Fithian v. Jamar, 24

CourtCourt of Appeals of Maryland
Citation286 Md. 161,410 A.2d 569
Docket NumberNo. 24,24
Parties, 26 UCC Rep.Serv. 729, 27 UCC Rep.Serv. 481 Walter William H. FITHIAN et ux. v. Richard F. JAMAR et ux.
Decision Date08 October 1979

David M. Williams, Chestertown, for appellants.

C. Daniel Saunders, Chestertown, for appellees.

Argued before MURPHY, C. J., and SMITH, DIGGES, ELDRIDGE, ORTH and COLE, JJ.

COLE, Judge.

The dispute in this case involves the rights and liabilities of co-makers of a note in a suit among themselves, where none of the disputants is a holder of the note. We granted certiorari to consider two questions, which simply stated are:

1. Whether a co-maker of a note was also an accommodation maker of the note and thus not liable to the party accommodated;

2. Whether the agreement of one co-maker to assume another co-maker's obligation on a note constitutes a defense to the latter when sued for contribution by the former.

In 1967 Walter Fithian (Walter) and Richard Jamar (Richard), who were employed as printers at Baltimore Business Forms, decided to form a partnership to carry on their own printing business. They applied to the People's Bank of Chestertown, Maryland (Bank) for an $11,000 business loan to enable them to purchase some equipment. The Bank agreed to lend the money to Walter and Richard only if Walter's wife, Connie, Richard's wife, Janet, and Walter's parents, Walter William (Bill) and Mildred Fithian would co-sign the note. The Executive Vice-President of the Bank explained that the additional signatures were required to make the Bank more secure. The note, which authorized confession of judgment in the event of default, was signed on its face in the bottom right-hand corner by these six parties. The monies loaned were deposited in Walter and Richard's business checking account and were used to purchase printing equipment.

By 1969, Walter and Richard were encountering business problems. They spoke with Frank Hogans (Hogans) and Gerald Bos (Bos) (who were interested in joining the business) about forming a corporation to be called J-F Printing Co., Inc. and refinancing the note so that it (the note) could become a corporate rather than an individual obligation. The business continued to falter and on March 23, 1972 Walter, Richard, Hogans and Bos met and entered into a written agreement in their individual capacities whereby Richard was to take over management and ownership of the business in exchange for his assumption of liability for the company's outstanding obligations, one of which was the note in question in this case. The agreement also provided that should Richard default in the performance of those obligations, Walter, Hogans, and Bos would have the right to terminate the agreement and resume ownership of the business.

Pursuant to the agreement Richard assumed control of the business but was unable to make any further payments on the note. Consequently, the Executive Vice-President of the Bank requested that Bill and Mildred Fithian pay the note in full. They did and the Bank assigned the note to them for whatever disposition they might choose. Bill demanded that Richard indemnify him for the total amount Bill paid on the note.

Receiving no satisfaction from Richard, Bill and Mildred sought judicial relief. On November 10, 1976, a confessed judgment against Richard and Janet of $8,953.95, the balance on the note paid by Bill and Mildred, with interest from January 18, 1974, court costs, and attorney's fees of $472.70, was entered in the Circuit Court for Kent County. Richard and Janet filed a motion to vacate the judgment, which the circuit court granted and ordered a hearing on the merits. Prior to trial, Richard and Janet filed a third party claim against Walter and Connie averring that as co-makers of the note, Walter and Connie were liable to Richard and Janet for any judgment that Bill and Mildred might recover against Richard and Janet. Walter and Connie counterclaimed contending that the agreement barred Richard's recovery.

The matter was brought to trial on August 25, 1977 before the circuit court, sitting without a jury. The court found that the J-F Printing Company, Inc. was never a de jure corporation and that those who attempted to act under that name were merely acting in their individual capacities; that the March 23, 1972 agreement was not material to the determination of the case; that Bill and Mildred were accommodation makers for Richard, Janet, Walter and Connie and were entitled to collect from any one of the four.

Final judgment was entered on September 6, 1977 for Bill and Mildred against Richard and Janet in the amount of $8,953.95, the principal sum due, plus $2,288.95, representing interest from January 18, 1974 to August 25, 1977. The court denied Bill and Mildred's claim for collection fees specified in the note and also entered a judgment for Richard and Janet on Walter and Connie's counterclaim. In the third party claim of Richard and Janet against Walter and Connie, judgment was entered for Richard and Janet in the amount of $5,621.45, fifty percent of the total judgment. The costs of the case were to be divided equally between Richard and Janet and Walter and Connie.

Bill and Mildred Fithian filed a timely appeal to the Court of Special Appeals, complaining of the circuit court's adverse ruling as to the collection fees. Walter and Connie took their own appeal, challenging the lower court's findings concerning both Connie's status in relation to the note and the materiality of the March, 1972 agreement. These appeals were consolidated for oral argument in that court.

In an unreported per curiam decision filed on April 7, 1978, Fithian v. Jamar, No. 946, Sept. Term, 1977, the Court of Special Appeals affirmed the circuit court in part and reversed in part. The Court of Special Appeals reversed on the issue of collection fees, ruling that there was a "valid and enforceable contract right of Bill and Mildred to the payment of collection costs . . .."; the Court of Special Appeals affirmed the circuit court's finding that Connie Fithian was a co-maker of the note, and not an accommodation party. The Court of Special Appeals also affirmed the trial court's finding that the March, 1972 agreement was not material to the case because it was "a private agreement between only two (2) of the six (6) makers of the note."

Walter and Connie (appellants) requested review of these rulings in this Court, and we granted their petition for certiorari on June 21, 1978 to consider the two questions presented: whether Connie Fithian was an accommodation maker of the note and thus not liable to the party accommodated; and whether the March, 1972 agreement constitutes a defense to Richard and Janet's (appellees) third party claim against Walter and Connie.

Our disposition of the questioned rulings requires us to reverse and remand. The error which occurred in the court below was caused in part by a failure to fully analyze the individual rights and obligations of Connie, Walter, Janet and Richard. Therefore, in the discussion which follows, in addition to examining the two questions presented, we will clarify the resulting rights and obligations of these parties.

Richard v. Connie

Since there is no dispute that Connie signed the note, the answer to the first question depends on her purpose in doing so. This is made clear by Maryland Code (1975), § 3-415(1) of the Commercial Law Article which provides that an accommodation party is "one who signs the instrument in any capacity for the purpose of lending his name to another party to it." The undisputed evidence as presented by the Executive Vice-President of the Bank was to the effect that the wives' signatures were required before the Bank would make the loan to Walter and Richard. Such practices are common among lending institutions which recognize that

(o)ne with money to lend, goods to sell or services to render may have doubts about a prospective debtor's ability to pay. In such cases he is likely to demand more assurance than the debtor's bare promise of payment. The prospective creditor can reduce his risk by requiring some sort of security. One form of security is the Article 9 security interest in the debtor's goods. Another type of security takes the form of joining a third person on the debtor's obligation. (J. White and R. Summers, Uniform Commercial Code § 13-12, at 425 (1972)).

It is readily apparent, therefore, that Connie lent her name to facilitate the loan transaction. As such she lent her name to two parties to the instrument, Richard and Walter, to enable them to receive a Joint loan for the purchase of equipment for their printing business, thereby giving the Bank the added assurance of having another party to the obligation. Connie signed as an accommodation party as to both Walter and Richard.

Nor is there any merit in the argument advanced by Richard that Connie must be either a co-maker or an accommodation party, that she cannot be both. The actual language of § 3-415(1) indicates that an accommodation party also signs in a particular capacity, as maker, acceptor or indorser of an instrument. The Official Comment 1 to § 3-415 explains that

(s)ubsection (1) recognizes that an accommodation party is always a surety (which includes a guarantor), and it is his only distinguishing feature. He differs from other sureties only in that his liability is on the instrument and he is a surety for another party to it. His obligation is therefore determined by the capacity in which he signs. An accommodation maker or acceptor is bound on the instrument without any resort to his principal, while an accommodation indorser may be liable only after presentment, notice of dishonor and protest.

Moreover, § 3-415(2) refers specifically to the liability of an accommodation party "in the capacity in which he has signed." It follows, therefore, that the fact that Connie was a co-maker of the note does not preclude her from...

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