Lyons v. Citizens Commercial Bank of Tallahassee, AQ-272

Decision Date14 December 1983
Docket NumberNo. AQ-272,AQ-272
Parties37 UCC Rep.Serv. 1214 David M. LYONS and Carol M. Flanagan, Appellants, v. CITIZENS COMMERCIAL BANK OF TALLAHASSEE, Appellee.
CourtFlorida District Court of Appeals

James R. English of Henry, Buchanan, Mick & English, Tallahassee, for appellants.

John C. Cooper of Douglass, Davey, Cooper & Coppins, Tallahassee, for appellee.

ERVIN, Chief Judge.

Appellant, Carol M. Flanagan, appeals a final judgment entered in favor of appellee, Citizens Commercial Bank of Tallahassee (Bank), contending the trial court erred in not finding that Flanagan's liability under a promissory note was discharged by the Bank's unjustifiable impairment of the collateral securing the note. We disagree and affirm.

Flanagan and Lyons, both individually and jointly, obtained several loans from the Bank over a two-year period. On April 27, 1977, four such loans were consolidated into one loan totaling $11,888.28, in exchange for which Flanagan and Lyons put up as collateral Lyons' truck, boat, motor and trailer, and Flanagan's car. Bank records disclose that Lyons' car was freed from the pledge on December 21, 1977, and Flanagan's car on May 10, 1978.

On August 4, 1978, Lyons reduced the remaining principal by making a payment of $4,000.00. In return, the Bank released its security interest in the boat, motor and trailer, thereby leaving the balance of some $4,000.00 unsecured. Flanagan, who contends she was told by Bank officials in May of 1978 that she would be excused from the terms of the note due to Lyons' agreement to make the remaining loan payments, was never notified regarding the final release of security.

Unfortunately, in May of 1979, Lyons stopped making loan payments, resulting in the Bank's filing the action below to recover the unpaid balance from both Flanagan and Lyons. A default judgment was obtained only against Lyons. Flanagan had answered the complaint, raising the affirmative defense of discharge, contending that the Bank, without her consent or knowledge, had unjustifiably impaired the collateral formerly securing the note by releasing to Lyons the boat, motor and trailer. After hearing testimony and receiving evidence at a non-jury trial, the court entered a final judgment in favor of the Bank.

Flanagan urges that the trial court committed reversible error by rejecting her defense of discharge due to the unjustified impairment of collateral to which she claims to be entitled by virtue of section 673.606, Florida Statutes, which provides:

(1) The holder discharges any party to the instrument to the extent that without such party's consent the holder:

* * *

* * *

(b) Unjustifiably impairs any collateral for the instrument given by or on behalf of the party or any person against whom he has a right of recourse.

(emphasis supplied) The thrust of Flanagan's argument is that the phrase "any party to the instrument" must be interpreted to include principals, i.e., makers and co-makers of notes, thus entitling her to raise that defense. The Bank answers that such defense is available only to sureties or to parties to an instrument who are in the position of sureties and that, even if Flanagan were entitled to assert this defense, she is not entitled to discharge because she failed to carry her burden of proving the collateral was unjustifiably impaired. We agree with the Bank's latter argument that Flanagan failed to prove her affirmative defense, and affirm.

The defense of discharge found in section 673.606 is properly characterized as a "suretyship defense." Deese v. Mobley, 392 So.2d 364, 368 (Fla. 1st DCA 1981). See also 3 R. Anderson, Uniform Commercial Code §§ 3-606:1--3-606:12 (1971) and 2 Bender's Uniform Commercial Code Service § 12.21 (1982). The official comment to section 3-606 of the Uniform Commercial Code (UCC), from which section 673.606 is derived, provides:

The words "any party to the instrument" remove an uncertainty arising under the original section [of the Uniform Negotiable Instruments Law]. The suretyship defenses here provided are not limited to parties who are "secondarily liable," but are available to any party who is in the position of a surety, having a right of recourse either on the instrument or dehors it, including an accommodation maker or acceptor known to the holder to be so.

U.C.C. § 3-606 Official Comment 1 (1978) (emphasis supplied).

A number of courts have been asked to determine whether the phrase "any party" may be broadly interpreted, as Flanagan contends, to provide the defense of discharge to makers and co-makers on the instrument. The majority of those courts, while including sureties, accommodation parties, accommodation makers, guarantors and endorsers within the list of parties entitled to raise the suretyship defense in section 3-606, have declined to extend the list to include as well makers and co-makers binding themselves only as principals. See United States v. Unum, Inc., 658 F.2d 300 (5th Cir.1981); Wohlhuter v. St. Charles Lumber & Fuel Co., 62 Ill.2d 16, 338 N.E.2d 179 (1975); The Farmers State Bank of Oakley v. Cooper, 227 Kan. 547, 608 P.2d 929 (1980); Mikanis Trading Corporation v. Block, 59 A.D.2d 689, 398 N.Y.S.2d 679 (App.Div.1977); The Provident Bank v. Gast, 57 Ohio St.2d 102, 386 N.E.2d 1357 (1979); Oregon Bank v. Baardson, 256 Or. 454, 473 P.2d 1015 (1970); Hooper v. Ryan, 581 S.W.2d 237 (Tex.Civ.App.1979). If, however, a maker can show he has actually altered his position on the instrument from that of principal to surety, he may be entitled to raise the defense of discharge. See Federal Deposit Insurance Corporation v. Webb, 464 F.Supp. 520 (E.D.Tenn.1978); Commerce Union Bank v. May, 503 S.W.2d 112 (Tenn.1973).

Among those courts declining to expand the term "any party" to encompass makers and co-makers, the majority have recognized that such parties may have standing to raise the defense if they can show they signed the instruments for purposes of accommodation only. See Peoples Bank of Point Pleasant v. Pied Piper Retreat, Inc., 209 S.E.2d 573, 578 (W.Va.1974). A factual issue is thus raised upon a party's assertion of the defense of discharge. In determining whether such a person is to be afforded the status of an accommodation party, several factors are to be considered, including his purpose in signing the instrument, the intent of the parties to the instrument, whether the party received any benefit from the transaction, and whether his signature was necessary in enabling another party to secure a loan. See Commerce Union Bank v. Davis, 581 S.W.2d 142 (Tenn.Ct.App.1978); Peoples Bank, 209 S.E.2d at 578; Cooper, 608 P.2d at 934. If the party claiming entitlement to discharge has received benefits from the transaction, a presumption that he did not sign for accommodation only arises. Davis, 581 S.W.2d at 144, citing J. White & R. Summers, Uniform Commercial Code at 431 (1972).

Although a few cases have suggested that makers not in the position of sureties may, under some circumstances, come within the scope of the phrase "any party", 1 our research discloses that only Florida's Fourth District Court of Appeal has gone so far as to hold that makers and co-makers per se are entitled to raise the defense of discharge under section 673.606. In Southwest Florida Production Credit Association v. Schirow, 388 So.2d 338 (Fla. 4th DCA 1980), the court, while affirming a judgment in favor of mortgagors who raised the defense of discharge in a foreclosure action, concluded:

We are impressed with the clear and unambiguous language used in the statute in providing that any party to the instrument is discharged to the extent the holder unjustifiably impairs any collateral. The plain meaning of the phrase "any party" clearly would include a co-maker. No one can deny that a co-maker is a party to the instrument. Many times we are called upon to construe ambiguous provisions in the statutes and in doing so we must employ various rules of construction to arrive at the meaning of the words used. But unless we are faced with some ambiguity we should give words their plain meaning and stop there. We believe this is such a case.

Id. at 339 (emphasis supplied).

Although the above conclusion certainly finds...

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