Opinion ID: 1937073
Heading Depth: 1
Heading Rank: 3

Heading: Richard v. Walter

Text: We now turn to the second question as to whether the March, 1972 agreement by which Richard assumed full liability on the note constitutes a defense to Richard and Janet's third party claim that Walter and Connie reimburse them for fifty percent of the primary judgment granted to Bill and Mildred against Richard and Janet. In the circuit court Bill and Mildred Fithian, having paid the instrument to the Bank, successfully exercised their right of recourse on the note under § 3-415(5) of the Commercial Law Article which provides that [a]n accommodation party is not liable to the party accommodated, and if he pays the instrument has a right of recourse against such party. In discussing this general principle of suretyship law Professors White and Summers explain that [a]s between the surety and the debtor, it is clear that the debtor has the primary obligation to pay the debt. Since the creditor is entitled to only one performance and the debtor receives the benefit of the transaction, the surety's obligation is undertaken with the expectation that the debtor will meet his commitment to the creditor. Thus if the surety is made to pay his principal's debt, he has the right to recover from the principal. [J. White and R. Summers, Uniform Commercial Code, § 13-12, at 426 (1972) (footnote omitted)]. This Court has adhered to the principle that if an accommodation party pays the note to the holder, he has a right of recourse against the party accommodated. Fuhrman v. Fuhrman, 115 Md. 436, 80 A. 1082 (1911). Other courts have also adopted this viewpoint. See Collection Control Bureau v. Weiss, 50 Cal. App.3d 865, 123 Cal. Rptr. 625 (1975); Mead Co. v. Doerfler, 148 Neb. 75, 26 N.W.2d 393 (1947); Simson v. Bilderbeck, Inc., 76 N.M. 667, 417 P.2d 803 (1966); Reimann v. Hybertsen, 275 Or. 235, 550 P.2d 436 (1976); Ilg v. Andrews, 10 Wash. App. 936, 520 P.2d 1385 (1974). Similarly, it is axiomatic that one joint obligor may ordinarily claim contribution from a co-obligor after having discharged their mutual obligation. Jackson v. Cupples, supra , Mallis v. Faraclas, 235 Md. 109, 200 A.2d 676 (1964). However, this principle is not controlling in the instant case. While the courts below ruled that Walter and Connie must reimburse Richard and Janet for one-half the judgment against them and discounted the significance of the 1972 agreement on this question, we believe that under both statutory and common law principles the 1972 agreement is material to the decision of this case and plays a substantial role in our determination of whether Walter was properly required to pay contribution to Richard. Because neither Connie nor Janet were parties to the agreement, their rights and obligations are not affected. In the first place, § 3-601(2) of the Commercial Law Article and the Official Comments thereto specifically recognize the possibility of discharge by act or agreement of a party who is otherwise liable on an instrument. Section 3-601(2) reads: Any party is also discharged from his liability on an instrument to another party by any other act or agreement with such party which would discharge his simple contract for the payment of money. Official Comment 2 to § 3-601 reads in pertinent part that [s]o far as the discharge of any one party is concerned a negotiable instrument differs from any other contract only in the special rules arising out of its character to which paragraphs (a) to (i) of subsection (1) are an index, and in the effect of the discharge against a subsequent holder in due course (Section 3-602). Subsection (2) therefore retains from the original Section 119(4) the provision for discharge by any other act which will discharge a simple contract for the payment of money, and specifically recognizes the possibility of a discharge by agreement. The discharge of any party is a defense available to that party as provided in sections on rights of those who are and are not holders in due course (Sections 3-305 and 3-306). He has the burden of establishing the defense (Section 3-307). [emphasis supplied]. While this Court has not addressed this precise issue under § 3-601(2), two recent decisions of other jurisdictions do acknowledge that under § 3-601, liability of a party on a negotiable instrument may be discharged by a written agreement. Brunswick Corporation v. Briscoe, 523 S.W.2d 115 (Mo. App. 1975); DiLeo v. Webb, 50 A.D.2d 570, 375 N.Y.S.2d 29 (1975). Several other courts have endorsed the proposition that co-makers of an instrument may vary their obligations between themselves. Gelbach v. Dewey, 105 Cal. App. 149, 286 P. 1062 (1930); Betts v. Brown, 219 Ga. 782, 136 S.E.2d 365 (1964); Quintin v. Magnant, 285 Mass. 450, 189 N.E. 209 (1934); Tait v. Downey, 267 Mass. 422, 166 N.E. 857 (1929); Lit Bros. v. Goodman, 144 Pa. Super. Ct. 43, 18 A.2d 519 (1914); Cooper v. Greenberg, 191 Va. 495, 61 S.E.2d 875 (1950); Houston v. Bain, 170 Va. 378, 196 S.E. 657 (1938); Leuning v. Hill, 79 Wash.2d 396, 486 P.2d 87 (1971); Holland v. Tjosevig, 109 Wash. 142, 186 P. 317 (1919). Still other courts have held that parol evidence of a special agreement between co-obligors is admissible where liability to a payee is not at issue. Kroon v. Maxwell, 297 F. Supp. 277 (E.D. Pa. 1969); McMahon v. Weesner, 254 F. Supp. 839 (S.D. Fla. 1966); Gelbach v. Dewey, supra ; Adamson v. McKeon, 225 N.W. 414 (Iowa 1929); Tait v. Downey, supra ; Apgar's Administrators v. Hiler, 24 N.J. Law. (4 Zab.) 812 (1854); Brown v. Arcuri, 43 A.D.2d 993, 352 N.Y.S.2d 254 (1974); Stanley v. Parker, 207 N.C. 159, 176 S.E. 279 (1934); Dameris v. Homestead Bank, 495 S.W.2d 52 (Tex. Civ. App. 1973); Carver v. Caldwell, 208 S.W. 555 (Tex. Civ. App. 1919); Davis v. Davis, 128 W. Va. 257, 36 S.E.2d 417 (1945). Applying these principles to the present case, we believe that the 1972 agreement operated to modify the liabilities of Richard and Walter on the note between themselves. We accept the trial court's finding based on the record before it that the partnership between Richard and Walter never was converted into a duly constituted corporation and that the parties conducted the business in their individual capacities rather than as directors of a corporation. [2] Thus, the agreement expressed the intentions of these individuals as between themselves, and as such reflects the transfer of all of the assets and liabilities of the business to Richard in return for his promise to keep the other interested parties, Walter, Hogans and Bos, free from any responsibility for payment of any and all of the business debts, including the note in question. The only safety valve for the transferring individuals was their right upon their own decision to terminate the agreement if Richard demonstrated an inability or unwillingness to keep his promise. Richard and Janet in their briefs concede that the evidence of this agreement is arguably material but contend that it is not highly probative. We disagree. The language of the agreement shows that Richard specifically consented to take responsibility for the obligations of the printing business, including the $11,000 note to the Bank: 1. Richard F. Jamar, party of the first part, agrees to take over the operation of J-F Printing Company, Inc., and to be responsible for the payment of the accounts payable and obligations of said corporation now existing and to be incurred henceforth in the operation of said business. 2. The parties of the second part do agree to turn over to Richard F. Jamar, party of the first part, full responsibility for the complete operation of said business as of the full execution and date of this agreement, conditioned upon said party of the first part proceeding to operate said business full time and in a businesslike manner, and proceeding to methodically reduce the outstanding obligations of said corporation, including but not limited to: Two monthly payment notes payable to The People's Bank of Chestertown, ...    4. Parties of the second part do hereby agree that upon party of the first part either paying off all obligations of the corporation, or upon making arrangements with all creditors to release parties of the second part from any and all liability for the payment of any indebtednesses of the corporation, past, present or incurred in the future, that parties of the second part will forthwith formally assign unto party of the first part all of their right, title and interest in and to said corporation and the assets thereof....    7. Party of the first part agrees not to pledge the credit of any of the parties of the second part, and agrees to hold harmless parties of the second part as to the payment of any bills incurred in his operation of said business during the term of his agreement. [emphasis supplied]. By this agreement, which was not terminated when Richard defaulted on payment of the loan in subsequent years, Walter and Richard agreed that Richard alone was to henceforth bear responsibility for the note. Thus the document's operative effect was to discharge Walter from any obligation on the note as to Richard. Thus the trial court should have entered judgment for Walter on his counterclaim against Richard for indemnification. In other words, by the agreement, Richard gave up his right to claim contribution from his joint obligor, Walter. Therefore, the Court of Special Appeals below erred in affirming judgment for Richard against Walter.