Hendrix v. Bros

• Decision Date: 14 August 1912
• Citation: 138 Ga. 473,75 S.E. 588
• Parties: HENDRIX et al. v. BAUHARD BROS.
• Court: Georgia Supreme Court

75 S.E. 588

(138 Ga. 473)

HENDRIX et al.

v.BAUHARD BROS.

Supreme Court of Georgia.

Aug. 14, 1912.

(Syllabus by the Court.)

1. Bills and Notes (§ 330^*)—Indorsement-Guaranty—Effect—Transfer of Title. Where the payees in a promissory note payable to order wrote on the back of it the words, "For value received we hereby warrant the makers of this note financially good on ex ecution, " and signed their names after such entry, and negotiated and delivered the note for value, such indorsement was sufficient to transfer title to the note, and, if made before maturity to a bona fide purchaser for value without notice of any defense, he would be protected from any defenses which the maker might have except those expressly allowed by statute.

[Ed. Note.—For other cases, see Bills and Notes, Cent. Dig. §§ 794-804; Dec. Dig. § 330.*]

2. Pleading (§ 354*)—Motion to Strike.

Where the holders of such a note so indoraed brought suit upon it against the makers, and alleged that they bought it from the payees for value before due and without notice of any defense, and the defendants made no denial of such allegation, but sought to set up certain defenses which would not be good against a negotiable note in the hands of an indorsee before due for value and without notice of any defense, there was no error in striking the answer and directing a verdict for the plaintiffs, upon the introduction of evidence.

(a) No question was raised as to whether a verdict should have been taken, or a judgment entered without a verdict.

[Ed. Note.—For other cases, see Pleading, Cent. Dig. §§ 1092-1095; Dec. Dig. § 354.*]

(Additional Syllabus by Editorial Staff.)

3. Bills and Notes (§ 287*)—"Indorsement."

Where a payee of a negotiable note writes his name on the back, such writing constitutes an "indorsement."

[Ed. Note.—For other cases, see Bills and Notes, Cent. Dig. § 653; Dec. Dig. § 287.*

For other definitions, see Words and Phrases, vol. 4, pp. 3561-3566; vol. 8, p. 7686.]

Error from Superior Court, Cherokee County; N. A. Morris, Judge.

Action by Bauhard Bros, against L. R. Hendrix and others. Judgment for plaintiff, and defendants bring error. Affirmed.

P. P. Du Pre, of Canton, for plaintiffs in error.

E. W. Coleman, of Canton, for defendant in error.

LUMPKIN, J. Bauhard Bros. brought suit against the makers of a promissory note payable to the order of Bridges & Flora, a firm. On the back of it was this entry: "For value received, we hereby warrant the makers of this note financially good on execution. Bridges & Flora." The defendants demurred to the petition on the grounds that it set out no cause of action, that it showed on its face that the plaintiffs had no legal title and were not bona fide holders for value, and that the entry on the note by the payees was not a formal indorsement, but only a guaranty that the makers of the note were good for the amount thereof. The presiding judge overruled the demurrer. The defendants filed an answer to the petition, denying its allegations; but they withdrew the denial to the paragraph in which the plaintiffs alleged that they bought from the payees the note for value before due and without notice of any defense. The presiding judge thereupon, on motion, struck the answer, and, after the introduction of evidence, directed a verdict for the plaintiff. Defendants excepted.

1. It was not denied that the plaintiffs purchased the note from the payees for value before due and without notice of any defect or defense. The controlling question is whether the entry on the back of the note constituted an indorsement transferring title thereto to the purchasers, with the protection which belongs to bona fide holders for value before due and without notice, or whether it was a mere contract of guaranty, and was insufficient to operate as an indorsement. Let it be assumed that in order to transfer the legal title to a promissory note payable to order, and cut off defenses which the maker would have against the payee, it should be indorsed. Farris v. Wells, 68 Ga. 604; Benson v. Abbott, 95 Ga. 70, 22 S. E. 127; Haug v. Riley, 101 Ga. 372, 375, 29 S. E. 44, 40 L. R. A. 244. On the subject of indorsements like the one here involved there are two conflicting lines of authority. On the one hand, it has been held by the Supreme Court of the United States and some inferior federal courts, and by the courts of two or three states, that an entry of a guaranty, followed by the signature of the payee on the back of a note payable to order, does not amount to such an indorsement as to carry title and cut off defenses existing against the paper. Central Trust Co. v. First Nat. Bank, 101 U. S. 68, 25 L. Ed. 876; Edgerly v. Lawson, 176 Mass. 551, 57 N. E. 1020, 51 L. R. A. 432 (though some of the earlier decisions in Massachusetts seemed inclined to take a contrary view). The leading case on this side of the question (discussing it with reference to the common law) is the one decided by the Supreme Court of the United States. It cites the Snevily Case, 1 Watts & S. (Pa.) 203, and two cases from New York. The reasoning on which this class of cases is based is that the indorsement is not in blank, but is filled up; that it expresses fully the contract, and can raise no implication of another. Opposed to this view are the decisions in a very large number of states. Numerically, the latter class of decisions greatly preponderates, and we think the reasoning on which they are based is sounder than that contained in the class first mentioned.

At common law (though not so under the statute of this state) the general rule was that choses in action were not assignable, so that the assignee could sue in his own name. He acquired only an equitable title, had to sue in the name of the assignor for his use, and was subject to the defenses which could be made against the assignor. Growing out of the necessities of commerce, there was an exception to this rule in favor of negotiable instruments. They were transferable by indorsement and delivery, and the indorsee could sue in his own name. Those payable to bearer required no indorsement. A bona fide indorsee for value before maturity and without notice of any defense was protected. No particular form was necessary to constitute an indorsement. The mere signing of the name of the person to whose order the note was payable, upon the back of it, was sufficient. In 2 Parsons on Notes and Bills, 14, it is said: "Although it is generally true that no particular and precise form of words is necessary to constitute a note or bill, or an indorsement, yet this principle must be regarded as subject to some qualification. So far as the matter of transfer is concerned, the proposition is almost absolutely true. But as to the obligations cast upon the indorser by the act of indorsement, it is clear that these may vary with the form of the indorsement." This recognizes clearly the fact that no particular form is necessary for the transferring of title, although the obligation of the indorser may be varied. In Dunham v. Peterson, 5 N. D. 414, 67 N. W. 293, 36 L. R. A. 232, 57 Am. St. Rep. 556, the opinion was well reasoned. It was held that where a person to whose order a note was payable wrote on the back thereof a contract of guaranty of payment, and signed it, he became an indorser with enlarged liability, and that the mere writing of a guaranty above his name did not affect the character of his act as indorser. The indorsement there considered was, "For value received I hereby guaranty the within note, waiving notice of protest and demand, " beneath which was signed the name of the payee. In the opinion it was said: "The inquiry is two-fold: (1) Was the note so transferred as to pass the legal title to it at common law? (2) Does the manner of the transfer indicate a purpose to destroy negotiable character of the instrument? The extent of the liability of the payee who indorses the note is not a decisive test. Indeed, it is no test at all. He may incur no liabilities whatever, as indorsing without recourse, and yet in such a case the note has been negotiated to an indorsee within the law merchant, and the latter is protected as a bona fide purchaser if the other elements necessary to such protection exist. Indeed, the payee need not indorse at all to entitle the purchaser to protection if the note be payable to bearer, or to the payee by name or bearer. Tescher v. Merea, 118 Ind. 586, 21 N. E. 316. This is also true after it has been indorsed generally by the person who is named as payee. His indorsee may, without himself indorsing it, transfer it, and cut off all defenses. On the other hand, it is elementary that the indorser may enlarge his liability without destroying the right of his indorsee to protection as an innocent purchaser. * * * He may incur more liability, or less liability, or no liability at all; and yet the purchaser may be an indorsee, and protected as such. Nor is the form of the indorsement material. It is an indorsement, although it is in termsan assignment. This was held at an early time in England. Richards v. Frankum, 9 Car. & P. 221. And, with the exception of two states, it appears to be the law in this country." See, also, 2 Randolph on Com. Paper (2d Ed.) § 704; 2 Daniel on Neg. Instr. (5th Ed.) § 1781 et seq.; Partridge v. Davis, 20 Vt. 499; Bissell v. Gowdy, 31 Conn. 47; Tudson v. Gookwin, 37 Ill. 286; Robinson v. Lair, 31 Iowa, 9; Kellogg v. Douglas County Bank, 58 Kan. 43, 48 Pac. 587; Williams v. Hagar, 50 Me. 9; Elgin City Banking Co. v. Zelch, 57 Minn. 487, 59 N. W. 544; Buck v. Davenport Sav. Bank, 29 Neb. 407, 45 N. W. 776, 26 Am. St. Rep. 392; Heard v. Dubuque County Bank, 8 Neb. 10, 30 Am. Rep. 811; Delsman v. Friedlander, 40 Or. 33, 66 Pac. 297; Barrett v. May, 2 Bailey (S. C.) 1; Donnerberg v. Oppenheimer, 15 Wash. 290, 46 Pac. 254; National Exchange Bank v. McElfish Clay Mfg. Co., 48 W. Va. 406, 37 S. E. 541; Walker v. O'Reilly, 7 V. C. L. J. 300.

We now come to...