Huron County Banking Co., N.A. v. Knallay, H-84-4

CourtUnited States Court of Appeals (Ohio)
Writing for the CourtDOUGLAS
Citation22 Ohio App.3d 110,22 OBR 311,489 N.E.2d 1049
Parties, 22 O.B.R. 311, 2 UCC Rep.Serv.2d 197 HURON COUNTY BANKING COMPANY, N.A., Appellee, v. KNALLAY; Nickoli, Appellant.
Docket NumberNo. H-84-4,H-84-4
Decision Date29 June 1984

Syllabus by the Court

1. When a party signs a promissory note in the lower right-hand corner of the instrument, that party, absent a clear indication otherwise, will be regarded as a maker. (R.C. 1303.38,

Official Comment thereto, construed.)

2. Simply because a party is a maker to a promissory note does not preclude that party from being an accommodation party to the note. (R.C. 1303.51, construed.)

3. Parol evidence is admissible in order for a party to prove an accommodation status. (R.C. 1303.51[C], construed.)

4. A maker that claims an accommodation status on a note has the burden of proving said status.

5. Whether a party signed a promissory note as an accommodation party is a question of fact which is to be determined from the circumstances surrounding that party's becoming a signatory to the note.

6. An accommodation party's liability is discharged to the extent that the holder of a promissory note unjustifiably impaired the collateral without the consent of the accommodation party. (R.C. 1303.72 [A], construed.)

7. A failure by the holder of a promissory note to perfect its security interest without the consent of an accommodation party is an unjustified impairment of the collateral.

8. The affirmative defense provided for in R.C. 1303.72 is not available to a party who is principally liable on a promissory note.

Richard Lynch, Cleveland, for appellee.

Robert W. Gentzel, Norwalk, for appellant.


This matter is before the court on appeal from summary judgment of the Norwalk Municipal Court. The facts of the instant appeal are set forth below.

On January 12, 1982, defendant, Cynthia J. Knallay ("Knallay"), applied to appellee, Huron County Banking Company, N.A. ("the bank"), for a loan in the amount of $1,500. At the time of making her loan application, Rex Glover, the bank's loan officer, asked Knallay if she would have any collateral in order to secure the loan. At the time, Knallay indicated that her collateral would be a 1976 Pontiac Sunbird automobile. There is, however, a factual dispute as to whether Knallay owned the automobile at the time of requesting the loan or whether she would use the loan proceeds to purchase the auto. Regardless, there is no factual question that the automobile was to be used as collateral for her loan.

Knallay's original loan application was denied by appellee; however, appellee offered to loan Knallay the requested $1,500 provided that the 1976 It also appears from the record that appellee did not secure the title to the collateral, i.e., the 1976 Pontiac Sunbird, nor did appellee obtain any specific identification, e.g., serial number, of the automobile prior to dispersing the loan proceeds to Knallay. The record further indicates that appellee did not obtain the title to the automobile which was to be used as collateral for the loan either prior to or subsequent to the disbursement of the loan proceeds.

Pontiac Sunbird be used as collateral and further provided that Knallay procure a qualified cosigner for the promissory note. Apparently, Knallay requested her father, appellant, Richard P. Nickoli, to cosign with her on the promissory[489 N.E.2d 1051] note. Moreover, it is not disputed that appellant did sign the promissory note. Appellee was satisfied that appellant was a qualified cosigner, and, consequently, approved the loan to Knallay in the amount of $1,500. The record reveals that appellee disbursed the loan proceeds to Knallay by giving her a check in the amount of $1,496. This check was made payable solely to the order of "Cindy Knallay."

Knallay failed to remain current on her loan payments to appellee. Appellee sought payment in full of the loan from appellant. Appellant refused. Appellee, as plaintiff, then commenced an action in the Norwalk Municipal Court for the payment of the loan, naming Knallay and appellant as defendants. Appellee subsequently filed an amended complaint, in which the amount due and owing on the loan was amended. Appellant filed his answer to the amended complaint; Knallay, however, failed to either file an answer to the amended complaint or to appear and otherwise defend her position. Both appellee and appellant filed motions for summary judgment.

The trial court, on December 29, 1983, entered a judgment, which stated:

"The court having heard testimony from the parties and upon the evidence adduced, the court having taken all of the testimony and evidence under consideration, it is the finding of this court that defendant's motion for summary judgment is not well taken, the court does not find that defendant Nickoli is discharged from liability on the note and plaintiff's motion for summary judgment is granted."

Subsequently, on January 3, 1984, the trial court entered the following judgment entry:

"The Defendant's Motion for Summary Judgment having been denied, and Plaintiff's motion for Summary Judgment against Richard Nickoli on the Amended Complaint having been granted, and Defendant Cynthia J. Knallay being in default of Answer or otherwise appearing to defend, it is

"ORDERED, ADJUDGED and DECREED that judgment is hereby rendered in favor of the Plaintiff Huron County Banking Company against Defendants Cynthia J. Knallay and Richard P. Nickoli, jointly and severally, in the amount of $1,347.92 plus interest at the rate of 18% per annum from July 25, 1983, to date of judgment, and interest at the rate of 10% thereafter, plus the costs of this action taxed at $19.90." (Emphasis sic.)

It is this judgment, which holds appellant jointly and severally liable for the full amount due and owing appellee, plus interest and court costs, from which appellant now appeals. For our review appellant presents the following two assignments of error:

"I. The trial court's denial of defendant-appellant's motion for summary judgment constituted reversible error as the evidentiary material demonstrates as a matter of law and without any dispute of material fact that plaintiff-appellee unjustifiably impaired the collateral for the promissory note, entitling plaintiff[sic ]-appellant to a discharge of liability on the note.

"II. The trial court's granting of Since the promissory note at issue herein is a writing signed by a maker containing an unconditional promise to pay a sum certain in money to order at a definite time, the applicable substantive law which governs this case is contained in R.C. Chapter 1303, commercial paper. See R.C. 1303.02 through 1303.09, inclusive. In view of the paucity of reported Ohio case law which discusses the applicable sections of the Revised Code, we have set forth the following discussion.

plaintiff-appellee's motion for summary judgment constituted reversible error as the evidentiary material submitted shows the existence of genuine issues of material fact regarding the issues in plaintiff-appellee's claim for relief and that by reason of its unjustified impairment of collateral, plaintiff-appellee is not entitled as a matter of law to judgment against defendant-appellant."

As the instant appeal is taken from the trial court's granting of summary judgment, we are mindful that a successful motion for summary judgment requires that there be no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law. Norris v. Ohio Std. Oil Co. (1982), 70 Ohio St.2d 1, 3, 433 N.E.2d 615 ; Harless v. Willis Day Warehousing Co. (1978), 54 Ohio St.2d 64, 375 N.E.2d 46 . See Civ.R. 56(C). Upon our review of an award of summary judgment, the evidentiary materials submitted must be viewed in the light most favorable to the opponent of the summary judgment motion. Hounshell v. American States Ins. Co. (1981), 67 Ohio St.2d 427, 433, 424 N.E.2d 311 ; Jackson v. Kings Island (1979), 58 Ohio St.2d 357, 360, 390 N.E.2d 810 . With these procedural guidelines foremost in mind, we proceed with our analysis of appellant's substantive claims. 1

The face of the note at issue provides, in pertinent part 2.


"$1,733.04 Norwalk, Huron, Ohio, January 14, 1982. Eighteen (18) Months--after date for value received, I, we, or either of us promise to pay to the order of THE HURON COUNTY BANKING COMPANY, N.A. at its office, the sum of One Thousand seven hundred thirty three and 04/100 Dollars ($1,733.04) payable in installments of not less than $96.28 not later than February 25, 1982, and $96.28 at regular monthly intervals thereafter on the 25th of ea. month until this note is paid in full. Description of Collateral: DPL/1976 Pontiac Sunbird.

" * * *

"1. s/Cynthia J. Knallay


"3. s/Richard Nickoli


Appellant's contention is essentially We begin our analysis by stating that "[n]o person is liable on an instrument 3 unless his signature appears thereon." R.C. 1303.37(A). There is no factual dispute in the instant case regarding whether appellant's signature appears on the instrument. Although appellant's signature does, in fact, appear on the instrument, the question which remains concerns the extent of appellant's liability. A "maker" engages that he will pay the instrument according to its tenor (R.C. 1303.49), while an "indorser" engages that he will pay the instrument according to its tenor only upon dishonor and any necessary notice of dishonor and protest, R.C. 1303.50(A).

two-fold. First, appellant asserts that he signed the note as an accommodation party and, as such, is entitled to have his liability on the note discharged to the extent that appellee has impaired the collateral. Second, appellant asserts that appellee has failed to perfect its security interest in the collateral and, thus, the collateral has been impaired....

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