Fidelity Title Service v. Ball Homes, Inc.

• Decision Date: 20 June 1985
• Docket Number: No. 84AP-69,84AP-69
• Citation: 25 Ohio App.3d 52,25 OBR 219,495 N.E.2d 964
• Court: Ohio Court of Appeals
• Parties: , 25 O.B.R. 219, 2 UCC Rep.Serv.2d 955 FIDELITY TITLE SERVICE, Appellant, v. BALL HOMES, INC.; C.V. Perry & Co., Appellees.

Page 52

25 Ohio App.3d 52

495 N.E.2d 964, 25 O.B.R. 219, 2 UCC Rep.Serv.2d 955

FIDELITY TITLE SERVICE, Appellant, v. BALL HOMES, INC.; C.V. Perry & Co., Appellees.

No. 84AP-69.

Court of Appeals of Ohio, Tenth District, Franklin County.

June 20, 1985.

Syllabus by the Court

1. Usually, proof of the status of an accommodation maker is established by the specific language he adds to his signature, or the position of his signature on the instrument. However, in certain circumstances, oral proof is admissible to prove the accommodation character of a party where no such indication appears in the instrument. (R.C. 1303.51[C] [UCC 3-415(3) ], applied.)

2. The holder or purchaser of an instrument that is overdue may be a holder in due course if he takes it without notice that it is overdue.

Hilliard, Ramsey & Drexel and Robert A. Ramsey, Columbus, for appellant.

C. William Malone, Columbus, for appellees.

NORRIS, Judge.

Plaintiff, Fidelity Title Service, appeals from the judgment of the Franklin County Municipal Court dismissing its complaint as to defendant C.V. Perry & Co.

The record reveals that plaintiff filed a complaint on February 3, 1983 against Ball Homes, Inc. and C.V. Perry & Co. in the Franklin County Municipal Court based upon a promissory note assigned to plaintiff by the original payee, Buckeye Services Corp. Ball Homes filed an answer to the complaint confessing judgment on the note in favor of plaintiff in the amount of $5,197.43, that being the principal and interest due. A judgment entry was filed by the trial court that same day granting plaintiff judgment against defendant Ball Homes, Inc. for the amount confessed. No appeal has been taken from that judgment.

The remaining two parties proceeded to trial before the court. The testimony presented at trial indicated that C.V. Perry & Co., an Ohio corporation duly licensed as a real estate broker, was involved in selling lots and homes in the Indian Trails Subdivision, south of Grove City, and, in particular, was attempting to sell lots owned by Buckeye Service Corp. ("BSC"), a wholly owned subsidiary of Buckeye Federal Savings & Loan Association ("BFSL"). Negotiations were entered into between BSC and Ball Homes to purchase Lot No. 255. The contract price on the lot was listed at $15,500. An offer was made by Ball Homes with a contingency requiring a loan from BSC to Ball Homes for $3,875 secured by a vendor's lien on the lot. BSC, however, originally felt that the offer was not acceptable because questions had arisen concerning Ball Homes' financial status. John Lilly, an assistant vice president for BSC testified that Orin Morris, of C.V. Perry & Co., contacted him and asked if BSC would accept the offer if C.V. Perry & Co. cosigned on the note. The note was thereafter drawn with Ball Homes and C.V. Perry & Co. signing as comakers and the vendor's lien was included in the warranty deed filed on January 2, 1981. The note provided for payment to be due in full "upon closing on sale of the house to be constructed on the below described lot or one year from the date of this Note, whichever event first occurs."

The house constructed by Ball Homes was sold to Robert L. and Natalie K. Egan, and the closing was held on July 17, 1981. The Egans were issued a mortgage loan through BFSL and a title insurance policy was provided to BFSL and the Egans through plaintiff, Fidelity Title Service. The policy, however, did not indicate an exemption for the vendor's lien arising out of the promissory note. The note was not paid at the closing and the lien remained in effect until its discovery over one year later by BSC and BFSL. Lilly testified that the note and lien were assigned on February 1, 1983 to plaintiff for $5,197.43. A release was included from BFSL and BSC releasing plaintiff from all claims, demands, damages and actions arising out of any claims for satisfaction of the vendor's lien originally held by BSC.

Plaintiff argued at trial that C.V. Perry & Co. ("defendant") was a cosigner on the note with Ball Homes and, as such, was jointly and severally liable under the terms of the note. It was admitted by plaintiff that Ball Homes had paid $1,000 on the note; therefore, the balance claimed was reduced to $4,197.43. Defendant argued in response that it was asked by BSC to lend its credit to Ball Homes on the note, and that it executed the note pursuant to that request as an accommodation maker. Further, defendant argued that plaintiff was not a holder in due course of the note, having taken the note after it was due. Therefore, under the Uniform Commercial Code, defendant, as an accommodation maker, was not liable to plaintiff on the note. Plaintiff objected at trial to the admissibility of oral testimony concerning negotiations on the note upon the basis that it violated the parol evidence rule.

The trial court rendered judgment in favor of defendant and, in its findings of fact and conclusions of law, stated that defendant was an accommodation maker; that oral proof of accommodation was admissible; that plaintiff took the note on February 1, 1983 with notice that it was overdue; that a subsequent holder for value who takes a note with notice that it is overdue is not a holder in due course and is subject to all defenses of any party; that plaintiff was not a holder in due course; and that an accommodation maker is not liable to a non-holder in due course.

Plaintiff raises the following seven assignments of error in support of its appeal:

"1. The trial court improperly found from the evidence presented that the defendant C.V. Perry & Co. was an accommodation maker.

"2. The trial court improperly failed to apply all terms of the note in determining the liability of C.V. Perry & Co.

"3. The trial court improperly found that the defendant C.V. Perry & Co. received none of the benefits or proceeds of the loan.

"4. The trial court improperly found that the defendant C.V. Perry & Co. was not liable on the note.

"5. The trial court improperly admitted oral testimony to vary the terms of the promissory note over the objections of the plaintiff appellant.

"6. The trial court improperly found that an accommodation maker of a note is not liable to [a] subsequent non-holder in due course.

"7. The trial court improperly admitted testimony and/or improperly overruled the objection thereto by plaintiff-appellant on the non-performance of a condition precedent."

Because all seven of plaintiff's assignments of error deal with defendant's liability under the promissory note, and the evidence relied upon to reach that conclusion, they will be considered together.

An accommodation maker, under the Uniform Commercial Code as adopted by Ohio, is defined as a party "who signs the instrument in any capacity for the purpose of lending his name to another party to it." R.C. 1303.51(A) (UCC 3-415 ). By doing so, the accommodation party provides another type of security for a creditor by joining himself as a third party on the debtor's obligation. He acts as a surety and obligates himself to answer for the debt on default of the debtor. Once he has attached his name to the instrument, R.C. 1303.51(B) recognizes that he is "liable in the capacity in which he has signed * * *." Therefore, an accommodation maker's basic liability to a holder is identical to that of any other maker, the only distinction being that his status as an accommodation maker provides him with special defenses unavailable to the general run of parties to an instrument. White and Summers, Uniform Commercial Code (1980 2 Ed.), Section 13-12.

Usually, proof of the status of an accommodation maker is established by the specific language he adds to his signature, or the position of his signature on the instrument. However, in certain circumstances, oral proof is admissible to prove the accommodation character of a party where no such indication appears in the instrument. R.C. 1303.51(C) (UCC 3-415 ) states:

"As against a holder in due course and without notice of the accommodation oral proof of the accommodation is not admissible to give the accommodation party the benefit of discharges dependent on his character as such. In other cases the accommodation character may be shown by oral proof."

This rule had been recognized in Ohio prior to the adoption of UCC 3-415. Oral evidence was allowed to be admitted to establish the actual relation of the parties who signed the instrument and to show that a party was, in fact, a surety. Oldham v. Broom (1875), 28 Ohio St. 41; Baker & Brim, Admrs. v. Kellogg (1876), 29 Ohio St. 663, 665; McKee v. Hamilton (1877), 33 Ohio St. 7; Hecker v. Mahler (1901), 64 Ohio St. 398, 60 N.E. 555.

In the instant case, a review of the promissory note signed by plaintiff and defendants fails to indicate the status of C.V. Perry & Co. other than as a cosigner. Defendant, however, offered testimony from Orin Morris, vice president of the company, that the note was signed with the intention that defendant was only a surety for the principal debtor, Ball Homes, Inc. Morris testified that defendant agreed to lend its name to the transaction involving the purchase of the lot and signed the note with that understanding. BSC had previously indicated to defendant that they would not take the note from Ball Homes, but would accept the note and a vendor's lien on the property if C.V. Perry & Co. signed as a comaker. Morris also stated that part of the inducement to sign the note was a promise from BSC that the note would be paid off through collection of the vendor's lien.

As previously noted, parol evidence is admissible under R.C. 1303.51(C) to establish the accommodation character of a party to the note. However, admissibility is not allowed under the statute where the holder is a holder in due course and takes without notice of the accommodation. A holder in due course is defined under R.C. 1303.31(A)(3) (UCC 3-302[c] ) as "[a] holder * * * who takes the instrument *...