Long v. Shafer

• Decision Date: 12 December 1914
• Docket Number: No. 1401.,1401.
• Citation: 171 S.W. 690
• Parties: LONG v. SHAFER et al.
• Court: Missouri Court of Appeals

171 S.W. 690

LONG v. SHAFER et al.

No. 1401.

Springfield Court of Appeals. Missouri.

December 12, 1914.

1. BILLS AND NOTES (§ 453) — ORIGINAL PARTIES — "HOLDER IN DUE COURSE."

The payee of a note to whom it has been delivered at the inception of the transaction, is not one to whom it has been "negotiated," and, hence, is not a "holder in due course" as defined by Rev. St. 1909, § 10022, and is subject to equities under section 10028, providing that in the hands of any holder, other than a holder in due course, a negotiable instrument is subject to the same defenses as if nonnegotiable.

2. BILLS AND NOTES (§ 451) — VALIDITY — NEGOTIABILITY.

Negotiability is not necessary to the validity of a note, and the fact that it is negotiable in form, as between the maker and payee, does not deprive the former of any defense thereto that he would otherwise have.

3. EVIDENCE (§ 423) — PAROL EVIDENCE.

In a suit on a note as between the original parties, parol evidence is admissible to show that persons signing ostensibly as makers were in fact sureties, and that the payee's release of collateral security without the consent of such accommodation makers or sureties released them pro tanto to the extent of the value of the lien so discharged.

Sturgis, J., dissenting.

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

Action by Edwin Long against David Shafer and others. Judgment for defendants, and plaintiff appeals. Affirmed and case certified to Supreme Court, because of conflict with the St. Louis and Kansas City Courts of Appeals.

This is an action on a promissory note for $4,000 bearing interest at the rate of 8 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, Mo., 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 57 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 57 acres from the lien of the deed of trust. Mason thereafter made a warranty deed conveying the 57 acres to Helton, for which he received $2,000, 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, $3,444.50, 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 57 acres of land by Long from the lien of the deed of trust without their knowledge or consent, the sale of the 57 acres so released to Helton for $2,000, 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, $2,000, 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 57 acres of the land described in the deed of trust, and Mason's warranty deed of the 57 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.

Holmes & Holmes and C. C. Bland, all of Rolla, for appellant. Hiett & Scott and Lamar, Lamar & Lamar, all of Houston, for respondents.

FARRINGTON, J. (after stating the facts as above).

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, illegality, or duress, or to explain an ambiguity, when such explanation is not inconsistent with the written terms.

Appellant contends that where the act speaks it controls, and that prior conflicting adjudications must be held for naught, citing Mechanics' & Farmers' Sav. Bank v. Katterjohn, 137 Ky. 427, 125 S. W. 1071, Ann. Cas. 1912A, 439, and First Nat. Bank of Shawano v. Miller, 139 Wis. 126, 120 N. W. 820, 131 Am. St. Rep. 1040. Also, that an examination of the act will reveal that the word "surety" is nowhere mentioned in it, and that the liability of makers and indorsers of these instruments is classified as "primary" and "secondary"; and that the obligation of makers and accommodation makers of negotiable notes is primary and absolute, citing sections 10161 and 10030, R. S. 1909. Furthermore, that section 10089, R. S. 1909, prescribes the only methods by which a maker can be discharged, whether he be in fact a principal or an accommodation maker. Appellant contends that sections 10000, 10089 and 10161, R. S. 1909, when read together, leave no opening whereby parol evidence can be admitted as against a holder for value to modify the absolute liability incurred by the signing of the note as makers. Also, that since Long paid full value for the note he is a holder for value.

Long is not a holder in due course because the instrument was not negotiated to him. There is no call for a lengthy discussion about this because the statute (section 10022, R. S. 1909) is explicit. Now section 10028 provides that "in the hands of any holder other than the holder in due course, a negotiable instrument is subject to the same defenses as if it was nonnegotiable." Hence this case is lifted bodily out of the governing power of the uniform Negotiable Instruments Act.

Section 10001 defines when an instrument is negotiated, and does not include the handing over of a promissory note by the maker to the payee. The act, in sections 10022, 10027 and 10028, makes a distinction between a holder and a holder in due course. To shut off the defense here set up, the holder must bring himself within the terms of sections 10027 and 10028; the note must have been negotiated to him. The maker handing his note to the payee is not a negotiation of the instrument, and such payee is a holder other than in due course, and thus falls within the terms of section 10028.

This leaves the case to be controlled by the common law or law merchant (section 10165), and appellant has conceded that if the common law is to...