Opinion ID: 1210221
Heading Depth: 2
Heading Rank: 1

Heading: Principal Sums.

Text: The trial court held that the sum of $24,296.27 was due Hawaii National Bank. In so holding, the court found that the original debt had been reduced by various payments. 1. The court found that a payment of $24,296.27 was made on April 24, 1969. However, there is no evidence to indicate that payment was made. While a ledger was produced which included a figure of $20,022.37 in a payment column, a notation to that figure indicated that it stated only the amount of accrued interest due. No receipt for a payment on the date in question was produced, and the court's finding conflicted with other records produced. [3] 2. As to the sum of $17,500, the trial court stated that [o]n November 13, 1962, Associated Drugs paid Fixtures Hawaii $17,500 in cash and gave a promissory note for $39,000. On November 13, 1962, Hawaii [National Bank] took an assignment of the accounts receivable of Fixtures Hawaii... . The fact that Exhibit ZZ did not state that Hawaii received the $17,500 is likewise not conclusive. That exhibit indicates that payments of $17,500 and $15,000 were made `by Associated Drugs to Fixtures Hawaii, Inc.' Then it stated that though Exhibit ZZ did not indicate that Hawaii National Bank had received payment of $15,000, the bank admitted in a memorandum dated November 11, 1970 that it had received payment of the sum of $15,000 and thus the trial court concluded and found that the sum of $17,500 was likewise paid on November 13, 1962. Hawaii National Bank was not required to show non-payment of that sum. The burden of proof is with the party claiming payment, and that burden was upon American Security Bank which was asserting that payment of $17,500 had been made to Hawaii National Bank. Bannister v. Lucas, 21 Haw. 222, 223 (1912). However, it failed to introduce evidence to show such payment. Thus, we find that the trial court erred in reducing the balance owed Hawaii National Bank by the sum of $17,500. 3. The trial court also found that a payment of $24,500 was made on February 3, 1963. The court's finding was based on a complicated series of transactions, involving several corporations, all of which were apparently owned by the Akamine family. Akamine & Sons apparently had guaranteed loans made by the Hawaii National Bank to Matthews & Associates (also known as Fixtures Hawaii). Matthews was unable to pay the sum of $24,500 owed to the Bank. However, Associated Drugs owed Matthews a sum of money, but apparently it did not have sufficient cash to pay the debt to Matthews. Therefore, Hawaii National Bank agreed to loan $24,500 to Associated. Hawaii National Bank wrote a check for the amount; Associated immediately endorsed the check to Matthews, and Matthews endorsed the check back to Hawaii National Bank. Hawaii National Bank then stamped Matthews' note paid. The net result of the transaction was that Hawaii National Bank received Associated's promise to pay $24,500 for Matthews' promise to pay the same amount. The general rule is that when a creditor accepts a third party's note from a debtor, the note is not a final payment extinguishing the debt. The debtor is only released when the third party pays the note. If the parties wish to specifically agree that the acceptance of the third party's note is a final payment, they may do so, but in the absence of a specific agreement, the acceptance of the note becomes a final payment only when the note is subsequently paid. D. Foster & Co. v. Spencer, 3 Haw. 594 (1875); Don Kral Inc. v. Lindstrom, 286 Minn. 37, 40-41, 173 N.W.2d 921, 924 (1970); Lindberg v. Ferguson Trucking Co., 74 N.M. 246, 392 P.2d 586 (1964); F.D. Cline Paving Co. v. Southland Speedways, Inc., 250 N.C. 358, 108 S.E.2d 641 (1959). As the court said in Grady v. Pink Hill Bank & Trust Co., 184 N.C. 158, 162, 113 S.E. 667, 668 (1922): `... the note of a third person given for a prior debt will be held a satisfaction, where it was agreed by the creditor to receive it absolutely as payment, and to run the risk of its being paid. The onus of establishing that it was so received is on the debtor. But there must be a clear and special agreement that the creditor shall take the paper absolutely as payment, or it will be no payment if it afterwards turns out to be of no value.' The rule is based on the probable intention of the parties. A debtor owes money to a bank. Although he does not have the cash, he does have a third person's note. The bank is under no obligation to accept the note in lieu of cash. If the bank does accept the note, the law presumes, in absence of a specific agreement to the contrary, that the bank accepted the note only on the condition that the note would be paid. Don Kral Inc. v. Lindstrom, 286 Minn. 37, 41, 173 N.W.2d 921, 924 (1970). In the present case, there was no evidence that Hawaii National Bank accepted Associated's promise to pay $24,500 as final payment of Matthews' note for the same amount. It was therefore improper for the court to hold that the bank's acceptance of the note was a final payment. The fact that the bank stamped the note paid does not warrant a different conclusion. Evidence that a note is stamped paid is not in itself sufficient to establish an agreement that a third party's note is accepted as final payment. Holden v. Farwell, Ozmun, Kirk & Co., 223 Minn. 550, 27 N.W.2d 641 (1947); Cheltenham Stone & Gravel Co. v. Gates Iron Works, 124 Ill. 623, 16 N.E. 923 (1888); Interstate National Bank v. Ringo, 72 Kan. 116, 83 P. 119 (1905); Henry v. Conley, 48 Ark. 267, 3 S.W. 181 (1887). The trial court's findings that the sum of $20,022.37, $17,500 and $24,500 had been paid were clearly erroneous. However, we have not been convinced that the trial court's findings that other payments were made were clearly erroneous.