Citizens' Bank v. Knudson

The defendant contends that plaintiff is not entitled to recover against him on the renewal note of February 26, 1923, for the reason that plaintiff is not a holder of said note in due course; that there was no consideration for the plaintiff signing said note; that plaintiff was fully advised before taking the renewal note that plaintiff claimed to have a good defense to the original note.

The court made findings substantially as indicated in the statement above and further that at the time said note was delivered to the bank neither its officers, agents or employees had made any representations to the defendant whatever in connection therewith, and no information was given to any of the officers or agents of said bank as to the representations, if any, made by said Hansen to the defendant when said note was procured.

It appears from the evidence that Hansen took the original note of November 4, 1922, to the defendant Knudson and requested him to sign the note as an accommodation to him; that the officers of the bank did not see Knudson in regard to the matter. The court also found that when the original note was purchased and transferred to the plaintiff bank, the note was not then due and none of the officers, agents or employees of the purchasing bank was informed or knew that the note of the defendant was an accommodation note; that the plaintiff bank paid value for the note; that neither the plaintiff nor its predecessor, the Drain State Bank, ever made any misrepresentations to the defendant at the time he signed either of said notes; that neither the plaintiff bank nor its predecessor, the Drain State Bank, has been guilty of any negligence in the collection of moneys due Hansen from Douglas County.

The plaintiff is a purchaser for value of the original note given by defendant to Drain State Bank and is the owner and holder of the note sued on in the action given in renewal of said original note in consideration of an extension of time of payment.

The allegation of the defendant's answer that the note of November 4, 1922, signed by the defendant was to be paid first out of any money that might be collected by the bank from Douglas County is not borne out by the testimony in the case. A.C. Hansen, the party for whose accommodation the defendant signed the note, no doubt made very roseate representations to defendant, and quite likely all of the parties interested then expected that Hansen would have sufficient funds coming from Douglas County to pay his indebtedness. The cashier of the Drain State Bank, Otto E. Bock, testified as a witness for defendant to the effect that at the time the original note was given it was understood by the officers of the bank that the defendant Knudson was interested in the work with Hansen through the North West Construction Company. They considered Knudson's note the same as Hansen's; that it was supposed Hansen was getting funds from Knudson's company, the North West Construction Company, that any amount collected by virtue of the assignments of Hansen from Douglas County should be credited on the note of Hansen that was due. The cashier of the Drain State Bank appears to have understood the matter as thoroughly as any of the officers of that bank. The note of November 4, 1922, appears of record indorsed by the Drain State Bank by its officers.

Section 7844, Or. L., reads thus:

"A holder in due course is a holder 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 without 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 7821, Or. L., reads as follows:

"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 taking the instrument knew him to be only an accommodation party."

Section 7911, Or. L., provides thus:

"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 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 after maturity of his own right."

When the defendant Theodor Knudson signed the note of November 4, 1922, as maker without receiving value therefor for the purpose of lending his name to A.C. Hansen, he became primarily liable thereon. When it was indorsed to the plaintiff who paid value therefor without notice of any defect therein, he became liable to the plaintiff bank notwithstanding the plaintiff bank at the time of taking the note knew that he was only an accommodation party: Farmers' State Bank v. Forsstrom, 89 Or. 97,101 (173 P. 935); Davis v. First Nat. Bank of Albany, 86 Or. 474,483 (161 P. 931, 168 P. 929); White v. Savage,48 Or. 604, 607 (87 P. 1040); Cellers v. Meachem, 49 Or. 186,188, 189 (89 P. 426, 13 Ann. Cas. 997, 10 L.R.A. (N.S.) 133).

The law is well settled in this state by the Negotiable Instrument Act that an accommodation maker is not relieved from the payment of his note by an act of the holder, such as the extension of time without notice. He can only be relieved by the discharge of the instrument, and the instrument can only be discharged by one of the five acts enumerated in the statute quoted above. As shown by the evidence in the case, none of these acts are present in this case. The plaintiff was a holder in due course of the note of November 4, 1922, and of which the note sued upon was given as a renewal, and no valid defense to the note in suit is shown in this case. A citation of the authorities enunciating the rules governing promissory notes prior to the Negotiable Instrument Law is of no assistance in a case of this kind.

The judgment of the Circuit Court is affirmed.

AFFIRMED.

BURNETT, C.J., and BROWN and BELT, JJ., concur.