Pitrolo v. Community Bank & Trust, N.A.

Decision Date14 December 1982
Docket NumberNo. 15337,15337
Citation298 S.E.2d 853,171 W.Va. 317
CourtWest Virginia Supreme Court
Parties, 35 UCC Rep.Serv. 192 Paul J. PITROLO, et al., etc. v. COMMUNITY BANK & TRUST, N.A., et al.

Syllabus by the Court

1. "In order to determine the exact nature of the liability of an accommodation party, it is first necessary to determine the capacity in which he signed the instrument." Syl. pt. 3, First National Bank of Ceredo v. Linn, 168 W.Va. 76, 282 S.E.2d 52 (1981).

2. "The extension of credit to a third person is sufficient consideration to support the enforceability of a promissory note, the understood purpose of which is to furnish collateral security for the credit so extended." Syl. pt. 2, Jolliffe v. First National Bank of Grafton, 126 W.Va. 273, 27 S.E.2d 710 (1943).

Robert M. Amos, Fairmont, for appellant.

Furbee, Amos, Webb & Critchfield, Stephen R. Brooks and Hays Webb, Fairmont, for appellees.

PER CURIAM:

This is an appeal by Paul and Janice Pitrolo, husband and wife, from a final order of the Circuit Court of Marion County entered on September 15, 1981. That order denied the appellants' petition for a preliminary injunction to prohibit the appellees from selling certain real estate owned by the appellants under a "Notice of Trustee's Sale." For the reasons set forth below, we affirm the circuit court.

On November 21, 1979, a business loan in the amount of $400,000.00 was made by Community Bank and Trust, N.A. to Pitrolo Pontiac Cadillac Company. The promissory note was executed by Paul Pitrolo, as President of Pitrolo Pontiac Cadillac Company. On the same date, Mr. and Mrs. Pitrolo executed a "Guarantee of Payment" of the loan and a deed of trust to secure the obligation created by the promissory note. The deed of trust gave as security six acres of land owned by Mr. and Mrs. Pitrolo in Marion County. The purpose of the loan was originally for working capital; however, the use of the money was later amended so that a portion of it could be used to pay an existing debt owed by Pitrolo Pontiac Cadillac Company to Community Bank.

Pitrolo Pontiac Cadillac Company subsequently defaulted in repayment of the loan. On July 22, 1981, Community Bank and Trust filed a civil action in the amount of $389,401.30 plus interest against the company and Mr. and Mrs. Pitrolo as guarantors of the obligation. The company and the Pitrolos answered denying that they owed the alleged amount to Community Bank and Trust and also filed various counterclaims against the Bank. Pursuant to the default, appellee Alfred Lemley was instructed by the Bank to foreclose under the deed of trust. The date of the foreclosure sale was set for September 14, 1981 and the required notice was published. Before the sale could be held, the appellants filed a petition for an injunction in the Circuit Court of Marion County to prohibit the sale. The three grounds alleged in support of the petition were set forth in the circuit court's memorandum of opinion:

"(1) No note or bond establishing a debt owed by plaintiffs to defendants was requested or executed, hence the Deed of Trust ... is defeated as collateral.

"(2) The rate of interest charged and shown on the Deed of Trust is usurious.

"(3) The defendant bank, in instituting a civil action ... against the plaintiffs herein, has made an election of remedies, and is thus barred from proceeding by sale under the Deed of Trust."

After hearing limited evidence the court made findings of fact and conclusions of law. Judgment was entered denying the appellants' petition for injunction. It is from this final order that appeal is now taken.

The appellants' principal assertions on appeal appear to be that since the promissory note in question was made by Pitrolo Pontiac Cadillac Company, they cannot be personally liable for the debt and that their deed of trust was executed by them without consideration, the loan proceeds having gone to the corporation.

The appellants' assertion that they are not liable on the note since it was primarily a corporate note misconceives our commercial law. The note is contained in the record and appellants' status is plainly that of accommodation guarantors. 1 In First National Bank of Ceredo v. Linn, 168 W.Va. 76, 282 S.E.2d 52 (1981), we dealt with two individuals who had indorsed a note which their corporation had guaranteed. Because of the ambiguous character of their indorsement we concluded they were accommodation indorsers. Here, the quoted language of the guarantee of payment as appended to the note clearly demonstrates that they were signing as guarantors. We pointed out in Linn, supra, 168 W.Va. at 82-83, 282 S.E.2d at 55-56 that:

"W.Va.Code, 46-3-415, sets out the contract of an accommodation party.8 The official comment under this section makes it clear that in order to determine the exact nature of the liability of an accommodation party, it is first necessary to determine the capacity in which he signed the instrument since there can be accommodation makers, guarantors, indorsers, etc:

'His obligation is therefore determined by the capacity in which he signs. An accommodation maker or acceptor is bound on the instrument without any resort to his principal, while an accommodation indorser may be liable only after presentment, notice of dishonor and protest.' "

The fact that a party signs an instrument but does not receive any direct renumeration or consideration for signing does not relieve him of liability; it merely establishes him as an accommodation party under W.Va.Code, 46-3-415. His precise obligations and rights are then determined by the further inquiry discussed in the above quotation from Linn, supra, by the capacity in which he signs. This principle was summarized in syllabus point 3 of Linn:

"In order to determine the exact nature of the liability of an accommodation party, it is first necessary to determine the capacity in which he signed the instrument."

From the foregoing it is clear that appellants are liable as accommodation guarantors, see W.Va.Code, 46-3-416, and the bank could properly proceed against them as well as the corporation.

The appellants' assertion that they are not liable because there was no consideration for the execution of their deed of trust is meritless. The well-established rule is that the liability of an accommodation maker is supported by the consideration which flows from the creditor to the principal debtor and the fact that no consideration flowed directly to the accommodation indorser [guarantor] is irrelevant. See, e.g., Gavin v. Hinrichs, 375 So.2d 1063 (Ala.1979); Lewis v. Citizens & Southern National Bank, 139 Ga.App. 855, 229 S.E.2d 765 (1976); Burke v. Burke, 89 Ill.App.3d 826, 45 Ill.Dec. 71, 412 N.E.2d 204 (1980); Guaranty Bank & Trust Co. v. Carter, La.App., 394 So.2d 701 (1981); Hybertsen v. Reimann, 262 Or. 116, 496 P.2d 917 (1972).

In his treatise on the Uniform Commercial Code, Anderson interprets § 3-415 as follows:

"The fact that an accommodation party did not receive any consideration is immaterial. The fact that the maker of the note and not the accommodation maker received the consideration is not a defense to the accommodator.

"An accommodation party cannot claim that there is no consideration for his accommodation as the value received by the principal debtor, the person accommodated, is the consideration for which the accommodation party lends his credit." 2 Anderson, Uniform Commercial Code § 3-415:8, p. 1002 (2d ed. 1971).

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3 cases
  • Niederer v. Ferreira
    • United States
    • California Court of Appeals Court of Appeals
    • February 9, 1987
    ...That no consideration flowed directly to the guarantor is irrelevant and it is no defense to the guarantor. (Pitrolo v. Community Bank & Trust, N.A. (W.Va.1982) 298 S.E.2d 853, 856; see Cechettini v. Consumer Associates, Ltd. (1968) 260 Cal.App.2d 295, 298, 67 Cal.Rptr. 15; Moriconi v. Flem......
  • Chaffin v. Hall
    • United States
    • Alabama Supreme Court
    • September 23, 1983
    ...Gavin v. Hinrichs, 375 So.2d 1063 (Ala.1979); Buffalo County v. Richards, 212 Neb. 826, 326 N.W.2d 179 (1982); Pitrolo v. Community Bank & Trust, N.A., 298 S.E.2d 853 (W.Va.1982); and Peoples American Bank, 132 Ga.App. 751, 209 S.E.2d 80 Accordingly, we find that the "except" clause in § 7-......
  • Northwest Acceptance Corp. v. Mason
    • United States
    • U.S. District Court — Southern District of West Virginia
    • October 19, 1983
    ...the contract between the principal debtor, Orgas, Ltd., and Walker Machinery. See W.Va. Code, § 46-3-415(1); Pitrolo v. Community Bank and Trust, N.A., 298 S.E.2d 853 (W.Va.1982); First National Bank of Ceredo v. Linn, 282 S.E.2d 52 (W.Va.1981). "The well-established rule is that the liabil......

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