German American State Bank v. Watson

• Decision Date: 10 February 1917
• Docket Number: 20318
• Citation: 99 Kan. 686,163 P. 637
• Parties: GERMAN AMERICAN STATE BANK v. WATSON.
• Court: Kansas Supreme Court

163 P. 637

99 Kan. 686

GERMAN AMERICAN STATE BANK v. WATSON.

No. 20318

Supreme Court of Kansas

February 10, 1917

Rehearing Denied March 16, 1917.

Syllabus by the Court.

Where a bank desires to make an additional loan to a customer, but cannot do so because it has already lent him as much as the law permits, and for that reason induces another person to give his note for the amount, promising to hold him harmless in the matter, in legal contemplation the borrower, who receives the money, and not the bank, which pays it out, is the party for whose accommodation the note is signed.

The maker of a note cannot defend an action thereon by showing an oral agreement made at the time of its execution that he should not be held liable, for the reason that this would violate the rule forbidding the contradiction of the terms of a written instrument by parol evidence.

The maker of a note cannot defend an action thereon by showing that it was executed without benefit to him, under an agreement exempting him from liability, in order to enable the bank to which it was payable to make an additional loan to a customer who had already borrowed to the limit allowed by law, for the reason that, having voluntarily signed the note in order that the examiner might believe it to be an asset of the bank, he ought not to be permitted to deny it that effect.

The maker of a note given for the accommodation of one whose indebtedness is evidenced by a separate note to the same payee is not released by the granting of an extension of time without his knowledge, or by the surrender of security to the person accommodated.

Appeal from District Court, Anderson County.

Suit by the German American State Bank against W. T. Watson. Judgment for plaintiff on sustaining of defendant’s demurrer to the evidence, and he appeals. Affirmed.

Ewing Gard & Gard, of Iola, and C. A. Matson, of Wichita, for appellant.

E. D McKeever, of Topeka, for appellee.

OPINION

MASON J.

The German American State Bank sued W. T. Watson upon two notes, one for $1,748.15, signed by him and payable to the bank; the other for $280, signed by I. M. Blitz, payable to Watson, and indorsed by him to the bank. The execution and indorsement were admitted, but the defendant pleaded facts which he relied upon as relieving him from liability. A demurrer to his evidence was sustained, and he appeals.

Most of the evidence of the defendant was directed to the proposition that he was not liable upon the larger note because of the circumstances under which the note of which it was a renewal was executed, which were thus stated in the answer:

"The said Blitz applied to the said the German American State Bank for a loan of $1,738.55, and that said bank, through its president, Metzger, then agreed to make said loan.

That at said time the said bank, through its president, Metzger, stated to this defendant that said Blitz had arranged with them for the said loan, but that he had already borrowed from the bank as much as it could loan to any one individual, and that it desired to make the loan in the name of this defendant; and at the same time stated that said Blitz was solvent and in first-class financial condition, and that the loan was a good one, and that if defendant would execute a note in his own name for the said loan it would be considered as an accommodation to the bank and not be regarded as any personal obligation of his, and that said bank would also take from the said Blitz a note and collateral security therefor, such as diamonds and jewelry, so that the note would be amply secured and this defendant would be incurring no obligation by the making of said note.

That relying on said statements and for the purpose of accommodating said bank, without any consideration whatever to this defendant, he, on December 27, 1911, executed and delivered to said bank a note for the sum of $1,736.55, the amount said I. M. Blitz was at said time borrowing from said bank; and that at the same time said I. M. Blitz executed and delivered his own note for that amount, made payable to this defendant and indorsed to said bank, or made directly to said bank and delivered to it, and delivered to said bank certain diamonds and other jewelry, the exact kinds and descriptions of which defendant does not know and cannot give, but which the said Metzger stated to this defendant were of sufficient value to more than pay the said sum so borrowed, and which plaintiff alleges were of such value."

1. This portion of the answer stated no defense, and, so far as the evidence of the defendant tended to support the allegations quoted, the demurrer was properly sustained, for several reasons. The fact that the maker received no benefit from the transaction did not constitute a defense. The loan made by the bank to Blitz was a sufficient consideration. 8 C. J. 214; 4 A. & E. Encycl. of L. 188. While the answer alleges that the defendant signed the note "for the purpose of accommodating said bank," the facts set out show that in legal contemplation Blitz was the person accommodated.

"The accommodated party is he to whom the credit of the accommodation party is loaned, and is not necessarily the payee, since the inquiry always is as to whom did the maker of the paper loan his credit as a matter of fact. And the fact that one derives some incidental benefit from the paper will not make it accommodation paper as to him." 8 C. J. 254.

In illustrative cases cited to the foregoing text, this language was used:

" ‘The accommodated party, in a legal sense, is the person to whom the credit of the accommodating party is loaned, not a third person who may receive an advantage by the loan of the credit.’ " Note 79.

"To have the money raised on a new note made by defendant was in a certain popular sense an accommodation, that is, a convenience, to the plaintiff, just as it is a convenience to a creditor, who wants his money but cannot get it from his debtor in cash, to get payment by a note on which he can raise the money temporarily, though at the risk of an indorsement which he may ultimately have to pay. But this is very far from what the law means by accommodation paper." Note 79.

The note was not executed to enable the bank to obtain money from some one else, but to enable Blitz to obtain more money from the bank. The defendant’s credit was not lent to the bank, but to Blitz; the effect of the transaction being to enable him to borrow upon the credit of the defendant after the credit which the bank under the law could extend to him had been exhausted. The circumstance that the bank was desirous of doing the business, and that the defendant was moved by friendship for the bank rather than for Blitz--by a desire to help the lender to earn interest, rather than by a wish to aid the borrower in obtaining a loan--does not affect the legal relation of the parties. The situation is entirely different from that presented in Means v. Bank, 97 Kan. 748, 156 P. 701, where it was held that a bank was bound to protect the maker of a note executed to it, for its accommodation, the proceeds of which it received and retained. Here the money was lent to Blitz upon the strength of the note signed by the defendant, without which the loan could not have been made. The circumstance that the president of the bank told him that the loan was otherwise secured, and that he would not have to pay it, does not alter the fact that it furnished a consideration for the note.

2. By the weight of authority an executive officer of a bank has no implied authority to bind it by a promise that one who signs a note shall not be required to pay it. The cases on the subject are collected in a note in 28 L. R. A. (N. S.) 501, where it is said:

"It is a general rule, recognized by the great majority of the cases, that the president or cashier or any other similar executive officer of a bank has no authority, simply by virtue of his office, to bind his bank by an agreement, made with the maker or indorsers of commercial paper payable to the bank, that their liability on such paper will not be enforced. The rule applies whether the agreement is made before the paper has been signed, or after."

When an officer in taking a note in behalf of the bank agrees that it shall not be enforced, the question of the extent of his agency may perhaps be eliminated by the rule that a principal cannot accept the fruits of a contract made for it and at the same time reject any burdens assumed, on the ground that they were unauthorized. Lumber Co. v. Silo Co., 92 Kan. 368, 140 P. 867, Ann. Cas. 1915D, 30; cases cited in Means v. Bank, supra. However this may be, the oral agreement that the defendant was not to be held to the payment of the note was not enforceable because it was in direct conflict with the terms of the written instrument, which could not be contradicted in this manner. Stevens v. Inch, 98 Kan. 306, 158 P. 43; 17 Cyc. 589; 4 Wigmore on Evidence, § 2444, par. 3.

3. Moreover, the enforcement of an agreement between the bank and the defendant, that Blitz alone should be liable for the payment of the loan, must be refused upon another ground. To allow the relations of the parties to be controlled by such an agreement would be to countenance and give effect to a secret arrangement entered into for the purpose of evading the law which limits the amount which a bank may lend to one person. Gen. Stat. 1915, § 530. In Means v. Bank, supra, the facts were held not to render the principle applicable; but this was said concerning it:

"And this brings us to the second contention of the defendants That the entire transaction...