
    WATERBURY a. SINCLAIR.
    
      Supreme Court, Second District;
    
      General Term, February, 1858.
    Pleading.—Liability oe Indorsee to Payee.
    A complaint by the payee of a note to order, seeking to charge as indorser or as garantor one who wrote his name upon the back of the note before its delivery to the payee, is bad on demurrer.
    
    
      The case of Moore a. Gross (23 Barb., 534) disapproved.
    
      It seems, that the only way in which the payee of a note can make it available in his own hands, against an indorser, is to indorse it first without recourse, and then take the indorsement of the third party as the source of his title.
    Appeal from order overruling a demurrer to a complaint.
    The facts of the case, and the contents of the pleadings, are fully stated in the report of the decision on the order appealed from, reported 6 Ante, 20.
    
      
       Young a. Knapp.—(New York Common Pleas; Special Term, 1858.)—The complaint in this action was based upon a note made by the defendant Knapp, payable to the order of the plaintiff, and indorsed by defendant Doyle, but not indorsed by the plaintiff. It was charged in the complaint that Doyle and Knapp were joint purchasers of the property which was the consideration for the note. In the complaint the defendants were held jointly liable on the note.
      Defendants demurred to the complaint:—1st. That Doyle did not indorse the note for any consideration: 2d. That it did not appear there was any joint sale of the goods and chattels making the consideration of the note: 3d. That if any such sale did take place, it was not to defendant Doyle, but upon the sole credit and responsibility of Knapp: 4th. That the note was given to and accepted by Young in payment of the debt.
      
        Mott <& Southard, fór the plaintiffs.
      
        Terwilliger & Finlayson, for the defendants.
      Dalt, J.—The complaint cannot be sustained against both defendants in any aspect. The plaintiff being payee of the note, cannot recover upon it as against Doyle as indorser. This has been settled in this court.
      He can recover against Knapp, the maker, but then the action must be against Knapp alone. He cannot recover upon the sale against both, for it is averred that the property was sold and delivered to Doyle upon the credit of Knapp. The sale then cannot have been to both. If the sale was to Knapp, credit being given to him, then he is the party making the contract, and primarily liable to the plaintiff. If the sale was to Doyle upon a promise by Knapp to pay, if Doyle did not, it was void by the statute, not being in writing.
      To restate the case : The sale was made to Doyle or to Knapp, and if the sale and delivery of the property is relied upon as the ground of action, the action must be brought against the one to whom the sale was made; or if the promissory note is relied upon, then Knapp should have been sued alone, if Doyle is not liable on the note to the plaintiff. If the intention was to charge Knapp as maker of the note, and Doyle upon the sale and delivery of the property, then the two are improperly joined (Le Koy a. Shaw, 2 Duer, 626.) The two contracts are distinct, and constitute separate causes of action. There would be a cause of action against Knapp upon the note, and another against Doyle upon the sale; and by the Code (§ 16T), causes of action cannot be joined unless they “ affect all the parties to the action,” which is not the case here, as Doyle would not be liable upon the note, and Knapp would not be liable upon the contract of sale.
      Judgment for the defendants upon the demurrer, with costs, with liberty to the plaintiff, upon the payment of costs, to serve an amended complaint; or if an amendment as to parties is necessary, to apply to the court for liberty to amend upon terms.
    
   By the Court.—Emott, J.

—The precise question which is discussed in the opinion delivered by the learned judge at special term, has been decided in two recent cases in this court in different ways. This is not to be wondered at, considering the present unhappy constitution of the court, and the obscurity in which the question is involved, partly by decisions, but more by diota of the judges. In Ellis a. Brown (6 Barb., 282), three of the judges of this court at a general term in the sixth district (Judges Gridley, C. Gray, and Allen—Judge Pratt, dissenting), held that when A indorsed a note made by B. and C, payable to D, although the indorsement was made expressly to give credit to B and C, and that they might obtain goods of D upon the credit of A, which they did ; yet that a holder of the note who received it from D for the purpose of suing it for the benefit of D, could not recover upon it. I understand the decision to be made upon the ground that the rights of the plaintiff were precisely those of D, and that D could maintain no action on the note against A. I do not understand that the transfer was considered by the court to make any difference. In fact, I think the case is put distinctly by the court, upon the ground that it did not. If so, the case is directly in point against the present action. On the other hand, the judges of the first district have supported the opposite doctrine in Moore a. Cross (23 Barb., 534). The authority of this case, however, is weakened by the fact that it was really only a formal judgment, resting on the opinion of Judge Roosevelt alone. The case was first argued before Judges Roosevelt, Clerke, and Davies. The latter two judges held that an action could not lie by a payee against an indorser, under the circumstances of that case, which were like the present. A re-argument was ordered, but without waiting for it to be had, Judge Mitchell, who was then on the bench, concurred formally in the views of Judge Eoosevelt, Judge Davies dissenting, and adhering to the opinion of Judge Clerke on the first argument.

In the case of Spies a. Gilmore, in the Court of Appeals (1 Comst., 334), Judge Bronson speaks of the early cases in which the character and extent of the liability of an indorser to the payee of a note is discussed and determined, as cases which hold, in effect, that a written contract of one kind may be turned into a contract of a different kind by parol proof; and he says, “that after some time and some difficulty, they have been got rid of.” It is undeniable that the case of Hall a. Hewcomb, in the Court of Errors (7 Hill, 416), and the case of Spies a. Gilmore, to which I have just referred, have overruled the doctrine of the early cases—that a man who wrote his name upon the back of a note payable to a third person, in order to give the maker credit with that third person, can be treated as a guarantor or joint maker. But I think it is not as yet by any means clearly ascertained what we are to have in place of this doctrine, or in what manner and upon what theory parties are to be held liable in such cases.

It will be needful to notice briefly the cases. In Herrick a. Carman (12 Johns., 161), there was not sufficient proof of privity of the defendant with the consideration, or that he meant to be any thing else than a second indorser. The decision is indisputably correct; but Judge Spencer expresses the opinion that if that proof had been supplied, the defendant could have been held as a guarantor, and that is no longer good law in this State. The note in that case was payable to the order of the payee, whose rights the plaintiff represented. In Helson a. Dubois (13 lb., 175), the opinion which had been expressed obiter in Herrick a. Carman, was adopted and applied by the court; as it was in Campbell a. Butler (13 lb., 349). It may be material to remark, that in ¡Nelson a. Dubois, the note was payable to bearer, but in Campbell a. Butler, it was payable to the order of the payee. In Dean a. Hall (17 Wend., 214), it was held that a party who had put his name on the back of a promissory note, payable to the plaintiff or bearer, could not be treated as a guarantor or joint maker, but must be charged as an indorser, if at all. This case was followed by Seabury a. Hungerford (2 Hill, 84), in which also the note was payable to the payee or bearer.

The principle of these cases, and it is very clearly expressed in the opinion in the latter case, is, that when the form of the notes is such, that with proper diligence the defendant could not be charged as an indorser, the plaintiff may write over his name a contract which would carry out the intention of the parties. But when, as in that case—the note being in legal effect payable to the bearer, and the insertion of the name of the plaintiff as payee being immaterial—the defendant could have been charged as an indorser, he cannot be charged in any other way. The learned judge who delivered the opinion concedes that if the note had not been negotiable, or if for any other reason the case had been such that the defendant could not have been charged as indorser, the courts, rather than suffer the contract to fail altogether, would write such a contract over the defendant’s name as the proof justified. In Hall a. Newcomb (3 Hill, 233), the note in question was payable to the plaintiff or order, and was indorsed by the defendant for the accommodation of the maker. The suit was brought without giving the defendant notice of non-payment, intending to treat him as guarantor or joint maker. The Supreme Court held that this could not be done in the case of a note payable to the order of the plaintiff, any more than when the note was payable to bearer; and upon the same principle, Judge Cowen says “that the maximutresmagis valeatquam'pereatli&s at the basis of construing a simple indorsement as a guaranty or an absolute promise.” That is, whenever the contract and the intention of the parties must fail altogether unless this is resorted to, such a forced construction will be made, but not otherwise. He adds, that “ the plaintiff in that case (the payee) might have put the note in such a form, by indorsing it himself, as to charge the defendant as second indorser.” And the result of this case, with the other authorities, is, that it is not necessary to turn an indorsement into a guaranty or a joint promise, in order to save the contract from total failure, in any case except where the note is not negotiable. When this case of Hall a. Newcomb went to the Court of Errors (7 Hill, 416), the judgment of the Supreme Court was affirmed by a majority vote, after two arguments.

This established the principle that such an indorsement can be made available to the payee as such, and so as to hold the party.making it as an indorser for the benefit of the payee; and, therefore, the holder of such a note, whether payee or indorsee, will not be allowed to treat a party who has made such an indorsement otherwise than as an indorser. Chancellor Walworth delivering the leading opinion, sanctions the reasoning and conclusions of the Supreme Court, and proceeds to show how such an indorsement can be made available to the payee of the note. And although his views upon this point were characterized by Senator Bockee as recommending a “ finesse and shuffling game, unworthy the dignity of the law,” that remark was made in a dissenting opinion, in which the learned senator endeavored to restore the old rule, by which the defendant could be treated as a guarantor or joint maker. His argument was, that to render the defendant liable as an indorser, required a sort of finesse which the law would not resort to ; and therefore, under the rule that the contract and the design of the parties should not be permitted wholly to fail, and by the maxim ut res magis valeat quam qpereat, the courts must make out a contract of guaranty or joint undertaking. Whether his reasoning is sound or not, it is not for me to say ; it is sufficient that it was overruled, and the contrary doctrine established. It may be added, that in making this decision, the majority of the court not only adopted the conclusion, but the views of the chancellor. Senators Barlow and Wright, who were the only other members of the court who delivered opinions, concurred in the view taken of the case by the chancellor, as well as in the result of his argument. The late case of Spies a. Gilmore, in the Court of Appeals (1 Gomst., 321), was similar in its circumstances to Hall a. Newcomb. The judgment of the Supreme Court was affirmed, on the ground that the defendant could not be made liable as guarantor or maker. I agree that the case sustains the doctrine that he could be made liable as indorser; for, under the principles which run through the cases to which I have just adverted, and which are expressly approved by Judges Bronson and Jewett in this case, if the defendant could not with proper diligence have been charged as an indorser, the court was bound to treat him as a joint maker. The opinions of the Court of Appeals do not, however, afford us any light upon the 'question, in what manner or upon what theory this is to be done. After much consideration of the question, and of the able and ingenious reasoning of my learned associate, in the court below, as well as of the well-considered opinion of Judge Roosevelt in Moore a. Cross, above referred to, I am unable to agree with their view of the defendant’s liability. It is true, of course, that the engagement of an indorser (and it must be remembered that we are not to hold the defendant as an indorser of commercial paper strictly), is to pay the note to any subsequent holder, if it is duly presented to and payment refused by the maker, and due notice given to the indorser. But this liability is only to a subsequent holder, and the question is, How or in what manner, under what circumstances, the payee of a note can become or be a subsequent holder to a party whose name is not in the note at all? We must make this out by the note itself, for we are refused the aid of parol evidence; or at most we can only resort to it to prove the consideration and authority for the written contract of indorsement which is to be supplied above the defendant’s name. It strikes me, that neither the payee nor any one else can be such a subsequent holder, unless he has received the note from the indorser. He must be a party to whom that indorser, or some one deriving title through him, has transferred it, because if the note has not been properly transferred to him he is not a holder at all; and if it has not been transferred by the agency of the party to be charged, the holder cannot be subsequent to that party. I do not understand an indorsement as any thing else than a contract of transfer. If the note is not negotiable—that is, transferable—writing a man’s name across the back of it for any purpose, whatever it may be, is not legally an indorsement. When it is said that the contract of an indorser is equivalent to drawing a bill of exchange on the maker, it means a bill of exchange, referring to the terms of the note indorsed. There cannot he a bill of exchange made upon the back of a note, unless the maker upon the face of it has promised, either directly or indirectly through prior indorsers, to pay the note to this indorser, who thus orders him to pay it to some one else. Until the payee has made his bill of exchange, or drawn his order upon the maker whose promise to him lies at the foundation of the matter, no one else can make such a draft or bill— at least not effectually. The opinion in the court below admits, as I understand it, that if this note had been transferred to a third party, there could be no recovery upon it; and there would be no valid contract by the defendant unless the plaintiff had first indorsed it. I am unable to see how the indorsement of the defendant can be valid for the plaintiff, and nugatory as to any subsequent claimant at the same time; or how her engagement is one thing to the plaintiff, and something else to all others, while it is still strictly an indorsement to all;— especially when the plaintiff can only recover by placing himself in the position of such a holder or indorser. If we were at liberty to allow the plaintiff in his peculiar position to treat her as a maker or guarantor, the reasoning would be well enough. But we have no such right. The long and short of the matter is, that the plaintiff here claims that the defendant, Ann Sinclair, has indorsed to him a note, which, upon the statements in his pleadings, she never could have indorsed, because she never was either payee or indorsee, so as to enable her to indorse again to any subsequent party. It will be remembered that we are not inquiring what the plaintiff might do or had a right to do, but what he alleges that he has done. Under the Code, the- title of a plaintiff to a note must be set out, and all the facts alleged which are necessary to a recovery. I think the only way in which the present plaintiff could make such a note as this available, would be by indorsing it to the defendant without recourse, and then taking the defendant’s indorsement as the source of his title, as well as the foundation of his rights. The proof of the extrinsic facts stated in the complaint, will be necessary to justify this apparent transposition of the parties to the note, but it will justify it, and, therefore, these facts are properly alleged.

But the complaint is defective in not stating such a transfer. It does not show the defendant to have indorsed the note at all in a legal sense, and the plaintiff must get an indorsement, and not rely on paroj proof of a contract, or he cannot recover under the present doctrines of the courts. The process by which this is to be accomplished may be called a manoeuvre, but it is a necessary one, and therefore it must be performed, and then alleged and proved.

I am compelled to the conclusion that this complaint is defective, and that the order of the special term should be reversed with costs, and judgment ordered for the defendant on the demurrer, with leave to the plaintiff to amend on the usual terms.  