Farmers' State Bank v. Forsstrom

BEAN, J. — 1, 2. The answer, the challenge to which was sustained, is lengthy and somewhat involved. It is denominated both a counterclaim and an estoppel. It is clear that the defendant does not recognize his primary liability on the note that he is absolutely required to pay the same in accordance with that part of the Negotiable Instrument Law contained in Section 6023, L. O. L. The defendant signed the note in suit as maker without receiving value therefor, for the purpose of lending his name to Forsstrom-Pilcher Co. He is therefore liable on the instrument to the plaintiff who is a holder for value, notwithstanding the bank, at the time of taking the note knew that he was only an accommodation party: Section 5862, L. O. L. 3-5. The defendant claims that he has been discharged in the same manner as a surety upon the note. Whatever may be his position on the instrument as between himself and the accommodated party, Forsstrom-Pilcher Co., as to the plaintiff, he does not stand as an indorser, or one secondarily liable on the note and is not entitled to be so treated by plaintiff. The defendant’s pleading does not assert that the title of plaintiff to the note is defective. He avers that the bank officials informed him that he would be safe in signing the note. No fraud is claimed in the execution of the instrument, and the legal effect of sucb signing makes him primarily liable to pay the note. — 102 — Any statement by plaintiff to the contrary would not change the legal effect of the transaction: Wicks v. Metcalf, 83 Or. 687 (163 Pac. 434, 988, L. R. A. 1918A. 493). As there was no fraud charged in the execution of the note, it is not competent for defendant to allege or prove a contemporaneous parol agreement to the effect that under certain conditions defendant would not be called upon to pay the note and thereby vary and alter the legal effect of the instrument: Portland Nat. Bank v. Scott, 20 Or. 421 (26 Pac. 276); Steams on Suretyship (2 ed.), § 110. 6. "Whatever the law may have been prior to the enactment of the Negotiable Instrument Act in 1899, that law and the decisions thereunder are controlling as to all matters comprehended within its terms. It is settled that under the present law an accommodation maker is not relieved from the payment of his note by an extension of the time of payment thereof for a valuable consideration without his consent, even though the holder may know him to be only an accommodation maker. This is for the reason that a maker, even for accommodation, is by virtue of the statute primarily liable on the instrument: Cellers v. Meachem, 49 Or. 186 (89 Pac. 426, 13 Ann. Cas. 997; 10 L. R. A. (N. S.) 133); Murphy v. Panter, 62 Or. 522, 524 (125 Pac. 292); Lumbermen’s Nat. Bank v Campbell, 61 Or. 123 (121 Pac. 427); Hunter v. Harris, 63 Or. 505, 506 (127 Pac. 786); Vanderford v. Farmers & Mechanics’ Nat. Bank, 105 Md. 164 (66 Atl. 47, 10 L. R. A. (N. S.) 129); First State Bank of Nortonville v. Williams, 164 Ky. 143 (175 S. W. 10); Bradley Engineering & Mfg. Co. v. Heyburn, 56 Wash. 628 (106 Pac. 170, 134 Am. St. Rep. 1127); Lane v. Hyder, 163 Mo. App. 688 (147 S. W. 514); Wolstenholme v. Smith, 34 Utah, 300 (97 Pac. 329); 8 C. J., p. 276, — 103 — § 431, and notes; 2 Daniel on Negotiable Instruments (6 ed.), § 1312, p. 1477; 3 R. C. L., § 353, p. 1137. 7-10. This rule has been announced in at least eight states, but a different rule appears to prevail in the State of Iowa: Crawford’s Annotated Negotiable Instruments Law,- p. 200. Section 5952, L. O. L., provides: “A negotiable instrument is discharged (1) by payment in due course or on behalf of the principal debtor; (2) by payment in due course by the party accommodated, where the instrument is made or accepted for accommodation; (3) by the intentional cancellation thereof by the holder; (4) by any other act which will discharge a simple contract for the payment of money; (5) when the principal debtor becomes the holder of the instrument at or before maturity in his own right.” This section enacts in definite terms that the instrument, and hence one primarily liable thereon, is discharged in one of five different ways. There is no mention therein of a discharge of an accommodation party by an extension of time, or by other acts such as would discharge a surety before the passage of the negotiable instrument law. It could then be shown that one signing a promissory note apparently as one of the makers was in reality a surety thereon, and as such surety was a favorite of the law, the payee was required to guard his interests with zealous care, although he was an accommodation maker. This in many instances worked a hardship upon the payee or holder of the instrument, and by the negotiable instrument act an accommodation party was taken out of the secondarily liable class, as it were, and classed with the makers of the note, and declared to be primarily liable on the instrument, and absolutely required to pay the same. It was therefore the duty — 104 — of the defendant, when the note became dne in order to protect his interests, to pay the note and then look to his comakers. He is not in a position to complain because the payee did not promptly enforce the payment of the-note. Neither can the defendant complain of the postponement of plaintiff’s right to enforce the collection of the instrument made without the assent of the defendant. The plaintiff apparently in the ordinary course of business when the note matured, notified the defendant that it was due. This should have been sufficient. The assertion in the answer that one of the firm of Forsstrom-Pilcher Co. made satisfactory arrangements with plaintiff to pay the note in so far as it appears from the answer, may refer to an agreement on behalf of the firm to liquidate the indebtedness on the next day. If so, it was incumbent upon the defendant to see that this was done. This was his active duty according to the obligation which he had signed. It was not in compliance with his absolute promise to pay for him to rely upon the plaintiff to collect the note of the other defendants ; in other words, he is not like an indorser of the note and has no right to demand the same treatment that an indorser could demand. He is not entitled to notice of dishonor. The manner in which one who is secondarily liable on a note may be discharged is defined by Section 5953, L. O. L., which is as follows: “A person secondarily liable on the instrument is discharged (1) by any act which discharges the instrument; (2) by the intentional cancellation of his signature by the holder; (3) by the discharge of a prior party; (4) by a valid tender of payment made by a prior party; (5) by a release of the principal debtor, unless the holder’s right of recourse against the party secondarily liable is expressly reserved: (6) by any — 105 — agreement binding upon the holder to extend the time of payment, or to postpone the holder’s right to enforce the instrument, unless made with the assent of the party secondarily liable, or unless the right of recourse against such party is expressly reserved.” 11. There is no mention made in Section 5952 of a discharge of an accommodation party by an extension of time, or by other acts which would release a party secondarily liable. The word “surety” is not found in the negotiable instrument law. Whatever force may attach to the enumeration of ways in which the instrument and consequently the parties primarily liable might be discharged, if this section stood alone, the inference arises from the omission of extension of time, from such enumeration, and the inclusion thereof, among the ways in which persons secondarily liable, and other acts which would discharge persons secondarily liable in Section 5953, is almost unquestionable that the legislature did not intend that persons primarily liable should be discharged in any other manner than as specified in Section 5952: 8 C. J., § 431, p. 277, note 11; Union Trust Co. v. McGinty, 212 Mass. 205, 207 (98 N. E. 679, Ann. Cas. 1913C, 525, notes). The defendant can claim a discharge by an act which will discharge a simple contract for the payment of the money. His obligation is neither more, nor less, and no different from that of his comaker Therefore in order for the answer to be a defense to the note, as it admits the defendant’s liability thereon, in the first instance, it must be equal to a complete counterclaim, or constitute a perfect estoppel. In our judgment, the answer does not support defendant’s defense. If he had been fully informed in regard to the note, as he claims he should have been, he asserts that he could have protected himself. To — 106 — what extent, whether to the amount of five cents or five hundred dollars does not appear from defendant’s pleading. The answer does not constitute a counterclaim which should contain facts sufficient upon which to base an independent action: Section 7V3, L. O. L. He does not allege that by reason of misinformation given him by plaintiff, he was injured in any definite amount. Whether or not the matters referred to, if fully pleaded could be interposed as a counterclaim, it is not necessary to determine. The main thing complained of was that the bank permitted the firm of Forsstrom-Pilcher Co. to overdraw their account in about the sum of $3,300 during the time they were depositing about $100,000. This overdraft was after-wards balanced by a deposit. It was evidently not considered by the plaintiff as a regular indebtedness of the firm, but only a temporary balance. It is also alleged to the purport that Forsstrom-Pilcher Co. indorsed various notes to plaintiff and were liable as such indorsees, and thereby largely increased their indebtedness to plaintiff. But it is not shown that they were ever required to pay a dollar by reason of such indorsements. By the answer when fairly construed, the defendant complains because the plaintiff did not do those things which were incumbent upon the defendant himself to do, — that is to see that the note was paid. Defendant complains because he was not further notified by plaintiff to pay the note. How many notices he required is not stated. He failed to heed the one which was given him. The answer of defendant does not state a defense to the note. There was no error in sustaining the demurrer. The judgment of the lower court is affirmed. Aeetrmed.