Skagit State Bank v. Moody

• Decision Date: 20 July 1915
• Docket Number: 12640.
• Citation: 150 P. 425,86 Wash. 286
• Court: Washington Supreme Court
• Parties: SKAGIT STATE BANK v. MOODY.

150 P. 425

86 Wash. 286

SKAGIT STATE BANK v. MOODY.

No. 12640.

Supreme Court of Washington

July 20, 1915

Department 1. Appeal from Superior Court, Skagit County; William H Pemberton, Judge.

Action by the Skagit State Bank against S. L. Moody. Judgment for the defendant, and plaintiff appeals. Reversed and remanded with directions.

Shranger & Henderson, of Mt. Vernon, for appellant.

Thomas Smith, of Mt. Vernon, for respondent.

CHADWICK J.

On the 11th day of April, 1910, respondent was a director of the appellant bank. Appellant held a note known as the Cain Bros note, or the Darrington Mill note, in the principal sum of $8,000, upon which the interest had so long defaulted that the State Bank Examiner had directed that the interest be collected or the note charged off. The note had been originally taken by R. M. Moody and L. L. Moody, brother and nephew of respondent, and had been by them indorsed over to the bank without recourse. L. L. Moody was the president of appellant bank.

Seemingly in anticipation of a call from the State Bank Examiner, L. L Moody, P. M. Moody, R. M. Moody, Ollie Moody, and one Fellows, a then stockholder and later cashier of the appellant, met at the home of respondent, and it was decided that respondent and his brother R. M. Moody should each give a note for the sum of $500, payable to the bank, to take up the overdue interest on the Cain Bros. note. These notes were given, carried into the bank's bills receivable, and the amount thereof placed to the credit of the overdue interest account as a payment on the Cain Bros. note. The payment was also indorsed thereon. The control of the bank thereafter passed out of the hands of the Moody family. The note of respondent was not paid when due.

To an ordinary complaint respondent answered, admitting the execution of the note, and pleaded affirmatively: (a) That there was no consideration for the note; (b) that it was given for the accommodation of the bank and for the purpose of deceiving the bank examiner, and was therefore void; (c) that there was an express understanding that the note should be thereafter returned to respondent; and (d) that, after the execution of the note, Fellows and one Davis bought the control of the bank and agreed and promised to return respondent's note to him. A demurrer to these affirmative defenses was overruled, and the case went to trial. From a judgment entered upon a verdict in favor of respondent, this appeal is taken.

Respondent contends that, inasmuch as the Cain Bros. note was known to be worthless at the time the note sued on was given, there was no consideration in law to sustain his promise. The question of consideration was the only question submitted to the jury by the trial court. Granting but without holding that respondent could set up a collateral oral agreement that he was not to be bound by his promise, it seems to us that there was a sufficient lawful consideration for the note. The position of respondent is that the note was given for the accommodation of the bank, and that one for whom an accommodation is made cannot sue directly upon the promise; that, as between the bank and respondent, the note being given to accomplish an illegal purpose, the law will leave the parties where they have placed themselves (that is, without remedy, one against the other).

While the note was given for the accommodation of the bank in a certain sense (that is to say, its consequence was to save the bank from the aspersions of the agent of the state and a possible finding of insolvency), it was nevertheless, and in law entirely so, given for the accommodation of the Cain Bros. An accommodation note is one given as collateral to the promise or obligation of another. It neither asserts or implies a consideration flowing direct from the payee to the maker. The note is supported by the obligation of the principal debtor. It is the fact that the maker receives no value therefor that gives the paper its character as accommodation paper. Rem. & Bal. Code, § 3420.

Respondent relies upon the case of First National Bank of Storm Lake v. Felt, 100 Iowa, 680, 69 N.W. 1057, and Woodbury v. Glick, 151 Iowa, 648, 132 N.W. 67. These cases may be distinguished from the case at bar. While it was held that no recovery could be had upon notes given to cover loans to third persons made in excess of the legal limit and to thus satisfy the law and the demands of bank examiners, the bank being solvent and no rights of creditors being involved, it was nevertheless made to appear that the taking of the notes sued on was a banking transaction made by a bank otherwise solvent, with full knowledge and at the instance of the officers and directors of the bank. The transaction was in the one case expressly ratified at a directors' meeting, and in the other there was not only actual notice but by a long-continued practice which would impute notice to all concerned whether there was actual notice or no. In ...