Rahall v. Tweel, 20102

• Court: Supreme Court of West Virginia
• Citation: 411 S.E.2d 461,186 W.Va. 136
• Decision Date: 01 November 1991
• Docket Number: No. 20102,20102
• Parties: , 16 UCC Rep.Serv.2d 1103 N. Joe RAHALL, Plaintiff Below, Appellant, v. Nicholas TWEEL, Defendant Below, Appellee.

Page 461

411 S.E.2d 461 186 W.Va. 136, 16 UCC Rep.Serv.2d 1103 N. Joe RAHALL, Plaintiff Below, Appellant,
v.
Nicholas TWEEL, Defendant Below, Appellee. No. 20102. Supreme Court of Appeals of
West Virginia. Submitted Oct. 2, 1991.
Decided Nov. 1, 1991.

Page 462

[186 W.Va. 137] Syllabus by the Court

1. Under the Uniform Commercial Code, W.Va.Code, 46-1-101, et seq., a party's status or capacity on commercial paper is determined solely from the face of the instrument. If there is ambiguity about the party's status or capacity, the party is deemed an endorser.

2. A party's status on commercial paper may be found in usage or custom. Thus, by long established practice, judicially noticed or otherwise established, a signature in the lower right hand corner of an instrument indicates an intent to sign as the maker of a note or the drawer of a draft.

3. " 'Under our law, co-obligors on a note are jointly and severally liable. If one co-obligor is required to pay the entire obligation, he may seek contribution or reimbursement from his co-obligor for fifty per centum of the amount paid.' Syllabus Point 4, Newton v. Dailey, [167 W.Va. 347], 280 S.E.2d 91 (1981)." Syllabus Point 2, Estate of Bayliss v. Lee, 173 W.Va. 299, 315 S.E.2d 406 (1984).

4. "An accommodation party is one who signs an instrument in any capacity for the purpose of lending his name to another party to the instrument." Syllabus Point 6, Peoples Bank of Point Pleasant v. Pied Piper Retreat, Inc., 158 W.Va. 170, 209 S.E.2d 573 (1974).

5. Under W.Va.Code, 46-3-415(3) (1963), oral proof that a person is an accommodation party is not admissible against a holder in due course without notice of the accommodation. However, the accommodation status of a party may be established by oral proof against the party accommodated, holders not in due course, or any person with notice of the accommodation.

6. In determining whether a person signed a note merely to lend his name to another party on it, courts have considered several factors. These include the party's purpose in signing the note, the intent of the other parties, whether the party took part in the negotiations leading to the financing, the purpose of the loan, whether the accommodation party received any benefit from the transaction, and whether the party's signature was necessary to secure the loan.

7. The party asserting that he is an accommodation party has the burden of proof.

8. " 'An erroneous instruction is presumed to be prejudicial and warrants a new trial unless it appears that the complaining party was not prejudiced by such instruction.' Point 2, syllabus, Hollen v. Linger,

Page 463

[186 W.Va. 138] 151 W.Va. 255 [151 S.E.2d 330 (1966) ]." Syllabus Point 5, Yates v. Mancari, 153 W.Va. 350, 168 S.E.2d 746 (1969).

Joseph M. Farrell, Jr., Hunt & Wilson, Huntington, for appellant.

Nicholas Tweel, pro se.

MILLER, Chief Justice:

N. Joe Rahall, the plaintiff below, appeals from a final order of the Circuit Court of Kanawha County, dated August 13, 1990, denying his motion to set aside a jury verdict. On appeal, the plaintiff contends that the trial court erroneously instructed the jury that a party who signs a promissory note, but receives no direct benefit by signing it, is an accommodation party, and, as such, is not liable to the principal on the note. We agree that the instruction was erroneous; accordingly, we reverse and remand the case for further proceedings consistent with this opinion.

I.

In 1984, the plaintiff and Nicholas Tweel, the defendant below, obtained two unsecured loans totaling $80,000 from the Charleston National Bank (the Bank). The loan was procured to keep a hotel in Huntington operational. Both parties testified that it was to their benefit that the hotel remain open.

Both notes were prepared by the Bank. The front of each note stated the value received, the date the note was signed, its due date, and the annual interest. There were two signature lines, where each party signed, and beneath each line was the printed phrase "Signature of Maker." The back of the notes contained covenants and conditions, language involving endorsers, and two lines for signatures. The phrase "Endorser's Signature" was printed under each of the lines on the back of the notes, both of which were blank.

When the notes became due, the plaintiff paid the Bank the total amount owed, and then filed suit against the defendant to collect one-half of this amount. At trial, the defendant claimed that because he had not directly received the proceeds from the two loans, he was merely an accommodation party. The trial court agreed and, over the plaintiff's objection, instructed the jury that an accommodation party is not liable to the principal, i.e., the person accommodated, unless he received a direct benefit. ¹ By way of a special interrogatory, the jury found that Mr. Tweel received no direct benefit from signing the promissory notes; therefore, he was not liable to the plaintiff.

II.

Our inquiry is to determine Mr. Tweel's status on the two notes. Ordinarily, a party's status or capacity on commercial paper is determined solely from the face of the instrument. Under W.Va.Code, 46-3-402 (1963), if there is ambiguity about the party's status or capacity, the party is deemed an endorser. ² We adopted this principle in Syllabus Point 1 of First National Bank v. Linn, 168 W.Va. 76, 282 S.E.2d 52 (1981): "Under the Uniform Commercial Code, W.Va.Code, 46-3-402, unless the instrument clearly indicates that a signature is made in some other capacity, it is an indorsement."

Page 464

[186 W.Va. 139] The official comment ³ to W.Va.Code, 46-3-402, elaborates on the reason for this rule, which is designed to discourage the use of parol evidence in determining a party's status or capacity:

"The question is to be determined from the face of the instrument alone, and unless the instrument itself makes it clear that he has signed in some other capacity the signer must be treated as an indorser.

"The indication that the signature is made in another capacity must be clear without reference to anything but the instrument.... [Capacity] may be found in usage or custom. Thus, by long established practice judicially noticed or otherwise established a signature in the lower right hand corner of an instrument indicates an intent to sign as the maker of a note or the drawer of a draft." ⁴

On the face of the two notes in question, it is clear that the defendant signed as a co-maker. This was the capacity identified under his signature. Moreover, his signature appeared on the front of the note in the lower right hand corner, which, as the official comment to W.Va.Code, 46-3-402, states, is judicially noted as an intent to sign as a maker.

We explained the obligations of co-makers in Syllabus Points 2 and 3 of Estate of Bayliss v. Lee, 173 W.Va. 299, 315 S.E.2d 406 (1984):

"2. 'Under our law, co-obligors on a note are jointly and severally liable. If one co-obligor is required to pay the entire obligation, he may seek contribution or reimbursement from his co-obligor for fifty per centum of the amount paid.' Syllabus Point 4, Newton v. Dailey, [167...