Koblegard Co v. Maxwell

CourtSupreme Court of West Virginia
Citation34 S.E.2d 116
Decision Date15 May 1945
Docket NumberNo. 9586.,9586.

34 S.E.2d 116


No. 9586.

Supreme Court of Appeals of West Virginia.

Dec. 5, 1944.
May 15, 1945.

[34 S.E.2d 116]
Syllabus by the Court.

1. In this jurisdiction parol evidence is admissible to prove the relation of suretyship between the parties to a contract and the creditor's knowledge that the alleged surety was, in fact, a surety.

2. The Negotiable Instruments Law, Code, 46-8, amending the original act, contained in Chapter 98A, Code, 1923, does not preclude the application of the general law of principal and surety to negotiable instruments.

3. The case of Marshall County Bank v. Fonner, 113 W.Va. 451, 168 S.E. 375, distinguished.

[34 S.E.2d 117]

4. Where one signs a negotiable promissory note on the face thereof gratuitously and for the accommodation of the principal debtor with the qualification "Sec", after his signature and the record discloses that the payee-holder of the note, at the time of its execution and delivery, understood that the qualifying abbreviation meant "Security, " the party so signing is not an accommodation maker within the meaning of Code, 46-2-6, but a gratuitous surety and as such is entitled to the protection afforded under the general law of principal and surety.

5. In the application of a contract of suretyship, as distinguished from its construction, the rule of strictissimi juris applies to a gratuitous surety.

6. Any material modification of a contract of gratuitous suretyship resulting from an agreement between the creditor and principal, whereby the former is bound, made with the creditor's knowledge of the suretyship and without the surety's consent, will operate to effect a discharge in toto.

7. Where the maker of several promissory notes upon which different sureties are liable, deposits with the payee-holder thereof, at the time of their execution and delivery, collateral securing all of the notes without any direction as to the application of the security, the payee may apply the proceeds of the collateral to the notes as he may deem to his best interest. In such case the payee is under no obligation to apply the proceeds on a pro rata basis.

8. Where, in an action at law, this Court, upon the reversal of a judgment of a trial court, sets aside a jury verdict on the ground that there is insufficient evidence to support the verdict, a new trial will be awarded in all cases except where there is a demurrer to the evidence.

Error to Circuit Court, Upshur County.

Action in assumpsit by the Koblegard Company against Franklin Porter Maxwell on a note. The trial court entered judgment in defendant's favor upon a directed verdict, and plaintiff brings error.

Judgment reversed, verdict set aside, and new trial awarded.

Robinson & Stump and John S. Stump, all of Clarksburg, and Myron B. Hymes, of Buckhannon, for plaintiff in error.

E. L. Maxwell, of Elkins, H. Roy Waugh, of Buckhannon and D. H. Hill Arnold and Arnold & Crawford, all of Elkins, for defendant in error.

RILEY, Judge.

The Koblegard Company instituted this action in assumpsit in the Circuit Court of Upshur County against Franklin Porter Maxwell upon a negotiable promissory note, dated January 1, 1932, for $10,000, payable four months after date, and signed on the face thereof by Wm. Post, Annie Post, John Post, and the defendant whose signature appears "F. P. Maxwell, Sec." Plaintiff prosecutes this writ of error to a judgment in defendant's favor entered upon a directed verdict.

Defendant claims he signed the note as surety and was discharged by certain actions of plaintiff, while plaintiff claims defendant was an accommodation maker and was bound to pay the note in any event and, if the relationship of surety existed, plaintiff did nothing to effect a discharge.

In 1926 William Post conveyed to Pecks Run Coal Company 449.12 acres of land in Upshur County, West Virginia, by deed in which grantor retained a vendor's lien securing nine negotiable promissory notes payable to Post's order on or before one to nine years from date, respectively, each in the principal sum of $15,243.555/9, with interest payable annually. The Coal Company paid the note payable on or before one year from date at the maturity thereof. The note payable on or before nine years from date was assigned by Post to The Traders National Bank of Buckhannon to secure certain indebtedness which Post then owed the Bank, and the note payable on or before two years from date Post was assigned to plaintiff as collateral upon four notes all payable to the latter and held by it: (1) The note upon which this action is based; (2) a $5,000 note, dated January 5, 1932, signed on the face thereof by William Post, Annie Post, John Post, and the defendant as "F. P. Maxwell, Secy"; (3) a note for $3,000, dated January 31, 1932, signed on the face thereof "William Post, Annie H. Post, J. H. Post and Adam Post, Security"; and (4) a note for $1,000, dated January 25, 1932,

[34 S.E.2d 118]

signed on the face thereof by "William Post, Annie H. Post, J. H. Post and Adam Post, Security."

A controversy arose as to which of the two Pecks Run Coal Company's notes assigned to plaintiff and Traders National Bank had been assigned first. Plaintiff and the Bank agreed, as evidenced by an indorsement on the back of the latter's note that the said note was subordinate "in lien" to plaintiff's note "provided said Koblegard or Koblegard and Company shall not disturb the William Post Trust." By the "William Post Trust, " the parties meant a deed of trust dated May 25, 1932, from William Post and wife to H. Roy Waugh, Trustee, conveying numerous tracts of land, not including the 449.12-acre tract, and securing a large indebtedness due in various amounts to many debtors. This indebtedness was never paid in full, but thirty-two per cent thereof was paid from the estate in bankruptcy of William Post, who filed a petition in bankruptcy shortly after the four months period following the recordation of this deed of trust. Post's creditors, who were not secured by this deed of trust, received nothing. The Waugh deed of trust was made at the request of Traders National Bank, which was closed some time during 1932.

By a deed of trust, dated December 23, 1932, Pecks Run Coal Company conveyed to John S. Stump, Jr., Trustee, the 449.12 acres previously conveyed to it by William Post, subject to minor exceptions, to secure the eight unpaid vendor's lien notes in the following order of priority: (1) The Koblegard note; (2) the note held by the receiver of Traders National Bank; and (3) the remaining six vendor's lien notes. This deed of trust was made subject to the vendor's lien retained in the William Post deed, and provided for payment by Pecks Run Coal Company to the Trustee of certain monthly minimum amounts, as well as a stated sum for each ton of coal mined and removed, upon a sliding scale price with reference to the price for which the coal sold.

This deed contains the following provision: "The lien of this indenture is in addition to, and not in lieu of, the said vendor's lien [the lien retained in the deed of William Post and wife to Pecks Run Coal Company] and nothing herein contained shall be construed in any manner to alter, vary, diminish or impair the rights created by the reservation in said deed of said lien."

Under the Stump deed of trust the Coal Company paid to the Trustee a total amount of $23,409.36, from which the Trustee paid plaintiff a sum sufficient, when applied by it to the indebtedness secured by the Pecks Run Coal Company note, payable on or before two years from date, to pay in full, with interest, the $1,000, $3,000, and $5,000 notes, and the following sums upon the note upon which this action is based: August 24, 1935, $622.48; July 10, 1936, $1300; May 19, 1937, $3,400. Plaintiff made these payments on the four notes. In addition to these payments the sum of $5,254.85 was paid on February 14, 1941, on the $10,000 note from funds derived from the sale of the lands securing the vendor's lien retained in the deed of Post to the Coal Company, which sale was made on February 7, 1941, under a decree, of the Circuit Court of Upshur County in the chancery suit of Central National Bank of Buckhannon against Pecks Run Coal Company. The payments made by Stump, Trustee, together with the proceeds of sale in the vendor's lien suit paid in full the Pecks Run Coal Company note held by plaintiff as collateral for the four notes, and reduced the instant note to the sum of $4,180.39 as of February 14, 1941.

During 1933 plaintiff sold at public sale to Hurst H. Koblegard, then one of plaintiff's directors, for $100 the six vendor's lien notes which were third in priority to those held by plaintiff and the receiver of Traders National Bank. This sale was attended by F. E. Williams, president of Pecks Run Coal Company, and Koblegard. Prior to this sale, Williams had agreed with Koblegard not to bid until the bidding on the notes reached the sum of $3,000, and plaintiff agreed to protect the note against use for nuisance purposes by bidding up to $3,000, if necessary. Before the sale Williams had deposited $1,820 in escrow with Merchants National Bank, upon condition that the money be returned to him, if the notes were sold to someone other than plaintiff for $3,000 or more, but, the condition not having been fulfilled, the money was paid to Stump, Trustee, and became a part of the funds paid on the Pecks Run Coal Company notes.

On October 30, 1933, the Coal Company conveyed to Hurst H. Koblegard the 449.12-acre tract of land, excepting the

[34 S.E.2d 119]

coal and mining rights and certain small outsales, and subject to the vendor's lien retained in the William Post deed and the Coal Company-Stump deed of trust.

From the time Koblegard acquired title under the Coal Company's deed until the property was sold on February 7, 1941, in the vendor's lien suit, Koblegard paid taxes on the land (excluding the coal), and received $1,200 from the sale of timber, eight...

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