First National Bank v. Meyer

Bruce, J.

(after stating the facts as above). No exception seems to have been taken to the findings of fact of the learned trial court. They, at any rate, are borne out by the evidence. The only question for determination in this case, therefore, is whether one who signs a note upon its face as ah accommodation maker, and who receives no personal consideration for the same, is primarily liable on such note as a joint maker, where at the time of such making the payee knew of the accommodation nature of his signing, and whether, when sued upon such note, such accommodation maker may plead as a defense and release that such payee had before brought suit against the defendant’s comaker, and in such suit had obtained judgment against a garnishee defendant for an amount sufficient to satisfy the note, and had compromised such judgment against said garnishee defendant for a sum merely sufficient to pay another note sued' upon at the same time and against the same original maker and a small amount upon the note upon which such Filbey and the present defendant were comakers, or whether all that he could expect in the present action would be that the amount that was left after such settlement, and after paying the note executed by the original maker alone and the costs 6f the action were paid, should be credited on the present note.

We are quite satisfied that all that the present defendant is entitled to is a credit for the money which the plaintiff actually received for credit and which he credited on the present note. This the trial court allowed, and, in our opinion, the judgment should be affirmed. When the plaintiff sued the defendant Eilbey and made the Northern Pacific Railway Company a garnishee defendant, he sued on a personal note executed hy Eilbey alone for $50 and on the joint note now in controversy. The present defendant was not a party to this suit, and the plaintiff had the right to make any application of the judgment and settlement that he saw fit. The personal note at any rate was prior to the joint note.

We are satisfied that the settlement with the garnishee defendant for á less amount than the judgment obtained against it did not release the present defendant. There would unquestionably be some doubt upon this proposition if we were dealing with the common law or with the law merchant. We are dealing, however, with the so-called negotiable instruments act which has been adopted in North Dakota. That act in § 6331, Rev. Codes 1905, being § 6914, Compiled Laws of 1913, provides': “An accommodation party is 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. Such a person is liable on the instrument to a holder for value, notwithstanding such holder at the time of talcing the instrument lenew him to be only an accommodation party.” Section 6365, Rev. Codes 1905, being § 6948, Compiled Laws of 1913, provides: “A person placing his signature upon an instrument otherwise than as maker, drawer, or acceptor, is deemed to he an indorser, unless he clearly indicates by appropriate words his intention to be hound in some other capacity.” Section 6421, Rev. Codes 1905, being § 7004, Compiled Laws of 1913, reads as follows: “A negotiable instrument is discharged; (1) By payment in due course by 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 cancelation 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 after maturity in his own right.” Section 6422, Rev. Codes 1905, being § 7005, Compiled Laws of 1913, reads as follows: “A person secondarily liable on the instrument is discharged: (1) By any act which discharges the instrument; (2) hy the intentional cancelation 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 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 thé assent of the party secondarily liable, or unless the right of recourse against such party is expressly reserved.” Section 6494, Rev. Codes 1905, being § 7076, Compiled laws of 1913, reads as follows: “The person ‘primarily’ liable on an instrument is the person who by the terms of the instrument is absolutely required to pay the same. All other parties are ‘secondarily’ liable.”

In passing upon a similar case, the supreme court of Ohio, in the case of Richards v. Market Exch. Bank Co. 81 Ohio St. 348, 26 L.R.A.(N.S.) 99, 90 N. E. 1000, said: “The ultimate question, therefore, is': Where parties execute a joint and several promissory note all signing on the face thereof, one being in fact a surety, and the holder of the note, with knowledge of this fact, at the maturity of the note, extends the time of payment for a valuable consideration, and without the consent of the surety, is the latter discharged from liability on the note? . . . It is to be understood that here, and elsewhere in the opinion, we are dealing with the liability of an accommodation maker, who has signed on the face of the note. By the act under review, the discharge of negotiable instruments as to persons primarily liable is provided in § 3175j as follows: ‘Discharge of Negotiable Instruments. Section 3175j. [Instrument; how discharged.] A negotiable instrument is discharged: (1) By payment in due course by 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 cancelation 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 after maturity in his own right.’ The section following makes provision for discharge with respect to persons secondarily liable, viz.: ‘Section 3175k. [When person secondarily liable on, discharged.] A person secondarily liable on the instrument is discharged: (1) By any act which discharges the instrument; (2) by the intentional cancelation 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 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 person secondarily liable, or unless the right of recourse against ■such party is expressly reserved.’ The entire field of discharge appears to be here covered, and, unless some controlling reason can be adduced showing that this statute doesn’t apply, its application to and control of the case at bar would seem to follow. It is, however, insisted by counsel ■for plaintiff in error that, since there is in the later act no express repeal of' earlier legislation bearing on the rights and liabilities of sureties on negotiable instruments, and since repeals by implication are not favored, we must conclude that the former legislation is still in force, and inasmuch as there is apparent conflict between the negotiable instruments .act as construed by the courts below, and the earlier legislation, it must be presumed that the construction thus given the act is not the correct ■construction; and that the purpose ascribed by those courts to the general assembly in passing the act was not its real purpose. The sections of the Revised Statutes to which special attention is called by counsel are numbers 5419, 5832, and '5836, though general reference is made to other sections of the same chapter. Without taking space to give the above-mentioned sections in detail, their substance may be stated thus: Section 5419 provides how judgment against principal and surety may be ■entered, and for execution in such cases; Section 5832 provides that sureties on bank paper who were known to be such at the time the contract was made may prove that fact, notwithstanding it may contradict the face of the instrument; and § 5836, that a surety in a judgment who has paid it may be subrogated to the rights of the judgment creditor, and may revive the judgment if it has become dormant. We fail to per■ceive any necessary conflict between these sections and the negotiable instruments act in the particulars here involved, and in this respect we .are in accord with the claims of counsel; but does it follow that the conclusion of counsel is correct? It is not contended that either of these ■sections, or any part of chapter 12, title 1, division Y, provides for the ■discharge of a surety, where a valid agreement for extension of time of payment has been made as between the holder and the principal debtor; that rule resting entirely upon tbe principles of tbe common law. Recurring again to the above cited sections, it will be noted that §§ 5419 and 5836 are mainly for the protection and advantage of the surety as between him and the principal debtor, and affect the rights or liabilities of the surety as between him and the holder only incidentally. Section 5419 provides for a situation which may arise when judgment is taken as to the form thereof, and thereafter as to its enforcement, and § 5836-eonfers rights upon a surety after judgment; neither section providing* for a situation arising, save as above indicated, before judgment, neither giving any discharge from liability on the instrument, and preventing judgment. The present act, § 3175j, as we have already found, provides only for the discharge of a party by a discharge of the instrument itself. Section 5832 is an ancient statute intended for the protection of sureties in contracts for the payment of money to banks and bankers, but only to-the extent of having such relation defined and established, and securing to such parties the privilege of sureties, notwithstanding any contrary expression in the contract itself; that is, the terms of the written instrument can, by virtue of this section, be contradicted by oral proof, and such parties are given 'all the privileges of sureties,’ but there is no attempt to define what those privileges are. In neither of these sections is there any attempt to discharge the surety from the debt itself. So, we find that each section subserves its own separate and distinct purpose,, and neither appears to us, to be in any manner or to any extent inconsistent with later legislation. . . '. As conclusions, therefore, our holding is that, under favor of the negotiable instruments act, one who-signs a promissory note on the face thereof, though he be in fact an accommodation maker and known as such to the holder, thereby becomes primarily liable for its payment; also, that such party may be discharged from liability in any one of the ways provided in § 3175j of said act, but not otherwise; and that a contract between the holder of the instrument and the principal for the extension of time of payment, although upon a valuable consideration, and without the consent of the surety,, will not have the effect of discharging him from liability. To avoid possible misconception, it perhaps should be added that this holding does not imply that the ordinary defenses which go to the original liability of the-party, such as fraud, duress, or illegality in respect to the consideration, may not be resorted to as heretofore. The term 'discharge’ itself implies. an original obligation. If fraud, duress, illegality as to consideration, etc., intervened at the inception of the instrument, then the accommodation party never was liable. Confusion of thought is likely to result from a failure to distinguish between a defense which goes to original liability and one which arises from some subsequent act or conduct. We further hold that §§ 3175 o and 3175p apply to the physical alteration ■of the instrument itself, and do not apply to a contract between the holder and the principal for an extension of time of payment of the instrument.”

This holding as to the liability of an accommodation maker under the uniform negotiable instruments act seems to express the now general •opinion of the courts who have passed upon the question. See Vanderfort v. Farmers’ & M. Nat. Bank, 105 Md. 164, 10 L.R.A.(N.S.) 129, 66 Atl. 47; Cellers v. Meachem (Sellers v. Lyons) 49 Or. 186, 10 L.R.A.(N.S.) 133, 89 Pac. 426, 13 Ann. Cas. 997; Wolstenholme v. Smith, 34 Utah, 300, 97 Pac. 329; Anderson v. Mitchell, 51 Wash. 265, 98 Pac. 751; Bradley Engineering & Mfg. Co. v. Heyburn, 56 Wash. 628, 134 Am. St. Rep. 1127, 106 Pac. 170. It seems to be based upon the clear and unequivocal language of the statute, and we see no reason for refusing to adopt this now quite general holding. It is, indeed, quite important that the interpretations by the courts of the various states of the provisions of the negotiable instruments act shall be as uniform as. is now the act itself.

The fact that no personal consideration passed to the defendant Meyer, and that this fact was known to the plaintiff, makes no difference in the law. No direct consideration to him, indeed, was necessary. If a suretyship at all, the suretyship is in the form of an independent and absolute undertaking. It is a contract whereby the surety becomes bound primarily to the creditor to save him harmless independently', and whether the principal debtor makes default or not. As we have before said, we are not here construing the common law or the law merchant,' but the provisions of the negotiable instruments act.

The judgment of the District Court is affirmed.