Nat'l Exch. Bank of Albany v. Lester

• Decision Date: 05 March 1909
• Citation: 194 N.Y. 461,87 N.E. 779
• Parties: NATIONAL EXCHANGE BANK OF ALBANY v. LESTER.
• Court: New York Court of Appeals Court of Appeals

194 N.Y. 461

87 N.E. 779

NATIONAL EXCHANGE BANK OF ALBANY

v.LESTER.

Court of Appeals of New York.

March 5, 1909.

Appeal from Supreme Court, Appellate Division, Third Department.

Action by the National Exchange Bank of Albany against William Lester. From a judgment for plaintiff affirmed by the Appellate Division (119 App. Div. 786,104 N. Y. Supp. 418), defendant appeals. Reversed.

The defendant was sued as the accommodation indorser upon a note for $375 made by one Frank L. Fancher and acquired by the plaintiff bank before maturity in the regular course of its business. The defense was that the note as originally made and indorsed was for $75 only; that the maker thereafter, without the knowledge or consent of the indorser, altered the note by inserting in the body thereof the words ‘three hundred’ immediately in front of the words ‘seventy-five’ and the figure ‘3’ immediately in front of the figures ‘75,’ thereby making the instrument apparently a note for $375 instead of $75; and that the maker thereafter caused the note as thus altered to be discounted by the plaintiff bank. The answer prayed judgment that the complaint be dismissed except as to the amount of the note before alteration, together with interest and protest fees, to wit, $78.66. The defendant also served an offer to allow the plaintiff to take judgment for that amount. Upon the trial the court charged the jury that, if the note indorsed by the defendant was in fact a note for $375 on its face, the plaintiff was entitled to recover that amount and interest.

The trial judge further charged the jury that if they found that there were spaces upon the note ‘so carelessly and negligently left by this indorser, Mr. Lester, that a person having custody of the note might run in a figure 3 and the words ‘three hundred’ so as not to occasion in the mind of the indorser [evidently meaning indorsee] any inquiry into its validity,' they might find that the indorser conducted himself carelessly and negligently in the premises, and thus invited the liability which the face of the note called for when presented to the bank. The defendant duly excepted to that part of the charge to the effect that, if the defendant was negligent in leaving blank spaces, the jury must find a verdict for the plaintiff for the full amount of the note as it stood. The court then reiterated the proposition, saying that, ‘if the jury find that the defendant was careless and negligent in leaving vacant spaces for the words and figures, such carelessness and negligence on his part would still make him liable for the note’; and to this the defendant also excepted.

The jury found for the plaintiff in the sum of $375, with interest. The judgment entered upon the verdict has been unanimously affirmed by the Appellate Division.

W. A. Hendrickson, for appellant.

Frederick Townsend, for respondent.

WILLARD BARTLETT, J. (after stating the facts as above).

As this case went to the jury, they might well have found that the note in suit was a note for only $75 when originally prepared by the maker and indorsed at his instance by the defendant, and that it had subsequently been altered to a note for $375 when discounted by the plaintiff bank. They were instructed in substance, however, that the indorser was liable for the amount of the note as raised by the alteration, if he had been careless and negligent in placing his name upon the instrument while there were spaces thereon which permitted the insertion of the words and figure whereby it was transmuted from a note for $75 into a note for $375. Conceding that the contract which he actually signed bound him only to pay the smaller amount, the jury were permitted to find that in consequence of his negligence in the respect indicated it had become a contract which bound him to pay the larger amount to a subsequent innocent holder of the paper.

In support of the correctness of this ruling, 28a note of the latter class that we have to asserts the doctrine that ‘a party to a note who puts his name to it in any capacity of liability, when it contains blanks uncanceled facilitating an alteration raising the amount, is liable for the face of the note as raised to an innocent holder for value’; and he declares that this doctrine has been approved and apparently adopted in Alabama, California, Colorado, Illinois, Kansas, Kentucky, Louisiana, Michigan, Missouri, Nebraska, and Pennsylvania. In considering his proposition, it is important to bear in mind a radical distinction which exists between two classes of notes to which the adjudicated cases relate: (1) Those notes in which obvious blanks are left at the time when they are made or indorsed, of such a character as manifestly to indicate that the instruments are incomplete until such blanks shall be filled up; and (2) those notes which are apparently complete, and which can be regarded as containing blanks only because the written matter does not so fully occupy the entire paper as to preclude the insertion of additional words or figures or both. It is a note of the latter class that we have to deal with here. One who signs or indorses a note of the first class has been held liable tol bona fide holders thereof, in some of the cases cited by the respondent, according to the terms of the note after the blanks have been filled, on the doctrine of implied authority, while in other cases, relating to notes of the second class, the liability of the maker or indorser for the amount of the note as increased by filling up the unoccupied spaces therein is placed upon the doctrine of negligence or estoppel by negligence. The cases cited by respondent in which parties to commercial paper executed by them while obvious blanks remained unfilled thereon have been held liable upon the instrument as completed by filling out such blanks, on the ground of implied authority, require no further consideration here, as there is no suggestion that there was any blank of this character upon the note in suit. These cases are Winter & Loeb v. Pool, 104 Ala. 580, 16 South. 543;Statton v. Stone, 15 Colo. App. 237, 61 Pac. 481;Cason v. Grant Co. Deposit Bank, 97 Ky. 487, 31 S. W. 40,53 Am. St. Rep. 418;Weidman v. Symes, 120 Mich. 657, 79 N. W. 894,77 Am. St. Rep. 603. There were obvious blanks also in the notes under consideration in Visher v. Webster, 8 Cal. 109, and Lowden v. National Bank, 38 Kan. 533, 16 Pac. 748, and the decision in each of these cases appears to have proceeded upon the doctrine of implied authority rather than negligence.

It must frankly be conceded, however, that the respondent finds support for the doctrine which it asserts in the case at bar in the decisions of Pennsylvania, Illinois, and Missouri, so far as the marker of commercial paper is concerned, and in those of Kentucky and Louisiana, in respect to the liability of a party who has indorsed or become surety upon a note in which there were spaces (not obvious blanks) that permitted fraudulent insertions enlarging the amount. Garrard v. Haddan, 67 Pa. 82, 5 Am. Rep. 412;Yocum v. Smith, 63 Ill. 321, 14 Am. Rep. 120;Scotland Co. Nat. Bank v. O'Connel, 23 Mo. App. 165;Hackett v. First Nat. Bank of Louisville, 114 Ky. 193, 70 S. W. 664;Isnard v. Torres & Marquez, 10 La. Ann. 103.

In Garrard v. Haddan, supra, a space was left between the words ‘one hundred’ and the word ‘dollars' in which ‘fifty’ had been inserted after the maker had signed and delivered it; and the court held the maker answerable to a bona fide holder for the full face of the note as altered on the ground of the negligence of the maker in leaving the space in the note which was thus filled up after execution. ‘We think this rule is necessary,’ said Chief Justice Thompson, ‘to facilitate the circulation of commercial paper, and at the same time increase the care of drawers and acceptors of such paper and also of bankers, brokers, and others in taking it.’ It is a little difficult to see how the rule tends to make bona fide purchasers more careful, as this last observation suggests.

The case of Yocum v. Smith, supra, held the maker liable upon a note which had been raised after execution from $100 to $120; the words ‘and twenty’ having been inserted in a space left between the word ‘hundred’ and the word ‘dollars.’ The court said that the maker had acted with unpardonable negligence in signing the note and leaving a blank which could so easily be filled; that he had thus placed it in the power of another to do an injury; and that he must, therefore, suffer the resulting loss. This decision undoubtedly sustains the position of the respondent, although there was another element of negligence in that case which is not present here. It appeared that the maker there was informed by letter by the purchaser, very soon after the date of the note, that he had bought it and of its date and amount; yet he made no objection as to the amount until nearly a year later.

In Scotland Co. Nat. Bank v. O'Connel, supra, the defendants executed and delivered a note for $100 to one Smith, the body of which was in his handwriting, in a condition which enabled him to add the words ‘thirty-five’ after ‘one hundred’ in the written part and put the figures ‘$135’ at the head of the note in the space where the amount is usually indicated by figures. The St. Louis Court of Appeals held that the defendants were liable for $135 because they had delivered the note to Smith, who was their co-maker, ‘in such a condition as to enable him to fill blank spaces without in any manner changing the appearance of the note as a genuine instrument.’

The cases thus far discussed were all of them actions against the makers of the raised paper. The same rule, however, was applied against an indorser in Isnard v. Torres & Marquez, supra, by the Supreme Court of Louisiana under the following circumstances: Marquez indorsed a note for $150 for the accommodation of Torres. The amount was raised to $1,150, and purchased...