with consequences that he had no reason to suspect would flow from it. On the contrary, the bank, defendant in error, was an actor in the entire transaction. With means of payment in its hands it chose to indulge the makers in direct violation of its duty to the plaintiff in error. ' It knew this-indulgence was granted to the makers of the note, expressly, to enable them to apply for an extension of payment to one, who, upon the face of the paper was only liable in case it did the very duty that it must of necessity violate to grant, the indulgence. And when the letter from Patterson was. made known to it, and it proceeded to act upon the extension granted, it had no reason to believe that he had granted the extension with knowledge of the facts, and it took no action to advise him of their existence.

Under these circumstances, the defendant in error must be held to have assumed the risks that naturally flowed from its actions, one of which was that Patterson might avail himself of a defense thus afforded to him by its own negligence. As upon the undisputed facts the judgment should have been for the plaintiff in error, it becomes unnecessary to consider the other questions that arise upon the record.

Judgment reversed and cause remanded for further proceedings.  