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(- Okla. - 174 Pac. 505.)

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Bills and notes indorsement sub

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sequent agreement for release from liability.

7. The holder of a note who indorsed it and recovered possession of it may, in transferring it a second time, agree to relieve himself from the legal effect of the indorsement previously made by him.

[See 3 R. C. L. 1157, 1158.] Indorsement-varying by parol.

8. An indorsement of a promissory note at the time of its transfer by the indorser amounts in law to a contract in writing, which cannot be varied by a prior or collateral oral agreement. [See 3 R. C. L. 1156.]

ERROR to the County Court for Custer County to review a judgment in favor of plaintiff in an action brought to recover the amount alleged to be due on two promissory notes. Reversed.

The facts are stated in the Commissioner's opinion.

Mr. T. W. Jones, Jr., for plaintiff in

error:

The decision of the court is not supported by the evidence and is contrary to law.

Lambert v. Smith, 53 Okla. 606, 157 Pac. 909; Dunkin v. Waurika Nat. Bank, · Okla. 162 Pac. 788; Gault v. Kane, 44 Okla. 763, 145 Pac. 1128; Cedar Rapids Nat. Bank v. Bashara, 39 Okla. 482, 135 Pac. 1051; Metropolitan Discount Co. v. Davis, Okla.

A.L.R. 170 Pac. 707; Shaffer v. Govreau, 36 Okla. 267, 128 Pac. 507. Judgment should have been for defendant, whether the instrument was negotiable or non-negotiable.

1 Dan. Neg. Inst. 6th ed. § 47, p. 59; Rossville State Bank v. Heslet, 84 Kan. 315, 33 L.R.A. (N.S.) 738, 113 Pac. 1052; Union Stock Yards Nat. Bank v. Bolan, 14 Idaho, 87, 125 Am. St. Rep. 146, 93 Pac. 508; Woodbury v. Roberts, 59 Iowa, 348, 44 Am. Rep. 685, 13 N. W. 312; Smith v. Van Blarcom, 45 Mich. 371, 8 N. W. 90; Coffin v. Spencer, 39 Fed. 262; Oyler v. McMurray, 7 Ind. App. 645, 34 N. E. 1004; Second Nat. Bank v. Wheeler, 75 Mich. 546, 42 N. W. 963; Citizens Nat. Bank v. Piolett, 126 Pa. 194, 4 L.R.A. 190, 12 Am. St. Rep. 860, 17 Atl. 603; Matchett v. Anderson Foundry & Mach. Co. 29 Ind. App. 207, 94 Am. St. Rep. 272, 64 N. E. 229; City Nat. Bank v. Gunter Bros. 67 Kan. 227, 72 Pac. 842; Steele v. Hudson, 30 Okla.

518, 120 Pac. 616; Pattee Plow Co. v. Beard, 27 Okla. 239, 110 Pac. 752, Ann. Cas. 1912B, 704.

Messrs. Eugene Forbes and A. E. Darnell, for defendant in error:

A qualified indorsement cannot be made orally, nor parol evidence be offered of such an indorsement without violating the elementary principle which prohibits the introduction of parol evidence to alter, vary, or contradict the terms of a valid written instrument.

Second Nat. Bank v. Woodruff, 113 Ill. App. 6; Chapman v. Chapman, 132 Iowa, 5, 109 N. W. 300; Torbert v. Montague, 38 Colo. 325, 87 Pac. 1145; Crilly v. Gallice, 78 C. C. A. 525, 148 Fed. 835; Franklin v. Browning, 54 C. C. A. 258, 117 Fed. 226.

Stewart, C., filed the following opinion:

The plaintiff brought action against the defendant on two promissory notes made by the defendant J. Johnson, payable to the order of the defendant H. H. Clark, and by the payee transferred after maturity to the plaintiff, alleging, as a cause of action against the payee: "That at the time of the sale and transfer of said notes by said H. H. Clark to this plaintiff, the said H. H. Clark represented to this plaintiff that there was absolutely noth

ing wrong with the said notes, and that there were no defects or infirmities about them, nor any equities existing between the said H. H. Clark and the said defendant J. Johnson, maker of the notes."

It is nowhere alleged that the notes were indorsed by H. H. Clark, or that any of the representations alleged to have been made by the said H. H. Clark had failed or were in any respect untrue. Each of the defendants was duly served with summons, and, defendant J. Johnson defaulting, the court, on request of the plaintiff, rendered judgment against Johnson for the full amount due on said notes. The defendant H. H. Clark filed separate demurrer, on the ground that the petition did not state a cause of action against him, which demurrer was by the court overruled, exceptions being preserved. Thereafter he filed separate answer, and, on a hearing before the court without a jury, judgment was rendered in favor of the plaintiff and against the defendant H. H. Clark, for the same sum as the judgment theretofore rendered against the maker of the notes. The judgment against Clark shows on its face to have been rendered November 23, 1916, motion for a new trial having been filed by Clark on November 25, 1916. The plaintiff filed motion to strike the motion for a new trial from the files, for the alleged reason that the same was not filed within three days after the rendition of the judgment. On the same day the plaintiff also filed what was styled application for order nunc pro tunc to correct the record, and show that the judgment was rendered on the 15th day of November, 1916, and not on the 25th day of such month. The court overruled both of the motions of the plaintiff. The motion for new trial was also overruled, and the defendant H. H. Clark duly appeals. The plaintiff did not appeal, and has assigned no error in this court. The defendant Clark urges as error: (1) The overruling of his demurrer to the petition; (2) the overruling of his

demurrer to plaintiff's evidence; (3) overruling his motion at the close of the testimony for judgment against the plaintiff in favor of the defendant.

ranty of note.

From a careful reading of the petition we are at a loss to understand upon what theory the pleader expected to establish liability on the part of Clark. It is not alleged that Clark in due course, before maturity, indorsed the notes, or that he indorsed the notes at all, it being only alleged that he guaranteed that the notes were without defects, infirmities or equities existing between the maker and the payee, an allegation which was wholly unnecessary, in that, under § 4115, R. C. L. 1910, such warranty would be implied by a transfer of the notes by delivery, and need not have been expressed, either orally or in writing. Before, however, a cause of action would lie against Clark on account of a breach of warranty, either express or implied, it would be necessary for there to be an allegation in the peti- Pleadingtion, showing that special warthe warranty had failed in some material respect to the plaintiff's damage. There are no allegations which, either in terms or by intendment, meet this necessary prerequisite. The action is not lodged against Clark as an indorser, but it is sought to make him liable merely because of the representations alleged to have been made, and without an averment that they are untrue or have failed. We are, therefore, inclined to hold that the court was not in error in overruling the demurrer to the petition of plaintiff, unless it may be said that the petition was not vulnerable to a general demurrer, for the reason that copies of the notes were attached to and made a part of the petition, and that the first note shows to have been indorsed without qualification. Credits on the note at the time of the transfer from Clark to the plaintiff, about which there is no dispute either in the pleadings or in the evidence, show that the entire

(— Okla., 174 Pac. 505.)

principal of the first note, and also a portion of the interest, had been paid at the time of such transfer. The second note does not bear the indorsement of Clark, but it might be contended, with some show of merit, that the petition states a cause of action for the slight balance due on the first note, and that therefore a general demurrer would not lie. The plaintiff in error, however, calls attention to Grimes v. Tait, 21 Okla. 361, 99 Pac. 810, and to Shaffer v. Govreau, 36 Okla. 267, 128 Pac. 507, as holding that "in an action upon a promissory note by an indorsee against an indorser, the petition must allege notice of dishonor by the maker or such facts as excuse a notice of dishonor."

And in this connection it is suggested that the petition does not contain such an allegation. We do not take issue with counsel, nor with the authorities cited, but, on examination of the notes, we find that they each contain a waiver of presentment for payment, notice of payment, protest, and notice of protest. Such waiver incorporated in the note is binding upon the makers and indorsers, and hence constitutes sufficient reason to excuse notice of dishonor. The petiBills and notes- tion, though defecwaiver of notice. tive, might, therefore, be construed to state a cause of action as to the balance due on the note, which shows to have been indorsed, if it were not for other averments in the petition. From the petition itself we discover that the notes were in the bank at the time of the transfer; that no indorsements were made at such time by Clark, but that he merely ordered the bank to deliver such notes to the plaintiff. It is the settled law of this state that a written contract may be altered by a subsequent written contract or by a Contract-subse- subsequent executed quent alteration. oral contract. The petition shows that the contract between Clark and the plaintiff was executed and was oral; that as a part of such contract the extent of

agreement for

Clark's liability on the notes was agreed upon; that is to say, that any warranty that might be implied from the written indorsement previously made was limited to defects, infirmities, and equities existing between him and the maker of the note. The fact that the plaintiff in his petition pleaded such as the only warranty which Clark made, and the only liability which he assumed in making the transfer, excludes the plaintiff from any claim that Clark is liable because of the previous indorsement made by him. It was perfectly proper and lawful, in making the con- Bills and notestract with the plain- indorsementtiff, for Clark, by subsequent express agreement, release from liability. to relieve himself from the legal effect of the indorsement previously made by him. If the indorsement had been made at the time of the transfer of the notes from Clark to the plaintiff, the parol agreement would have become merged in the legal effect of indorsement, the same amounting in law varying by to a contract in writing which could not be varied by a prior or collateral parol agreement. But the indorsement having been made in the past, the executed parol contract affecting the same, pleaded by the plaintiff, was binding and effective. We conclude that the peti- Pleadingtion does not state representations by payee. a cause of action against Clark, and that the demurrer thereto should have been sustained.

Indorsement

parol.

Nor does the evidence introduced show any ground for relief against Clark. There is no evidence of any outstanding defects, infirmities, or equities existing between Clark and the maker of the notes, and nothing to show that the validity of the notes was in any sense impaired. plaintiff is not shown to have been damaged by any act or representation of Clark. The record shows that he obtained a judgment against Johnson, the maker of the notes for

The

the full amount due thereon. It may be that the judgment against Johnson is not collectable; but, unless Clark can be made liable as an indorser, the plaintiff is without remedy as against Clark, and there is certainly nothing in the pleadings or in the evidence showing any such liability on the part of Clark. The evidence shows that the indorsement made on the first note was made by Clark at a time when he pledged such a note to the bank as collateral for his own obligation; that the other note had been merely placed in the bank for safekeeping; that, the principal obligation for which the first note was collateral having been settled with the bank, the title and the constructive possession of each of the notes became again vested in Clark. Not having indorsed the second note, in no event could he be held liable for the payment of the same, and for the reasons set forth in plaintiff's petition

Bills and noteslimited indorsement.

he could not be held liable as an indorser for the balance due

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not brought about by the careless pleading of his attorney. Clearly, according to the plaintiff's own testimony, Clark did not intend, and the plaintiff did not expect him, to warrant or guarantee payment of the notes at the time the trade was made. The defendant Clark was entitled to judgment in his favor.

The plaintiff argues that the court should have stricken the motion for a new trial from the files, but as the plaintiff has not appealed from the action of the trial court, or made any cross assignment of error, this court absence of cannot consider any assignment of objection urged to

Appeal

error.

the overruling of plaintiff's motion to strike. The action of the trial court on such motion has become final.

This cause is reversed, with directions to set aside the judgment rendered against the defendant H. H. Clark, and to render judgment in his favor and against the plaintiff, and that the judgment against the defendant J. Johnson be allowed to stand as rendered.

Per Curiam:
Adopted in whole.

NOTE.

The court in the reported case (CLARK V. SALLASKA, ante, 746) engrafts an unusual exception upon the rule excluding evidence to vary or explain an indorsement. The decision in that case, in effect, is that, upon the transfer of a note, the transferer may adopt an indorsement made by him in the past for another purpose, and limit the scope of his liability thereon by what is termed an executed parol contract. The admissibility of parol evidence to vary or explain the contract implied from an indorsement is discussed in the note, post, 764.

(167 N. C. 600, 83 8. E. 585.)

R. H. SYKES et al., Trustees, etc., of G. C. Farthing,

V.

R. O. EVERETT, Appt.

North Carolina Supreme Court-November 25, 1914.

(167 N. C. 600, 83 S. E. 585.)

Evidence-parol- to explain indorsement.

1. As between the original parties to an indorsement of a promissory note, parol evidence is admissible to show what the actual contract between them, as evidenced by the indorsement, was.

[See note on this question beginning on page 764.]

-failure to object · waiver.

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2. Failure to object to the introduction of evidence to show a contract different from that implied from an indorsement of negotiable paper waives the objection.

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upon the principal debt, in the ab-
sence of any stipulation to that effect.
[See 21 R. C. L. 685.]
Bills and notes
collateral

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- agreement to look to effect.

9. An agreement by an indorsee of a note not to look to the indorser until he has exhausted collateral is binding. Principal and surety

surety.

obligation of

10. A surety undertakes primarily to pay if the debtor does not. [See 21 R. C. L. 946.] Bills and notes dorser.

obligation of in

11. An indorser of a note undertakes to pay if the maker does not after due notice of the dishonor.

[See 3 R. C. L. 1148.] -obligation of guarantor.

12. A guarantor of a note undertakes to pay if the maker cannot. [See 3 R. C. L. 1160.]

- exhaustion of collateral.

13. An indorser of a promissory note who undertakes to pay when collateral is exhausted can be held liable only for what cannot be collected out of the collateral.

-

[See 21 R. C. L. 667.]

- agreement to look to collateral consideration.

14. An agreement to exhaust the collateral before looking to the indorser, made by the indorsee at the time of taking a promissory note by indorsement and as part of the transaction, is supported by sufficient consideration.

Evidence

burden of proof

solvency of estate.

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15. An indorsee of a promissory note upon condition that he will exhaust the collateral before looking to the indorser has the burden of show

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