Narans v. Paulsen, 90-6

• Decision Date: 17 December 1990
• Docket Number: No. 90-6,90-6
• Citation: 803 P.2d 358
• Parties: Stephen R. NARANS, SDKD, Ltd., a Colorado limited partnership; North Basin Investments, a Wyoming corporation; and Energy Inn Partnership, Appellants (Defendants), v. Al PAULSEN, Appellee (Plaintiff).
• Court: Wyoming Supreme Court

Page 358

803 P.2d 358

Stephen R. NARANS, SDKD, Ltd., a Colorado limited partnership; North Basin Investments, a Wyoming corporation; and Energy Inn Partnership, Appellants (Defendants), v. Al PAULSEN, Appellee (Plaintiff).

No. 90-6.

Supreme Court of Wyoming.

Dec. 17, 1990.

George E. Powers, Jr., of Godfrey & Sundahl, Cheyenne, for appellants.

W.W. Reeves of Reeves & Murdock, Casper, for appellee.

Before URBIGKIT, C.J., and THOMAS, CARDINE, MACY and GOLDEN, JJ.

GOLDEN, Justice.

The central question presented in this appeal is whether one of several co-makers on an original promissory note can become, on a subsequent renewal of that note, an accommodation party who, after he pays off the note, is entitled to recover on the note from the other original co-makers. After a bench trial, the district court judge found that Al Paulsen, O.D., who along with his business associates had signed the original note, was an accommodation party on the last of several subsequent renewals of that note and was, therefore, entitled to recover from his business associates on the note which he had paid off after the note was in default. Dr. Paulsen's business associates appeal from that judgment.

We affirm.

Appellants Narans and North Basin Investment (formerly High Country Corporation) state the issues as:

I. When a party, who is primarily liable on an obligation and who executes a promissory note as a maker, later pays off the obligation and reacquires the note, thereby discharging the note, can the party maintain any cause of action against any co-makers upon the note itself?

II. Did the agreement of December 30, 1986, constitute a release by plaintiff-appellee of defendant-appellants Narans, Energy Inn Partnership and SDKD, Ltd., for claims arising out of the existing partnership debt, reserving only a right to enforce the covenent [sic] of High Country Corporation to assume responsibility for that debt?

III. Did the district court abuse its discretion when it denied defendant's motion to amend answers and later proceeded to enter judgment upon a finding of fact which was contradicted by the evidence submitted at trial?

Appellee Paulsen rephrases these issues as:

1. May a partner [Appellee Paulsen], who signs a renewal note for a partnership debt after his withdrawal from the partnership because his signature is required by the lender as a condition of continuing the credit, be an accommodation maker on the note so that he acquires the rights of the holder of the note when he has paid it?

2. Did the release by Appellee Paulsen of all claims, "which may now exist," also release claims arising after the date of the release?

3. Did the District Court abuse its discretion when it denied Defendants' Motion to Amend Answers, which was made one day before the trial, and argued at the opening of the trial?

FACTS

The Energy Inn Partnership was originally formed to develop and operate a Holiday Inn in Gillette, Wyoming. On March 1, 1984, partners High Country Corporation (now North Basin Investments) (50% partnership interest), SDKD, Ltd. (25% interest), and Dr. Paulsen (25% interest) executed a "master note" to the Security Bank of Gillette (now First Interstate Bank of Gillette) for $150,000. The loan proceeds were used to cover Energy Inn Partnership's operating expenses, in particular preexisting supply creditor debts, not Dr. Paulsen's partnership contribution. At maturity this note was marked "Paid by Renewal" and a new note was signed by co-makers Energy Inn Partnership (by Dr. Paulsen), High Country Corporation (by John Rijo), and SDKD, Ltd. (by Steve Narans). Two renewal notes followed, on January 7, 1986 and July 31, 1986, both signed by co-makers Energy Inn Partnership, High Country Corporation, and SDKD, Ltd. On December 20, 1986, another renewal note was signed by co-makers Energy Inn Partnership (by Steve Narans), High Country Corporation (by William Gingrich), SDKD, Ltd. (by Steve Narans), and Dr. Paulsen. This renewal note bore a maturity date of June 30, 1987.

Ten days after the December 20, 1986 renewal note was signed, Dr. Paulsen, High Country Corporation, and Gillette Lodging, Inc. executed a buy-sell agreement covering all of Dr. Paulsen's various partnership interests. ¹ Of the $100,000 purchase price, the parties allocated $20,000 for Dr. Paulsen's interest in Energy Inn Partnership. With respect to this interest, Dr. Paulsen delivered all of his interest (25%) in partnership profits and losses and 24/25ths of his capital interest. As to Dr. Paulsen's remaining 1% capital interest, Gillette Lodging, Inc. was given an option to purchase that small percentage interest. All of the $100,000 purchase price payments were to be applied to Energy Inn Partnership's loan balance at the bank, which balance was $81,250 as of December 20, 1986, the most recent renewal.

After executing the December 30, 1986 buy-sell agreement, the partnership stopped sending monthly profit and loss reports to Dr. Paulsen. Dr. Paulsen did not take part in affairs of the partnership after that date. He gave the bank a copy of the buy-sell agreement. He asked the bank to release him from the obligation represented by the renewal note, but the bank refused. On two subsequent renewals of the note, July 15, 1987, and November 1, 1987, he signed as a co-maker along with Energy Inn Partnership, High Country Corporation, and SDKD, Ltd. With respect to this last renewal note of November 1, 1987, Dr. Paulsen signed twice, as a partner of Energy Inn Partnership and as an individual. There was evidence at trial that when Dr. Paulsen signed the December 1986 buy-sell agreement his intention was that he was relieving himself of the obligation to the bank and his co-makers on that note were assuming that obligation in full. There was evidence that Energy Inn Partnership intended to keep the credit at the bank, have the note renewed from time to time, and pay it according to its terms. According to Steve Narans' trial testimony, "We wanted to keep [the credit at the bank] in place so that Dr. Paulsen would not have to pay it off." Narans also testified that it was represented on Form K-1 to the 1987 Energy Inn Partnership income tax return that Dr. Paulsen had no liability for any partnership debts. There was evidence that Dr. Paulsen continued to sign the note renewals as a help to the business associates who had bought him out.

The Energy Inn Partnership defaulted on the November 1, 1987 renewal note which had a balance of $76,250. There was evidence that the partnership defaulted because the business had failed and it simply did not have the money to continue and not because the partnership claimed the note represented Dr. Paulsen's partnership debt. The bank looked to Dr. Paulsen as a co-maker. He paid off the note, and the bank endorsed it and assigned it to him on July 8, 1988. Dr. Paulsen then initiated this action. The district court awarded Dr. Paulsen $86,805 for payment of the note, interest and attorney's fees. This appeal followed.

STANDARD OF REVIEW

This court presumes the district court's findings of fact are correct and will not disturb such findings on appeal unless they are inconsistent with the evidence, clearly erroneous, or contrary to the great weight of the evidence. Chapman v. Mutual Life Insurance Company of New York, 800 P.2d 1147 (Wyo.1990). The question is not whether we would have reached the same result, but whether the evidence is sufficient to support the trial court's result. Id. To determine whether evidence presented at trial was sufficient to support the judgment this court first of all gives deference to the trial court's determination because it was able to judge the demeanor of the witnesses. In Interest of N.M. and A.C., 794 P.2d 564 (Wyo.1990). We then accept the evidence of the prevailing party as true and give that party the benefit of all favorable inferences that can fairly be drawn from its evidence, while disregarding conflicting evidence. Id. We are not directed to any clear error, and the weight of the evidence sustains the district court's holding.

ACCOMMODATION MAKER STATUS

Appellants claim that Dr. Paulsen was simply a co-maker on the original note and all subsequent renewals, including the last one on November 1, 1987, and not an accommodation party as found by the district court. If Dr. Paulsen was a co-maker and not an accommodation party, then his paying off the defaulted note discharged the debt, not only as to him but as to his co-makers as well, thus barring his action against them for recovery of the full amount of the note. On the other hand, if Dr. Paulsen was an accommodation party, then he enjoyed the statutory right to recourse for the amount paid to the holder of the note against his co-makers as the party accommodated. W.S. 34-21-352(e) (1977) (renumbered W.S. 34.1-3-415(e) (July 1990 Repl.)); 6 R. Anderson, Uniform Commercial Code, § 3-415:42 (3d Ed.1984).

This court has not previously discussed what factors must be considered in the determination of whether a party enjoys accommodation maker status. Appellants and Dr. Paulsen have referred us to a number of cases on the subject, and we have found additional legal authority to supplement their offering. From this combination of legal authority, we understand that a variety of principles are generally applicable. A party claiming accommodation maker status has the burden of proof on the point. 6 R. Anderson, supra, § 3-415:12, at 349. That a party signs as a co-maker does not establish that he is not an accommodation maker. Id. § 3-415:26, at 357. A party cannot be an accommodation maker with respect to his own debt. Id. § 3-415:19, at 353. In determining the status of a signer of a renewal note, it is necessary to examine the entire series of transactions and also see the manner in which he signed the original note. Id. § 3-415:7, at 345-46. Whether one is an accommodation maker is a question of the intentions of the...