New York Law Review

Tag: Indorser Liability

  • Greene v. Bates, 74 N.Y. 333 (1878): Agreement to Suspend Action Discharges Indorser

    Greene v. Bates, 74 N.Y. 333 (1878)

    An agreement to suspend the right of action on a promissory note, made without the consent of an indorser, discharges the indorser from liability.

    Summary

    This case concerns the discharge of an indorser on a promissory note due to an agreement between the holder, the maker, and a third party to suspend the right of action on the note. Hurd, the holder of the note, Greene, the plaintiff, and McIntosh, the maker, agreed that Greene would purchase the note and secure the purchase price with a new note. The original note was to be held in escrow until Greene’s note matured. The court held that this agreement, made without the consent of Bates, the last indorser, effectively suspended Hurd’s right of action against McIntosh, thereby discharging Bates from liability. This is because the agreement altered the original contract’s terms to which Bates was bound as an indorser.

    Facts

    McIntosh made a promissory note, which was subsequently indorsed by Fischer and then Bates. Hurd became the holder of the note, which was past due. At McIntosh’s request, Greene agreed to purchase the note from Hurd, securing the purchase price with his own note payable at a later date. As part of this arrangement, McIntosh assigned a bond and mortgage to Greene as security. The original note, along with the bond and mortgage, were deposited with Shoecraft, an attorney, until Greene’s note matured. Fischer paid the costs of a foreclosure action that McIntosh had commenced on the mortgage, and the foreclosure was abandoned.

    Procedural History

    The case originated in a lower court, where Greene, after taking possession of the original note, sued Bates, the indorser, for payment. The lower court’s decision was not specified in the provided text, but the case eventually reached the New York Court of Appeals.

    Issue(s)

    Whether the agreement between Hurd, Greene, and McIntosh to suspend the right of action on the promissory note until the maturity of Greene’s note, without Bates’s consent, discharged Bates, the indorser, from liability.

    Holding

    Yes, because the agreement to suspend the right of action on the note, made without the consent of Bates, the indorser, discharged him from liability.

    Court’s Reasoning

    The court reasoned that the arrangement between Hurd, Greene, and McIntosh effectively suspended Hurd’s right of action against McIntosh until Greene’s note matured. The court emphasized that all parties, including McIntosh and Fischer, were present when the agreement was made. The court stated, “It was clearly a mutual arrangement between all these parties by which the pressure of Hurd was to be removed; he was to get his pay from Greene, and the receipt and negotiation of Greene’s note payable at a future day clearly bound him to suspend proceedings until the maturity of that note.” The court found consideration for the suspension in the additional security of Greene’s note. Since Bates was not consulted and no measures were taken to preserve his liability as an indorser, the court held that Bates was discharged. Had Bates taken up the note as indorser, he would have been bound by Hurd’s agreement. The court highlighted the importance of protecting the indorser’s rights: “In this arrangement the rights of Bates the appellant do not appear to have been at all considered. He was not consulted and no measures were taken to preserve his liability as’ indorser… Under these circumstances he was discharged.”

  • Bank of Commerce v. Clark, 1852 N.Y. LEXIS 397 (1852): Sufficiency of Notice of Dishonor to Charge Indorser

    1852 N.Y. LEXIS 397

    A notice of dishonor to an indorser of a promissory note must reasonably apprise the party of the particular paper upon which he is sought to be charged to be considered sufficient.

    Summary

    This case addresses the sufficiency of a notice of dishonor given to the indorser of a promissory note. The Bank of Commerce sought to hold Clark, an indorser, liable on a dishonored note. Clark argued that the notice of dishonor was inadequate. The Court of Appeals reversed the lower court’s judgment, holding that the notice provided was insufficient because it did not adequately identify the specific note, potentially causing confusion for an indorser who handles numerous notes. The decision underscores the requirement for a notice of dishonor to contain enough identifying information to reasonably inform the indorser of the specific instrument at issue.

    Facts

    The Bank of Commerce was the holder of a promissory note on which Clark was an indorser. When the note was not paid at maturity, the bank sent Clark a notice of dishonor. The notice informed Clark that a note on which he was an indorser had been protested for non-payment. Clark argued that the notice was insufficient to charge him as an indorser because it lacked specific details, such as the maker’s name, date, and amount, necessary to identify the particular note among potentially many notes he might have indorsed.

    Procedural History

    The Bank of Commerce brought suit against Clark to recover on the dishonored note. The lower court ruled in favor of the Bank of Commerce, finding the notice of dishonor to be sufficient. Clark appealed to the New York Court of Appeals.

    Issue(s)

    Whether a notice of dishonor to an indorser is sufficient if it fails to specify key details of the promissory note, such as the maker’s name, date, and amount, potentially leading to confusion if the indorser has endorsed multiple notes?

    Holding

    No, because the notice must reasonably apprise the indorser of the specific note in question; a vague notice lacking key details is insufficient to hold the indorser liable.

    Court’s Reasoning

    The Court of Appeals reasoned that the notice of dishonor was deficient because it lacked sufficient identifying information to allow Clark to reasonably identify the specific note at issue. The court emphasized that while no precise form is required for such notices, they must adequately inform the indorser of the particular paper upon which they are being held liable. The court acknowledged prior cases where imperfect notices were deemed sufficient, but distinguished those cases by noting that in those instances, additional facts clarified the notice’s intent and left no room for ambiguity. Here, the court found that without details like the maker’s name, date, or amount, Clark, who likely indorsed multiple notes, would not reasonably be able to connect the notice to a specific instrument. The court stated: “If so much is not required, the giving of any notice is a useless formality.” The court concluded that the notice failed to meet the minimum requirement of reasonably apprising the party of the specific paper involved, thus the judgment was reversed.