ELLWOOD O. ROESSLE
Appeal from Trial Term, New York County.
Action by Ellwood O. Roessle against Frederick J. Lancaster. From a judgment for plaintiff, and from an order denying a motion for a new trial, defendant appeals. Reversed and remanded.
[114 N.Y.S. 388] Charles F. Brown, for appellant.
William R. Wilder, for respondent.
Argued before PATTERSON, P. J., and McLAUGHLIN, INGRAHAM, CLARKE, and HOUGHTON, JJ.
Upon the first trial of this action the court directed a verdict for the plaintiff upon the pleadings and the defendant's opening. The judgment entered thereon was reversed. 119 A.D. 368, 104 N.Y.Supp. 217.The nature of the action is stated in the opinion on that appeal, and it is not necessary to restate it here. We there held that, as the defendant was sued as an indorser upon a promissory note, the defendant's contract with the plaintiff was in effect that of a surety for the maker of the note, which was quite distinct from the contract of the maker, and that in an action against the surety upon his contract of suretyship it was a complete defense to show that he was induced to enter into the contract by false representations made by the plaintiff in the action to enforce the obligation. Upon the retrial the court held as a matter of law that the [114 N.Y.S. 389] defendant was liable as a principal on the note, and, therefore, he was bound to return the property which he, as principal, had received, for the purchase of which the note was delivered, before he could defend an action upon the ground that the indorsement was obtained by fraud. It appeared that the plaintiff had been the lessee of a hotel known as the " Gilsey House" for some time prior to March 1, 1904, at which time the rent was $69,000 a year. He was in arrears for rent and taxes about $30,000, and the business had not been profitable. About January 4th he notified the landlord that he could not pay the rent and taxes then due. The landlord had been looking about for a new tenant for the property. One Albert R. Keen, who appears to have had a business connection with a corporation in which the defendant was interested, commenced negotiations with the landlord for a lease of the hotel.
On the 31st of December, 1903, an agreement was executed between the heirs of Peter Gilsey, the landlord, and said Keen, by which the heirs of Gilsey agreed to lease the premises known as the " Gilsey House" to A. R. Keen, and Keen agreed to hire the same from such date as the present lessee (the plaintiff) should cancel his lease and deliver possession of the premises to the Gilsey heirs to the 1st day of May, 1911, at the rent of $75,000 per annum, and Keen agreed to deposit $75,000 as security for the fulfillment of the covenants and conditions of the said lease. This agreement was based upon the Gilsey heirs being able to obtain a cancellation of the lease to the plaintiff, and also upon Keen being enabled to purchase all the furniture and equipment then in the Gilsey House, and belonging to the plaintiff, for the sum of $50,000. At that time the defendant had no other business relations with Keen, except that Keen was to manage a hotel that belonged to a corporation in which the defendant was interested. When this agreement was offered in evidence by the plaintiff it was objected to as immaterial, incompetent, and irrelevant, which objection was overruled, and the defendant excepted. After Keen had received this instrument from the Gilsey heirs, he had an interview with the defendant, and subsequently the defendant had various interviews with the Gilsey heirs. The defendant then had an interview with the plaintiff on the 10th of January, and on the 20th of January he wrote a letter to the representative of the Gilsey heirs which was offered in evidence by the plaintiff, objected to as irrelevant, immaterial, and incompetent, and as having nothing to do with the issues in this case, which objection was overruled, and the defendant excepted. In that letter the defendant stated that he had given the matter careful consideration, but was disinclined to become interested unless he could see that Keen could successfully work out his plan in the management of the plant, which the defendant feared he could not do, as he at the outset was going heavily in debt, but he would be inclined to take up the matter if the Gilseys would accept a proposition to lease the hotel at a rental of $75,000 per year, and provided the Gilseys could arrange to purchase the furniture from the present owners and sell it to Keen at the price they paid for it, Keen to pay it off in installments; that if the Gilseys would not entertain that proposition [114 N.Y.S. 390] defendant would withdraw from the matter and leave it to Keen to do as he thinks best.
The plaintiff then offered in evidence a communication to the Gilsey heirs dated January 23, 1904, by which Keen proposed to take a lease of the Gilsey House upon certain terms therein stated, upon which there was an indorsement signed by the defendant stating that if Keen's proposition was accepted he would endeavor to carry it through before February 1st. This proposition does not seem to have been accepted, and on January 25th the Gilsey heirs made a proposition to Keen which contained no reference to the defendant. The plaintiff then offered in evidence another proposition signed by the defendant and Keen, which was submitted about February 1st, which proposed that there should be a corporation organized which was to acquire the lease of what was known as the " Edgemere Hotel" ; that the Gilsey estate was then to lease the Gilsey House to Keen on the terms before agreed to, who was then to assign the Gilsey House lease to the new corporation; and Keen and the defendant were to agree to deposit with the trustee $100,000 in stock of the new corporation to secure the payment of the rent of the Gilsey House, and the defendant agreed to furnish a collateral bond to further secure the payment of such rent in the sum of $37,500. This was objected to by the defendant upon the same grounds as the former instruments as being incompetent, irrelevant, and immaterial, and as having nothing to do with this case; that objection was overruled, and the defendant excepted. Nothing seems to have come of this proposition, but on February 20, 1904, Keen submitted another proposition to the Gilsey heirs, which was for a lease of the Gilsey House for seven years and two months at a rental of $75,000 per annum, Keen to purchase from the Gilsey heirs the furniture now contained in the hotel for the sum of $50,000, payable one-half in cash and the balance in Keen's promissory notes; and Keen agreed to procure a bond for the sum of $37,500 to be executed by the defendant to secure the payment of the rent and of the notes given for the furniture, title to the furniture to remain in the Gilsey estate until fully paid for in cash. Indorsed on that proposal was a statement, signed by the defendant, that if the proposition was accepted he would agree to carry it out before March 1, 1904; and it was this proposal which was finally accepted by the Gilseys. A corporation known as the " Seaboard Hotel Company" was organized two or three days before the 1st of March. One hundred thousand dollars of the stock of this corporation was issued to Keen, of which half was transferred by Keen to the defendant, who thereupon transferred it to the Gilsey heirs as security for the obligations of Keen under this agreement to the Gilsey heirs. This testimony was also objected to by the defendant on the same grounds; the objection was overruled, and the defendant excepted. And it was this transaction upon which the court held as matter of law that the defendant was liable upon this note as principal, and not as indorser.
The complaint alleges that the defendant Keen had made his promissory note in writing, of which a copy is set forth, and delivered the same to the plaintiff for value, and that, before such note was delivered [114 N.Y.S. 391] to the payee, the plaintiff, the defendant Lancaster, indorsed the same for value. When the note became due it was presented for payment, payment demanded and refused, it was protested for nonpayment, and notice of protest was given to Keen, the maker of the note, and defendant Lancaster, the indorser thereon. There is no allegation in the complaint that this defendant was a principal, the only allegation being that he was an indorser.
Prior to the negotiable instrument law (chapter 612, p. 719, of the Laws of 1897) the defendant, upon this complaint, would not have been liable to the payee of the note as an indorser ( Coulter v. Richmond, 59 N.Y. 478), but section 113 of the negotiable instrument law provides that:
" A person placing his signature upon an instrument otherwise than as maker, drawer or acceptor is deemed to be an endorser unless he clearly indicates by appropriate words his intention to be bound in some other capacity."
And section 114 provides that:
" Where a person not otherwise a party to an instrument places thereon his signature in blank before delivery he is liable as endorser in accordance with the following rules: First, If the instrument is payable to the order of a third person he is liable to the payee and to all subsequent parties."
Thus, under this provision, Lancaster became liable to the plaintiff, the payee of the note, as an indorser, there being no indication of an intention to be bound in any other capacity. This defendant was thus treated as an indorser by the plaintiff, and the action was brought against him based upon that relation to the note. The suit was on the note. Neither the defendant nor Keen had any direct relations with the plaintiff except that based upon the obligations evidenced by this note, and but for this note there was no obligation of either Keen or the defendant to the plaintiff. The note seems to have been given because of the fact that by the arrangement between Keen and the Gilseys, Keen was to pay to the Gilseys $25,000 in cash on account of the furniture which the Gilseys had agreed to sell to Keen. Keen had requested the Gilseys to accept $20,000 in cash and a $5,000 Keen note, which the Gilseys had agreed to accept on condition that the plaintiff would accept the note on account of the cash that the Gilseys were to pay to the plaintiff for the furniture. The defendant applied to the plaintiff to accept Keen's note, and he refused unless the defendant would indorse the note, which the defendant finally agreed to do, and thus Keen's note for $5,000, the note in suit, indorsed by the defendant, was delivered by Keen to the Gilseys as a part payment on account of such furniture, and was accepted by the plaintiff from the Gilseys as so much cash in the transaction between them. Assuming that the defendant could be held as between the Gilsey heirs and Keen as a principal in relation to the transactions between them, upon this evidence it is impossible for me to see how the plaintiff could hold the defendant as a principal in relation to this note. The plaintiff agreed to accept the note on condition that it was indorsed, and it was so indorsed, but not as part of any arrangement between Keen and this defendant with the plaintiff by which either Keen or the defendant was to receive a title to the furniture or any interest therein from the plaintiff. [114 N.Y.S. 392] I cannot see that this arrangement between Keen and the defendant and the Gilseys had any more to do with this note than if the plaintiff had been a third party purchasing a note made by Keen and indorsed to the defendant. Neither Keen nor the defendant were under any obligation to pay the plaintiff anything, but the plaintiff, however, agreed to accept this note of Keen's indorsed by the defendant in lieu of a payment of $5,000 which the Gilsey heirs had agreed to pay to the plaintiff. It seems to me obvious that the only claim that the plaintiff could possibly have against either Keen or the defendant was based upon the note, which upon its face was Keen's promise to pay, indorsed by the defendant. The only liability there was or could be as between the plaintiff and the defendant was that of an ...