Atlantic Life Ins. Co. v. Carter

• Decision Date: 25 February 1933
• Parties: ATLANTIC LIFE INS. CO. v. CARTER et al.
• Court: Tennessee Supreme Court

57 S.W.2d 449

ATLANTIC LIFE INS. CO. v. CARTER et al.

Supreme Court of Tennessee.

February 25, 1933.

Appeal from Chancery Court, Unicoi County; S. E. Miller, Chancellor.

Suit by the Atlantic Life Insurance Company against J. M. Carter and others. Decree of dismissal was affirmed by the Court of Appeals, and complainant brings certiorari.

Reversed and rendered.

Simmonds & Bowman, of Johnson City, for complainant.

L. H. Allred and Jas. G. Bare, both of Erwin, for defendants.

McKINNEY, Justice.

By the bill complainant seeks a decree for $1,800, balance due on a note. The chancellor dismissed the bill, and his decree was affirmed by the Court of Appeals.

On April 15, 1924, defendants, J. M. Carter, Luther Carter, and Rachel Carter, executed their negotiable promissory note in the sum of $4,000, payable to bearer five years after date, and secured same by a mortgage on certain real estate in Erwin. Said note, shortly after its execution, was negotiated to complainant for a valuable consideration and without notice of any infirmity. A little later defendants sold and conveyed the mortgaged property securing said note to M. L. Bailey, who assumed its payment as part of the purchase price, and complainant was duly notified of said facts. When the note matured, Bailey was unable to pay it, and, upon his application, the time of payment was extended one year without the knowledge or consent of defendants. Before the extended due date Bailey died, and his estate is wholly insolvent. Complainant demanded of defendants that they pay said note, which they refused to do. The mortgage was thereupon foreclosed, and, after crediting the note with the proceeds of sale, the bill herein was filed to recover the balance due on said note.

The defense relied upon is that, when Bailey assumed the payment of said note, he became primarily liable and defendants secondarily liable for its payment, and that defendants, being only secondarily liable, were released when the holder extended the time of payment at the request of Bailey without their consent. Independently of the Uniform Negotiable Instruments Law, chapter 94, Acts of 1899, this would unquestionably be correct. Under the general provisions of the law, on page 140, it is said:

"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."

Section 119 states how a negotiable instrument may be discharged; but it is not contended that defendants have been discharged in any of the ways enumerated therein.

Section 120 provides how one secondarily liable may be discharged; subsection 6 thereof being as follows:

"By an 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."

There is no such provision as to one primarily liable, and the inclusion of one secondarily liable would impliedly exclude one primarily liable.

Section 60 of the act provides that: "The maker of a negotiable instrument, by making it engages that he will pay it according to its tenor," etc.

The object and meaning of the Negotiable Instruments Law is so clearly and succinctly stated by Chief Justice Rugg in the leading case of Union Trust Co. v. McGinty, 212 Mass. 205, 98 N. E. 679, 680, Ann. Cas. 1913C, 525, 526, 527, that we quote therefrom, in extenso, as follows:

"It is a matter of common knowledge that the Negotiable Instruments Act was drafted for the purpose of codifying the law upon the subject of negotiable instruments and making it uniform throughout the country through adoption by the Legislatures of the several states and by the Congress of the United States. The design was to obliterate state lines as to the law governing instrumentalities so vital to the conduct of interstate commerce as promissory notes and bills of exchange, to remove the confusion or uncertainty which might arise from conflict of statutes or judicial decisions amongst the several states, and to make plain, certain and general the controlling rules of law. Diversity was to be moulded in uniformity. This act in substance has been adopted by many states. While it does not cover the whole field of negotiable instrument law, it is decisive as to all matters comprehended within its terms. It ought to be interpreted in such a way as to give effect to the beneficent design of the Legislature in passing an act for the promotion of harmony upon an important branch of the law. Simplicity and clearness are ends especially to be sought. The language of the act is to be construed with reference to the object to be attained. Its words are to be given their natural and common meaning, and the prevailing principles of statutory interpretation are to be employed. Care should be taken to adhere as closely as possible to the obvious meaning of the act, without resort to that which had theretofore been the law of this commonwealth, unless necessary to dissolve obscurity or doubt, especially in instances where there was a difference in the law in the different states.

"Approaching the act from this point of view, it is apparent that no relation of principal and surety is established or contemplated by any of its sections. It determines the liability of the various parties to the negotiable instrument on the basis of that which is written on the paper. The obligation of all makers, whether for accommodation or otherwise is to pay to the holder for value according to the terms of the bill or note. Their obligation is primary and absolute. Sections 77 and 208. The act makes no provision for the proof of another and different relation than that expressly undertaken and defined by the tenor of the instrument signed. The fact that one is an accommodation maker gives rise to a duty no less or greater or different to the holder for value than that imposed upon a maker who received value. This is expressly provided by the act, even though such holder knew at the time of making that the maker was an accommodation maker. Section 46. The act further provides in definite terms that the instrument and hence one primarily liable is discharged in one of five different ways (section 136); that is, by payment by the principal debtor, or by the party accommodated, by cancellation, by any other act which would discharge a simple contract, and by the principal debtor becoming the owner at or after maturity. There is no mention here of a discharge of an accommodation party by extension of time. But among the ways in which a party secondarily liable may be discharged is (...