Montgomery v. Page

44 P. 689, 29 Or. 320, 1896 Ore. LEXIS 54

• Court: Oregon Supreme Court
• Decided: April 27, 1896
• Status: Published

Opinion

Opinion by

Mr. Justice Wolverton.

1. Plaintiff offered evidence of a verbal agreement with defendant of the nature set forth in his complaint, which was allowed by the court over the objections of defendant; and this constitutes the principal ground of error relied upon for reversal. This presents the question whether a person who, for the accommodation of the maker of a promissory note, guarantees the payment thereof by indorsement, waiving protest, demand, and notice of nonpayment, before delivery, can be shown to be a cosurety with one who signed upon the face as a joint and several maker, but in reality as a surety, unless, at the time of assuming the obligation, there existed an agreement in writing between them to become cosureties, and to share in the loss, if any. In Wade v. Creighton, 25 Or. 455, (36 Pac. 289,) it is decided that a third person indorsing a note, waiving protest, demand, and notice of nonpayment, before delivery, for the purpose of giving the maker credit, must be considered as a first indorser. The indorsement here partakes of the nature of a guarantee, whatever might be held to be its legal effect, whether absolute or conditional, or, as some of the authorities put it, an indorsement with an enlarged liability. The contract of a guarantor, as distinguished from that of a surety, is that the principal or obligor will pay. The surety’s obligation is to pay the debt. The latter’s undertaking is absolute, and is to do the same thing and upon like conditions as the principal, while the former’s insures the ability of the principal to perform, and is distinct and independent of the original contract. The contract of an indorser is also an independent undertaking, and, if demand, notice, and protest is waived, it creates an absolute liability to his immediate indorsee; an indorsement by a stranger, however, is irregular and anomalous, and the engagement thereof has been variously determined by different jurisdictions; and, as between the immediate parties, parol evidence is always admissible to free it of any ambiguity with which it may be attended: Tiedeman on Commercial Paper, §§ 272, 273. The great weight of authority substantiates the doctrine that parol evidence is admissible to show the true relation subsisting between the makers of a promissory note when contribution is sought, and this whether their subscription appears to be that of principals or sureties. The reason upon which the rule is founded is that the note itself is the measure of the contract between the makers and the payee, and- not between the makers themselves, and that their correlative and interdependent relations is a matter wholly collateral to the primary undertaking, so that parol evidence establishing such relations does not vary the terms thereof: 1 Brandt on Suretyship and Guarantee, §§ 29, 31; Williams v. Glenn, 92 N. C. 253 (53 Am. Rep. 416); Mansfield v. Edwards, 136 Mass. 15 (49 Am. Rep. 1); Water Power Company v. Brown, 23 Kan. 676; Barry v. Ransom, 12 N. Y. 462.

But can the true relations existing between makers and guarantors or indorsers, who are bound by different, distinct, and independent undertakings, be so shown? A leading case which would seem to support the affirmative of this proposition is Phillips v. Preston, 46 U. S. (5 How. 277,) which was an action by the first indorser against a second to compel contribution by virtue of a special agreement between them that they should each suffer one half the loss if any was incurred by reason of default by the maker. It was objected that the alleged special agreement was a verbal one, and could not be proven as in contravention of a written one between the parties or of the statute of frauds and perjuries. The court says, at page 291: “But the parol evidence here is not offered in any action on the note, or to alter its terms or its indorsements; nor is any prior or contemporaneous conversation offered to vary the note, or its indorsement in an action founded on either of them. But it is offered to prove a separate contract, which was made by parol, and is of as high a character as the law requires in such cases.” And it was accordingly held that parol testimony was competent to show the agreement. Weston v. Chamberlin, 7 Cush. 404, was a similar action between first and second indorsers, where it was said by Metcalf, J., “The authorities are decisive that the plaintiff ought to have been permitted to prove that, as between him and the defendant, they were, by virtue of a collateral agreement, cosureties. * * * Proof of such oral collateral agreement does not contradict nor vary the written agreement.' The two are distinct.” See also Clapp v. Rice, 13 Gray, 406. There it was held that the relations between the parties could be shown by parol to be that of cosureties, even if the plaintiffs had been promisors, and the defendant’s intestate an indorser.” And in Ross v. Espy, 66 Pa. St. 481, (5 Am. Rep. 394,) it was held that “The contract of indorsement is one implied by the law from the blank indorsement, and can be qualified by express proof of a direct agreement between the parties, and is not subject to the rule that excludes the proof to alter or vary the terms of an express agreement.” To the same effect see Dunn v. Wade, 23 Mo. 207, and McCune v. Belt, 45 Mo. 174. This latter case was an action by the drawer against an indorser. See also Sturtevant v. Randall, 53 Me. 149; Smith v. Morrill, 54 Me. 48; Coolidge v. Wiggin, 62 Me. 568; Denton v. Lytle, 4 Bush, 597, a case of drawer against indorser; Edelen v. White, 6 Bush, 408, also a case of drawer against indorser; Nurre v. Chittenden, 56 Ind. 462, a case of surety against indorser; Harshman v. Armstrong, 43 Ind. 126, also of surety against indorser; and Easterly v. Barber, 66 N. Y. 433.

The case of Johnson v. Ramsey, 43 N. J. Law, 280, (39 Am. Rep. 580,) is an authority against this doctrine, but it seems to stand alone so far as we have been able to discover, and no authorities are cited to support the view therein taken. However, the reasoning of Chief Justice Beasly is cogent and strong and is entitled to much weight. The learned chief justice argues that by the act of indorsement the indorser enters into a substantive indejpendent contract with the indorsee, and, although in blank, commercial law has fixed with absolute certainty the terms of the indorser’s engagement. They are, first, that the bill or note will be accepted or paid; second, that it is genuine; third, that it is a valid instrument; fourth, that the ostensible parties are competent; and, fifth, that he has lawful title and right to indorse. Such being the case, the undertaking is as much a written contract as though all the terms had been expressly stipulated, and the rule that a written contract cannot be varied by proof of an oral agreement to the contrary is equally applicable thereto. It may be conceded that snch is the law in all cases where it is sought to enforce the obligation thus assumed; that is to say, if the action is upon the bill or note, or the contract of indorsement, such bill, note, or contract, express or implied, is the measure of the recovery, and proof of an oral agreement cannot be invoked to add to, take from, or in any manner vary or change, its established legal import. But this' does not involve a contract between successive accommodation indorsers, or between an accommodation maker and such an indorser to stand as cosureties and to share in the loss if any should be incurred by the transaction. Such a contract is collateral to that arising from the execution of the note or the indorsement thereof. As it pertains' to successive indorsers, the law fixes their liability in the inverse order of their indorsement. This is the result flowing from regular indorsements. If, however, the indorsements are irregular, that is to say, they have been made by third parties, not to affect a transfer of the paper, but to create a liability for the accommodation of some one or more of the parties thereto, the law attaches to the transaction a presumption only, not an absolute result. This presumption is differently declared in different jurisdictions.

This court, in harmony with the New York doctrine, has declared such an indorser to be prima facie a second indorser, and is visited with the engagements that attach to such an obligation: Deering v. Creighton, 19 Or. 120, (24 Pac. 198, 20 Am. St. Rep. 800,) but, even in an action by the payee, this presumption may be rebutted, and he may be shown to be a first indorser, with the attendant obligations. See Wade v. Creighton, 25 Or. 455 (36 Pac. 289). So it has been held, as touching irregular indorsements, that, as between the maker or drawer and indorser, or a surety and indorser, or as between successive indorsers, the presumption which the face of the transaction imports may, as between accommodation parties to the paper, be rebutted, and their true relation shown to be that of cosureties. Thus it was held in McNeilley v. Patchin, 23 Mo. 43 (66 Am. Dec. 651), “ When two or more persons are sureties for another, the law implies a promise from each to contribute equally toward any loss which may be occasioned thereby. If they become sureties by successive indorsements on mercantile paper,— as that is a form of contract, which, in general, binds the first to indemnify the second,— the law presumes that they mean to stand as they have placed themselves. But if there was an agreement between them to become indorsers for the accommodation of the drawer, the latter presumption is removed, and the original one restored.” So it is said in Sweet v. McAlister, 4 Allen, 354, “ Nothing can be plainer than that, in the absence of any proof to the contrary, the parties to a promissory note are liable on it according to the legal effect of the instrument; that is to say, the maker is liable to the payee and indorsees, the payee to the indorsees, and each indorser to the subsequent indorsees. It may be proved by parol that the relation of the parties to each other is different from this; for example, that the payee or indorsee was the real principal, or that all the parties were joint principals, or some of them joint sureties,” citing Clapp v. Rice, 13 Gray, 406. There must have been, however, at the time of entering into such relations, a contract or agreement between the accommodating parties, either express or implied, to become cosureties, and to share in the loss which might result from the obligations assumed, as without it the law fixes their engagements, and the mere fact that they have become parties for accommodation cannot change the result: McDonald v. Magruder, 28 U. S. (3 Pet. 476); McCarthy v. Roots, 62 U. S. (21 How. 437); McCune v. Belt, 45 Mo. 178; Stillwell v. How, 46 Mo. 589; Kirschner v. Conklin, 40 Conn. 81; Hogue v. Davis, 8 Gratt. 4. So it is that testimony of such a verbal agreement is allowed to rebut a presumption, and to prove a collateral fact, and the reasoning which supports an action upon a verbal collateral agreement between cosureties who become joint or joint and several makers for the accommodation of the principal also supports the action between successive accommodation indorsers, or between the drawer or a surety and the indorser. Coming now to the case in hand, the defendant’s obligation is apparently that of a guarantor, but there is no reason why the true relation existing between him and a surety may not be shown as well as if he was an indorser. Both are substantive, independent contracts, as they relate to the note itself. Primarily, they constitute contracts with the payee, and presumptively between the accommodation parties, but in reality are subservient to any special contract entered into between the accommodating parties to be bound, inter sese, as cosureties.

2. But it is argued that defendant, as guarantor, is not jointly bound with plaintiff as surety or joint and several maker for the payment of the note, and hence they cannot be treated as cosureties, as the obligations of cosureties must be joint and not separate and successive. If, however, the special collateral agreement alleged to have been entered into between plaintiff and defendant is to stand as between themselves as cosureties, and is valid, and we have seen that it is, they are joint obligors as it concerns the collateral undertaking, while they may not be as it pertains to the payee, and this is sufficient to support the action.

3. A second contention is that there is no evidence showing any agreement between plaintiff and defendant such as set out in the complaint; but there was evidence offered which, to say the least, tended in some measure to establish the agreement, and the court below having specially found that such an agreement did exist, in the absence of a motion for nonsuit against plaintiff, we cannot look into the evidence or disturb the finding. The judgment of the court below will be affirmed. Affirmed.