McDonald v. Luckenbach

• Decision Date: 19 April 1909
• Docket Number: 19.
• Parties: McDONALD v. LUCKENBACH.
• Court: U.S. Court of Appeals — Third Circuit

170 F. 434

McDONALD v. LUCKENBACH.

No. 19.

United States Court of Appeals, Third Circuit.

April 19, 1909

John G Johnson, for plaintiff in error.

Charles Biddle, for defendant in error.

Before GRAY and BUFFINGTON, Circuit Judges, and BRADFORD, District judge.

GRAY Circuit Judge.

The record brought up by the writ of error in this case discloses that Edgar F. Luckenbach, in January, 1908, as executor of Lewis Luckenbach (hereinafter called the plaintiff), brought suit against Frank J. McDonald (hereinafter called the defendant), on a promissory note, bearing date July 2, 1903 for the payment of $10,000, four months after date, with interest. The note was in this form:

'$10,000.

Philadelphia Pa., July 2, 1903.

'Four months after date we promise to pay to the order of Lewis Luckenbach ten thousand dollars at 1336 Beach street, Philadelphia, without defalcation, for value received, with interest.

'(Signed) The Holden Regealed Ice & Machine Co. 'Henry J. Kunzig, Prest. 'Frank J. McDonald, Secy.

'No. . . . . Due . . . . '

The note was indorsed:

'Henry J. Kunzig.

'Frank J. McDonald.

'Sommers N. Smith.'

In the statement of claim, it was averred that this note 'was indorsed by the defendant, for the purpose of giving credit to the said the Holden Regealed Ice & Machine Company, and delivered to the plaintiff's testator,' etc. It was further averred:

'The said note was duly presented for payment on the date upon which it fell due, November 2, 1903, at 1336 Beach street, Philadelphia, the place of payment named in the note, and payment was demanded and then and there refused. * * * * Notice of dishonor and nonpayment of said note was duly given to the defendant on the same day or on the day following the day on which the default took place, and demand was then and there made upon defendant for payment of the same, which was and has ever since been refused.'

At the trial, there was no evidence produced by the plaintiff, or otherwise, that the said note was presented for payment at the office of the Holden Regealed Ice & Machine Company, at its maturity, or at any other time or place whatever, or that any notice of the nonpayment of the note, and the default of the maker in that respect, was ever given to the defendant, as indorser of the same. Indeed it is admitted that neither of these things occurred. The plaintiff, however, contended and now contends: (1) That under the circumstances disclosed by the evidence, the defendant was liable as a maker, and therefore presentment was unnecessary, or (2) if he were to be treated as an indorser, under the circumstances no notice of dishonor was required. The court below, having refused the motion to direct a verdict for defendant, gave peremptory instructions to the jury to find a verdict for the plaintiff. The reasons for doing so are given by the learned judge in his opinion refusing defendant's motion for a new trial and for judgment non obstante veredicto, as follows:

'At the argument on this motion, it was urged that, under the negotiable instrument act of Pennsylvania of May 16, 1901 (P.L. 203), the defendants could only be held as indorsers under section 63 of the act, which provides: 'A person placing his signature upon the instrument other than as a maker, drawer or acceptor, is deemed to be an indorser, unless he clearly indicates by appropriate words his intention to be found in some other capacity.' If there was no other evidence in the case except the note itself, with these defendants appearing as they do upon the back of the note as indorsers, of course this section would apply and they could not be held in any other capacity. It would then have been necessary for the plaintiff to prove presentment and notice. But this section has no application, because the uncontradicted evidence, aside from the note, shows that the case falls within sections 80 and 115 of the negotiable instrument act. It is provided in section 80 that 'presentment for payment is not required in order to charge an indorser where the instrument was made or accepted for his accommodation, and he had no reason to expect that the instrument will be paid if presented,' and section 115 provides that 'notice of dishonor is not required to be given to an indorser in either the following cases: * * * (2) Where the indorser is the person to whom the instrument is presented for payment; (3) where the instrument was made or accepted for his accommodation.'

'The evidence shows that the indorsers were the real parties in the transaction and the name of the ice company was only used for the purpose of carrying out the transaction between the indorsers and the lender. The plaintiff, if he had endeavored to present the note at maturity, would necessarily have presented it to either Kunzig or McDonald. These men knew there were no other parties who could pay the note but themselves in any capacity, and they had all the information which they could have received if every formality required by the law had been complied with. For these reasons the motion for judgment non obstante veredicto is overruled.'

We are compelled to differ from the learned judge of the court below, in the view here taken by him of the effect of the evidence, and consequently in the conclusions of law founded thereon. We do not think that the relation of the parties to each other, as disclosed by the testimony, differs from that which appears from the instrument itself. By sections 63 and 64 of the negotiable instrument act of Pennsylvania of 1901, it is provided as follows:

'Sec. 63. A person placing his signature upon an instrument otherwise than as a maker, drawer or acceptor, is deemed to be an indorser, unless he clearly indicates by appropriate words his intention to be found in some other capacity.

'Sec. 64. Where a person, not otherwise a party to an instrument, places thereon his signature in blank, before delivery, he is liable as an indorser in accordance with the following rules: '1. If the instrument is payable to the order of a third person, he is liable to the payee and to all subsequent parties.

'2. If the instrument is payable to the order of the maker or drawer, or is payable to bearer, he is liable to all parties subsequent to the maker or drawer.

'3. If he signs for the accommodation of the payee, he is liable to all parties subsequent to the payee.'

It is very clear that the requirement of these sections of the statute in this respect is, that one whose signature has thus been attached to a negotiable instrument, can be held to no other or greater liability than that of an indorser, unless he has, in appropriate language used for that express purpose, indicated an intention to be found in some other capacity. This intention is not to be inferred from conduct, or from language that is equivocal, much less from that which is consistent with an intent to assume only the secondary liability of an indorser, and not the primary liability of a maker.

It is true that the defendant and the two other indorsers were officers and stockholders of the company, as was also the decedent and payee of the note; that they were interested in the success of the corporation of which they were directors and stockholders; that they were, so to speak, managing directors, and as such were financing the affairs of the corporation. It appears that at a meeting in Camden for that purpose, held at the office of the company, at which all the directors, including decedent, were said to be present, it was proposed that a loan of $10,000 should be secured, in order to enable the company to finish a certain contract, for which they were to receive $16,000, as well as carry forward other business of the company. Just after the adjournment of this meeting, the payee of the note, Luckenbach, agreed to loan this money, and he afterwards gave a check for the same to one of the directors, upon condition that he should have delivered to him the note of the company, indorsed by the president thereof, and two of the directors, one of whom was the defendant. This check for $10,000 was forthwith deposited to the account and credit of the company, the maker of the note, and it is the uncontradicted evidence that it was used in the prosecution of the company's legitimate manufacturing work.

We think there is no evidence disclosed by the record, tending to show that anything else was contemplated by those who negotiated this loan, than that it was to be a loan to the corporation for the promotion of its business, for which the corporation was to be primarily bound by the promissory note which it made, and that the directors who loaned their credit by indorsement assumed the secondary liability of indorsers and none other. All the evidence is consistent with this statement of the transaction, and no other interpretation, it seems to us, can be given to it, unless, indeed, directors and officers of a corporation interested in its successful operation cannot, in negotiating a loan for the benefit of the corporation, insure its credit by assuming only the liability of indorsers of its negotiable paper. Such a proposition, of course, can be sustained neither by reason nor authority. In the present case, all the evidence tends to show that the payee of the note had no other thought than that the security he held for his note was what it purported to be on its face, i.e., the primary liability of the corporation, as maker, and...