Rylee v. Wilkerson

Cook, J., delivered the opinion of the court. On June 20, 1918, W. J. Rylee, defendant iif the court below, executed and delivered to J. H. Cook his promissory note for two hundred dollars, payable on or before December 1, 1918, and bearing interest at eight per cent, per annum from maturity. Cook indorsed the note, with out recourse, and more than three years after its maturity, he delivered it to W. R. Wilkinson, plaintiff in the court below, in settlement of an account owing by Cook to Wilkinson. Payment of the note having been refused, the plaintiff instituted this suit for the recovery of the amount thereof, with interest and attorney’s fees. The defendant filed a plea of the general issue, and gave notice thereunder that, as a defense to said note, he would offer evidence to show that there was no consideration whatever for said note, but that it was executed and loaned to the payee, Cook, solely for his accommodation, and under an agreement that it would be returned to the maker before the maturity thereof, and that the plaintiff received the note from the payee long after it was due. At the conclusion of the testimony the court granted the plaintiff a peremptory instruction, and from the judgment entered in pursuance thereof the defendant has prosecuted this appeal. Other than the note sued on, the only testimony introduced was that of the appellant and appellee. The ap — 667 — pellee testified that he made the note for the accommodation of the payee, without receiving any consideration therefor, and that he promised that he would “take care of the note and return it” to the maker. This testimony is undisputed, and it is admitted that the note was negotiated to the appellee by the payee about three years after its maturity. So far as this record discloses, the negotiation of this note to appellee was the first negotiation thereof, and the question for decision is whether the accommodation maker of the note is liable to a holder for value who acquired it from the payee after its maturity. . On this question there is a conflict of authority, and there is an apparent conflict in the several controlling provisions of the Negotiable Instruments Law. Section 29 of the Uniform Negotiable Instruments Act (section 2607, Hemingway’s Code) defines an accommodation party as ‘ ‘ one who has signed the instrument as maker, drawer, acceptor or indorser, without receiving value therefor, and for the purpose of lending his name to some other person,” and provides that “such a person is liable on the instrument to a holder for value, notwithstanding such holder at the time of taking the instrument knew him to be only an accommodation party.” Section 26 of said act (section 2604, Hemingway’s Code) provides that “where value has at any time been given for the instrument, the holder is deemed a holder for value in respect to all parties who became such prior to that time.” If this definition of a holder for value, and the provision that an accommodation party is liable on the instrument to a holder for value, be considered alone, it would seem that where an accommodation note has been negotiated for value after it is overdue even though it be the first negotiation and to one having knowledge of the accommodation, the accommodation maker is liable to such holder for value, and it was so held in the cases of Marling v. Jones, 138 Wis. 82, 119 N. W. 931, 131 Am.| St. Rep. 996; Mersick v. Alderman, 77 Conn. 634, 60 Atl. 109, 2 Ann. — 668 — Cas. 254; and Ike three English cases of Charles v. Marsden, 1 Taunt. 224; Sturtevant v. Ford, 43 Eng. C. L. R. 61; Caruthers v. West, 63 Eng. C. L. R. 143. It will be noted, however, that section.58 of the Uni.form Negotiable Instruments Act (section 2636, Hemingway’s Code) provides that: “In the hands of any holder other than a holder in due course, a negotiable instrument is subject to the same defenses as if it were nonnegotiable. But a holder who derives his title through a holder in due course, and who is not himself a party to any fraud or illegality affecting the instrument, has all the rights of such former holder in respect of all parties prior to the latter.” By section 52 of said act (section 2630, Hemingway’s Code) “a holder in due course is” defined as one — “who has taken the instrument under the following conditions: “(1) That it is complete and regular upon its face. “(2) That he became the holder of it before it was overdue, and witkóut notice that it had been previously dishonored, if such was the fact. “ (3) That he took it in good faith and for value. ‘ ‘ (4) That at the time it was negotiated to him he had no notice of any infirmity in the instrument or defect in the title of the person negotiating it.” Section 28 of said act (section 2606, Hemingway’s Code) provides that: “Absence or failure of consideration is matter of defense as' against any persons not a holder in due course.” In considering the question now presented, all the pertinent sections of. the Negotiable Instruments Act should be construed together so as to harmonize them, if possible, and render them consistent with the scope and object of the act, and in construing these several provisions the intention, of the legislature and the design of the act should control, although this may, in some measure, conflict with the letter of certain of its provisions. — 669 — If it he held that by virtue of the provisions of section 29 of the act a purchaser for valúe of overdue accommodation paper, although cognizant of the conditions uncier which the paper was executed, is entitled to recover of the maker because he is a holder for value and need not be a holder in due course, then accommodation paper is placed in a class superior to all other negotiable paper, and this construction accords to the holder of accommodation paper rights which are denied to the holders of other classes of negotiable paper, and brings about a. hopeless conflict between that section and sections 28 and 58 of the acA The broad language of section 58 that, in the hands of any holder other than a holder in due course, a negotiable instrument is subject to the same defense as if it were nonnegotiable, and of section 28 that absence or failure of consideration is matter of defense as against any person not a holder in due course, does not permit an exception in favor of accommodation paper, and we do not think that, by the use of the words “holder for value” in section 29, the legislature intended to nullify sections 28 and 58 in so far as they might apply to accommodation paper. There appears no sound reason for the distinction in the two classes of negotiable paper, and it would seem that the makers, indorsers, or acceptors of accommodation paper should be permitted the same defenses as are guaranteed to the makers, indorsers, or'acceptors of negotiable paper for value. As said in Chester v. Dorr, 41 N. Y. 279, the purpose and object of making or indorsing a note for the accommodation of another— “is to obtain credit for such other, or to enable him to do so. The very terms of the note declare the credit it is intended to procure, that is to say, until the maturity of the note. Within that .range, the making or indorsement being unrestricted as to its use, the borrower may use it as his exigencies require, and a transferee may — 670 — receive it in reliance upon the undertaking which is imported by its terms. But the very term of payment, contained in the note, imports that the accommodation party undertakes that the note shall be paid at its maturity; and that he who then holds the note, shall have recourse to him, if it be not then paid. . . . And accordingly, when such accommodation is given, it is a most material circumstance that the time during which the'borrower is at liberty to obtain credit on the note is fixed by the limitation of the time of payment therein. ’ ’ In an article in 26 Harvard Law Rev. p. 493, Prof. Brannan expressed the same view in the following language : ‘ ‘ When a man lends the use of his name to another by signing a bill or note payable at a certain time, it seems in accord with common sense to interpret the fixing- of a definite time for payment as meaning an intention to limit the use of the name for the time mentioned in the instrument. ’ ’ If this is the correct view, and we think it is, the rights of the respective parties are fixed, as they exist at the date of the maturity of the instrument, and, since the legislature has provided that absence or failure of consideration is a defense as against any person except a holder in due course, we are of the opinion that section .29 must be construed as rendering- an accommodation party liable to a holder for value only when he became such before maturity of the instrument. In support of this view see the cases of Chester v. Dorr, 41 N. Y. 279, and Cottrell v. Watkins, 89 Va. 801, 17 S. E. 328, 19 L. R. A. 754, 37 Am. St. Rep. 897. Finally, the appellee says that if we hold that the absence of consideration was available as a defense, the cause should be remanded for a new trial for the reason that there was certain testimony that appellant promised to pay the note after it was negotiated to appellee. — 671 — W.e do not think there is any testimony in the record which will support a finding that there was a binding-promise to pay the note, and consequently, the peremptory instruction requested by the appellant should have been granted. The judgment of the court below will therefore be reversed, and judgment entered here for the appellant. Reversed, and judgment for appellant.