The Xenia Branch Bank a. Lee.

their own property. Their claim would arise out of the same transaction, and would be connected with the subject of the action.

It seems to us to follow inevitably, that the principle is the same when, as now, the Xenia Bank are prosecuting the defendants. In either case, there is one controversy involving the same transaction, and the rights which arise out of that transactionone contest relating to and connected with the same subject, and it may properly determine the whole right of the parties recip rocally; and we think it was the intention of the Legislature to permit such settlement of the whole matter in dispute in one action.

We are, therefore, constrained to say, that whatever doubts have been heretofore expressed upon the question, whether a defendant could set up as a counter-claim a cause of action at law which could not before the Code have been set up in his plea by way of recoupment, those doubts are not warranted.

Our conclusion is, therefore, upon the question which alone was argued upon this appeal, that the defendants were at liberty to set up as a counter-claim the liability of these plaintiffs as indorsers of the bills of exchange in question, and their title to recover against them as such indorsers.

But, for the reasons first above stated, the defence herein demurred to is, defective and insufficient, and upon that ground the order appealed from must be reversed, and the demurrer be sustained with costs of the demurrer at special term to the plaintiffs to abide the event of the suit, but with leave to the defendants to amend within twenty days, and without costs, on this appeal, to either party.

Waterbury a. Sinclair.

WATERBURY a. SINCLAIR.

Supreme Court, Second District; General Term, February, 1858. PLEADING. LIABILITY OF INDORSER TO PAYEE.

A complaint by the payee of a note to order, seeking to charge as indorser or as garantor one who wrote his name upon the back of the note before its delivery to the payee, is bad on demurrer.*

*YOUNG a. KNAPP.-(New York Common Pleas; Special Term, 1858.)-The complaint in this action was based upon a note made by the defendant Knapp, payable to the order of the plaintiff, and indorsed by defendant Doyle, but not indorsed by the plaintiff. It was charged in the complaint that Doyle and Knapp were joint purchasers of the property which was the consideration for the note. In the complaint the defendants were held jointly liable on the note.

Defendants demurred to the complaint:-1st. That Doyle did not indorse the note for any consideration: 2d. That it did not appear there was any joint sale of the goods and chattels making the consideration of the note: 3d. That if any such sale did take place, it was not to defendant Doyle, but upon the sole credit and responsibility of Knapp: 4th. That the note was given to and accepted by Young in payment of the debt.

Mott & Southard, for the plaintiffs.

Terwilliger & Finlayson, for the defendants.

DALY, J.-The complaint cannot be sustained against both defendants in any aspect. The plaintiff being payee of the note, cannot recover upon it as against Doyle as indorser. This has been settled in this court.

He can recover against Knapp, the maker, but then the action must be against Knapp alone. He cannot recover upon the sale against both, for it is averred that the property was sold and delivered to Doyle upon the credit of Knapp. The sale then cannot have been to both. If the sale was to Knapp, credit being given to him, then he is the party making the contract, and primarily liable to the plaintiff. If the sale was to Doyle upon a promise by Knapp to pay, if Doyle did not, it was void by the statute, not being in writing.

To restate the case: The sale was made to Doyle or to Knapp, and if the sale and delivery of the property is relied upon as the ground of action, the action must be brought against the one to whom the sale was made; or if the promissory note is relied upon, then Knapp should have been sued alone, if Doyle is not liable on the note to the plaintiff. If the intention was to charge Knapp as maker of the note, and Doyle upon the sale and delivery of the property, then the two are improperly joined. (Le Roy a. Shaw, 2 Duer, 626.) The two contracts are distinct, and constitute separate causes of action. There would be a cause of action against Knapp upon the note, and another against Doyle upon the sale; and

OTH

Waterbury a. Sinclair.

The case of Moore a. Cross (23 Barb., 534) disapproved.

It seems, that the only way in which the payee of a note can make it available in his own hands, against an indorser, is to indorse it first without recourse, and then take the indorsement of the third party as the source of his title.

Appeal from order overruling a demurrer to a complaint.

The facts of the case, and the contents of the pleadings, are fully stated in the report of the decision on the order appealed from, reported 6 Ante, 20.

BY THE COURT.-EMOTT, J.-The precise question which is discussed in the opinion delivered by the learned judge at special term, has been decided in two recent cases in this court in different ways. This is not to be wondered at, considering the present unhappy constitution of the court, and the obscurity in which the question is involved, partly by decisions, but more by dicta of the judges. In Ellis a. Brown (6 Barb., 282), three of the judges of this court at a general term in the sixth district (Judges Gridley, C. Gray, and Allen-Judge Pratt, dissenting), held that when A indorsed a note made by B and C, payable to D, although the indorsement was made expressly to give credit to B and C, and that they might obtain goods of D upon the credit of A, which they did; yet that a holder of the note who received it from D for the purpose of suing it for the benefit of D, could not recover upon it. I understand the decision to be made upon the ground that the rights of the plaintiff were precisely those of D, and that D could maintain no action on the note against A. I do not understand that the transfer was considered by the court to make any difference. In fact, I think the case is put distinctly by the court, upon the ground that it did not. If so, the case is directly in point against the present action. On the other hand, the judges of the first district have supported the opposite doctrine in Moore a. Cross

by the Code (§ 167), causes of action cannot be joined unless they "affect all the parties to the action," which is not the case here, as Doyle would not be liable upon the note, and Knapp would not be liable upon the contract of sale.

Judgment for the defendants upon the demurrer, with costs, with liberty to the plaintiff, upon the payment of costs, to serve an amended complaint; or if an amendment as to parties is necessary, to apply to the court for liberty to amend upon terms.

Waterbury a. Sinclair.

(23 Barb., 534). The authority of this case, however, is weakened by the fact that it was really only a formal judgment, resting on the opinion of Judge Roosevelt alone. The case was first argued before Judges Roosevelt, Clerke, and Davies. The latter two judges held that an action could not lie by a payee against an indorser, under the circumstances of that case, which were like the present. A re-argument was ordered, but without waiting for it to be had, Judge Mitchell, who was then on the bench, concurred formally in the views of Judge Roosevelt, Judge Davies dissenting, and adhering to the opinion of Judge Clerke on the first argument.

In the case of Spies a. Gilmore, in the Court of Appeals (1 Comst., 334), Judge Bronson speaks of the early cases in which the character and extent of the liability of an indorser to the payee of a note is discussed and determined, as cases which hold, in effect, that a written contract of one kind may be turned into a contract of a different kind by parol proof; and he says, "that after some time and some difficulty, they have been got rid of." It is undeniable that the case of Hall a. Newcomb, in the Court of Errors (7 Hill, 416), and the case of Spies a. Gilmore, to which I have just referred, have overruled the doctrine of the early cases-that a man who wrote his name upon the back of a note payable to a third person, in order to give the maker credit with that third person, can be treated as a guarantor or joint maker. But I think it is not as yet by any means clearly ascertained what we are to have in place of this doctrine, or in what manner and upon what theory parties are to be held liable in such cases.

It will be needful to notice briefly the cases. In Herrick a. Carman (12 Johns., 161), there was not sufficient proof of privity of the defendant with the consideration, or that he meant to be any thing else than a second indorser. The decision is indisputably correct; but Judge Spencer expresses the opinion that if that proof had been supplied, the defendant could have been held as a guarantor, and that is no longer good law in this State. The note in that case was payable to the order of the payee, whose rights the plaintiff represented. In Nelson a. Dubois (13 Ib., 175), the opinion which had been expressed obiter in Herrick a. Carman, was adopted and applied by the court; as it was in Campbell a. Butler (13 Ib., 349). It

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Waterbury a. Sinclair.

may be material to remark, that in Nelson a. Dubois, the note was payable to bearer, but in Campbell a. Butler, it was payable to the order of the payee. In Dean a. Hall (17 Wend., 214), it was held that a party who had put his name on the back of a promissory note, payable to the plaintiff or bearer, could not be treated as a guarantor or joint maker, but must be charged as an indorser, if at all. This case was followed by Seabury a. Hungerford (2 Hill, 84), in which also the note was payable to the payee or bearer.

The principle of these cases, and it is very clearly expressed in the opinion in the latter case, is, that when the form of the notes is such, that with proper diligence the defendant could not be charged as an indorser, the plaintiff may write over his name a contract which would carry out the intention of the parties. But when, as in that case-the note being in legal ef fect payable to the bearer, and the insertion of the name of the plaintiff as payee being immaterial-the defendant could have been charged as an indorser, he cannot be charged in any other way. The learned judge who delivered the opinion concedes that if the note had not been negotiable, or if for any other reason the case had been such that the defendant could not have been charged as indorser, the courts, rather than suffer the contract to fail altogether, would write such a contract over the defendant's name as the proof justified. In Hall a. Newcomb (3 Hill, 233), the note in question was payable to the plaintiff or order, and was indorsed by the defendant for the accommodation of the maker. The suit was brought without giving the defendant notice of non-payment, intending to treat him as guarantor or joint maker. The Supreme Court held that this could not be done in the case of a note payable to the order of the plaintiff, any more than when the note was payable to bearer; and upon the same principle, Judge Cowen says "that the maxim ut res magis valeat quam pereat lies at the basis of construing a simple indorsement as a guaranty or an absolute promise." That is, whenever the contract and the intention of the parties must fail altogether unless this is resorted to, such a forced construction will be made, but not otherwise. He adds, that "the plaintiff in that case (the payee) might have put the note in such a form, by indorsing it himself, as to charge the defendant as second indorser."