Hoffman v. Habighorst

• Decision Date: 21 January 1901
• Citation: 63 P. 610,38 Or. 261
• Parties: HOFFMAN v. HABIGHORST et al.
• Court: Oregon Supreme Court

63 P. 610

38 Or. 261

HOFFMAN v. HABIGHORST et al.

Supreme Court of Oregon

January 21, 1901

Appeal from circuit court, Multnomah county; Alfred F. Sears, Judge.

Action by Julia E. Hoffman, as executrix of the estate of Lee Hoffman, deceased, against E.H. Habighorst and others. From a judgment in favor of plaintiff, certain of the defendants appeal. Reversed.

This action was brought on a promissory note for $15,000, executed by the appealing defendants and five others, payable to Mrs Sarah Wertheimer, and by her assigned to the plaintiff after maturity. The complaint is in the usual form, setting out the note in haec verba as follows: "$15,000. Portland Oregon, Feb. 29th, 1892. One year after date, without grace we jointly and severally promise to pay to the order of Mrs Sarah Wertheimer, fifteen thousand dollars, for value received, with interest from date at the rate of eight per cent. per annum until paid, principal and interest payable in U.S. gold coin; and, in case suit is instituted to collect this note, or any portion thereof, we promise to pay such additional sum as the court may adjudge reasonable as attorney's fees in said suit. Interest payable quarterly. [ [Signed] E.H. Habighorst. G.W. Williams. D.L. Edwards. J.P. Looney. S.A. Stansbery. Maria A. Smith. G.W. Staver, R. Kelly. Osmon Royal. John Corkish, E.P. Fraser. J.P. Rasmussen. Alfred Kummer. Thos. Van Scoy. F.L. Posson." The answering defendants deny the allegations of the complaint, and as a further defense plead, in substance: That the Portland Guarantee Company, a corporation, desiring to obtain from Mrs. Wertheimer a loan of $15,000, applied to them and their co-makers to act as its sureties, and, by way of inducement, represented, with the knowledge of Mrs. Wertheimer, that it was solvent, and promised that, if they would sign the note, and permit it to be pledged as collateral security for the loan, it would execute to them its own note for a like amount, and secure the same by deed to real property of the value of $30,000. That, relying on such representations, they signed the note as sureties only, without any consideration whatever moving to them, and it was delivered to and accepted by the payee, with knowledge of the facts, as collateral security for a loan made by her to the guarantee company. That the company failed and neglected to keep and perform its contract with the defendants, but sold and disposed of a large amount of its property and applied the proceeds to other uses. That in consideration of an increase in the rate of interest from 8 to 10 per cent., to be paid by the guarantee company, and additional security by deed of conveyance to her from the company of 100 lots in University Park, Mrs. Wertheimer, the payee of the note, after its maturity, and without the knowledge or consent of the defendants or the other makers, entered into the following contract in writing with the guarantee company: "Whereas, Sarah Wertheimer, on the 29th day of February, 1892, loaned to E.H. Habighorst, G.W. Williams, and thirteen others the sum of $15,000 for one year, and took their promissory note therefor, bearing interest, payable quarterly, at the rate of 8 per cent. per annum, and said note remains unpaid; and whereas, said Habighorst, Williams, and others borrowed said sum for the Portland Guarantee Company, a corporation, and said company at the time of said borrowing received said sum, and has ever since had and used the same, and paid to said Wertheimer the interest thereon quarterly as it has fallen due; and whereas, said company desires a further extension of the time of said loan, and, in order to further secure the repayment thereof has this day executed and delivered to said Wertheimer the deed conveying to her the following described lands in the city of Portland, county of Multnomah, state of Oregon, to wit, all of blocks 49, 51, 53, 57, as shown and described on the duly-recorded plat of University Park,--in consideration of all of which it is now hereby agreed by and between said Wertheimer and said company that said Wertheimer shall and will extend the time for the payment of said loan so that it may be paid by said company on or before the 29th day of August, 1894; that she will reconvey to said company all of the lands described in said deed upon the repayment of said loan in full; and that said company shall and will pay or cause to be paid to said Wertheimer, at Portland, Oregon, interest quarterly on said note to August 29, 1893, at the rate of 10 per cent. per annum. Witness our names hereunto set by our authority this 21st day of August, 1893. Executed in duplicate. [ Signed] Sarah Wertheimer, by Ben Selling. [ Signed] Portland Guarantee Company, by P.L. Willis, Secretary." That afterwards, on the 24th of September, 1895, Mrs. Wertheimer, without the knowledge or consent of the makers of the note, released to the guarantee company all the security for the payment of such indebtedness which she had previously received from it. That the security so released was worth more at the time than the amount of such indebtedness, and was wholly lost to defendants. That the plaintiff, at the time she received the note from Mrs. Wertheimer, had full knowledge of all the foregoing facts. These matters are pleaded in detail as three separate defenses; (1) As a failure of consideration; (2) as a release and discharge from liability thereon because of the agreement extending the time of payment in consideration of an increase in the rate of interest, and of further and additional security, and the subsequent release to the company of such security without the knowledge or consent of the defendants or their co-makers; and (3) as, in legal effect, a payment by the guarantee company of the debt or obligation for which the note was executed. A demurrer to the first and second further and separate defenses was sustained by the court below on the ground that they did not state facts sufficient to constitute a defense, and a portion of the third was stricken out on motion. A trial was subsequently had before a jury, resulting in a verdict and judgment in favor of the plaintiff, from which the defendants appeal.

W.D. Fenton and Dell Stuart, for appellants.

P.L. Willis, for respondent.

BEAN C.J. (after stating the facts).

The position of the plaintiff is that the demurrer to the answer was properly sustained, because it cannot be shown by parol that the defendants were in fact accommodation makers, or sureties, for the Portland Guarantee Company. It is argued in support of this position that to permit the introduction of such evidence would be a violation of the well-settled rule that parol evidence is not admissible to vary, alter, or affect the terms of a written contract. There is some conflict in the authorities, and especially among the earlier adjudications, as to the right of one who appears on the face of a negotiable promissory note as a maker to show at law by parol that he was in fact a surety for a co-maker. But the doctrine of this court, supported by the great weight of authority, is that he may do so for the purpose of affecting the creditor, who, having notice of the true relationship of the parties, is bound to act so as not to impair the legal rights or diminish the remedies of the surety. Findley v. Hill, 8 Or. 247; Brown v Rathburn, 10 Or. 158; 1 Am. & Eng.Enc.Law (2d Ed.) 343; 1 Brandt, Sur. (2d Ed.) § 29; Coleb.Coll.Sec. (2d Ed.) § 203; Tied.Com.Paper, § 422; 2 Rand.Com.Paper (2d Ed.) § 909; Investment Corp. v. Marquam (C.C.) 62 F. 960; Hubbard v. Gurney, 64 N.Y. 457; Riley v. Gregg, 16 Wis. 666; Holmes v. Goldsmith, 147 U.S. 150, 13 Sup.Ct. 288, 37 L.Ed. 118; Bank v. Kent, 17 Am.Dec. 414, and note. The question first came before this court in Findley v. Hill, supra, which was an action on a joint and several promissory note executed by two parties. One of them set up as a defense that he was a surety for the other, and that the payee, without his assent, had entered into an agreement with his principal by the terms of which the time of payment was extended; and the court said: "If this was a valid agreement, it is quite clear that it operates as a discharge of the appellant, for it is well settled that, where time is given to the principal debtor without the assent of the surety, by a valid agreement which ties up the hands of the creditor, the surety is discharged." Brown v. Rathburn, supra, was also an action on a joint and several promissory note, and it was held that one of the makers might allege and prove at law that he was in fact a surety, for the purpose of showing that he had been discharged because of a voluntary relinquishment by the creditor, with knowledge of his suretyship, of collateral security of equal or greater value than the amount of his debt. And in the recent case of Hughes v. Pratt, 37 Or. 45, 60 P. 707, it was held that one joint maker of a promissory note might set up and prove at law that he was a mere...