Pharr v. Stevens , 124 Tenn. 669 ( 1911 )

Mr. Justice Lansden

delivered the opinion of the Court.

This bill is brought to recover of the defendants, W. S. Biles and Chas. L. Stevens, on the.following note.

“1500.00 Memphis, Tenn., 11-1-1908.

“On or before Jan’y 5, 1909, after date I promise to pay to the order of Harry N. Pharr five hundred dollars at Chickasaw Bank & Trust Co., value received, with interest at six per cent, per annum after maturity.

“[Signed] Chas. L. Stevens.”

And indorsed in blank before delivery, “W. S. Biles.”

Stevens had borrowed from complainant Pharr $500 some time before the note in question was given. The original note was renewed at different times. At the maturity of the last renewal before the one in question, complainant demanded security of Stevens before he would permit a renewal. Stevens executed the above note, and Biles indorsed it in blank by writing his name across its back before it was delivered to the complainant, Pharr. Complainant accepted the note upon the responsibility and reliability of the defendant Biles. The weight of the evidence is that complainant would not have renewed the note without the indorsement of some solvent party, and Biles’ indorsement was acceptable to him. The question presented is whether Biles is entitled to notice of demand, and protest at the maturity of the note, or whether he is liable as maker.

Before the passage of the negotiable instrument act ¡(Laws 1899; c. 94), there could be no question upon our authorities that Biles’ liability is that of maker. Bank v. Lumber Company, 100 Tenn., 480, 47 S. W., 85; Bank of Jamaica v. Jefferson, 92 Tenn., 538, 22 S. W., 211, 36 Am. St. Rep., 100; Assurance Society v. Edmonds, 95 Tenn., 53, 31 S. W., 168.

Indorsements of this kind are irregular, and the nature of the contract of such indorser has given rise to great divergence of/opinion in the cases. There are three distinct rules prevailing in different jurisdictions respecting the nature of such an indorser’s contract, known generally as the New York rule, the Pennsylvania rule, and the Massachusetts rule. It is not necessary to say more with this respect to these various rules than that the liability of such an indorser has been held to be that of an indorser, maker, surety, or guarantor. The authorities are set out in 7 Cyc., 664-666. The rule prevailing in this State prior to the passage of the negotiable instrument law was at least a modified form of the Massachusetts rule, whereby such an indorser is held to be maker, if his indorsement was given in order to procure credit for the maker with the payee. Still another rule prevailing in various jurisdictions is that the contract implied by such a signature is not fixed by the law merchant (to which it was not known), bnt depends upon the intention of the parties. While not so stated in terms, such was manifestly the rule applied in Bank v. Jefferson, supra, and Assurance Society v. Edmonds, supra.

With respect to this particular kind of contract, the negotiable instrument law of 1899 provides as follows:

“Sec. 63. A person placing Ms 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 bound 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 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.”

Under section 64, it would seem entirely clear that the liability of Riles is fixed as that of an indorser, at least until it is shown by evidence that he’intended to be bound in some other capacity. It is said that this is shown by the fact that Biles knew that the note in suit was a renewal of former indebtedness, and that complainant accepted it upon the faith of Biles’ indorsement. We do not think so. On the contrary, this clearly indicates that Biles’ intention was to be bound as surety for' Stevens, and not as maker of the note. It is not shown that Biles received any benefit from the proceeds of the note, or that Re waived any of Ris rigRts as indorser. It is trae tRat it is shown tRat at tRe time of tRe execution of tRis note, Biles and Stevens were somewhat intimate, and were interested togetlier in some land purcRases in Mexico. But tíiis, Ave tRink, falls short of showing tRat Biles intended to Re bound as maker.

Bank v. Busby, 120 Tenn., 652, 113 S. W., 390, is cited as an autkority for tRe proposition tRat tRe negotiable instrument law does not change tRe rule existing in this State prior to its passage with respect to contracts of this nature.. We think this is a mistaken view of that case. TRat case does hold that the real contract as disclosed by the transaction itself can be shown in parol as between the payee and the indorser. Under the facts of that case, the contract of the indorsers was Reid to be that of joint makers, whose liability was fixed without notice of dishonor. But the question presented here is met directly by the negotiable instrument law in express terms. Section 64 evidently contemplates a case where a party to the instrument places Ris signature in blank upon .it before delivery, and for the purpose of giving the maker credit with the payee. It is expressly declared tlxat his liability is that of an indorser in accordance with the three rules set out in that section. 7 Cyc., 673; Tool v. Crafts, 193 Mass., 110, 78 N. E., 775, 118 Am. St. Rep., 455; Deahy v. Choquet, 28 R. I., 338, 67 Atl., 421, 14 L. R. A. (N. S.), 847; Rouse v. Wooten, 140 N. C., 557, 53 S. E., 430, 111 Am. St. Rep., 875.

The court of civil appeals and the chancery took the view that this court had held otherwise than as above indicated in Bank v. Busby, supra, and rendered judgment against the defendant Biles in accordance with the prayer of the bill. The result is that the bill is dismissed with costs.