Gresham v. State Bank of Sunflower

• Decision Date: 29 January 1923
• Docket Number: 22998
• Citation: 31 Miss. 20,95 So. 65
• Court: Mississippi Supreme Court
• Parties: GRESHAM et al. v. STATE BANK OF SUNFLOWER

95 So. 65

31 Miss. 20

GRESHAM et al. v. STATE BANK OF SUNFLOWER

No. 22998

Supreme Court of Mississippi

January 29, 1923

1. BILLS AND NOTES. Unless blank indorser given notice of dishonor of note by maker, discharged.

Under Uniform Negotiable Instruments Act, chapter 244 (Laws 1916 section 89; Hemingway's Code section 2667), a blank indorser of a negotiable note is only secondarily liable and, unless given notice of the dishonor of the note by the maker, such indorser is discharged from liability.

2. BILLS AND NOTES. Notice of dishonor by maker of note condition precedent to liability of indorser.

The contract undertaken by such indorse is that he will pay the indebtedness evidenced by the note upon condition of dishonor by the maker, and notice to him of such dishonor; therefore such dishonor and notice are conditions precedent to liability on the part of the indorser.

3. BILLS AND NOTES. Declaration alleging that defendant was indorser, without setting up dishonor and notice, states no cause of action; introduction of note in evidence showing defendant indorser makes out no cause of action.

The holder of such note, in order to be entitled to recover thereon against the defendant as indorser, must allege in his declaration and prove the essential facts of liability, viz that the note has been dishonored by the maker, notice of which dishonor has been given to the indorser, and a declaration which simply alleges that the defendant was an indorser, without setting up such dishonor and notice, states no cause of action, and therefore the introduction of such a note in evidence, showing the defendant to be an indorser alone, makes out no cause of action.

4. BILLS AND NOTES. Indorser not obliged to file plea denying dishonor and notice where declaration states no cause of action.

Where the declaration in such a case fails to charge dishonor by the maker and notice thereof to the indorser, the latter is not required to interpose the plea under oath provided by section 1977, Code of 1906 (Hemingway's Code, section 1637), denying such dishonor and notice, in order to impose the burden on the plaintiff of proving the same; for such a plea is not required to be filed where the declaration states no cause of action.

5. BILLS AND NOTES. Law. that, where indorser sued, not necessary to prove dishonor and notice, unless denied, does not change common-law ru e as to burden of proof.

Section 1977, Code of 1906 (section 1637, Hemingway's Code) which provides, among other things, that, when an indorser of a note is sued, it shall not be necessary for the plaintiff to prove dishonor and notice thereof to such indorser unless same be denied by the indorser by plea under oath, does not change the common-law rule as to the burden of proof where such a plea is interposed.

HON. S. F. DAVIS, Judge.

APPEAL from circuit court of Sunflower county, HON. S. F. DAVIS, Judge.

Action by the State Bank of Sunflower against W. P. Gresham and others. From a judgment for plaintiff, defendants appeal. Reversed and remanded.

Reversed and remanded.

Chapman & Johnson, for appellant.

The theory on which the appellants requested, in the court below, a peremptory instruction in their favor is that they were irregular or anomalous indorsers of the note sued on; that there was no absolute liability on their part to pay the note, but that their contract to pay was conditional upon the holder presenting the note for payment to the makers, and on payment being refused, giving the indorsers notice of the dishonor thereof, as provided by law; that they, as indorsers, were not liable, unless notice of dishonor was given to them, or unless there were facts excusing such notice; that their liability being based on the dishonor of the note and notice thereof to them, in order to state a cause of action against them, as such indorsers, the declaration must allege that the notice of dishonor was given pursuant to the provisions of law, or facts excusing such notice, and failing in that, the declaration stated no cause of action against them; and there being no proof offered to make out a case against them, as indorsers, it would follow that they were entitled to the peremptory instruction.

Prior to the enactment of the Uniform Negotiable Instruments Act (chapter 244, Law 1916), which was approved on April 7, 1916, one placing his name on the back of a promissory note before delivery became a co-maker, and not an endorser. Polkinghorne v. Hendricks, 61 Miss. 366; Pearl v. Cortright, 81 Miss. 300; Lindsay v. Parrott, 108 Miss. 161, 66 So. 412. But by the force of said act such person so placing his name on a note before delivery is an indorser and cannot be held in any other capacity, and as such he is entitled, in order to render him liable, to notice of demand upon those who are primarily liable, and failing such demand and due notice to him, he is discharged. Rockfield et al. v. First National Bank of Springfield, et al. (Ohio), 83 N.E. 392, 14 L. R. A. (N. S.) 842; Deahy v. Choquest et al. (R. I.), 14 L. R. A. (N. S.) 847, 67 A. 421; 7 C. J., sec. 121, page 74; Statutes; 7 C. J., sec. 122, pages 75, 76 and 77; 3 R. C. L., sec. 447, page 1225.

Section 63 of our Uniform Negotiable Instruments Act, page 364, provides: "A person placing his signature upon an instrument otherwise than as maker, drawer or acceptor, is deemed to be an endorser, unless he clearly indicates by appropriate words his intention to be bound in some other capacity."

Section 64. "Liability of Irregular Indorser.--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:" (here are set out the rules, which are not pertinent to the instant case).

Section 89, page 568: "Except as herein otherwise provided, when a negotiable instrument has been dishonored by non-acceptance or nonpayment, notice of dishonor must be given to the drawer, and to each indorser, and any drawer or indorser to whom such notice is not given is discharged."

Notice of dishonor is necessary to hold parties to a bill or note, who are secondarily liable, such as drawer and indorser, except in so far as otherwise provided by the statute. Failure to give notice of dishonor without proper excuse therefor operates to discharge the indorser, or the drawer, from his obligation absolutely, and not only discharges such party from his obligation as drawer or indorser, as the case may be, but also operates as a complete satisfaction as to him, of the indebtedness for which the paper was received, and he cannot again be made liable, except by his own voluntary act. 8 C. J. sec. 890, page 634, et seq.; Sec. 895, page 637; sec. 1076, page 817; 3 R. C. L., page 1224.

The appellants in the case at bar were, under the provisions of our Uniform Negotiable Instruments Act, indorsers of the note sued on, and they were liable, and liable only, as indorsers; there was no primary or absolute liability, but a conditional liability; no liability arose against them until notice of dishonor was given; in the absence of such notice they were discharged. The mere fact that they indorsed the note gave no right of action to the plaintiff, nor entitled it to recover against the indorsers; to hold them there was a further and additional requirement, namely, that notice of dishonor should be given to them at the time and in the manner required by law; they, as indorsers, by virtue of the law read into their contract, promised to pay only on condition that the holder should present the note for payment, and if payment were refused, they should be given notice, and that failure to give them notice would discharge them. If, then, liability accrued against the indorsers when, and only when, notice of the dishonor of the note was given to them, if there was no absolute promise on their part to pay the note, if the contract of the indorsers is conditional, if under the law they promised to pay only on condition that the holder should present the note for payment and on refusal notice should be given to them, if they were not liable to the plaintiff for the amount of the note until payment of it had been demanded of the makers, and due notice of the dishonor thereof given to the indorsers, then most certainly constitutive elements of the plaintiff's case are that the makers had refused payment of the note, and that notice of dishonor had been given to the indorsers; therefore, unless the declaration so alleged, no cause of action has been stated against the appellants. Conkling v. Gandall (N. Y.) 1 Abb. Dec. 423.

Where it is sought to charge the indorser, presentment, demand, non-payment and notice thereof, where conditions precedent to his liability must be substantially alleged, or a sufficient excuse for the omission must be stated. It is insufficient to charge an indorser merely to set out a copy of the note, allege indorsement by defendant and state that there is due plaintiff from defendant a specified sum which plaintiff claims; notice of dishonor must be alleged. 8 C. J., section 1186, page 901.

We apprehend that counsel for appellee will contend here, as they did in the lower court, that the defendants having failed to file a plea, as provided by section 1977 of the Code of 1906 (Sec. 1637, Hem. Code), the plaintiff was entitled to the peremptory instruction in its favor. The section of the Code referred to reads as follows: "When the drawer or indorser of any bill of exchange, or the indorser of a promissory note, is sued thereon, it shall not be necessary to prove notice of the dishonor of the bill or note to such drawer or indorser, or a waiver of notice unless the same be specially denied by a plea, verified by...