The Koblegard Co. v. Maxwell, (No. 9586)

• Court: Supreme Court of West Virginia
• Writing for the Court: RILEY.
• Citation: 127 W.Va. 630
• Parties: The Koblegard Company v. Franklin Porter Maxwell
• Decision Date: 15 May 1945
• Docket Number: (No. 9586)

127 W.Va. 630

The Koblegard Company
v.
Franklin Porter Maxwell

(No. 9586)

Supreme Court of Appeals of West Virginia.

Submitted April 24, 1945.
Decided May 15, 1945.

[127 W.Va. 630]

1. Evidence

In this jurisdiction parol evidence is admissible to prove the relation of suretyship between the parties to a contract and the creditor's knowledge that the alleged surety was, in fact, a surety.

2. Principal and Surety

The Negotiable Instruments Law, Code, 46-8, amending the original act, contained in Chapter 98A, Code, 1923, does not preclude the application of the general law of principal and surety to negotiable instruments.

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3. Bills and Notes

The case of Marshall County Bank v. Fonner, 113 W. Va. 451, distinguished.

4. Bills and Notes

Where one signs a negotiable promissory note on the face thereof gratuitously and for the accommodation of the principal debtor with the qualification "Sec", after his signature and the record discloses that the payee-holder of the note, at the time of its execution and delivery, understood that the qualifying abbreviation meant "Security", the party so signing is not an accommodation maker within the meaning of Code, 46-2-6, but a gratuitous surety and as such is entitled to the protection afforded under the general law of principal and surety.

5. Principal and Surety

In the application of a contract of suretyship, as distinguished from its construction, the rule of strictissimi juris applies to a gratuitous surety.

6. Principal and Surety

Any material modification of a contract of gratuitous suretyship resulting from an agreement between the creditor and principal, whereby the former is bound, made with the creditor's knowledge of the suretyship and without the surety's consent, will operate to effect a discharge in toto.

7. Principal and Surety

Where the maker of several promissory notes upon which different sureties are liable, deposits with the payee-holder thereof, at the time of their execution and delivery, collateral securing all of the notes without any direction as to the application of the security, the payee may apply the proceeds of the collateral to the notes as he may deem to his best interest. In such case the payee is under no obligation to apply the proceeds on a pro rata basis.

8. Appeal and Error

Where, in an action at law, this Court, upon the reversal of a judgment of a trial court, sets aside a jury verdict on the ground that there is insufficient evidence to support the ver-

[127 W.Va. 632]

dict, a new trial will be awarded in all cases except where there is a demurrer to the evidence.

Fox, Judge, did not participate in that part of the decision which is contained in point 8 of the syllabus.

Error to Circuit Court, Upshur County.

Action in assumpsit by the Koblegard Company against Franklin Porter Maxwell on a note. The trial court entered judgment in defendant's favor upon a directed verdict, and plaintiff brings error.

Judgment reversed; verdict set aside; new trial awarded,

Robinson & Stump, John S. Stump and Myron B. Hymes, for plaintiff in error.

E. L. Maxwell, H. Roy Waugh, D. H. Hill Arnold and Arnold & Crawford, for defendant in error.

Riley, Judge:

The Koblegard Company instituted this action in assumpsit in the Circuit Court of Upshur County against Franklin Porter Maxwell upon a negotiable promissory note, dated January 1, 1932, for $10,000.00, payable four months after date, and signed on the face thereof by Wm. Post, Annie Post, John Post, and the defendant whose signature appears "F. P. Maxwell, Sec". Plaintiff prosecutes this writ of error to a judgment in defendant's favor entered upon a directed verdict.

Defendant claims he signed the note as surety and was discharged by certain actions of plaintiff, while plaintiff claims defendant was an accommodation maker and was bound to pay the note in any event and, if the relationship of surety existed, plaintiff did nothing to effect a discharge.

In 1926 William Post conveyed to Pecks Run Coal Company 449.12 acres of land in Upshur County, West Virginia, by deed in which grantor retained a vendor's lien securing

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nine negotiable promissory notes payable to Post's order on or before one to nine years from date, respectively, each in the principal sum of $15,243.55 5/9, with interest payable annually. The Coal Company paid the note payable on or before one year from date at the maturity thereof. The note payable on or before nine years from date was assigned by Post to The Traders National Bank of Buckhannon to secure certain indebtedness which Post then owed the Bank, and the note payable on or before two years from date Post was assigned to plaintiff as collateral upon four notes all payable to the latter and held by it: (1) The note upon which this action is based; (2) a $5,000.00 note, dated January 5, 1932, signed on the face thereof by William Post, Annie Post, John Post, and the defendant as "F. P. Maxwell, Secy"; (3) a note for $3,000.00, dated January 31, 1932, signed on the face thereof "William Post, Annie H. Post, J. H. Post and Adam Post, Security"; and (4) a note for $1,000.00, dated January 25, 1932, signed on the face thereof by "William Post, Annie H. Post, J. H. Post and Adam Post, Security."

A controversy arose as to which of the two Pecks Run Coal Company's notes assigned to plaintiff and Traders National Bank had been assigned first. Plaintiff and the Bank agreed, as evidenced by an indorsement on the back of the latter's note that the said note was subordinate "in lien" to plaintiff's note "provided said Koblegard or Koblegard and Company shall not disturb the William Post Trust". By the "William Post Trust", the parties meant a deed of trust dated May 25, 1932, from William Post and wife to H. Roy Waugh, Trustee, conveying numerous tracts of land, not including the 449.12-acre tract, and securing a large indebtedness due in various amounts to many debtors. This indebtedness was never paid in full, but thirty-two per cent thereof was paid from the estate in bankruptcy of William Post, who filed a petition in bankruptcy shortly after the four months period following the recordation of this deed of trust. Post's creditors, who were not secured by this deed of trust, received nothing. The Waugh deed of trust was made at the request

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of Traders National Bank, which was closed some time during 1932.

By a deed of trust, dated December 23, 1932, Pecks Run Coal Company conveyed to John S. Stump, Jr., Trustee, the 449.12 acres previously conveyed to it by William Post, subject to minor exceptions, to secure the eight unpaid vendor's lien notes in the following order of priority: (1) The Koblegard note; (2) the note held by the receiver of Traders National Bank; and (3) the remaining six vendor's lien notes. This deed of trust was made subject to the vendor's lien retained in the William Post deed, and provided for payment by Pecks Run Coal Company to the Trustee of certain monthly minimum amounts, as well as a stated sum for each ton of coal mined and removed, upon a sliding scale price with reference to the price for which the coal sold.

This deed contains the following provision: "The lien of this indenture is in addition to, and not in lieu of, the said vendor's lien [the lien retained in the deed of William Post and wife to Pecks Run Coal Company] and nothing herein contained shall be construed in any manner to alter, vary, diminish or impair the rights created by the reservation in said deed of said lien."

Under the Stump deed of trust the Coal Company paid to the Trustee a total amount of $23,409.36, from which the Trustee paid plaintiff a sum sufficient, when applied by it to the indebtedness secured by the Pecks Run Coal Company note, payable on or before two years from date, to pay in full, with interest, the $1,000.00, $3,000.00, and $5,-000.00 notes and the following sums upon the note upon which this action is based: August 24, 1935, $622.48; July 10, 1936, $1,300.00; May 19, 1937, $3,400.00. Plaintiff made these payments on the four notes. In addition to these payments the sum of $5,254.85 was paid on February 14, 1941, on the $10,000.00 note from funds derived from the sale of the lands securing the vendor's lien retained in the deed of Post to the Coal Company, which sale was made on February 7, 1941, under a decree of the Circuit Court of Upshur County in the chancery suit of Central National Bank of Buckhannon against Pecks Run Coal

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Company. The payments made by Stump, Trustee, together with the proceeds of sale in the vendor's lien suit paid in full the Pecks Run Coal Company note held by plaintiff as collateral for the four notes, and reduced the instant note to the sum of $4,180.39 as of February 14, 1941.

During 1933 plaintiff sold at public sale to Hurst H. Koblegard, then one of plaintiff's directors, for $100.00 the six vendor's lien notes which were third in priority to those held by plaintiff and the receiver of Traders National Bank. This sale was attended by F. E. Williams, president of Pecks Run Coal Company, and Koblegard. Prior to this sale, Williams had agreed with Koblegard not to bid until the bidding on the notes reached the sum of $3,000.00, and plaintiff agreed to protect the note against use for nuisance purposes by bidding up to $3,000.00, if necessary. Before the sale Williams had deposited $1,820.-00...