American Bank vs. Macondray & Co.

An indorsement made solely to certify the genuineness of the drawer's signature — an indorsement for identification only — imposes no liability on the indorser for payment of the instrument; and any material alteration of the terms of a commercial contract by the holder, without the consent of the obligor, relieves the obligor from all liability thereon.

The American Bank, a Manila banking institution, held a $300 bill of exchange drawn in Manila by V. S. Wolff upon F. H. Taylor & Co. of Louisville, Kentucky, and negotiated through correspondent banks in San Francisco. Macondray & Co., a commercial firm, had affixed its firm signature to the instrument, and the character of the undertaking created by that signature became the subject of the litigation.

On August 12, 1902, V. S. Wolff drew a bill of exchange in Manila for $300, payable at sight to his own order and chargeable to his account, upon F. H. Taylor & Co. of Louisville, Kentucky. The instrument passed through several hands, bearing Wolff's signature as drawer, the firm signature of Macondray & Co., and successive indorsements transferring it to the First National Bank of San Francisco and thence to the Third National Bank.

As set out in the complaint, the Macondray & Co. indorsement read: "V. S. Wolff. The signature is O. K. Payment guaranteed. Protest, demand, and notice of nonpayment waived. Macondray & Company." The bill was forwarded to the American Bank's correspondent in the United States for payment.

Payment was not made. On September 25, 1902, C. W. Dieruff, a notary public in Louisville, Kentucky, went with the original bill, made a diligent search for F. H. Taylor & Co. and for any representative authorized to pay the same, and demanded payment at various banks, all of which was denied. He protested the bill against the drawer, the indorser, and all other persons for the exchange, re-exchange, and all expenses, damages, and interest sustained by reason of the nonpayment and dishonor, and deposited notice of the protest in the post office at Louisville directed to V. S. Wolff, Macondray & Co., the American Bank, and the First National Bank of San Francisco. The copy of the bill annexed to the protest showed the Macondray & Co. indorsement in the form "V. S. Wolff. The signature is O. K. Macondray & Company," without the guarantee clause.

At trial, only two witnesses testified. Atherton Macondray, for the defendant, testified that he did not intend to guarantee payment of the bill; that he had certified only that the signature of V. S. Wolff was genuine; and that the words "Payment guaranteed. Protest, demand, and notice of nonpayment waived" were not written on the indorsement at the time he signed the firm name of Macondray & Co. H. B. Mulford, cashier of the American Bank, testified for the plaintiff, and the decision records his statement that the guarantee clause was not written on the indorsement at the time Macondray & Co. signed the firm name.

The indorsement appearing on the bill at the time of trial was then compared with the indorsement as certified by the notary public at the time of the protest. That comparison showed beyond peradventure of doubt that the words "Payment guaranteed. Protest, demand, and notice of nonpayment waived" had been added by some person after Macondray & Co. had affixed its signature and after the protest of the bill, so that the indorsement actually made by the firm was "V. S. Wolff. The signature is O. K. Macondray & Co." The American Bank brought the action to recover the amount of the bill and the protest expenses on the theory that Macondray & Co. had guaranteed payment, and the firm denied liability on the ground that its signature had been given for identification only and had later been altered.

• Material Alteration: Macondray & Co. maintained that the words "Payment guaranteed. Protest, demand, and notice of nonpayment waived" were not written on its indorsement at the time it signed the firm name, and that they were added to the indorsement afterward by some other person; being a material alteration made without its consent, it relieved the firm of all liability on the instrument.
• Indorsement for Identification Only: The firm contended that its signature was affixed solely to certify that the signature of V. S. Wolff as drawer was genuine, and not for the purpose of incurring any liability as to the payment of the bill of exchange.

• Guaranty of Payment: The American Bank claimed the right to recover the amount of the bill of exchange, together with the expenses incurred by the protest, upon the theory that Macondray & Co. had guaranteed payment of the bill in the form alleged in the complaint, namely, "V. S. Wolff. The signature is O. K. Payment guaranteed. Protest, demand, and notice of nonpayment waived. Macondray & Company."

• Liability of the Indorser: Whether Macondray & Co. is liable upon the bill of exchange as an indorser.
• Material Alteration: Whether the addition of the clause "Payment guaranteed. Protest, demand, and notice of nonpayment waived" to the indorsement after Macondray & Co. had signed it relieved the firm from all liability on the instrument.
• Indorsement for Identification Only: Whether an indorsement made for the purpose of identifying the person only, and not for the purpose of incurring liability as to payment, creates any liability on the part of the indorser.

• Liability of the Indorser: No. Macondray & Co. is not liable upon the bill of exchange as an indorser, its original indorsement having been one of identification only and creating no liability whatever.
• Material Alteration: Yes. The guarantee clause was added after Macondray & Co. had signed, and any material alteration in the terms of a commercial contract by the holder, without the consent of the obligor, relieves such obligor from all liability thereon.
• Indorsement for Identification Only: No. An indorser who indorses for the purpose of identifying the person only, and not for the purpose of incurring liability as to payment, incurs no liability, provided the indorsement or guaranty clearly indicates that it is for identification only.

• Liability of the Indorser: The liability of an indorser of a bill of exchange, after due protest and notice of nonpayment and dishonor, is the same as that of the original obligors on such a contract, and any material alteration in the terms of that contract by the holder, without the consent of the obligor, will relieve such obligor from all liability thereon. No question was raised as to the legality of the protest. Had the indorsement been made in the form alleged by the plaintiff, Macondray & Co. would clearly have been liable as an indorser upon due protest for nonpayment; the firm's exemption therefore rested on the form of the indorsement actually made and on the alteration subsequently introduced into it.

• Material Alteration: The only two witnesses at trial gave contrary statements — Mulford, the bank's cashier, for the plaintiff, and Atherton Macondray for the defendant. The Court resolved the conflict by comparing the indorsement appearing on the bill at the time of trial with the indorsement certified by the notary public at the time the bill was protested in Louisville. The notarial certification showed the indorsement as "V. S. Wolff. The signature is O. K. Macondray & Co.," whereas the instrument at trial bore the additional words "Payment guaranteed. Protest, demand, and notice of nonpayment waived." That comparison showed beyond peradventure of doubt that the added words were written by some person after Macondray & Co. had signed and after the protest, so that the indorsement actually made was the shorter form. The addition of the guarantee, protest, demand, and notice-of-nonpayment waiver clauses was a material alteration of the terms of the commercial contract, made by the holder without the consent of the obligor, and it relieved Macondray & Co. from all liability thereon.

• Indorsement for Identification Only: Notwithstanding that the firm was relieved of liability by reason of the material alteration, the original indorsement created no liability whatever. The original indorsement was made for the purpose only of assuring the plaintiff that the signature of V. S. Wolff attached to the original bill of exchange was genuine — that the person was whom he represented himself to be. It was an indorsement of identification of the person only, and not for the purpose of incurring any liability as to the payment of the bill. No attempt was made to show that the drawer of the bill, V. S. Wolff, was not the person who actually drew and signed it. Because the indorsement served only to authenticate the drawer's signature, it imposed no obligation to pay, and the indorsement or guaranty must in any event clearly indicate that it is for the purpose of identification only.

• Liability of an indorser after protest — The liability of an indorser of a promissory note or bill of exchange, after due protest and dishonor, is the same as that of the original obligors on such a contract. In this case, no question was raised as to the legality of the protest, and the Court recognized that had the indorsement been made in the form alleged by the plaintiff, Macondray & Co. would clearly have been liable as an indorser upon the instrument.

• Material alteration of a commercial contract — Any material alteration in the terms of a commercial contract by the holder of the same, without the consent of the obligor, will relieve such obligor from all liability thereon. The Court applied this rule to the addition of the clause "Payment guaranteed. Protest, demand, and notice of nonpayment waived" to the indorsement after Macondray & Co. had signed, holding that the alteration relieved the firm of all liability on the bill.

• Indorsement for identification only — An indorser upon a promissory note or bill of exchange who indorses for the purpose of identifying the person only, and not for the purpose of incurring any liability as to the payment of such instrument, incurs no liability. The indorsement or guaranty, however, must clearly indicate that it is for the purpose of identification only. The Court found that Macondray & Co.'s original indorsement, "V. S. Wolff. The signature is O. K.," was given solely to assure the holder that Wolff's signature was genuine, and that no attempt was made to show that the drawer was not the person who actually drew and signed the bill.

• "The liability of an indorser of a bill of exchange, after due protest and notice of nonpayment and dishonor, is the same as that of the original obligors on such a contract, and any material alteration in the terms of this contract by the holder of the same, without the consent of the obligor, will relieve such obligor from all liability thereon." — This passage states the ratio decidendi on the alteration issue, coupling the indorser's co-extensive liability with the rule that a unilateral material alteration discharges the obligor.

• "The original indorsement by the defendant was for the purpose only of assuring the plaintiff that the signature of V. S. Wolff, as attached to the original bill of exchange, was genuine — that is to say, that the person whom he represented himself to be. It was an indorsement of identification of the person only, and not for the purpose of incurring any liability as to the payment of such bill of exchange." — This passage defines the identification indorsement and supplies the principal ground for denying liability independently of the alteration.

• "An examination of the alleged indorsement of Macondray & Co. which appeared upon the said bill of exchange at the time of the trial, and the indorsement of said company at the time of the protest of said bill of exchange, shows beyond peradventure of doubt that the contention of the defendant is true, and that part of the indorsement which says 'Payment guaranteed. Protest, demand, and notice of nonpayment waived' was added by some person after the signature of the defendant, Macondray & Co., and after the protest of said bill." — This passage records the evidentiary basis for the finding of material alteration, resting on the notary's certified copy of the instrument as against the instrument produced at trial.

Arellano, C.J., Torres, Mapa, and Carson, JJ., concur. Willard, J., did not sit in this case.