Young v. Hembree

Young v.
Hembree
Case number 27401– November 9, 1937
J. Carpio-Morales
Topic: How indorsement made

Doctrine: Where the indorsement is not proved to be that of the payee, or where there seems to be no indorsement at all, the
plaintiff takes the check not as an innocent purchaser, but one who is subject to the defenses that might have been interposed
against the payee
Petitioner: I.W. Young

Respondents: Jess Hembree
Case Summary: Hembree agreed to let Horn and Faulkner borrow some money for their oil drilling business. The check was
issued and was designated to “Horn and Faulkner Oil Trust” as payee. The business did not take off, however, there was already
some work done. Young was one of those who rendered services and who was needed to be paid. The check was then indorsed
“Horn & Faulkner, by L.H. Horn” and delivered to Young. However, Hembree had already stopped payment for the check.
Because Young couldn’t encash the checks, he filed a case against Hembree. The Court held that the check was not properly
indorsed to him and that there was no contractual obligation on the part of Hembree to pay Young; he merely agreed to lend money
to Horn and Faulkner.
Facts:
 The case involves a suit on a check
 Hembree orally agreed to lend a loan to Horn and Faulkner to help them purchase materials for oil drilling
o The two agreed to issue Hembree “some trust stock that would guarantee the repayment”
o Hembree then issued a check and designated “Horn and Faulkner Oil Trust” as payee as per instruction of the
borrowers
o Hembree then stopped the payment on the check before it was presented the following day
o The delivery of the stock and drilling operations did not push through
o The check was then indorsed “Horn & Faulkner, by L.H. Horn” and delivered to Young to partly pay for the
labor and materials he furnished to the failed oil drilling business
 Young did not make any inquiry as to the validity of the check
 Young tried to encash it two times and failed  he then filed this suit
 A judgment was rendered in favor of Young and Hembree brings this appeal
Issues + Held:
1. W/N the Young is a holder in due course (w/n the check was properly indorsed to him) – NO
 In order to be a holder in due course, where the instrument is payable “to order”, Young must plead and prove that the
check was indorsed by the payee
o Where the indorsement is not proved to be that of the payee, or where there seems to be no indorsement at all,
the plaintiff takes the check not as an innocent purchaser, but one who is subject to the defenses that might
have been interposed against the payee
 Young claims that there is no absolute rule as to what form the indorsement must take and that the signature “Horn &
Faulkner by L.H. Horn” is sufficient indorsement of the “Horn & Faulkner Oil Trust” check
o However, on its face, the indorsement is not that of the payee, and there is no evidence in the record to show
that they are one and the same firm or legal entity
 Young further claims that “Horn & Faulkner Oil Trust” was actually a fictitious name  which was known to
defendant, and therefore, the check will be considered payable to bearer and requires no indorsement to constitute the
transferee a holder in due course
o However, a fictitious payee is where none in fact exists  there is no evidence that the Oil Trust was
fictitious; Young knew of both Horn & Faulker
 A check is merely an order to pay money, and the maker has the right to stop payment
o The bank must respect the order stopping payment, but that does not destroy the contractual liability that may
exist between the maker and the payee
o The only contract in this case as per the original check was between the defendant to loan money to the payee
 no contractual liability on defendant to loan money to the plaintiff
o Since defendant stopped payment, he is not liable on the instrument itself
Ruling: Judgment is reversed and in favor Hembree, the defendant.

Young v. Hembree

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Young v.

Topic: How indorsement made

Petitioner: I.W. Young

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