Story Case

The daughter of Stuart Hodges was married to a young man, Duncan Prentiss, the owner of a small dry goods store of very unsatisfactory earning capacities. To tide over an emergency, Hodges agreed to assist his son-in-law to raise money by accepting the following instrument:

"$500. Millvale, April 22, 1916.

Pay to Duncan Prentiss, or order, the sum of five hundred dollars, three months after date, with interest at five per cent after date, and seven per cent after maturity.

To Stuart Hodges, Millvale. (Signed) Duncan Prentiss." (Written across face) Accepted, 4-24-'16., (Signed) Stuart Hodges. (Indorsed) Pay to the First National Bank of Millvale. (Signed) Duncan Prentiss." The bank advanced the cash to Prentiss, and at the maturity of the note demanded payment from him. No demand was made upon Hodges, who was a good customer of the bank and one whom they did not wish to inconvenience, but suit was at once started against Prentiss and the stock of goods in his dry goods store attached. He asserted that, without proof of presentment and dishonor by the acceptor, he was not liable as drawer or indorser. Should the bank recover?

Ruling Court Case. Luckenbach Vs. Mcdonald, Volume 164 Federal Reports, Page 206

McDonald, Kunzig, and Smith were officers and stockholders of a corporation. The organization had no assets whatever, but was engaged in carrying out two contracts which were regarded as valuable. In order to successfully complete these contracts, it was necessary to borrow money. Luckenbach made a loan of $10,000 to the company, taking its note for the amount. To secure the repayment of the loan McDonald, Kunzig and Smith indorsed the note. When the note fell due, suit was brought against McDonald and his associates. They contended that they were not liable because no presentment to the corporation, as maker, was made when the note matured.

Mr. Holland, District Judge, said: "By the Negotiable Instruments Law of Pennsylvania it is provided that presentment for payment is not required, in order to charge an indorser where the instrument was made or accepted for accommodation, and he had no reason to expect that the instrument would be paid. In this case, this instrument was made for the accommodation of McDonald and his associates. They were well aware that the corporation was without funds with which to pay the note; consequently, Luckenbach was under no duty to present this note to the corporation as maker." Judgment was given for Luckenbach.

Ruling Law. Story Case Answer

Where an instrument is made for the accommodation of a person, and the person accommodated has no reason to believe that it will be paid, if presented, presentment for payment need not be made in order to charge him. If he does pay the instrument, he has no action against the party who accommodated him, while on the other hand, if the instrument should be presented to and paid by the accommodating party, the latter would then be entitled to recover the amount paid from the one accommodated. This shows that in such a case the primary party is the one for whose benefit the instrument was made, even though he is, on the fact of the instrument, a secondary party. Because he is primarily liable, he may be sued without prior demand upon the parties apparently primary, but actually only secondary.

In the Story Case, Hodges is nominally the primary party upon the bill, by reason of his acceptance. But Prentiss, having given no consideration for his acceptance, has no legal right to compel him to pay. If Prentiss had paid the bill at its maturity, he would have had no right to sue Hodges, as the ordinary in-dorser would. Since he could not require Hodges to pay, he is not entitled to have the holder first proceed against Hodges. The formality of presentment and notice is dispensed with, because in any case Prentiss would be required to settle. Therefore his defense is not good, and the bank should have judgment.