Story Case

For many years Carey Hutchinson had been in the business of erecting a special type of factory building. A part of this business he handled through a corporation called the Millarch Construction Company, of which he was the principal stockholder. In the settlement of an account which he owed to the Lowell Cement Company, for materials, he gave it a note of the Millarch Construction Company, payable to him, and by him indorsed. Shortly before its maturity, one of his orders sent to the Lowell Cement Company was accompanied by a letter which said that he had decided, on account of the poor financial conditions of the Millarch Construction Company, to apply immediately for its dissolution. He stated that it was hopelessly insolvent but that he expected to provide enough to make a satisfactory composition with creditors and that he hoped he would receive favorable credit in conducting the business in his individual capacity. Relying on this letter, the Lowell Cement Company made no attempt to collect from the Millarch Construction Company the note which it held, but presented it to Hutchinson with a demand that he pay, according to his indorsement. This he failed to do and suit was brought. The defense was maintained that there had been no valid presentment to the primary party, in order to create the liability of the indorser. Is this defense open to Hutchinson under the circumstances?

Ruling Court Case. Adams Vs. Leland, Volume 30 New York Reports, Page 309

A partnership by the name of Seymour, Moore & Company made a promissory note payable to Leland. The note was dated at 110 Broadway, New York, the place of business of the makers when it was given. When the note fell due the firm of Seymour, Moore & Company had dissolved, and a new firm, Seymour, Morton & Company, had been formed and was doing business at the same place. Adams, to whom Leland had indorsed the note, carried the note to 110 Broadway, and was informed by an attendant that the firm of Seymour, Moore & Company no longer did business there, but referred him to an agent of the old firm at No. 54 William Street. When Adams conferred with this agent, he could learn no definite information, but was told that the makers of the note were "out west." He, Adams, then sued Leland as an indorser.

Leland contended that he could not be held as an indorser, because no presentment was ever made to Seymour, Moore & Company, and no notice of dishonor given.

Decision: Presentment for payment will be excused when the holder of a paper has exercised due diligence in finding the party primarily liable, when no particular place of payment is indicated. Adams did all that could be expected of a reasonably prudent man, and so he may sue Leland as an indorser, although no presentment was made and notice of dishonor given.

Mr. Justice Wright said: "When a promissory note is not made payable at any particular place, generally, in order to charge the indorser, payment must be demanded of the maker at his place of residence or business. Yet there are various exceptions to this rule. If the maker has no known residence or place of business, the holder will be excused from making any demand whatever. So, if in the intermediate period between the time when it becomes due, the maker has removed his domicile or place of business to another state, the holder will be excused for non-presentment for payment, and will be entitled to the same recourse against the indorser as if there had been due presentment. " Judgment was given for Adams.

Ruling Law. Story Case Answer

Although presentment for payment is required in most cases, yet there are circumstances under which presentment may be excused. If, after reasonable and diligent search has been made, the holder is unable to find the party who is to pay the instrument, presentment for payment is then excused, and the parties of secondary liability are liable, nevertheless. If the drawee is a fictitious person, the same is true; presentment for payment is excused. If the parties who are secondarily liable either expressly or by implication agree, presentment for payment may be waived.

Where the indorsers of a negotiable instrument either institute bankruptcy proceedings against the primary party, or act to secure an assignment or composition for the benefit of his creditors, they can not at the same time insist that the instrument be presented to him for payment. By their own acts they have made evident his inability to pay and can not possibly stand in need of information that he has defaulted. Their acts amount to a waiver of their right to have the instrument presented. The letter of Hutchinson showed that he was fully informed of the fact that the Millarch Construction Company would be unable to pay, and further that he was about to participate in an enforced liquidation of its affairs. He can not therefore claim that he has been prejudiced by the failure of the Lowell Cement Company to present the note and give notice of dishonor. He is liable on his indorsement and has not stated a defense. Judgment should be given for the plaintiff.