Long v. Shafer

• Decision Date: 12 December 1914
• Parties: EDWIN LONG, Appellant, v. DAVID SHAFER, Z. T. DENISON, J. W. CANTRELL, and WILLIS MURPHY, Respondents
• Court: Missouri Court of Appeals

171 S.W. 690

185 Mo.App. 641

EDWIN LONG, Appellant, v. DAVID SHAFER, Z. T. DENISON, J. W. CANTRELL, and WILLIS MURPHY, Respondents

Court of Appeals of Missouri, Springfield

December 12, 1914

Appeal from Texas County Circuit Court.--Hon. L. B. Woodside, Judge.

AFFIRMED (certified to Supreme Court).

STATEMENT.--This is an action on a promissory note for $ 4000 bearing interest at the rate of eight per cent per annum dated at Rolla, Mo March 10, 1910, payable one year after date to Edwin Long signed by Peter T. Mason, David Shafer, Z. T. Denison, J. W Cantrell and Willis Murphy.

As security for the payment of this note Peter T. Mason executed a deed of trust on land in Texas county, Missouri, of value sufficient to pay the note and interest that might accumulate thereon.

The parties signing the note all resided in Texas county. The payee resided at Rolla, in Phelps county.

In 1912, Peter T. Mason negotiated a sale of fifty-seven acres of the land covered by the deed of trust to one Helton, and at Mason's request, and without the knowledge of the other signers of the note, Long executed to Mason a deed releasing the fifty-seven acres from the lien of the deed of trust. Mason thereafter made a warranty deed conveying the fifty-seven acres to Helton, for which he received $ 2000, of which he paid Long $ 595.16 which was credited on the note. After the suit was commenced, Long had his deed of trust on the land not released foreclosed by sale by the trustee. The net proceeds of this sale, $ 3444.50, was placed as a credit on the note, and a supplemental petition filed stating these facts. Mason having removed from the State before the action was brought, no service of process was had upon him and plaintiff dismissed his action as to him.

To the supplemental petition the other four defendants filed a joint answer, in which, after admitting that they severally signed the note, for an affirmative defense alleged in substance that they were not parties to and did not receive any part of the money loaned and that it all went to Mason; that they signed the note as accommodation makers; and set up the release of the fifty-seven acres of land by Long from the lien of the deed of trust without their knowledge or consent the sale of the fifty-seven acres so released to Helton for $ 2000, the receipt of the purchase price by Mason and the appropriation of it all except the sum of $ 595.16 to purposes other than the payment of the note; also, that had the proceeds of said sale, $ 2000, been credited on the note the same would have been fully paid; and that they would not have signed the note had not Mason executed the deed of trust to secure the same.

The plaintiff's demurrer to this affirmative plea on the ground that it stated no legal or equitable defense to plaintiff's cause of action was by the court overruled.

A jury was waived and the cause tried by the court.

Plaintiff introduced the note sued on and rested. Defendants over the objection of plaintiff read in evidence the trust deed to Long securing the payment of the note sued on, Long's deed of release of fifty-seven acres of the land described in the deed of trust, and Mason's warranty deed of the fifty-seven acres to Helton. These deeds were all properly acknowledged and were duly recorded.

Plaintiff duly objected to the introduction of any evidence; objected to the deeds as evidence; objected to the testimony of the four defendants that they signed the note as sureties; all for the reason that the answer set up no legal or equitable defense to the action, and that oral evidence was inadmissible to show that defendants signed the note as sureties, and that defendants could not show by parol evidence that their obligation to pay the note was not absolute; which objections were overruled and exceptions saved. At the close of the case plaintiff demurred to defendants' evidence which was overruled and exceptions saved.

The court found the issues for the defendants. No declarations of law were asked or given, except as above noted. Plaintiff has appealed.

Judgment affirmed and cause certified to Supreme Court.

C. C. Bland and Holmes & Holmes for appellant.

(1) Plaintiff was a holder for value of the note (sec. 9998, R. S. 1909), and the defendants having signed the same as makers were primarily liable thereon (sec. 10161, R. S. 1909), and their engagement to pay it according to its tenor was absolute (secs. 10161 and 10030, R. S. 1909). McCarty v. Smith, 97 P. 329; Vanderford v. Farmers and Merchants Bank, 105 Md. 164; S. C., 10 L.R.A. 129; S. C., 66 A. 47; West v. Stubblefield, 17 App. Cases (D. C.), 283; Union Trust Co. v. McGinty, 212 Mass. 205; S. C., Ann. Cases, 1913 C., 525; S. C., 98 N.E. 679. (2) Parol evidence was inadmissible to show that the defendants signed the note as sureties or accommodation makers. Citizens Bank v. Douglas, 178 Mo.App. 664, 161 S.W. 608; Lane v. Hyder, 163 Mo.App. 692; and cases under Point I, supra. (3) Though the defendants did sign the note as accommodation makers, and Long, the payee, had knowledge of that fact, yet they were primarily and absolutely liable thereon. Sec. 10000, R. S. 1909; Ranse v. Wooten, 140 N.C. 557; American State Reports, 875; 53 S.E. 430; Cellers v. Meachem, 49 Ore. 186; S. C., 89 P. 426; Vanderford v. Merchants and Farmers Bank, 105 Md. 164; S. C., 66 A. 47; Union Trust Co. v. McGinty and cases cited under points 1 and 2.

Hiett & Scott and Lamar, Lamar & Lamar for respondents.

(1) Long, the payee in the note, is not a holder in due course, because it was never negotiated to him, but he is simply a holder, whose rights are clearly defined by section 10028. It is apparent from this that all defenses are open to respondents that would be open if the note were nonnegotiable. Crawford on Negotiable Instruments (2 Ed.), p. 5 (note A.); Bunker on Negotiable Instruments, p. 23, note 1; Brannan on Negotiable Instruments (2 Ed.), p. 1 (note 1); Selover on Negotiable Instruments, par. 2; West-burg v. Chicago Lbr. Co., 94 N.W. 574. (2) As between the immediate parties, it is competent for defendant to show that he is an accommodation maker, and to set up any equities that may be set up under the law merchant or common law. Crawford on Negotiable Instruments, p. 35, sec. 54, note A; Crawford on Negotiable Instruments, p. 58, sec. 97, note A; Ogden on Negotiable Instruments, sec. 142, p. 132; Daniels on Negotiable Instruments (6 Ed.), p. 1477, sec. 1312; Selover on Negotiable Instruments (2 Ed.), p. 325; Branan on Negotiable Instruments (2 Ed.), p. 117 and note; Fullerton Lbr. Co. v. Snouffer, 117 N.W. 50; Haddock v. Haddock, 85 N.E. 683. (3) If the payee of a note, knowing that some of the parties liable on the note are accommodation makers and so knowing takes from the principal debtor collateral security and disposes of it or permits the principal debtor so to do and thereby renders such security unavailable to the accommodation makers, then the accommodation makers are discharged to the extent of the value of the security or to the extent of the damage done them. Colebrooke Collateral Securities (2 Ed.), sec. 212, page 388; 27 Eng. and Am. Ency. of Law (2 Ed.), page 516; Fergerson v. Turner, 7 Mo. 497; Lakenan v. Trust Co., 147 Mo.App. 48; 7 Cyc. page 1046. (4) That parol testimony is admissible to show who is principal and who is surety to a note has been the declared law of this State ever since 1845. Garrett v. Fergerson, 9 Mo. 125; Bank v. Wright, 53 Mo. 153-154; Hardester v. Tate, 85 Mo.App. 624; Ins. Co. v. Broyles, 78 Mo.App. 364. This was also the common law. 8 Cyc., page 262; 1 Eng. and Am. Ency. of Law (2 Ed.), page 343.

FARRINGTON, J. Robertson, P. J., concurs. Sturgis, J., dissents in a separate opinion.

OPINION

FARRINGTON, J.

--The issue in this court is made clear by the following language appearing in the brief of learned counsel for appellant:

"We concede that, under the law as it existed prior to the adoption of the uniform negotiable instruments act in 1905, it was competent to show by parol evidence that one who signed a negotiable instrument ostensibly as a maker signed as a surety and that the holder had knowledge of the fact, and that upon proof of these facts and proof that the holder had extended the time of payment for a consideration moving from the principal, without the assent of the surety he was thereby discharged from all liability on the instrument; also that if the holder held any property of the principal to secure the note, or other security for its payment, and without the assent of the surety gave up such property or released the other security, the surety was discharged to the extent of the property surrendered or the security released.

"We further concede that if these special defenses are available to a surety under the uniform negotiable instruments act, then the judgment was for the right party and should be affirmed.

"Our contention is that both of these defenses have been abrogated by the uniform negotiable instruments law, and that if one signs a negotiable instrument as an accommodation maker, without consideration, and wishes to be secured, he must take the security to himself, or by express contract with the payee agree that the latter shall take and hold the security for his protection."

It is stated in the briefs for both sides that the uniform negotiable instruments act was not intended to make new law, but that, with few exceptions, it is a codification of the rules of the law merchant as declared by the best and most authoritative decisions.

Counsel for appellant also state that they do not contend that extrinsic evidence is not admissible in actions between the parties to a negotiable instrument to show want of consideration, fraud, mistake,...