First Nat. Bank v. Holding

• Decision Date: 29 October 1931
• Docket Number: 6780.
• Citation: 4 P.2d 709,90 Mont. 529
• Parties: FIRST NAT. BANK OF MISSOULA v. HOLDING et al.
• Court: Montana Supreme Court

4 P.2d 709

90 Mont. 529

FIRST NAT. BANK OF MISSOULA v. HOLDING et al.

No. 6780.

Supreme Court of Montana

October 29, 1931

Rehearing Denied Nov. 17, 1931.

Appeal from District Court, Missoula County; Theodore Lentz, Judge.

Action by the First National Bank of Missoula, a corporation against V. L. Holding and another. Judgment for defendants and plaintiff appeals.

Affirmed.

Walter L. Pope and J. C. Garlington, both of Missoula, for appellant.

E. C Mulroney, of Missoula, Lloyd I. Wallace, of Polson, and E. G Toomey, of Helena, for respondents.

FORD J.

This is an action upon a promissory note dated June 30, 1922, for the principal sum of $16,958.50, executed by C. A. Stone, V. L. Holding, William Irvine, and J. H. Cline, payable upon demand to the Missoula Trust & Savings Bank, and by it assigned to the First National Bank of Missoula, plaintiff herein, upon the consolidation of the two banks in February, 1927. The action was originally commenced against all four signers of the note; Stone was not served, and the action was dismissed as to Irvine, who pleaded his discharge in bankruptcy, and the action proceeded against Holding and Cline, hereafter referred to as the defendants.

The complaint is in the usual form. The answer denies certain of the allegations of the complaint, and, in addition, alleges that the note in suit was a renewal of a note for a like amount executed by the same parties on June 30, 1921; that on that date the Missoula Trust & Savings Bank, payee in the note, was the owner and holder of ten promissory notes of various individuals aggregating in amounts then due the sum of $16,958.50, which was the amount for which the original note of the defendants was given; that on the date last mentioned, the Missoula Trust & Savings Bank delivered the ten notes to the First National Bank of Polson, to be by it collected "and with the express agreement that the principal and interest upon the respective notes as the same became due, should in each and every instance be collected by said The First National Bank of Polson, if possible, and the proceeds of such collection remitted to the said Missoula Trust & Savings Bank, and in case any of said notes could not be collected, then return such uncollected notes to the Missoula Trust & Savings Bank. That on or about the 2nd day of July, 1921, there was left, but without consideration for the execution thereof, with said Missoula Trust & Savings Bank a note bearing date of June 30, 1921, for $16,958.50, signed by the four defendants named in this action as collateral to the obligation of said The First National Bank of Polson to collect said ten notes and remit the proceeds thereof to the Missoula Trust & Savings Bank, or in case said The First National Bank of Polson failed to collect said notes and interest, or some of them, then to return said uncollected notes to said Missoula Trust & Savings Bank and remit the proceeds of any collected notes to said Missoula Trust & Savings Bank. That the note described in the plaintiff's complaint is a renewal of said note of June 30, 1921." It is alleged that none of the proceeds of the ten notes were ever delivered or transmitted by the Polson bank to the Missoula bank, and that in July, 1924, after the Polson bank had gone into the hands of a receiver, the Missoula bank filed with the receiver a claim based upon the ten notes, which claim was disallowed by the receiver; that in Septemer, 1924, the Missoula bank commenced an action in the district court of Missoula county against the Polson bank and the receiver, hereinafter referred to as cause No. 9607, seeking to recover of and from the defendants, "among other things, the sum of $16,958.50, together with interest thereon from and after the 30th day of June, 1921, for the alleged conversion of the ten promissory notes," referred to above; that the action resulted in a compromise and settlement, whereby three of the notes were returned to the Missoula bank, and, upon the trial before the court, a judgment was entered finding that the three notes were the only notes of the ten listed in the possession of the defendants in that action, that plaintiff be authorized to accept the same, and that plaintiff's prayer for a money judgment be denied. It is further alleged that the effect of the judgment was to discharge the note upon which this action was brought and the obligation represented thereby. Issue was joined by reply. Trial by jury resulted in a verdict for defendants; judgment was accordingly entered, from which plaintiff appeals.

Numerous specifications of error are urged by plaintiff as grounds for the reversal of the judgment, but in our opinion the determinative question is whether defendants can rely upon and prove the contemporaneous agreement set up in their answer, which the evidence discloses to have been oral in character.

Dean Wigmore, in his treatment of the parol evidence rule as applied to negotiable instruments, says: "What is the situation, then, of parties who wish to employ a negotiable instrument for the sake of some one or more specific attributes, but wish also to modify for their own case some of the other generic consequences ordinarily implied as a part of the whole? They cannot specify these manifestations in the instrument without destroying all its negotiable qualities, including those which they desire to secure. On the other hand, by making no specific modification, they will be fixed with consequences which they do not desire. *** The law, then, it is plain, has recognized the dilemma. It perceives that parties must constantly wish to employ a negotiable instrument for the sake of one or more of its special attributes while discarding others; it concedes that commercial transactions are variant in their exigencies, while the normal incidents of a negotiable instrument are fixed; and it does not force parties into the alternative of employing either all or none of them. It therefore concedes that by special agreement the parties may discard or alter a specific implied incident, so far as its operation would affect themselves." 5 Wigmore on Evidence (2d Ed.) § 2443, p. 335. And referring to agreements affecting the express terms of the instrument, the learned author says: "An agreement between one co-maker and the payee, to hold the former as surety only, seems at first sight to be a mere condition qualifying the face of the instrument, and therefore ineffective; but, as in the case of accommodation paper, it may be that the negotiation of the instrument requires several parties having primary liability; hence the surety would have to appear as a co-maker and not as a drawer, and the suretyship agreement would have to be extrinsic. Such an agreement is generally given effect." Id., § 2444, p. 337.

"Suretyship may be declared by parol. *** One who signs under seal a promissory note, apparently as maker, can, when sued thereon by the payee, show by parol that he is surety only, and that at the time the note was executed the payee had knowledge of this fact." 4 Jones' Com. on Evidence (2d Ed.) 2850. "In accordance with the rules applicable to writings, it is permissible to show by parol or extrinsic evidence, as between the original parties or those with notice, the true capacity or legal relation of the parties to a negotiable bill or note. Thus it may be shown that a signer of a note is, in reality, a surety, and that this fact was known to the plaintiff." Id., 3019.

"In the United States, we think, the weight of authority is in favor of allowing evidence to show that one of the joint promisors signed as surety, and that this was known to the payee or indorsee when he took the instrument; this is said to proceed upon the theory that suretyship is a fact collateral to the contract, rather than a part of it, and may therefore be shown ore tenus." 2 Daniels on Negotiable Instruments (6th Ed.) 1508.

Such proof does not vary, alter, or contradict the terms of the...