
    Ewan v. The Brooks-Waterfield Company.
    
      Promissory note — Payable to order of maker — Indorsement of maker's name necessary part of its execution, but maker not a regular indorser — Blank .indorsement• of third person —Consideration therefor — Held as surety when — Parol evidence.
    
    1 The indorsement of the maker’s name on the back of a promissory note payable to his order, and its delivery in that form to another for value, are essential parts of the execution of the note, which then becomes, in legal effect, payable to the holder or bearer ; but the maker does not thereby become an indorser in the legal sense of the term, nor contract any liability but that of a maker.
    2. The undertaking of a third person who places his name in blank on the back of such a note before or at the time it is so delivered by the maker, rests upon the qonsideration which supports the note in the hands of the holder, and prima facie, is that of a surety of the maker for the payment of the note ; and he will be held accordingly, unless he can show a different understanding or agreement between the parties, which it is competent for him to do.
    (Decided January 26, 1897:)
    Error to the Superior Court of Cincinnati.
    The original action was brought by Emma V. Ewan, against George W. Cox and The BrooksWaterfield Company in the Superior Court of Cincinnati, in which she filed the following petition:
    “The defendants, George W. Cox, and The Brooks-Waterfield Company which is a corporation under the laws of the state of Kentucky, are indebted to plaintiff on a promissory note, of which the following is a copy, with all the credits and indorsements thereon:
    “ ‘$3,500. Cincinnati, O., Jan. 25, 1889.
    “On or before May 1st, 1889, after date, I promise to pay to the order of myself thirty-five hundred dollars, at the office of the Globe Tobacco Warehouse. ■
    “ ‘Value received, with interest from date until paid — interest payable every 30 days. Geo. W. Cox.5
    On the back thereof: “ ‘Geo. W. Cox, The Brooks-Water field Co., L. H. Brooks, President.
    “ ‘$700.00. May 17th, 1889. Received on the within note the sum of seven hundred dollars.
    “ ‘$500.00. Sept. 17th, 1889. Received on the within note five hundred dollars.
    “ ‘$300.00 Dec. 21st, 1889. Received three hundred dollars on the within note.5
    “Plaintiff says that the name of The BrooksWaterfield Company was so signed on the back of said note at the time of its execution by said George W. Cox, and said note was delivered to her at the date thereof by said George W. Cox for a valuable consideration, the name of The BrooksWaterfield Company then being thereon.
    “There is due plaintiff from defendants on said note the sum of twenty-one hundred ■ and sixty-one and twenty-five hundredths dollars, with interest thereon from the 21st day of December, 1889, for which she prays judgment.55
    Judgment was rendered against Cox on default, leaving the action to proceed against the company, which answered as follows:
    “Now comes the defendant, The Brooks-Water-field Company, and for answer to the petition admits that it is a corporation under the laws of the state of Kentucky ; but it denies that it was a joint maker with George W. Cox of the note set forth in the petition, and alleges that it distinctly assumed the position of indorser upon said note. It denies that its name was upon the back of said note at the time of its execution by said Cox. It does not know the correctness of the statement of said petition as to indorsements on said note, and denies the same for the want of knowledge, and denies all other allegations in the petition not herein expressly admitted. This defendant denies that it received any notice of the maturity and nonpayment of said note.
    “Wherefore this defendant prays to be hence dismissed with its costs in this behalf expended.” ■ A reply was filed which avers that the company was a joint maker of the note, and denies it assumed the position of indorser.
    On the trial of the issues, the plaintiff put in evidence the note with the indorsements thereon, which are correctly copied in the petition, and testified in her own behalf to the following facts, namely: That she purchased and received the note from Cox on the day of its date, and either paid him its face value in money, or received it for that amount in payment of a previous note then held by her against Cox, which had been given for money she had loaned him ; that the name of The BrooksWaterfield Company was indorsed on the back of the note when she received it, and that she had no conversation with any representative of the company, nor with Cox, concerning the company’s signature, or the agreement under which it was placed on the back of the note; and further, that the credit of $500.00 indorsed on the note as shown by the petition, was paid by the check of the company, made payable to her. The plaintiff gave no further evidence. The defendants offered none, but moved for judgment in its favor upon the plaintiff’s evidence; whereupon, as the record shows, the cause was reserved to the general term for decision on the motion, where the motion was sustained and judgment rendered for the defendant. To -reverse that judgment the case is brought here on error.
    
      Thomas McDougal; Willis M. Kemper and Richards <& Richards, for plaintiff in error.
    The Brooks-Waterfield Company stands in this case as upon a demurrer to the evidence, it being admitted by The Brooks-Waterfield Company that after it knew that the note was past due, and after it knew that it had not been notified of the non-payment of the note, it voluntarily by its own check paid to the plaintiff, on account of this note, the sum of $500.
    This was a waiver by The Brooks-Waterfield Company of notice of non-payment and an admission by it that it was liable on the note. This principle is elementary. Daniels Negotiable Instruments, vol. II, section 1165; Story on Promissory Notes, section 386, and Chitty on Bills, 564; Vaughn v. Fuller, 2 Stranger’s Rep., 1246; Horford v. Wilson, 2 Taunton, 12; Harvey v. Troupe, 23 Miss., 538; Curtis v. Martin, 20 Ill., 557; Lane v. Stewart, 20 Me., 98; Sherer v. Easton Bank, 33 Pa. St., 134; Bank of U. S. v. Lyman, 20 Vt., 667.
    We are unable to find a case of partial payment on a note in Ohio, perhaps because the doctrine is so elementary, but certainly from the syllabus in Boyd v. Bank of Toledo, 32 Ohio St., 526, the second part of the syllabus in Hudson v. Wolcott, 39 Ohio St., 618, and the syllabus in Bank v. Bank, 49 Ohio St., 351, where promises to pay or indemnify were held to excuse demand, etc., it cannot be doubted that if the partj^ had paid, instead of promised to pay, this court would hold that he had acknowledged his liability, and that he had waived demand and notice.
    That a stranger to the title thus putting his name on the back of a note is not technically an indorser' is clear, and in England such an act is held to be meaningless, imposing no liability whatever. 1 Ames’ Cases on Bills and Notes, 269.
    The rule in Ohio, differing radically from most of the others,"is there characterized as a “legal phenomenon.” Woods’ By les on Bills and Notes, 250 (note).
    As the note in suit was executed in Ohio, the obligation incurred by the defendant must be determined by the laws of this state as declared hy our courts. Bright v. Carpenter & Schurer, 9 Ohio, 139.
    The mere indorsement of a stranger’s name in blank upon a note is prima facie evidence of guaranty. To charge him as maker there must be proof, that his indorsement was made at the time of the execution by ostensible maker; or, if afterward, that it was in pursuance of an agreement or intention to become responsible from the date of execution. Champion et al. v. Griffith, 13 Ohio, 239; Robinson v. Abell et al., 17 Ohio, 43; Greenough et al. v. Smead et al., 3 Ohio St., 415; Seymour & Co. v. Leyman & Michey, 10 Ohio St., 204.
    The same legal principles are reaffirmed in a recent decision, where a stranger to the title signing after negotiation to a payee was held to be an absolute guarantor. Castle v. Rickly, 44 Ohio St., 490.
    The name of Cox on the back of this instrument was an essential part of this execution as a note. 1 Daniels on Negotiable Instruments, section 130; 
      Commonwealth v. Dollinger, 118 Mass., 439; Hooper v. Williams, 2 Exch., 18; Bank v. Fowler, 36 Ohio St., 527.
    •' Until-thus completed and delivered to plaintiff, it created no obligation on the part of either Cox or The Brooks-Watérfield Company. Stage v. Oldset al., 12 Ohio, 158.
    The payee of a note is the person to whom it is payable, and the same person cannot be both payer and payee. 1 Daniels on Negotiable Instruments, section 130; Randolph on Com. Paper, Vol. 1, section 153; Pickering v. Cording, 92 Ind., 396.
    A promissory note must have a maker, and it must have a payee who is another person than the maker. Until a promissory -note made payable to the order of the maker has been indorsed and delivered to the order of the maker there is no payee or promisee.
    By special indorsement, a particular person may be made payee, as if his name were originally inserted as such in the note. The maker’s indorsement in blank will make the instrument equivalent to a note payable to bearer. Little v. Rogers, 1 Met. Mass., 108; Pitcher v. Barrows, 17 Pick., 363; Scull v. Edwards, 13 Ark., 24.
    We respectfully submit:
    1. That this note took effect and became legally operative when delivered to plaintiff. The Brooks-Waterfield Company not being then in the chain of title, having no ownership in the note, could not, in the capacity of indorser, vest the title thereto in this plaintiff, and enter into the contract of indorsement, namely, that they had a good title to the instrument.
    2. That were the rule of law otherwise and the question at issue, what obligation defendant intended to assume by its ambiguous indorsement, its unexplained payment on' the note shows that it did not regard itself as assuming merely the obligations of an indorser, and the testimony of Mrs. Ewan shows that she parted with her money fully believing that The Brooks-Waterfield Company were surety for its payment.
    In either view of the case this plaintiff is entitled to recover of The Brooks-Waterfield Company.
    Ramsey, Maxwell & Ramsey, for defendant in error.
    The case cannot be distinguished from Bigelow v. Colton, 13 Gray, 309 (1859), where it was held that —“One who puts his name, before delivery, on the back of a promissory note payable to the maker or order, and indorsed by the maker, is an indorser, and not a joint maker; and his liability cannot be varied by parol evidence.” DuBois v. Mason, 127 Mass., 37; First National Banker. Payne, 111 Mo., 291; Chicago Trust and Savings Bank v. Nordgren, 157 Ill., 663; Hately v. Pike, 162 Ill., 241.
    Counsel for the plaintiff in error are mistaken in supposing that the above cases from Massachusetts and Missouri are based upon statutes of those states, or that they are inapplicable at bar because of differences between those states and Ohio in the course of their prior judicial decisions. In Massachusetts and in Missouri it had theretofore been held, just as it had been held by this court, that parol evidence is admissible to charge a person, who is not a party to a note as an original maker, if he has put his name on the back of the note before its deliverjn But both courts point out the distinction between such a case and that of a «person who puts his name on the back of a note which is payable to the makér’s order. It is true that in 1874 (St. 1874, c. 404), the legislature of Massachusetts passed a statute declaring all persons whose names appear in blank, on the back of promissory notes to be liable as indorsers only, but the decision of the supreme judicial court made in 1859 was of course not based on a statute passed in 1874. Chicago Trust & Savings Bank v. Nordgen, 157 Ill., 663; Thacher v. Stevens, 46 Conn., 561; Armstrong v. Harshman, 61 Ind., 52; Greusel v. Hubbard, 51 Mich., 95.
    If the note be payable to bearer, either in terms or becomes so in effect by being made payable to the makers’ order and then being indorsed by him, in either case the party who places his name on the back of it will be deemed an indorser only. 1 Daniels on Negotiable Instruments, section 707<z.
    The ease at bar is not that of an anomalous indorser, but of an indorser whose name takes a' regular place on the back of the paper, under that of the payee.
    Every one knows that a note made payable to the order of the maker cannot become effective until indorsed by the maker, and when so indorsed by the maker in blank it becomes in effect a note payable to bearer. One who places his name on the back of a note payable to bearer is not an anomalous indorser,
    It is the object of-the law to make the obligations of persons whose names appear on commercial paper as certain and free from doubt as possible. In many states this tendency of the commercial community has found expression in laws, like the Massachusetts act hereinbefore referred to, which declare that every person whose name appears on the back of a negotiable instrument, no matter how anomalously, shall be liable as an indorser only. Early in the history of this state the principle was recognized in Greenough v. Smead, 3 Ohio St., 416.
    But it is said that The Brooks-Waterfield Company had made a payment on this note since its maturity.
    The evidence shows simply that Mr. Cox’s bookkeeper made a payment to the plaintiff by a check which he obtained from The Brooks-Waterfield Company. Whether that payment was made on account of The Brooks-Waterfield Company, or on account of Mr. Cox, to whom The Brooks- . Waterfield Company may have been indebted at the time, does not appear. Such we understand, was the fact.
   Williams, C. J.

The allegation of the answer, that The Brooks-Waterfield Company, by signing its name on the back of the note a'ssumed the position of an indorser, is an admission of the due execution of the note, and of the genuineness of the company’s signature thereon; but the nature of the obligation the company thus contracted, must be determined from the facts attending the • transaction, which, as shown by the record, are substantially, that the name of the company was signed on the back of the note when it was delivered to the plaintiff, and it was purchased and received by her from the maker on the day of its date, without information of any agreement concerning the company’s obligation, other than that derived from the note itself. The note being payable to the order of the maker, was incomplete in its execution until indorsed by him and delivered to another for value; and it was so indorsed when, received by the plaintiff, who paid the maker its full value. The execution of the note being thus completed, then, for the first time became a valid obligation, and in legal effect was payable to the plaintiff or bearer. At that time it bore the signature of the company written on its back. There is here no room for any inference that the note had been previously transferred by the maker to the company, and thereafter indorsed by it' in order to transfer the title. If the company had thus become the indorsee, the note, in due course of business, could only have found its way back into the hands of the maker upon its surrender on payment or other satisfactory discharge, and its indorsement by the company on such surrender would be so entirely out of the usual course of business as to raise a presumption against it. The note being found in the hands of Cox on the day of its date with the company’s name indorsed upon it, is inconsistent with the theory that it had been indorsed and transferred to the company as the owner of the note, or that it had been taken up by payment. A more reasonable inference would be, that the note was then in the maker’s hands with authority from the company to negotiate it for his accommodation. “If a holder produce a note having a blank indorsement of one not the payee, the presumption is that it was made at the inception of the instrument.” Good v. Martin, 95 U. S., 90. So that, upon presentation of this note to the plaintiff, she was authorized to deal with it as belonging to Cox, with the signature of the company indorsed thereon at the time of its execution in order to give it credit and aid in its negotiation; she not having been informed of any different agreement or understanding between the parties.

Precisely what is the nature of the legal obligation contracted by a stranger who indorses his name in blank on the back of a negotiable promissory note before or at the time it takes effect, is a question upon which the courts have widely differed; some holding that his obligation is that of a second indorser; others have held him liable as a guarantor; and still others as a maker with the rights of a surety. The rule established in this state is, that when the name of such third party appears upon the note at the time it takes effect, his undertaking rests upon the consideration which supports the note, and the presumption is he intended to be liable as surety for its payment, and is held accordingly, unless he can show that there was a different agreement or' understanding between the parties, which it is competent for him to do. Bright v. Carpenter, 9 Ohio, 139; Champion v. Griffith, 13 Ohio, 228; Robinson v. Abell, 17 Ohio, 36; Seymour v. Leyman, 10 Ohio St., 284; 15 Ohio St., 515; Castle v. Biddy, 44 Ohio St., 449. And it is said in Randolph on Commercial Paper, section 831, that: “The view which finds most support is probably that which holds the indorsement of a negotiable note by a stranger before or at the time of its delivery to the payee to be prima facie an original undertaking as joint maker with an implied liability as such to the payee and all holders for value.” The present case must be governed by this rule, unless it is rendered inapplicable by the fact that the note in suit -is payable to the order of the maker and his name appears indorsed thereon above that of the defendant in error. There are cases in which that distinction is made. Bigelow v. Collins, 13 Gray, 309; Dubois v. Mason, 127 Mass., 37; Bank v Payne, 111 Mo., 291; Bank v. Nordegen, 157 Ill., 663. These decisions are placed upon the grounds, that the nature of the liability of the parties whose names appear on the back of a negotiable note is conclusively determined by the position of the signatures with reference to those of the other parties when the note takes effect, and, that as a note payable to the maker’s order cannot take effect until indorsed by him, a third person in placing his name on the back of the note previous to its indorsement by the maker, intends to become liable only as a second indorser; he understands that to be the nature of his liability, it is said, and a different intention or agreement cannot be shown by parol proof. In one of the cases, Bank v. Nordgen, supra, the reason of the decision is stated as follows: “Inasmuch as the note can never have validity until the name of the payee appears upon it as an indorser the person writing his name in blank upon the noté understands that when the note takes effect his name will appear upon it as a second indorser, and it is reasonable to conclude that such was the position which he intended to occupy. ” The real foundation on which these decisions appear to rest is, that the maker by placing his name on the back of the note to give it effect becomes the first indorser, and the third person who places his signature on it, though done before that of the maker is indorsed on it, contracts the obligation of a second indorser. It is undoubtedly true that such a note is without any validity so long as it remains in the hands of the maker, and its indorsement and transfer by him to a holder for value is necessary to give it obligatory effect. But it is equally true that by indorsing his name on the back ■ of the note and delivering it in that form to the holder, the maker does not become an indorser in the commercial acceptation of that term. He is nevertheless the maker of the note, his signature on its back being an essential part of its execution, and his liability continues to be that of . a maker only. He does not thereby enter into the contract of an indorser, which is to pay the note if the maker upon demand fail to do so at maturity, and due notice thereof be given. It would be • a useless ceremony, if not a palpable absurdity, to require the holder to make demand of the maker and give him notice of his own default, in order to charge him with the payment of the note. He is liable as maker, without demand and notice, and sustains no other legal relation to the paper; which relation, it must be presumed, is within the knowledge of third persons who place their names on the note while in the maker’s hands. It is no less true that such third person whose name appears on the back of a note of that kind before or at the time its execution is completed by the indorsement of the maker’s name thereon, is not an indorser in the proper and legal sense of the term. There is a popular sense in which the term is used that is sufficiently comprehensive to include "any person who lends his name in any form to another on commercial paper. But courts do not use it in that sense. In its well understood legal and commercial meaning, the indorsement of a note in blank amounts to a contx-act on the part of •the indorser with and in favor of the indorsee and every subsequent holder to whom the xxote is ■transferred, that the indorser had a good title to the instrument at the time of its indorsement, and was competent to transfer that title, which he undertook to do by the indorsement and delivery of the instrument to his indorsee; so that, to give rise to the contract and relation of an indorser, it is necessary that he should have been the payee or' indorsee of the paper. Beckweth v. Angel, 6 Conn., 317; Story on Prom. Notes, section 135. Hence, neither the indorsement of the maker’s name on the back of a note payable to his own order to complete its execution, nor that of a third ■person in blank before or at the time of its execution and delivery, constitutes a regular indorsement of commercial paper, nor creates the contract arising from a reguiar indorsement in blank, the terms of which are distinctly defined by law, • and are therefore not subject to be varied by parol; the indorsement of thé third person, in such case, ’ belongs to tnat class known as irregular pr anomalous indorsements, whose obligation' depends upon the agreement of the parties, and being ambiguous in that respect, parol evidence becomes admissible to show the terms of the agreement’ as actually made by the parties, or other facts showing their intention at the time.

The assumption that the stranger who places his name in blank on the back of a negotiable note payable to the order of the maker intends to contract as a second indorser, is based upon the supposition that he knows the note cannot become effectual without the indorsement thereon of the maker’s name. But, he must also know the latter does not become the first indorser, nor contract the liability of an indorser at all; and, that his own signature placed on thev note before or at the time of its delivery creates no such contract; and since he does not thereby contract the liability of a regular indorser, the presumption that he did not intend to do so would be quite as reasonable and legitimate, as that he intended to do what he knew his act would not accomplish. It is not doubted that such third person may, by proper stipulation prescribe the extent of the liability he intends to incur by his indorsement, and make it that of a second indorser, or whatever else he chooses; but in the absence of such stipulation, the nature of his undertaking, like that of other irregular indorsers must be determined from the circumstances of the case. That neither the order in which the names appear on the back of the .paper, nor the order in point of time in which they were placed there, is conclusive of the relation of the parties to the paper, or to each other, or of the liability incurred where the paper is for the accommodation of the maker, was held in the early case of Douglas v. Waddle, 1 Ohio, 413, and in the late case of Castle v. Rickly, 44 Ohio St., 490. In the first case, a note drawn by Barnes, payable to the order of Waddle, was indorsed by Waddle, and afterwards by Douglass, and then discounted for the maker’s benefit. Douglass paid half of the note after maturity, and sued Waddle for reimbursement, claiming that as second indorser he had recourse on Waddle the first indorser, and that parol evidence was inadmissible to show any different relation between the parties. But the court sustained Waddle in his claim that, as the indorsements were made before the discount of the paper, to give it credit, for the maker’s accommodation, the obligation of Waddle and Douglass was that of co-sureties for the maker, and therefore, Douglass having paid no more than his share of the debt, was not entitled to recover against Waddle. The court said that: “When a note is indorsed and transferred by a payee, the indorsement is an actual contract between the indorser and indorsee of the note, that the latter received it for a consideration paid, and therefore the indorsement, like the making, is evidence of a debt due from the indorser to the indorsee, and the former is bound to pay if the maker,upon demand, fails to do so, and the requisite notice is given the indorser. But when the transaction between the parties is different, when it is a mere accommodation transaction, neither the reason of the rule nor the justice of the case admits of its application.” And the court further said that: “Douglass knew that Waddle did not in fact own the note, but had indorsed it for the accommodation of Barnes, as surety. He knew that he himself indorsed it for the same purpose, and not as owner; it was intended to pay a debt due from Barnes who, and not Waddle, was the person benefited. Douglass himself never had a beneficial interest in the note, and the money paid by him was paid for Barnes.” So, it may be said in this case, the defendant in error must have known when it placed its name on the back of the note in suit, while in the hands of Cox, that its indorsement by him could have no other effect than to complete its execution, and that he would not thereby become a regular indorser of the paper, and that the defendant in error was not the owner of the note, nor had any beneficial interest in it, and therefore could not, and did not, become a regular indorser, but that the effect of its signature on the note was to give it credit, and enable Cox to negotiate it for his benefit. Speaking of irregular indorsements of this character, and of the understanding of parties to them, the court, in Douglass v. Waddle, supra, said: “In this country the parties to this description of paper have usually understood their relation to be that of principal and surety, and upon this understanding have generally acted both in creating the paper and adjusting their liabilities upon it. ” And in Randolph on Commercial Paper, section 888, that author says: “That in a great majority of instances the purpose of all the original parties to such irregular indorsements was to furnish additional security by way of guarantor or surety to the actual or nominal payee.”

That the defendant in error intended and understood its liability to be that of a surety, and not of a second indorser, is manifest from its subsequent conduct. The payment of $500.00 on the note by the defendant in error was made long after the maturity of the note, and after the failure to make the demand and give the notice necessary to charge the company as an indorser. It then was aware that, if its liability originally was that of an indorser only, that liability had then ceased; and it was under no obligation to make any payment to the plaintiff. It is not to be supposed that the cheek was given the plaintiff as a gratuity; the evidence shows that it was a payment on the note, which is a recognition of the validity of the ! demand. The payment, therefore, is at variance i with the claim that the liability of the company I was conditional, dependent upon proper demand I and notice, and amounts to an -unequivocal [acknowledgment of an absolute and unconditional liability at the time of the payment. And this construction by the defendant in error of its obligation is in harmony with what we have considered it to be, both on principle and in view of the former adjudications of this court, that of a surety for the payment of the note. This conclusion has not been reached without a careful consideration of the cases which hold otherwise. But we have found ourselves unable to concur in their holdings, reluctant as we are to differ with the courts by which they were decided, and desirable as it is that there should be uniformity of decision on so important a question of commercial law.

Judgment reversed.  