First Nat. Bank v. Livermore

• Decision Date: 05 July 1913
• Docket Number: No 18,349,18,349
• Citation: 133 P. 734,90 Kan. 395
• Parties: THE FIRST NATIONAL BANK OF OLATHE, Appellee, v. H. C. LIVERMORE et al., Appellants
• Court: Kansas Supreme Court

133 P. 734

90 Kan. 395

THE FIRST NATIONAL BANK OF OLATHE, Appellee, v. H. C. LIVERMORE et al., Appellants

No 18,349

Supreme Court of Kansas

July 5, 1913

Decided July 05, 1913

Appeal from Johnson district court. Opinion filed July 5, 1913. Affirmed.

Judgment affirmed.

SYLLABUS

SYLLABUS BY THE COURT.

1. PROMISSORY NOTE--Extension by Bank Cashier--New Security--Release of Sureties. It is assumed, but not decided, that a cashier has authority, in virtue of his office, to extend the time of payment of a note belonging to the bank, even if sureties are thereby released, where new security is taken.

2. NEW NOTE--Presumed to Suspend Time of Payment of Old Note. Where a new note, payable at a future date, is taken for the same debt evidenced by a past due note, which is not surrendered the parties are presumed to intend that action on the old note shall be suspended until the maturity of the new one, in the absence of anything to indicate a contrary intention.

3. Stockholder Signing Note of Corporation Not Released by Extension. Where one of the principal stockholders, who is also a director, signs a note with the corporation, given to raise money for its benefit, intending to be bound only as a surety, he is not entitled to the same liberality of treatment that the law accords to volunteer sureties; and where the corporation is granted a valid extension of time, without his knowledge, he is not thereby released from liability unless he suffers some injury therefrom.

J. W. Parker, of Olathe, for the appellants.

S. T. Seaton, of Olathe, for the appellee.

OPINION

MASON, J.:

The Olathe Milling & Elevator Company, a corporation, borrowed two thousand dollars of C. L. Hayes for use in its business, and gave him a note therefor, signed by the corporation and by three individuals, who were the principal stockholders, and were also directors of the corporation, but who otherwise received no benefit from the transaction, and who intended to bind themselves as sureties only. The note was purchased by the First National Bank of Olathe, which brought action for a balance due thereon against two of the individual signers, H. C. Livermore and M. G. Miller. It recovered judgment, from which an appeal is taken.

The principal contention in behalf of the defendants is that they were discharged from liability by an extension of time given by the bank to the milling company for a valuable consideration without their consent. After the maturity of the note referred to the milling company executed to the cashier, for the benefit of the bank, a negotiable note for $ 12,700 due in ninety days, on account of various items of indebtedness, including the $ 2000. The defendants did not sign this note, and did not consent to it. The old note was not surrendered, and the new note was not entered on the books of the bank, but was placed in an envelope containing notes that had been charged off. As security for the same indebtedness the milling company also executed a mortgage, which was afterwards held void as to creditors.

The defendants maintain that the transaction referred to amounted to a payment of the $ 2000 note. The decision of the trial court implies a finding that the new note was not accepted as payment of the old, and this finding was warranted, if not compelled, by the evidence.

The plaintiff challenges the authority of the cashier to bind the bank by the acceptance of the new note. Such authority was not shown, unless it is to be regarded as incidental to the office. It has been held that a cashier has no implied authority to extend the time of payment of a note where the effect would be to release a surety. (Bank v. Wetzel, 58 W.Va. 1, 50 S.E. 886; Vanderford v. Farmers' Bank, 105 Md. 164, 66, 66 A. 47 [90 Kan. 397] A. 47.) The contrary is held in Wakefield Bank v. Truesdell, 55 Barb. 602, cited in 5 Cyc. 473. We shall assume, without deciding, that where, as in this case, additional security was taken, the cashier may in virtue of his office extend the time of payment of a note, even if it results in the release of a surety. Such a transaction would be merely the exchange of one form of security for another.

If there were anything in the conduct of the parties from which an inference might be drawn that they did or did not intend an extension of the time of payment of the original debt the question would be one of fact upon which the decision of the trial court would be final. But we think there was no substantial evidence on the subject, beyond the bare fact of the making and acceptance of the later note, and in the absence of anything to indicate the contrary, by the weight of authority the presumption is that action on the first note was to be suspended until the maturity of the second. (7 Cyc. 891, 892; Note, 4 A. & E. Ann. Cas. 884.)

The defendants were clearly sureties in the sense that if they had paid the $ 2000 note they would have been entitled to reimbursement from the corporation. It is agreed that the bank when it bought the note knew that the defendants claimed to be sureties, and it must be deemed to have known of their actual relation to the transaction.

If the matter were ruled by the present statute relating to negotiable instruments no extension of time given to the corporation would release the other signers of the note. That statute provides that one who by the terms of an instrument is absolutely required to pay it is "primarily liable." (Gen. Stat. 1909, § 5249.) It enumerates the methods by which one who is secondarily liable may be released, one of them being by an extension of time to the principal. (Gen. Stat. 1909, § 5373.) It also enumerates the methods by which the instrument may be discharged, without including any reference to the effect of an extension of time upon any of the parties. The inference is reasonable that co-makers of the note, although in fact sureties, can not claim a discharge on this ground, and this interpretation is well fortified by the decisions. (Note, 10 L. R. A., n. s., 129; Note, 26 L. R. A., n. s. 99; Lane v. Hyder, 163 Mo.App. 688, 147 S.W. 514; Richards v. Bank Co., 81 Ohio St. 348, 90 N.E. 1000.) This statute, however, has no application to this case, because the note was executed in 1904, and the statute, which was enacted in 1905, includes a section reading, "The provisions of this act do not apply to negotiable instruments made and delivered prior to the passage thereof." (Gen. Stat. 1909, § 5252.)

The plaintiff contends that the defendants were not released from liability, even if the milling company was given a valid extension of time, for the reason that they were not entitled to the privileges of mere volunteer sureties in this respect, because, being themselves the principal stockholders, they had a personal interest in the making of the loan to the corporation. In Seymour D. Thompson's article on Corporations in the Cyclopedia of Law and Procedure it is said: "As the promise of a shareholder to pay the debt of a corporation is the promise to pay the debt of another, it entitles the promisor to all the rights and remedies of a surety as to extensions and renewals of credits not authorized by him. (10 Cyc. 651.) Only one case is cited in support of the proposition. (Home Nat. Bank v. Estate of Waterman, 134 Ill. 461, 29 N.E. 503.) There the ground of the ruling is stated to be that a corporation is a different person from any of its members. The particular question now suggested was not discussed. In Pelton v. San Jacinto Lumber Co., 113 Cal. 21, 45 P. 12, action was brought upon a note signed by a corporation and indorsed by two stockholders. The endorsers defended on the ground that without their knowledge the note was altered before delivery by the insertion of a provision making it payable in another state. The court said:

"That the alteration of the note was material, and such as would discharge sureties, whether endorsers or guarantors, is unquestionable. . . . These propositions, as general rules are not controverted by counsel for respondent, but they contend that by reason of the circumstances that Caswell and Fuller were stockholders of the corporation defendant, and, by virtue of that relation, would be indirectly and incidentally benefited by the loan, they are not entitled to the favor accorded by law to uninterested sureties. But to this point they have cited no authority, and I have found none. Conceding that Caswell and Fuller were indirectly...