This section is from the book "The Law Of Contracts", by William Herbert Page. Also available from Amazon: Commercial Contracts: A Practical Guide to Deals, Contracts, Agreements and Promises.
If an obligor, such as a surety, leaves an instrument to which he has affixed his name with a co-obligor to be delivered only if some other party signs it as co-obligor, and the custodian of the instrument delivers it to the obligee, who does not know that such signing is conditional, the party so signing is liable to the obligee.1 The rules governing delivery by a holder in escrow do not apply, as a co-obligor is not a holder in escrow.2 The requirement that the obligee must take without notice implies that the instrument is complete on its face and does not show that it is not to take effect until others sign.3 If this requirement appears on the face of the instrument the obligee is charged with notice thereof. So a condition that a written contract which has been delivered to the promisee is not to take effect until other parties sign cannot be interposed as against third persons who have a right to rely, and who have relied, upon such contract. Thus persons who sign and deliver a subscription for stock complete on its face under an oral agreement, that it shall not take effect until others subscribe, cannot set up such oral condition as to subsequent subscribers who subscribe in reliance on the validity of such prior subscription.4 But where A, a surety on a bond of indemnity, signed it and left it with B, the obligor, on condition that C, another specified surety, would sign, and B forged the name of C and delivered the bond it was held that A was not liable, as the obligee was bound to know the genuineness of the signatures.5 The fact that after B made default C voluntarily made a payment on such bond does not make A liable. If the obligee of an instrument knows that it has been signed by a party thereto, upon condition that his liability should not attach until some additional party had signed, and such instrument is left in the custody of an obligor, and is delivered by him contrary to his agreement, it is held in many courts that such instrument does not take effect as to a party signing upon such conditions.6 If the payee has notice of the fact that the surety signed on condition that others were to sign before the instrument was delivered, and that the maker has delivered such note in violation of such agreement, some authorities hold that the payee cannot recover.7
1 Harrison v. Morton, 83 Md. 456; 35 Atl. 99.
2Parrott v. Avery, 159 Mass. 594; 38 Am. St. Rep. 465; 22 L. R. A. 153; 35 N. E. 94; Tyler v. Hall, 106 Mo. 313; 27 Am. St. Rep. 337; 17 S. W. 319; Cazassa v. Cazassa, 92 Tenn. 573; 36 Am. St. Rep. 112; 20 L. R. A. 178; 22 S. W. 560.
3 Kopp V. Reiter, 146 Ill. 437; 37 Am. St. Rep. 156; 22 L. R. A. 273; 34 N. E. 942.
4 Morris v. Candle. 178 Ill. 9; 69 Am. St. Rep. 282; 44 L. R. A. 489; 52 N. E. 1036.
5Templeton v. Twitty, 88 Tenn. 595; 14 S. W. 435.
1Dair v. United States, 16 Wall.
(U. S.) 1; State v. Pepper, 31 Ind. 76; Carter v. Moulton. 51 Kan. 9; 37 Am. St. Rep. 259; 20 L. R. A. 309; 32 Pac. 633; Flannery v. Bank (Ky.), 52 S. W. 847; Millett v. Parker, 2 Met. (Ky.) 608; State v. Peek, 53 Me. 284; Board of Education v. Robinson. 81 Minn. 305; 84 N. W. 105; Fowler v. Allen. 32 S. C. 229; 7 L. R. A. 745; 10 S. E. 947; Dun v. Garrett, 93 Tenn. 650; 42 Am. St. Rep. 937; 27 S. W. 1011; Turnbull v. Mann, 99 Va. 41; 37 S. E. 288.
2 Carter v. Moulton, 51 Kan. 9; 37 Am. St. Rep. 259; 20 L. R. A. 309; 32 Pac. 633.
3 Dun v. Garrett, 93 Tenn. 650; 42 Am. St. Rep. 937; 27 S. W. 1011.
4 Minneapolis Threshing Machine Co. v. Davis, 40 Minn, 110; 12 Am. St. Rep. 701; 3 L. R. A. 769; 41 N. W. 1026.
5 Southern Cotton-Oil Co. v. Bass, 126 Ala. 343; 28 So. 576. And see as to such facts in signing a note, Sharp v. Allgood, 100 Ala. 183; 14 So. 16.
6 State Bank v. Evans, 15 N. J. L. 155; 28 Am. Dec. 400; Black v. Lamb, 13 N. J. Eq. (2 Beas.) 455; 12 X. J. Eq. (1 Beas.) 108.