State Bank of Slayton v. Edwards

• Decision Date: 29 April 1920
• Citation: 45 N.D. 341,177 N.W. 677
• Parties: STATE BANK OF SLAYTON v. EDWARDS et al.
• Court: North Dakota Supreme Court

45 N.D. 341

177 N.W. 677

STATE BANK OF SLAYTON

v.EDWARDS et al.

Supreme Court of North Dakota.

March 19, 1920.

Rehearing Denied April 29, 1920.

Syllabus by the Court.

When, without any consideration, a person signs his name on the face of a promissory note, he becomes a guarantor of payment and is primarily liable for the debt; but when the debt is paid or secured, in whole or in part, the holder of the note may not return the payment or cancel the security and still collect from the guarantor the whole debt. The payment may not be canceled or the security released, thrown away, or impaired. The security must be held as a trust for the benefit of the guarantor; otherwise, the debt is paid to the extent and value of the security released or made unavailable.

Appeal from District Court, Rolette County; C. W. Buttz, Judge.

Action by the State Bank of Slayton against Marion Edwards and Arthur Johnson. Judgment for plaintiff against defendant Johnson, and he appeals. Reversed.

Christianson, C. J., dissenting.

Verret & Stormon, of Rolla, for appellant.

Fred E. Harris, of Rolla, and John J. Kehoe, of Cando, for respondent.

ROBINSON, J.

On June 30, 1914, defendants made to plaintiff a promissory note for $1,800, due October 1, 1914, with interest at 8 per cent. Payments were made thus:

December 30, 1915, $216.

January 18, 1916, principal, $284.

November 4, 1916, paid on interest, $121.28.

August 8, 1917, credit, $247.40.

On June 23, 1919, the jury found a verdict against Johnson for $1,516 and interest at 8 per cent. from December 30, 1916, less the credit of $247 on August 8, 1917. Judgment was entered against Johnson for $1,535.29, and he appeals.

The defense of Johnson is that, though he signed on the face of the note he received no consideration and he signed only as guarantor or surety; also, that plaintiff has received and accepted payment or ample security for the balance due on the note. It appears that to secure the note and several prior notes, amounting to a large sum, Marion Edwards, the principal maker of the note, conveyed to the bank 441.61 acres of land, and, excepting 80 acres in Pierce county, the land was all sold and applied on the notes in full payment, and a balance of $247.40 was left to apply on the note in question. In April, 1917, the 80-acre tract was sold to Frank Rumley and he made to Marion Edwards a purchase-money note and mortgage for $1,600 and interest. Then Edwards delivered to plaintiff the Rumley promissory note and mortgage, with an assignment of the mortgage, and the bank conveyed to Rumley a good title to the 80 acres which it had held in trust to secure the note in question. The debt to Rumley, the mortgage, and the assignment of the same, were duly recorded. Then, as it appears, the coupon notes were only for 5 per cent., or $80 a year, while the principal note was for 6 per cent. Edwards asked for a return of the note and coupons to have the same corrected so as to read 6 per cent. in lieu of 5 per cent. The plaintiff bank returned the note and the coupons to Edwards, and no one seems to know what became of them. Rumley refused to pay the mortgage debt without his notes or an indemnity bond. Hence this suit was commenced.

Evidently the Rumley note and mortgage were given to apply on the note in suit, either as an absolute payment or as collateral and in lieu of the lien on the 80-acre tract. The case does not present any question concerning the primary or secondary liability of Johnson. Consequently he was a guarantor of payment, and any payment of the debt or security given for the same at once inured to his benefit. The plaintiff was not at liberty to return a payment or a good and valid security and still hold the guarantor as if no payment had been made or security given. Scandinavian Am. Bank of Fargo v. Westby, 172 N. W. 666. Then we have the maxim:

“When one of two innocent persons must suffer by the act of a third, he by whose negligence it happened must be the sufferer.” Comp. Laws, § 7277.

If the plaintiff must suffer any detriment from the loss of the $1,600 note, it should be charged to its own negligence. There is some evidence that plaintiff received the Rumley $1,600 note and mortgage as payment of the debt, the same as it had received from Edwards other securities in payment of other debts. The sum due the plaintiff was less than $1,500, and it was the wind-up of a long-protracted deal. If the plaintiff did not receive the Rumley note and mortgage as payment, then it was ample security for the debt, and it was given as the close of an old and long-standing deal-as the final determination of all dealings between the plaintiff and Marion Edwards. If the bank received the note in payment, then it was making about $100 or more in excess of the interest-and that was about the way it was doing business. There is no showing that the $1,600 note or its coupons have been presented for payment. The chances are that it has been lost or mislaid and that the remedy of the plaintiff is to recover on it as on a lost note. Had the plaintiff retained the Rumley note and had it offered to transfer and deliver the same and the mortgage to Johnson, then it would have been in a position to maintain this action. Then there could be no defense only that the note and mortgage had been received in absolute payment.

Manifestly, the court erred by striking from the answer all that was alleged concerning the Rumley note and mortgage, either as payment or as security, and by directing the jury to disregard all evidence concerning the same.

Judgment reversed.

BRONSON, J., concurs in the result.

GRACE, J. (specially concurring).

I specially concur in the opinion of the court, as written by Mr. Justice ROBINSON, upon the ground that the debt upon which suit was brought was, by the original debtor (Edwards), secured by a mortgage on a certain 80-acre tract of land, which mortgage was given to secure the $1,600 note; the note and the recorded mortgage were delivered to the plaintiff, as collateral security.

It was the duty of the plaintiff, upon receipt thereof, to preserve such collateral, and to use ordinary care and vigilance in doing so. He could not dispose of it, nor convert it to his own use, nor permit it to be dissipated or wasted by his negligence, without being accountable to Johnson.

This principle is fully discussed in the opinion of the court, and in the case of the Scandinavian American Bank of Fargo v. Westby, 172 N. W. 666, cited in the opinion of the court.

BIRDZELL, J. (concurring specially).

I concur in the reversal. It appears that, upon motion of the plaintiff's attorney, the court, at the beginning of the trial, struck out the answer in so far as it related to allegations of suretyship, and the judge specifically stated he was of the opinion that the defendant was primarily liable upon the instrument and could only be relieved by any act of the holder that would relieve one primarily liable. It clearly appears that the trial court was of the opinion that the holder of the note could entirely disregard the relation of suretyship alleged by the defendant and could relinquish and dissipate securities held without affecting its rights against the defendant. From the facts which later appeared during the trial, I am of the opinion that this ruling prevented the defendant from having a fair trial. Strictly speaking, the defendant Johnson, in his answer, did not counterclaim for damages based upon the dissipation of securities; but he did set up the dissipation as a matter of defense. It appears that the defendant was more or less in the dark as to the actual handling of securities by the plaintiff and would necessarily remain so until the testimony of Dinehart would be secured. Under the court's ruling, it would have been useless for the defendant to have attempted to amend his answer to conform to the proof in support of a counterclaim for damages such as is amply warranted by the testimony of Dinehart. It clearly appears that the bank held, as security for Edwards' indebtedness to it, title to the lands sold to Rumley, and that it so dealt with the title as to allow the record title to appear in the name of Rumley without getting into its own possession Rumley's note which, in reality, represents the equity of Edwards. On this record prima facie, the damage occasioned to Johnson by the...