First Nat. Bank of Ceredo v. Linn
| Decision Date | 08 September 1981 |
| Docket Number | No. 14565,14565 |
| Citation | 168 W.Va. 76,282 S.E.2d 52 |
| Court | West Virginia Supreme Court |
| Parties | , 32 UCC Rep.Serv. 218 FIRST NATIONAL BANK OF CEREDO, etc. v. Robert George LINN, et al. |
Syllabus by the Court
1. Under the Uniform Commercial Code, W.Va. Code, 46-3-402, unless the instrument clearly indicates that a signature is made in some other capacity, it is an indorsement.
2. Under W.Va. Code, 46-3-501, absent some excuse or waiver, an indorser of an instrument is liable only after presentment, notice of dishonor and protest of the instrument.
3. In order to determine the exact nature of the liability of an accommodation party, it is first necessary to determine the capacity in which he signed the instrument.
Baer, Napier & Colburn and James Allan Colburn, Huntington, for appellants.
Harry F. Thompson, Jr., Huntington, for appellees.
This appeal involves the application of certain principles set out in our Uniform Commercial Code to determine whether the appellees, Messrs. Linn and Thompson, were indorsers under W.Va. Code, 46-3-414 or guarantors under W.Va. Code, 46-3-416. The resolution of appellees' standing determines their liability on a note since the appellant, First National Bank of Ceredo (Bank), failed to give them notice of dishonor after the primary obligor did not pay on the note. The requirement of notice of dishonor is necessary to affix liability on an indorser but is not required for guarantors of an instrument. The trial court, without a jury, concluded appellees were not liable and we agree.
The commercial transaction giving rise to this litigation had its origin in August of 1972, when Karl T. and Linda Estep purchased a trailer from P & S Trailer Sales, Inc. (P & S Trailer). They financed a considerable part of the transaction by executing a document entitled "Contract, Note, Security Agreement and Disclosures" in which they agreed to pay the balance due P & S Trailer in monthly installments. P & S Trailer desired to obtain cash for the unpaid balance due on the note and discounted the same to the Bank. The Bank did not desire to rely solely on the financial integrity of the Esteps, who had made the note, and required P & S Trailer to sign the note on the reverse side, with recourse. In addition, the principals of P & S Trailer were also required to sign the note. 1 The recourse language, together with the parties' signatures, appeared on the note as follows:
Subsequently, the trailer buyers, the Esteps, defaulted on their monthly payments to the Bank. The seller of the trailer, P & S Trailer, went out of business. The Bank repossessed the trailer under the security agreement and sold it. When the sale did not generate sufficient funds to pay off the balance due on the note, it made claim against Messrs. Linn and Thompson for the deficiency due. 2
The Bank relies heavily on the language of the "With Recourse" guaranty and the fact that Linn and Thompson signed after the corporation under this language. There is no dispute that the language in the "With Recourse" paragraph is that of a guaranty since it specifically provides: "Seller guarantees payment of the amount due" and "Seller waives notice of acceptance of this guaranty and notices of nonpayment and nonperformance." The contract of a guarantor is contained in W.Va. Code, 46-3-416. 3
Despite the acknowledgement that the language in the "With Recourse" paragraph is that of guaranty, we do not believe that Linn and Thompson became guarantors for two reasons. First, the language in the guaranty paragraph speaks solely of the "Seller." The Seller is clearly identified in other portions of the document as P & S Trailer, and, of course, from a factual standpoint, it was the seller of the trailer. In this respect, the present case is distinguished from our earlier case of Central National Bank of Portsmouth v. Sciotoville Milling Co., 79 W.Va. 782, 91 S.E. 808 (1917), where several persons endorsed the back of a note beneath the following printed language:
"The within note is hereby indorsed and demand, notice of nonpayment and protest waived."
We concluded that this was a general waiver which applied to all parties who had signed under the waiver form. Here, the guaranty language which contained the waiver of nonpayment and nonperformance was by its terms limited to the seller.
A second factor involved in this case is what is known as the presumption of indorsement arising from W.Va. Code, 46-3-402:
"Unless the instrument clearly indicates that a signature is made in some other capacity it is an indorsement."
We recognized this section in People's Bank of Point Pleasant v. Pied Piper Retreat, Inc., W.Va., 209 S.E.2d 573, 579 (1974). Other courts have held under a similar statute that where a signature on a note does not clearly show it is made in some other capacity, it will be deemed to be an indorsement. E. g., New Haven National Bank v. Clarke, 33 Conn.Sup. 179, 368 A.2d 613 (1976); Lange v. Shapiro, 68 Ill.App.2d 433, 216 N.E.2d 294 (1966); King v. Finnell, 603 P.2d 754 (Okl.1979).
This is not to say that reference may not be made to the instrument itself to determine the capacity in which a party has signed an instrument. In the official comment 4 to W.Va. Code, 46-3-402, these statements are made:
In the present case, it is clear that the Esteps, as buyers of the trailer with an unpaid balance due on the purchase price, were the makers of the note. The payee of the note was P & S Trailer. Linn and Thompson's signatures do not appear on the face of the note but follow the "With Recourse" signature of P & S Trailer, which corporate signature followed the corporate guaranty made at the time P & S Trailer transferred the note to the Bank. We have previously pointed out that the guaranty language was narrowly drawn to encompass only the Seller, P & S Trailer. Consequently, in view of the limited language in the guaranty provision, we cannot say under the previously quoted comments to W.Va. Code, 46-3-402, that there is a clear indication that Linn and Thompson signed as guarantors. As a result, under this statute, they are deemed indorsers.
Having determined that Linn and Thompson were indorsers, their obligation is determined by W.Va. Code, 46-3-414(1):
"Unless the indorsement otherwise specifies (as by such words as 'without recourse') 5 every indorser engages that upon dishonor and any necessary notice of dishonor and protest 6 he will pay the instrument according to its tenor at the time of his indorsement to the holder or to any subsequent indorser who takes it up, even though the indorser who takes it up was not obligated to do so."
Once Linn and Thompson's status is established as indorsers, it is clear from W.Va. Code, 46-3-414(1), that upon dishonor they were required to be given the necessary notice of dishonor. Our prior cases which dealt with the liability of indorsers under our former Negotiable Instrument Law 7 established that notice of dishonor and nonpayment must be given to indorsers in order to hold them liable. Kelly v. Ford, 115 W.Va. 435, 176 S.E. 705 (1934); Morrison v. Frantz, 105 W.Va. 14, 141 S.E. 394 (1928). This holding is the general rule elsewhere under similar UCC provisions. Nevada State Bank v. Fischer, 93 Nev. 317, 565 P.2d 332 (1977); Central Jersey Bank & Trust Company v. Lady Van Industries, Inc., 154 N.J.Super. 459, 381 A.2d 831 (1977), rev'd on other grounds, Ligran Inc. v. Medlawtel Inc., 174 N.J.Super. 597, 417 A.2d 100 (1980); Chandler Motors, Inc. v. Dunham, 127 N.J.Super. 320, 317 A.2d 386 (1974); Bankers Trust of South Carolina v. Culbertson, 268 S.C. 564, 235 S.E.2d 130 (1977).
From a purely technical standpoint, Linn and Thompson were accommodation indorsers by virtue of W.Va. Code, 46-3-415(4), relating to the contract of an accommodation party which states: "An indorsement which shows that it is not in the chain of title is notice of its accommodation character." We recognized this provision in People's Bank of Point Pleasant, supra. See Gavin v. Hinrichs, 375 So.2d 1063 (Ala.1979). Here, Linn and Thompson were neither makers nor payees of the note; therefore, their signatures were not necessary to transfer title of the note to the Bank. Thus, they were not in the chain of title to the note and are accommodation indorsers.
W.Va. Code, 46-3-415, sets out the contract of an accommodation party. 8 The official comment under this section makes it clear that in order to determine the exact nature of the liability of an accommodation party, it is first necessary to determine the capacity in which he signed the instrument since there can be accommodation makers, guarantors, indorsers, etc:
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