Story Case

Nels Axelson, a carpenter employed by Frank Browning on a small job, was paid by Browning with a check for $4.75. Axelson stopped at the shoe store of his friend, Larson Martin, who gave him money for the check. Axelson was told that he must write his name on the back of the check. He complied with this request, thinking this was the end of the matter. Martin carried the check to his bank the next day, but it refused to cash the check, making the statement that Browning had heavily overdrawn his account. Martin at once saw Browning, who also refused to pay the check, saying that he had no money. On the same day, Martin mailed a letter to Axelson, telling him that both the bank and Browning had refused to pay the check, and that Martin would expect him, Axelson, to reimburse him. Axelson became angry, asserting that he had completed the work and received only what he was entitled to, and would not return anything to Martin. Martin brought suit against Axelson. Can he recover?

Ruling Court Case. Mcneilly Vs. Patchin, Volume 23 Missouri Reports, Page 40. Volume 66 American Decisions, Page 651

One Clarkson had made a note which he wished to have discounted by one Thompson, to whom he owed money. Patchin had indorsed the note for Clarkson's accommodation, but Thompson refused to discount, unless Clarkson secured McNeilly's indorsement also. Clarkson, accordingly, secured McNeilly's indorsement to follow that of Patchin. Both knew that each was an accommodation indorsee. Thompson discounted the note, but it was not paid by Clarkson at maturity; the holder, thereupon, notified McNeilly, who was compelled to pay the note. He then sued Patchin, his prior indorser.

Patchin contended that he was not liable to McNeilly because he was a mere accommodation indorser, which fact was known to McNeilly when he became indorser.

Decision: The liability of an indorser of a bill or note is secondary; that is, the indorser promises his, and every subsequent indorsee before maturity, that he will pay the instrument, if due diligence is exercised to secure payment from the person of primary liability. In this case, due diligence was exercised, but the maker did not pay. Consequently, each indorsee who is compelled to pay it may recover from his prior indorser. McNeilly is, therefore, entitled to recover the amount of this note from Patchin.

Mr. Justice Eyland said: "The first indorser undertakes that the maker shall pay the note, or that he will pay it, if due diligence be used, for him. This undertaking makes him responsible to every holder, and to every person whose name is on the note subsequent to his own, and who has been compelled to pay the amount." Judgment for McNeilly.

Ruling Law. Story Case Answer

An indorser of a negotiable instrument is one who, having title to the instrument, passes that title to another person, known as the indorsee. This he does by writing his name on the back of the instrument, either in blank, or by directing payment to some special person. By indorsing the instrument, this person, the indorser, becomes a party of secondary liability. He promises his indorsee and all subsequent indorsees, that he will pay the same, in case the party of primary liability does not, provided due diligence is exercised in the attempt to collect from the party of primary liability. He, therefore, engages that the party of primary liability will accept and pay the instrument if properly presented, and assumes the obligation of the instrument, in case the party of primary liability dishonors the same.

Martin is strictly within his legal rights in suing Ax-elson. Moreover, it is the natural thing that, in cashing the check, he should rely more fully on the integrity of his friend Axelson than on that of Browning, of whom he may never have heard. The law makes this reliance effective, because the transfer of the instrument also imposes a liability to settle for it. Writing the name is both an assignment and a contract. The formalities of presentment and notice of dishonor were complied with, when Martin mailed the letter to Axelson. Axelson is liable to Martin for the amount of the check, with legal interest from the day that it was presented and should have been paid. Martin should be given judgment.