Reed v. Buck

• Decision Date: 10 July 1963
• Docket Number: No. A-9449,A-9449
• Citation: 370 S.W.2d 867
• Parties: H. M. REED, Petitioner, v. T. W. BUCK, Jr., Respondent.
• Court: Texas Supreme Court

Page 867

370 S.W.2d 867

H. M. REED, Petitioner, v. T. W. BUCK, Jr., Respondent.

No. A-9449.

Supreme Court of Texas.

July 10, 1963.

Rehearing Denied Oct. 17, 1963.

Gay & Meyers, Austin, for petitioner.

Harry S. Pollard, Austin, for respondent.

NORVELL, Justice.

On August 31, 1953, Glen Malcolm Shine and T. W. Buck, Jr., executed a promissory note in the capacity of makers. The note was assigned to petitioner, H. M. Reed, by J. H. (Dude) Stelfox, the payee named therein. The note was not paid and Reed brought suit against respondent, T. W. Buck, Jr., alleging that the whereabouts of Shine was unknown to the petitioner. The trial court rendered judgment in favor of Reed.

The trial judge filed findings of fact and conclusions of law. Among the findings of fact were the following:

'26. On February 7, 1955, the day this suit was filed, and for many months prior thereto, the residence of Glen Malcolm Shine was unknown to H. M. Reed, J. H. (Dude) Stelfox and T. W. Buck, Jr., and H. M. Reed used reasonable diligence prior to filing this suit to ascertain the residence of Glen Malcolm Shine but could not do so.

'27. On October 1, 1953, Glen Malcolm Shine was actually insolvent and such condition persisted to the date this suit was filed.'

The trial judge's conclusions of law were as follows:

'1. T. W. Buck, Jr., was an accommodation maker of the note. * * *

'2. H. M. Reed was not a holder in due course of said note.

'3. H. M. Reed was entitled to sue T. W. Buck, Jr., without joining Glen Malcolm Shine as a party to said suit.

'4. T. W. Buck, Jr., is justly indebted to H. M. Reed in the amount of $15,370.03 plus interest at the rate of ten per cent per annum until said debt is paid.'

The Court of Civil Appeals held that it conclusively appeared that Shine was not insolvent ¹ and that the trial judge's finding that Reed had used reasonable diligence to ascertain the residence of Shine was against the overwhelming preponderance of the evidence. (As to overwhelming preponderance of the evidence, see King v. King, 150 Tex. 662, 224 S.W.2d 660.) The judgment of the trial court was reversed and the cause remanded for another trial. 363 S.W.2d 479.

In his application for writ of error, the petitioner takes the position that as Buck was actually a maker of the note as distinguished from en endorser or one signing in some other capacity than a maker, he is entitled to sue buck without joining the other co-maker, Sihine, even though Buck may have signed the note as an accommodation to Shine and both Reed and his assignor, Stelfox, had knowledge of this fact.

There are Texas authorities which so hold.

In Ritter v. Hamilton, (1849) 4 Tex. 325, Mr. Justice Lipscomb writing for the Court held that even though Hamilton had signed a promissory note as an accommodation to Vining, he could be sued without the joinder of Vining. It was said that:

'It was the bill of each of them, and on which the payee could maintain an action against them jointly or against any one of them. They are in law all principals.'

The holding of the Court is brought sharply into focus by the dissent of Chief Justice Hemphill who stated his belief 'that when a party is a surety to a note, he must be sued as a surety, whether it appear on the face of the note that he is a surety or not.'

In Ennis and Reynolds, Administrators v. Crump, (1851) 6 Tex. 85, the Court in an opinion by Mr. Justice Wheeler affirmed the holding of Ritter v. Hamilton. In this case, Chief Justice Hemphill noted that although he had not concurred in the holdings of Ritter v. Hamilton and the earlier case of Scott v. Dewees, 2 Tex. 153, ² he nevertheless recognized that 'those decisions have settled the law for the Court,' and he did not 'feel authorized to dissent further or depart from the rules established by those cases.'

In Head v. Cleburne Building and Loan Ass'n, Tex.Civ.App. (1893) 25 S.W. 810, no wr. hist., the Court said:

'The obligation being joint and several, it is well settled that defendants cannot plead that they are sureties, for the purpose of avoiding suit without their co-obligor Pearson being joined. To the plaintiff, they are all principals. Ritter v. Hamilton, 4 Tex. 325; Lewis v. Riggs, 9 Tex. (164) 165; McDonald v. Holt, 1 White & W.Civ.Cas.Ct.App. 1014; Ennis v. Crump, 6 Tex. 85.'

The question is one of parties. The cases cited by petitioner stand for the proposition that when one ostensibly contracts as a principal, he may be sued as such without joining another in the suit who likewise contracted as a principal, even though in truth and in fact, he is an accommodation maker for the other and this circumstance is known to the payee in the note.

As noted by the Court of Civil Appeals these cases have never been overruled, but likewise they have not been cited in recent years. ³ Because of this latter circumstance the Court of Civil Appeals was of the opinion that these ancient cases, like old soldiers, had just faded away. Perhaps a re-examination of the holdings of the cases mentioned is called for, but Ritter v. Hamilton and Ennis v. Crump are decisions of this Court and unless there is some good reason for overruling them, they should not be disregarded.

As indicated above, we regard the question as being one of procedure relating to necessary parties, and have come to the conclusion that the greater good will be served by adhering to the rule of Ritter v. Hamilton than in departing therefrom.

The petitioner urges that there are sound policy reasons why a distinction should be made between an accommodation maker and an accommodation endorser or guarantor. The holder of a note is interested in payment. He may make various contracts with an accommodator before he advances his money or passes title to an article in a sale. Where the accommodator joins with the party accommodated and agrees that 'I, we, or either of us agree to pay,' there is no reason to say that the agreement is something different from what it plainly says on the face, namely, that both makers are jointly and severally liable on the obligation and that consequently the payee or his assignee may sue either or both of the makers on the obligation. While as between the accommodator and the one accommodated, the relationship of principal and guarantor may exist, the accommodator did not contract with the payee of the note in the capacity of a guarantor or surety. He contracted as a principal and the circumstance that the payee may know of the relationship between the accommodator and the one accommodated, would not affect the legal relationship between payee and the accommodator which is that of principal and creditor because the accommodator contracted in the capacity of a maker.

From a procedural standpoint, the rule is highly practical which permits a note creditor to sue a debtor in the contractual capacity which the debtor assumed at the time the obligation was made. Substantial fact issues may develop in cases similar to this, where one signing as a maker claims to be a surety. Examples of these questions may be given: Is the holder of the note a holder in due course? Is the person who signed as a maker actually a guarantor or surety? It is not an efficient procedure which requires a determination of fact issues in order to decide a problem of parties. In some instances, the settlement of such issues cannot be avoided, but in the circumstance now under consideration, it may be avoided-and without serious detriment to the accommodation maker. He may bring the principal debtor into the suit if this may be accomplished without an unreasonable delay of the case, or he may file an independent suit against the principal to recoup the loss occassioned by his being forced to pay the obligation.

We do not regard the later case of J. I. Case Threshing Machine Co. v. Howth, 116 Tex. 434, 293 S.W. 800, as overruling or modifying Ritter v. Hamilton. In Howth, the the Court discussed at some length the question of whether J. I. Case Threshing Machine Company was a holder in due course and held that one 'who is an immediate party to a negotiable note on its original completion, is not intended to have the rights of 'a holder in due course."

In the present case, the trial judge found that Reed was not a holder in due course. He stood in the shoes of Stelfox, the payee in the note. However, if the original payee be entitled to recover on the note in a suit against Buck alone, then Reed, the assignee of the note, could likewise recover.

It was further held in the Howth case that:

'A complete defense to the suit of a holder of a nonnegotiable note in behalf of an accommodation maker would be established by his pleading and proving that the holder of the note had made a binding agreement with the principal obligor to extend the note for a definite time, with knowledge of the status of the accommodation maker and without his consent.'

The Court was obviously speaking of a plea in bar-an extension of payment which was not consented to by the obligor secondarily liable upon the note. The right of a surety to plead and prove and defense he might have to the suit on a note is well recognized in this State. Brinker v. First National Bank, Tex.Comm.App., 37 S.W.2d 136, following J. I. Case Threshing Machine Co. v. Howth, supra. The defense of an unauthorized extension of the time of payment of an indebtedness is available to a party secondarily liable (as between those bound to pay the note) although he actually signed as a maker. But the cases so holding are not contrary to Ritter v. Hamilton, which is essentially a decision relating to parties and procedure and not to pleas in bar and defenses in toto or pro tanto.

We hold that when a party signs a note in the capacity of a maker, the payee (or one standing in the shoes of a payee) may sue such maker singly and proceed to judgment upon the note without joining in the suit another or other who may also appear upon the note as co-makers. If...