purchaser of an instrument, on which such a guaranty is written, takes it free from defenses which the maker might interpose in an action brought by the payee.60 In such cases it is important to note whether the action is against the defendant as maker, or the payee as indorser. If the action is brought against the payee as indorser, and he has in addition guaranteed the payment of the instrument, the above conflict is not apparent; but the payee-indorser-guarantor is held not to be an indorser, but a guarantor. His signature cannot make him liable both as indorser and guarantor.61 § 15. Guaranty on negotiable instrument assignable but not negotiable. While the instrument itself is negotiable, the guaranty on the back of it is not negotiable.62 Neither is the guaranty negotiable if made on a separate paper and addressed to a particular person.68 The reason for this rule, as well stated by the Supreme Court of Kansas, is that: "It cannot be said that the guaranty of an instrument by a person who did not execute the instrument, who was never liable on it, who never owned it or held it, in legal contemplation is a negotiable indorsement of the instrument, or a negotiable guaranty of the same; and therefore, when the instrument so guarantied is afterwards transferred to another person, whether by an indorsement of the instrument or otherwise, only the rights of the guarantee as against the guarantor are transferred by the guarantee to such other person. 64 60 Dunham v. Peterson (1896) 5 N. Dak. 414, 67 N. W. 293. 61 See Dean H. W. Arant's article in the (1924) 34 Yale L. J. 144, 157, on the "Written Aspect of Indorsement."' Also, Allen V. Rightmire (1823) 20 Johns. (N. Y.) 365, 11 Am. Dec. 288; Lamourieux v. Hewit (1830) 5 Wend. (N. Y.) 307; Hough v. Gray (1838) 19 Wend. (N. Y.) 202; Snevily v. Ekel (1841) 1 Watts & S. (Pa.) 203. In Brackett v. Rich (1807) 23 Minn. 485, 23 Am. Rep. 703, the question was not raised, but the payee-guarantorindorser was treated as a guarantor. V. Lawson et al. 62 Edgerly (1900) 176 Mass. 551, 57 N. E. 1020, 51 L. R. A. 432, 433, says: "It is also clear that a guaranty is here considered a non-negotiable chose in action, although written by a third person on the back of a negotiable promissory note."' Smith v. Dickinson (1845) 6 Humph. (Tenn.) 261; Hayden et al. V. Weldon (1881) 43 N. J. L. 128, 39 Am. Rep. 551. 68 Voltz et al. v. National Bank of Illinois (1895) 158 Ill. 532, 42 N. E. 69, 72. 64 Briggs v. Latham (1887) 36 Kan. 205, 13 Pac. 129, 132. The guaranty, however, is assignable, and follows the principal obligation, even if evidenced by a promissory note. If it be a general guaranty, i. e., open to acceptance by the public generally, and not a special guaranty, limited to the person addressed, it is enforceable by any one who can enforce the principal obligation, subject to such defenses which may be interposed to any assignment.65 The same result is reached in case of the guaranty of a non-negotiable instrument. § 16. Accommodation, anomalous, or irregular indorsers. Where a negotiable instrument is signed on the back by a stranger, called an accommodation or anomalous or irregular indorser, the courts have reached at least four different results.67 (a) Some have held the presumption to be that a stranger who signed his name on the back of a negotiable instrument did so as a guarantor, where the action arose between him and the payee.68 (b) Another line of authorities held, first, that if the name of one not the payee was found on a negotiable instrument, it was presumed to have been signed when the holder procured it; second, as this was a question of fact, parol evidence is admissible only to show whether or not the blank indorsement was made prior to or after delivery of the instrument; third, if the fact be found that the indorsement was on the instrument before it was delivered, it is conclusive that the one so signing is a joint maker, 65 Tidioute Savings Bank V. Libbey et al. (1898) 101 Wis. 193, 77 N. W. 182, 70 A. S. R. 907. 66 Bassett v. Perkins et al. (1909) 65 Misc. Rep. 103, 119 N. Y. S. 354, 359. 67 See (1910) 23 Harv. L. Rev., 896. 68The law presumes that the signature of appellant was placed on it at the time it was executed, and that, he being a stranger to the note, his contract was that of guarantor, the consideration for the note being the consideration for the guaranty... Duncanson v. Kirby (1899) 90 Ill. App. 15, 17. Milligan v. Holbrook (1897) 168 Ill. 343, 48 N. E. 157. The Ohio Supreme Court in Castle v. Rickly (1886) 44 Oh. St. 490, held that a stranger who placed his name on the back of a promissory note, after delivery to the payee, was a prima facie guarantor, but said this presumption "may be overcome by parol evidence that a different agreement was intended." See Daniel on Negotiable Instruments (1919, 6th Ed.) Sec. 713-a, and cases cited; Ford v. Hendricks (1868) 34 Cal. 673. and parol evidence of a contrary intention cannot be received; fourth, that if the fact be found that the indorsement was made after delivery to the promisee, parol evidence is then admissible to prove separate consideration, which if established, makes the defendant liable as a guarantor.69 (c) Some cases have taken the view that a blank indorsement by a stranger on the back of a negotiable instrument, when signed at the time it was made, or very soon thereafter, constituted the signer a surety. The reason is that it had a relation to the making of the contract originally, and the consideration of the maker will support the promise of the one signing his name on the back.70 (d) Other 69 Essex Co. v. Edmands et al. (1858) 12 Gray (Mass.) 273, 71 Am. Dec. 758; Schneider v. Schiffman (1855) 20 Mo. 571; Good v. Martin (1877) 95 U. S. 90, 24 L. Ed. 341. See Daniel on Negotiable Instruments (1919, 6th Ed.) Sec. 713-a, and cases cited. 70 In the opinion of the Ohio Supreme Court in Ewan v. BrooksWaterfield Co. (1897) 55 Oh. St. 596, 45 N. E. 1094, 1095, it was said: "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 liability 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 that 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." See Barden v. Hornthal (1909) 151 N. C. 8, 65 S. E. 513. See Daniel on Negotiable Instruments (1919, 6th Ed.) Sec. 713-b. An early Massachusetts case, Mois v. Bird (1814) 11 Mass. 436, 6 Am. Dec. 179, 181, made this observation: "He puts his name upon a note, payable to another. in consequence of a purchase made by his brother, in a day or two after the bargain was made, knowing that he could not be considered in the light of a common indorser, and that he was entitled to none of the privileges of that character. The holder chooses to consider him as a surety, binding himself originally with the principal, and we think he has a right to do so. If he was a surety, then he may be sued as original promisor.'' Josselyn v. Ames (1807) 3 Mass. 273; Hooper v. Pritchard (1842) 7 Mo. 492; Powell V. Thomas (1842) 7 Mo. 440; contra, Fitzhugh v. Love's Executor (1806), 6 Call. (Va.) 5, 3 Am. Dec. 568. courts have held such signing before delivery to the payee to constitute an indorsement." This is the rule under the Negotiable Instruments Law; 72 and the logic of this view requires the 71"In some states, as in Massachusetts, Vermont and Louisiana, he is regarded as a surety or joint maker of the note, and unconditionally liable. In some states he is held to be a guarantor, and various effects have been given in these states to the contract of guarantee, sometimes being held to be conditional; at other times absolute; and very frequently parol evidence is admitted to explain what the contract really was. In other states, as in New York, Tennessee, Iowa, and, we may add, California, he is held as indorser.'' "The decisions in this state are substantially in accord with those which hold that one who, not being a party to a negotiable bill, indorses it in blank for the purpose of adding to its credit, is an indorser, and in view of the diversity of opinion on the subject we should not now feel inclined to disturb the doctrine, even if it did not meet our approval."' There seems to be no difference between the undertaking of a general guarantor and that of an indorser, except that the former, being a party to the note, his contract is construed by the law merchant, while the undertaking of the latter is construed by the general law of contracts. Each undertakes that the maker will pay the note at maturity; and in case of being compelled to pay it for the principal, each has recourse upon his principal to recover the amount paid, and there is no good reason why they should not have equal opportunities to secure themselves from the assets of the maker. The law merchant has established what is due diligence and what is a reasonable time within which demand and notice should be made to bind an indorser, and upon principle the same diligence should be used to charge one who has assumed the same responsibility as a guarantor." Jones v. Goodwin (1870) 39 Cal. 493, 2 Am. Rep. 473. As to the view of the various states, where a person, not a party, places his name on the back of a note, see the notes following the above opinion as reported in 2 Am. Rep. 473, 475; also, 56 Am. Dec. 358. 72 The N. I. L., Sec. 63 provides: "A person placing his signature upon an instrument otherwise than as maker, drawer or acceptor, is deemed to be an indorser, unless he clearly indicates by appropriate words his intention to be bound in some other capacity." Sec. 64 provides in part: "Where a person, not otherwise a party to an instrument, places thereon his signature in blank before delivery, he is liable as indorser, in accordance with the following rules: See Rockfield et al v. First National Bank of Springfield (1907) 77 Oh. St. 311, 83 N. E. 392, 14 L. R. A. (N. S.) 842; Baumeister v. Kuntz (1907) 53 Fla. 340, 42 So. 886. These sections of the Negotiable Instruments Law apply only to irregular indorsers who place their signatures on the instrument before delivery to the payee. A plaintiff seeking the benefit of this act must exclusion of parol evidence as to the intent of the person signing.73 817. Where the payee reacquired the instrument; the view of Moore v. Cross. Where the payee attempted to recover from the accommodation indorser, the rule worked well. But suppose the payee indorsed the instrument and by mesne transfers, he again came into possession as a holder in due course? The accommodation indorser is the first one, the payee being second, and subsequently became holder. The anomaly of circuity of action is presented, which would allow an indorsee to sue the payee, who could then sue the accommodation indorser. The New York Court of Appeals worked out the fiction, first, that the payee is the first indorser, and second, that the payee is conclusively presumed to have indorsed the instrument without recourse to the accommodation indorser, who in turn indorsed it back to the payee, so that the latter is not liable on it to the accommodation indorser.74 § 18. The accommodation indorser under the Negotiable Instruments Law. The necessity of determining whether the accommodation party signed as first or subsequent indorser does not arise in negotiable instruments executed after the Negotiable Instruments Law was adopted in any state, since it provides for his liability.75 Under that Act, parol evidence to show that the party signing otherwise than as maker, drawer or acceptor intended not to be held as indorser, is not admissible in bring himself within it by appropriate allegations. If the indorsement is after delivery of the instrument to the payee, the plaintiff must allege and sustain the burden of proving that the accommodation indorser signed his name in order to lend credit to the maker and with the intent of charging himself thereon to the payee. Kohn v. Consolidated Butter and Egg Co. (1900) 30 Misc. Rep. 725, 63 N. Y. Supp. 265. 73 First National Bank v. Bickel et al. (1911) 143 Ky. 754, 137 S. W. 790. 74 Moore v. Cross (1859) 19 N. Y. 227, 75 Am. Dec. 326. See Temple v. Baker et al. (1889) 125 Pa. 634, 17 Atl. 516, 3 L. R. A. 709, 11 A. S. R. 926; Eilbert v. Finkbeiner (1871) 68 Pa. St. 243. See the comments in (1910) 23 Harv. L. Rev., 396, and Daniel on Negotiable Instruments (1919, 6th Ed.) Sec. 713-e. 75 N. I. L., Sec. 64. |