Oklahoma State Bank of Sayre v. Seaton

• Decision Date: 22 January 1918
• Docket Number: 6210.
• Citation: 170 P. 477,69 Okla. 99,1918 OK 42
• Parties: OKLAHOMA STATE BANK OF SAYRE v. SEATON et al.
• Court: Oklahoma Supreme Court

170 P. 477

69 Okla. 99, 1918 OK 42

OKLAHOMA STATE BANK OF SAYRE v. SEATON et al.

No. 6210.

Supreme Court of Oklahoma

Jan. 22, 1918

Syllabus by the Court.

Under the Negotiable Instruments Act of this state an extension of time granted the principal debtor by agreement between him and the holder of a negotiable instrument without the knowledge or consent of the accommodation makers does not release them from liability on said note, and this is true even though the note is in the hands of the original payee and has never been assigned "in due course."

Commissioners' Opinion, Division No. 3. Error from District Court, Beckham County; G. A. Brown, Judge.

Action by the Oklahoma State Bank of Sayre against James T. Seaton and others. Judgment for defendants, and plaintiff brings error. Reversed, and remanded for new trial.

T Reginald Wise, of Sayre, for plaintiff in error.

D. W Tracy, of Sayre, for defendants in error.

HOOKER C.

The bank seeks to recover a judgment against James T. Seaton and three others upon a promissory note. The execution and delivery of said note was admitted, but it is asserted by the other parties that they signed the same as the sureties of said Seaton, and that they received no part of the money, but had signed the note merely to aid Seaton in procuring the money from the bank, all of which the bank knew at the time the note was executed. This note was negotiable in form, and by its terms each signer was made an agent for the others to extend the time of payment. The other parties signing said note with Seaton claim that they are released from liability thereon because the bank, for a consideration under a contract with Seaton alone, had extended the times of payment without their consent or knowledge. This view was sustained by the lower court, and judgment was rendered for said parties, and thereupon the bank appealed here.

It is asserted by the bank that this note is a negotiable instrument, and that the several extensions of the time of payment, etc., did not release said parties from liability upon said note, and it is further claimed that the president of the bank had no authority to make any contract with Seaton which would release the other makers or signers of said note. The evidence establishes that the president of the bank knew that Seaton alone was to receive and did receive the money from it for which said note was executed, and that the other parties had signed the same in order that the bank might let him have the money, and it is further shown that when the note became due at several times the president of the bank made an agreement each time to extend the time of payment for a consideration paid by Seaton at each time, all of which was done without the consent or knowledge of the cosigners with Seaton. Were these parties released by virtue of these acts? That is the main question in this case. Said note is as follows:

"$525. Sayre, Okl. Feb. 16, 1911.

Aug. 1st after date, for value received, I, we, or either of us promise to pay to the order of Oklahoma State Bank, Sayre, Oklahoma, five hundred twenty-five no/100 dollars with interest at 10 per cent. per annum from maturity until paid.

The makers and indorsers of this note hereby severally waive presentment for payment, notice of nonpayment, protest and notice of protest, and all exemptions that may be allowed by law, and valuation and appraisement laws waived, and each signer makes the other an agent to extend the time of this note. If this note should be placed in the hands of an attorney, we, or either of us, agree to pay $50.00 attorney's fees and all other costs of collection. Payable at Oklahoma State Bank, Sayre, Oklahoma.

P. O., Sayre. James T. Seaton.

J. M. Danner.

T. J. Price.

E. E. Klein.

Loan No. (122). E. L. Martin."

Indorsed on the back of note:

Interest paid to Nov. 1st, 1911.

Interest paid to Feby. 1st, 1912.

" " Mar. 1st, "

" " May 1, "

Mar. 30, 1912, Cr. $50.00.

The following sections of Revised Laws 1910 should be considered here:

"Sec. 4079. An accommodation party is one who has signed the instrument as maker, drawer, acceptor, or indorser, without receiving value therefor, and for the purpose of lending his name to some other person. Such a person is liable on the instrument to a holder for value, notwithstanding such holder at the time of taking the instrument knew him to be only an accommodation party."

"Sec. 4110. The maker of a negotiable instrument by making it engages that he will pay it according to its tenor, and admits the existence of the payee and his then capacity to endorse."

"Sec. 4169. A negotiable instrument is discharged:

First. By payment in due course by or on behalf of the principal debtor;

Second. By payment in due course by the party accommodated, where the instrument is made or accepted for accommodation;

Third. By the intentional cancellation thereof by the holder;

Fourth. By any other act which will discharge a simple contract for the payment of money;

Fifth. When the principal debtor becomes the holder of the instrument at or after maturity in his own right.

Sec. 4170. A person secondarily liable on the instrument is discharged:

First. By an act which discharges the instrument;

Second. By the intentional cancellation of his signature by the holder;

Third. By the discharge of a prior party;

Fourth. By a valid tender of payment made by a prior party;

Fifth. By a release of the principal debtor, unless the holder's right of recourse against the party secondarily liable is expressly reserved;

Sixth. By any agreement binding upon the holder to extend the time of payment or to postpone the holder's right to enforce the instrument unless the right of recourse against such party is expressly reserved."

Measuring the liability of said defendants in error by the provisions of the statutes above quoted, we reach the conclusion that Danner, Price, Klein, and Martin were accommodation makers, and as such primarily liable on said note. That being true, how could they be released from liability? Could they be discharged in any other way than Seaton could be?

Under the Negotiable Instruments Act all parties primarily liable may be discharged in the manner and form set forth in the act, and in no other way. The act eliminates the relationship of principal and surety between the makers, all being primarily liable, and expressly provides the exclusive method how the liability of those thus primarily liable may be discharged.

It is urged by said defendants in error that the note sued upon should not be construed by the Negotiable Instruments Act, for the same has not been assigned, and this action was not brought by a "holder in due course," and that under section 4108, Revised Laws 1910, as follows:

"In the hands of any holder other than a holder in due course, a negotiable instrument is subject to the same defenses as if it were non-negotiable. But a holder who derives his title through a holder in due course, and who is not himself a party to any fraud or illegality affecting the instrument, has all the rights of such former holder in respect of all parties prior to the latter"

-they are entitled to the same defenses as if said note was not negotiable in form, and, that being so, their defense is good and should be sustained.

Eliminating the negotiable instrument features, their defense is sufficient to bar recovery. Adams v. Ferguson, 44 Okl. 544, 147 P. 772.

Further reference was made by them to sections 1043, 1051, and 1056, Revised Laws 1910, which are as follows:

"A guarantor is exonerated, except so far as he may be indemnified by the principal, if by any act of the creditor, without the consent of the guarantor, the original obligation of the principal is altered in any respect, or the remedies or rights of the creditor against the principal, in respect thereto, in any way impaired or suspended."

"One who appears to be a principal, whether by the terms of a written instrument or otherwise, may show that he is in fact a surety, except as against persons who have acted on the faith of his apparent character of principal."

"A surety is exonerated:

First. In like manner with a guarantor.

Second. To the extent to which he is prejudiced by any act of the creditor which would naturally prove injurious to the remedies of the surety or inconsistent with his rights, or which lessens his security; or,

Third. To the extent to which he is prejudiced by an omission of the creditor to do anything, when required by the surety, which it is his duty to do."

And we are asked to hold that the Negotiable Instruments Act was passed to establish a uniform system of law to govern negotiable instruments only when they are negotiated and are in the hands of "holders in due course," and in this manner to produce harmony between sections 4108 and 1051, Revised Laws 1910, and other provisions of the statute with the Negotiable Instruments Act.

There is some authority supporting the views entertained by the defendants in error (Fullerton Lbr. Co. v. Snouffer et al., 139 Iowa, 176, 117 N.W. 50), but the great weight thereof justifies the position that the Negotiable Instruments Act was passed by the legislative body of the state for the sole purpose of establishing a uniform system of law applicable to commercial paper, and that law as expressed in said act is the supreme and exclusive expression of said body, and that all laws in existence at the time same was enacted are superseded thereby.

In R. C. L. vol. 3, p. 1276, it is said:

"Under the Negotiable Instruments Law it may be regarded as well settled that the accommodation maker or acceptor is primarily liable, and is not discharged by any extension of time given to the indorser, drawer, or comaker, for whose benefit he became a party

...