Title: Beneficial Finance Co. of Jamestown v. Lawrence
Citation: 301 N.W.2d 114
Docket Number: 9811
State: north-dakota
Issuer: north-dakota Supreme Court
Date: December 19, 1980

301 N.W.2d 114 (1980) BENEFICIAL FINANCE COMPANY OF JAMESTOWN, Plaintiff and Appellant, v. Bruce LAWRENCE, Defendant and Appellee. Civ. No. 9811. Supreme Court of North Dakota. December 19, 1980. Rehearing Denied January 23, 1981. Solberg, Stewart &amp; Boulger, Fargo, for plaintiff and appellant; argued by John V. Boulger, Fargo. *115 Hjellum, Weiss, Nerison, Jukkala &amp; Wright, Jamestown, for defendant and appellee; submitted on brief. PEDERSON, Justice. This is an appeal by the lender, Beneficial, from a judgment which held that, under the Uniform Commercial Code (Title 41, NDCC), the obligation of the accommodation party, Bruce Lawrence, was discharged because Beneficial unjustifiably permitted the impairment of collateral when it failed to perfect a security interest.[1] We do not agree that Beneficial unjustifiably impaired collateral in this case. The judgment is reversed. Although there had been a series of loan transactions involving some or all of the participants, the significant item in this dispute is a note dated August 15, 1977. The document is a preprinted form, parts unreadable, in many respects ambiguous, designed to cover a variety of transactions. The borrower is identified, in an upper, preprinted block, as Lorin Lawrence and his spouse, Patricia Lawrence. The note is signed: In an upper, right-hand location on the document is found the following statement: Immediately below the statement quoted is the following box: The only other words on the note which bear upon the dispute in this case state: This case was tried upon the facts without a jury, accordingly Rule 52(a), NDRCivP, has application, at least in part. The trial court found the facts specially and stated separately its conclusions of law thereon and directed the entry of the appropriate judgment. If we understand Beneficial's argument, it challenges no finding of fact but disputes the trial court's conclusion of law: Two of the findings of fact pertinent to our review of that conclusion of law are: We are permitted to examine trial court memorandum opinions in our search for a clear understanding of the findings and conclusions. Hegge v. Hegge, 236 N.W.2d 910, 914 (N.D.1975). From our reading of the oral memorandum opinion, remarks by the trial judge at the end of the trial found in the transcript, we understand, in spite of the ambiguity of the note on its face, that findings numbered 7 and 13 mean that Bruce Lawrence (although not identified as such on the face of the note) is an accommodation maker of the note sued on and that, under the circumstances of this case, a perfected security interest document would have provided neither Beneficial nor Bruce Lawrence any security interest in the collateral. Under the Uniform Commercial Code Commercial Paper, Chapter 41-03, NDCC (Article 3, UCC), not all accommodation parties are accommodation makers. Use of unspecific, generic terms appears to be a cause for confusion in some UCC cases, and perhaps in this case also. See, e. g., White and Summers, Hornbook Series, Uniform Commercial Code, Second Edition, Chapter 13, at page 516 and following. Our primary concern requires that we understand Bruce Lawrence's status, his obligation to Beneficial, and Beneficial's obligation to him. We start with the UCC definition of "accommodation party." Section 41-03-52(1), NDCC (3-415, UCC) provides: An accommodation party "is liable in the capacity in which he has signed." Section 41-03-52(2), NDCC (3-415, UCC). Section 41-03-18(5), NDCC (3-118, UCC) specifies that: Long before this State adopted the Uniform Commercial Code, this court had held that accommodation makers are "jointly liable" with the borrower. See Baird v. Herr, 64 N.D. 572, 254 N.W. 555 (1934); First Nat. Bank v. Burdick, 51 N.D. 508, 200 N.W. 44 (1924); and First Nat. Bank of McClusky v. Meyer, 30 N.D. 388, 152 N.W. 657 (1915). The Meyer case applied the uniform Negotiable Instruments Act in holding with regard to an accommodation maker: Some cases subsequent to the UCC from other jurisdictions appear to be in accord. See, e. g., Rushton v. U. M. &amp; M. Credit Corporation, 434 S.W.2d 81 (Ark.1968), and Roller v. Jaffee, 387 Pa. 501, 128 A.2d 355 (1957). Section 41-01-03, NDCC (1-103, UCC), specifies that the principles of law and equity, including the law merchant, unless displaced by particular provisions, are to be considered supplemented. Section 41-03-73, NDCC (3-606, UCC), provides in part: *117 Guided by § 41-01-02, NDCC (1-102, UCC), and our usual statutory rules of interpretation, particularly §§ 1-02-02 and 1-02-03, NDCC, relating to how ordinary words and phrases are to be understood, and §§ 1-02-38 and 1-02-39, NDCC, relating to the use of intrinsic aids in the construction of ambiguous statutes, it would appear that the defense of unjustifiable impairment is, under appropriate circumstances, available to "any party" to a note, including the maker. The liability of the "maker" is described in § 41-03-50, NDCC (3-413, UCC). White and Summers discuss this subject under the heading, "Contractual LiabilityLiability of the Maker, 3-413(1)" at § 13-7, commencing at page 498 of the Second Edition. Therein we find comments such as: "the maker's liability is unconditional and absolute," and quoting from 3-118(e), UCC (§ 41-03-18(5), NDCC), "unless the instrument otherwise specifies two or more persons who sign as maker ... as part of the same transaction are jointly and severally liable . . . ." Also, in White and Summers, Second Edition, we find a discussion of "Accommodation Parties, 3-415, 3-416, 3-606General Liability of Article Three Surety," § 13-12, commencing at page 516. Therein is stated: If an accommodation maker's obligation is the same as that of the maker because of § 41-03-18(5), NDCC (3-118(e), UCC), then it can be argued that because of § 41-03-73, NDCC (3-606, UCC), all makers, not only accommodation makers who are, in fact, sureties only, are entitled to use the defenses provided for sureties. That logic, if applied in all circumstances, destroys any distinction between sureties and makers. Perhaps this perceived ambiguity in the UCC led the Court of Civil Appeals of Texas, El Paso, to conclude as it did in the case of Brunner v. Smith, 467 S.W.2d 565 (Tex. Civ.App.1971). Brunner held that a person signing a note as a maker has no right to look to the collateral that was pledged. The Texas court did not mention § 3-606, UCC. A note writer, Nathaniel Ruff, in 8 Indiana L.Rev. 522 (1974-1975), said that with the possible exception of Brunner v. Smith, supra, no case has been found under the UCC denying accommodation parties coverage under § 3-606. We note that Brunner has not been cited by any other court but is noted in the Annotation, Uniform Commercial CodeArticle 3, 23 A.L.R.3d 932. See also, Peters, "Suretyship Under Article 3 of the Uniform Commercial Code", 77 Yale L.J. 833 (1968); Jackson and Kronman, "A Plea for the Financing Buyer," 85 Yale L.J. 1 (1975); and Anderson, Uniform Commercial Code, 2d Edition, §§ 3-118, 3-413, 3-415, 3-416, and 3-606. *118 The UCC cannot be applied in a vacuum. In this case there is no evidence upon which a legal argument can rest, on the matter of whether or not Bruce Lawrence, or anyone else for that matter, knew when the note was signed that there was no security available in the collateral being pledged. That cannot have been material to the parties in this case in light of the conceded fact that all collateral was subject to prior perfected security interests. We conclude that Bruce Lawrence's burden as surety was not, in fact, increased by reason of the failure of Beneficial to perfect a security interest in the pledged collateral. If Beneficial would have perfected a security interest in the collateral pledged in this case, Bruce Lawrence would be in the same situation as he is nowliable, and no collateral to resort to. Whether or not a new security agreement and a new financing statement are ever required under the UCC to protect an accommodation party, when there is a refinancing, is a moot issue in this case. Hart and Willer, in 2 Bender's Uniform Commercial Code Service, § 13.24(4), at 13 69, state: Because there was no value as security in the collateral at the time Beneficial failed to perfect a security interest therein, the failure to perfect did not impair Bruce Lawrence's rights. There is no reason to discuss the other arguments made in this case. The judgment is reversed. ERICKSTAD, C. J., and VANDE WALLE, SAND and PAULSON, JJ., concur. [1] Procedures for perfecting security interests are governed by Chapter 41-09, NDCC, Uniform Commercial CodeSecured Transactions (Article 9 UCC).