
    First National Bank of the City of Brooklyn, Respondent, v. Helen M. Gridley, Appellant, Impleaded with Charles M. Coburn and Others, Defendants.
    Second Department,
    April 20, 1906.
    Bills and notes — indorser not liable when name of payee changed after indorsement—maker not agent of indorser to make such change - holder in due course cannot recover théréoñ against indorser — when no recovery on note canceled by holder after delivery of altered renewal note. .' ■
    The indorsement of all the .payees of a promissory note is necessary to give good title to a transferee, and hence an- indorser of a note made payable to several payees is not liable to a transferee thereof when the maker, without -authority ■ from or knowledge of the indorser, has altered the -note before negotiation by" striking out the name of one payee and substituting his own name as payee thereon.
    
      The statutory warranty of every indorser without qualification to all subsequent holders in due course that the indorsement is genuine (Negotiable Instruments Law, § 116) does not apply under the circumstances aforesaid.
    A maker for whose benefit such indorsement is made is not the agent of the indorser to alter the note.
    Even though the transferee of such altered note be considered to be a holder in due course, he is not entitled'by virtue of section 205 of" the Negotiable Instruments' Law to enforce the note against the indorser according to its “original tenor ” because the note as altered never had an inception.
    Although such altered note- was transferred to take the place of a note which had been dishonored, the indorsement of the renewal note is not a waiver by the indorser of a failure to make demand and give notice of dishonor of the first note so as to allow a recovery on the first note, when on the delivery of the second note the first note was given up and canceled, if such cancellation was not induced by any act of the indorser of the second note.
    The law as to waiver of notice of dishonor has not been changed by section 180 of the Negotiable Instruments Law.
    Appeal by the defendant, Helen M. Gridley, from a judgment of the Supreme Court in favor of the plaintiff, entered in the office of the clerk of the county of Kings on the 13th day of April, 1904, upon the verdict of a jury rendered by direction of the court after a trial at the Kings County Trial Term.
    
      C. A. Hitchcock, for the appellant.
    
      Robert H. Wilson, for the respondent.
   Miller, J.:

The' plaintiff seeks in the alternative to recover upon the defendant’s alleged indorsement ‘ of two promissory notes of which the following are respectively copies:

“ $20,000.00-100. Finir months after date for value received I promise to pay to the order of B. F. Tracy, M. S. Driggs, T. F. Goodrich and Mrs. H. M. Gridley at the First National Bank, Brooklyn, N. Y., Twenty Thousand Dollars ($20,000.00).

“New York, Jem. 6th, 1902. C. M._COBTJBN.”
Indorsed : “ Fay First Nat’l Bank Brooklyn, or Order.
“ For renewal only. Mrs. H. M. Gridley
“Thos. F. Goodrich
“B. F. Tracy
“Marshall S. Driggs.”
“20,000.00-100 ' New York, May 6, 1902.
“ Four months after date I promise to pay to the order of C. M. Coburn, Marshall S. Driggs, Thos. F. Goodrich, Mrs. Helen M.
Gridley á’nd Benj. F'. Tracy----¡— --—
Twenty Thousand 00-000--Dollars
at the First National Bank, Brooklyn, N. T.
“Value Received, ' ' ' ' O. M. COBURN,
“ No. Due Sept. 6.”
Indorsed on the back:
‘“ Pay First Nat’l Bank Brooklyn, or order.
“ O. M. Coburn.
“ For renewal.
“ Helen M¿ Gridley
“ Tno. F. Goodrich
“B. F. Tracy
“Marshall S. Driggs.
“no a-c”

N,o notice of dishonor of the note maturing May sixth is claimed to have been given the defendant, but on or about April twenty-ninth she indorsed a note, of which the following is a copy :

“20,000.00 ' New .York, May.6^ 1902.
“ Four months after date I promise to pay to the order of Cornelius Van Cott, Marshall S. Driggs, Thos. F. Goodrich, Mrs. Helen M, Gridley and Benj. F. Tracy jointly, twenty thousand 00-100 'dollars at First National Bank, Brooklyn, N. V..
“Value received C. M. COBURN.”
(Indorsed) “ For renewal,
“ Mrs. Helen M. Gridley,”

and caused it to be mailed to the maker;' this note was thereafter altered without, the knowledge, consent or authority of the defendant, by substituting the name óf the maker “ Coburn ” in the place of the name of the .payee “ Cornelius Van Cott” and- by erasing the word “ jointly/’ and as thus altered, without "the indorsement .of said Van Cott, was delivered by the maker to the plaintiff on the thirteenth day of May ; the transaction of said date is described by the president of the plaintiff as follows: “.When the note of May 6, 1902, was received by the First National Bank it gave a check to Charles M. Coburn for twenty thousand dollars less the discount for the four months. That would be about four hundred dollars less — I suppose, not exactly that, .but pretty nearly that. Mr. Coburn added his own check for the difference and paid the previous note with it, the note of January 6th. He took the previous note up by adding his own check to my check and used it for paying the other note.” The note of January sixth was surrendered to the maker, Coburn, who canceled it. It does not appear that the plaintiff had any knowledge prior to said May thirteenth that the defendant had indorsed the note of May sixth. It may fairly be inferred that the defendant was an accommodation indorser, and that the manner in'which the note was discounted .sufficiently apprised the plaintiff of that fact. (National Park Bank v. G. A. M. W. & S. Co., 116 N. Y. 281; Smith v. Weston, 159 id. 194.)

The indorsement of all the payees was necessary to give good title to the transferee. (Neg. Inst. Law [Laws of 1897, chap. 612], § 71; Allen v. Corn Exchange Bank, 87 App. Div. 335, and cases cited.) The defendant, therefore, made the transfer of the note ' indorsed by her dependent upon the indorsement of said Tan Cott and the other payees. She may have been unwilling to indorse a renewal note, except upon the condition that there should be an additional indorser in the person of said Van Cott; at any rate she imposed such condition, and there are no facts that warrant the inference that the maker had authority to so alter the note as to render compliance with such condition unnecessary, and the claim that such authority was given the maker by section 33 of the Negotiable Instruments Law (as amd. by Laws of 1898, chap. 336) is so obviously unsound as to merit no discussion. There certainly was no implied warranty on the defendant’s part extending to the changed condition of the note after it parted her possession. But it is claimed that the warranty provided by section 116 of the Negotiable Instruments Law applies to the condition of the note when discounted by the plaintiff, and not simply to its condition when it left the defendant’s hands. If this is the effect of the statute, it should be indicated by unmistakable language. The statute provides that “ every indorser who indorses without qualification, warrants to all subsequent holders' in 'due course ” that the instrument is genuine and in all respects, what it purports to be. We think the fair construction of the' statute makes such warranty-applicable to the condition of the instrument on leaving the .hands, of the indorser. If there could be any doubt about this, such doubt is removed, by section 205 which, provides: “Where a negotiable instrument is materially altered without the assent of all parties liable thereon, it is avoided, except as against a party who has himself made, authorized or assented tó the alteration and subsequent indorsers.” Obviously the’ words “subsequent indorsers” mean those who indorse subsequent, to the alteration. -It is difficult to see’ how the defendant can be held liable for any act of Coburn in discounting a note which she. had never' indorsed, for such was the character of the note actually discounted. Coburn acted for himself in this transaction, lie was the principal debtor, and I am unable to understand how' in paying his own debt he can be said to have acted .as the agent of a mere surety. If agency there was, it was to the knowledge of the plaintiff of such limited character as to preclude the defendant being, bound by any departure front the strict terms of the agency. The plaintiff, however, insists that it is a “holder in due course, not a party to the alteration,” and may, therefore, recover according to the “ original tenor ” of the note by virtue of section 205 of the Negotiable Instruments Law. This position is inconsistent with the claim also made that.the note of January sixth was not.paid, else the plaintiff couldnot be a holder'for value; and this illustrates the difficulties that beset a party who is unwilling to plant himself upon a given position.' The plaintiff cannot recover on both of these notes, and it evidently is in such doubt as to the infirmities of each, that it prefers to have the court undertake the burden of determining which is least objectionable. Moreover upon the question whether the plaintiff is a holder-in due course a jury might say that the note bore upon its face such evidence of alteration as to charge the plaintiff with knowledge of its infirmity. But I "shall assume that the plaintiff was a holder in due course.. How is it "possible to enforce payment from the defendant according to its original tenor ? The note which, she indorsed never had an inception, and it cannot be enforced according to its;“ tenor ” without making Cornelius Van 'Cott a party to it, and, the respondent .does not suggest how that can be done. This is not a case where an alteration has been made in the amount of the note, in which case it is possible to charge a party in exactly the manner in which he expected to be charged. It is utterly impossible now to give vitality to the instrument according to its tenor at the time of the defendant’s indorsement. Other reasons are suggested by .the respondent for sustaining the judgment on the note of May sixth, but we doi not deem them of sufficient merit to require discussion.

But it is urged that the .first note was never paid, and that by indorsing the renewal note the defendant waived demand and notice of dishonor of the first. Of course the mere giving of a renewal note does not operate as a payment, but the Court of Appeals has declared that the question is one of intention. (Matter of Utica Nat. Brewing Co., 154 N. Y. 268.) The transaction upon its face was a discount of the second note and a payment of the first with the proceeds, and the plaintiff’s officer so characterized it. The cancellation of the second note by the maker upon its surrender to him must certainly be regarded, as having been made with the consent of the plaintiff. It was produced upon the trial in its canceled condition. At least, if the plaintiff claimed such cancellation to have been unintentional, by mistake, or without authority, the burden was upon it to establish such fact. (Neg. Inst. Law, § 204.) Section 200 of the Negotiable Instruments Law provides, by subdivision 5, that a negotiable instrument is discharged “When the principal debtor becomes, the holder of the instrument at or after maturity in his own right,” and it was the rule at common law that, in the absence of fraud or mistake alleged and proven, a cancellation and surrender of an obligation by the obligee to the obligor operates as a release and discharge of liability thereon. (Larkin v. Hardenbrook, 90 N. Y. 333; Kent v. Reynolds, 8 Hun, 559 ; cited with approval in Jaffray v. Davis, 124 N. Y. 164, 170 ; Schwartzman v. Post, 94 App. Div. 474.) The respondent urges, on the authority of Leary v. Miller (61 N. Y. 488), that the note of January sixth was not discharged unless the note of May sixth was a good note; but this begs the question, for the note of May sixth was a good note as to all of the parties except the appellant. The plaintiff has already received the sum of $15,000. -upon it from the other indorsers, who, so far as appears indorsed after the alterations had been made, and are, therefore, liable for. the entire amount, unless the plaintiff has released them. Moreover, the plaintiff does not now produce the second note and offer to surrender it insisting upon the claim that it is bad, or at most nothing more than a broken .promise to pay the first note, and that therefore, the plaintiff will elect to recover upon the first note; on the contrary, the plaintiff asks for a judgment bn the second note. Tinder these circumstances it seems clear that the court was not warranted in holding as matter of law th,at the parties did not intend the transaction of May thirteenth' to operate as á payment of the note of January sixth. -

But in any event the failure of the plaintiff to notify the appellant o.f the dishonor of the note of January sixth relieved her from liability thereon. Her contract was 'to pay the note in case of its dishonor by the maker upon presentmént when due and notice thereof to- her.' Prior to the negotiable Instruments Law the decisions in this State were to the éffect that demand and notice were: unnecessary where the indorser was himself the principal debtor, , where he had taken a general assignment of the maker’s property, where the indorser had expressly or by implication waived demand and notice, and where the failure to make demand and give notice to the indorser could not possibly operate to his injury. (Mechanics’ Bank of N. Y. v. Griswold, 7 Wend, 166; Commercial Bank of Albany v. Hughes, 17 id. 94; Sheldon v. Horton, 43 N. Y. 93 ; Ross v. Hurd, 71 id. 14; Cady v. Bradshaw, 116 id. 128; National Hudson River Bank v. Reynolds, 57 Hun, 307; Smith v. Miller, 52 N. Y. 545.) Waiver, however, will not be implied from doubtful or equivocal acts or language (Ross v. Hurd, and Cady v. Bradshaw, supra), and injury will be presumed until it is made to . appear that no damage could have resulted (Commercial Bank of Albany v. Hughes, and Smith v. Miller, supra), and where excuse for non-presentment, and failure to give notice is relied upon, the facts furnishing such excuse must be alleged and proved. (Clift v. Rodger, 25 Hun, 39.) The only excuse .for non-presentment and failure to give notice of dishonor alleged is that the. appellant waived presentment and notice of dishonor. It is unnecessary, therefore, to consider the point made by the. appellant that the. effect of the negotiable Instruments Law is to' eliminate all- excuses except those expressly enumerated- in the statute. The plaintiff cannot argue, therefore, that the appellant was not harmed, because that excuse is not alleged, and even if it were alleged, there is no proof to overcome the presumption of injury. Receiving no notice of dishonor, the appellant had the right to rely upon the belief that the note indorsed .by her and containing the indorsement of all the other payees stipulated by her had been used to pay the note of January sixth. Had she received timely notice of dishonor an investigation might have apprised her of the failure of the payee, Van Cott, to indorse, whereupon she may have been able to compel payment of the note by the maker. But it is not necessary to speculate. Upon the state of the pleadings and proof the plaintiff must stand or fall upon the allegation of waiver. The statute (Neg. Inst. Law, § 180) has not, as the respondent seems to think, changed the law on this subject. It is not claimed that the appellant herself did anything after May sixth from which a consent to remain liable on the note then dishonored can be inferred, but a waiver is sought to be implied from her indorsement “ for renewal ” of the note of May sixth, afterwards altered, some days before the maturity of said first note. There is no pretense, however, that the plaintiff had knowledge of such indorsement prior to May thirteenth, or that it was induced by any act of the appellant to forego giving notice of dishonor. The respondent claims that a waiver can be implied from a transaction not between the parties of which the holder is totally ignorant. The authorities relied upon in support of this contention do not sustain it. They are: Sheldon v. Horton, Leary v. Miller, and National Hudson River Bank v. Reynolds (supra), but in each of these .cases the act of the indorser from which the waiver was implied was known to the holder before maturity of the note, and the opinion in each case makes a point of that fact, and in Leary v. Miller point is also made of the fact that the question was not raised on the trial. Research of counsel, supplemented by our own, has failed to disclose a single' case in which it has been held that a waiver could be implied from some act of an indorser not known to the holder before maturity of the note; on the contrary, it has been distinctly held that.a notice of dishonor given by a stranger was ineffectual to charge an indorser. (Chanoine v. Fowler, 3 Wend. 173.) So far as I am able, to discover, the doc trine of this case has never been questioned, but has been distinctly-approved. (See. Walmsley v. Acton, 44 Barb. 312 ; Lawrence v. Miller, 16 N. Y. 235.) Moreover, the Negotiable Instruments Law. (§§ 161,1.62) .provides that the notice may be given by or on-behalf of the holder, or a party who might be compelled' to pay it to the holder, and who, upon taking it up would have a right to reimbursement from-the party to whom the notice is given, or by an agent. The argument of the respondent is based upon the supposition .that-the defendant -knew the note was not to be paid and that -she need not be informed of a. fact which she already knew. If. this logic is good, it would necessarily follow that if an indorser has timely notice of .dishonor, the means and the-person by whom-such notice is given are immaterial. To be sure, a waiver may be either express or implied. It''is express when there is an agreement between the parties to' the effect that the. holder need not make a demand or give notice of dishonor; -it is implied when the acts-of the indorser communicated to the holder are such as to give the holder the right to believe that the indorser consents that there shall' be no-presentment and no notice of dishonor. In the latter case it is held that even though the indorser did not intend so to consent, if the-act Was such as to lead the holder to so understand, and by reason thereof to forego making demand and giving notice" of dishonor,-the transaction in law amounts to a waiver. (See cases cited supra ; also, Cayuga, County Bank v. Dill, 5 Hill, 403.) To be sure, a waiver is nothing more-than a relinquishment of so me right which, being personal, requires no consideration for its support. It does not necessarily rest upon the doctrine of estoppel, but according to the logic -of all the cases it results from an agreement between'the parties either express or implied. In the leading case of Sheldon v. Horton (supra) Judge Andrews prefaces his discussion'with the declaration that the statement relied upon as constituting a waiver Was communicated to the plaintiff, and that the defendant, understood that such communication was to be made. Suppose the statement there relied upon had been made to a stranger Without any intention of its being communicated to the plaintiff, and that in fact it -was not communicated, could it be contended that "it would have conBtituted a waiver ? If so, we -have only to carry the supposition one -step further and have the reductió ad absurdum. Suppose the statement had been a soliloquy susceptible of being proven, is it possible that the defendant could not have changed .his mind ?

The argument thus far has proceeded upon the theory that the appellant did know that the note was not to be paid, but in my judgment the proof fails to establish this proposition. It seems to me .that the only consent to be implied from her act of indorsement was a consent that if Cornelius Van Cott, Thomas F. Goodrich, B. F. Tracy and Marshall S. Driggs indorsed the note it should be used to renew the note maturing May sixth. She did not know that all would indorse, and as it turned out, one of them did not, and it seems to me, therefore, that even had her act been communicated to the plaintiff, it would not have been excused from making demand and giving notice of dishonor upon the maturity of the note of January sixth, except a new note, indorsed in the manner stipulated by the appellant, were presented. This being so, I am wholly unable to comprehend upon what principle an absolute waiver can be implied from an equivocal act not communicated to the plaintiff. It is necessary in commercial transactions that the rules of liability of parties to negotiable paper should be fixed and certain. It is better .that such rules be arbitrary than that they lack precision and certainty. The plaintiff cannot be permitted to succeed upon the proof in this case without introducing a rule fatal to the accuracy with which the liability of indorsers may be determined.

I recommend that the judgment be reversed and a new trial granted, costs to abide the event.

Woodward, Jenks and Hooker, JJ., concurred; Hirschberg, P. J., concurred in result.

Judgment reversed and new trial granted, costs to abide the event.  