Court Opinion

ID: 3680276
Source: CourtListenerOpinion
Date Created: 2016-07-06 06:25:53.085071+00
Date Added: 2024-06-11T15:28:04.576969
License: Public Domain

A determinative question in this case is: Is an accommodation indorser entitled to claim the rights of a surety? If that question is answered in the negative then the judgment appealed from must be affirmed. The answer to the question stated must be found in the statutes of this state. For, as stated by Mr. Justice Birdzell, in his dissenting opinion: "The questions involved would not be at all difficult of solution if the statutory law were all placed to one side. The defendant, Stary, having undertaken as maker of the note to pay, and the defendant Sutherland likewise having undertaken as indorser to pay and having broken his promise would, of course, be liable without qualifications aside from the statutes."
The Uniform Negotiable Instruments Law was adopted in this state in 1899,and since July 1, 1899 has been the law of this state. Prior to the adoption of the Uniform Negotiable Instruments Law there existed in this state quite an extended body of statutory law dealing with the subject of negotiable instruments. Under the law in force at the time of the adoption of the Uniform Negotiable Instruments Law it was expressly provided: "One who indorses a negotiable instrument at the request and for the accommodation of another party to the instrument has all the rights of a surety as defined by the chapter on suretyship and is exonerated in like manner in respect to every one having notice of the facts, except that he is not entitled to contribution from subsequent indorsers." Rev. Codes 1899, § 4882.
This provision was not, nor was any similar provision, embodied in the Negotiable Instruments Law adopted in 1899. But the Negotiable Instruments Law enacted in 1899 contained no repealing clause; and, this being so, it has been suggested that § 4882, Revised Codes 1899 was not repealed and remains in force. If that section remains in force then, of course, an accommodation indorser has all the rights of a surety as therein provided. Hence, the question is presented whether this section was repealed or superseded by the provisions of the Uniform Negotiable Instruments Law. In my opinion there can be but one answer to that question. The nature and purpose of the Uniform Negotiable Instruments Law are too well known to require *Page 420 
extended discussion. There can, I think, be no question but that the enactment was intended to supersede all then existing statutory enactments relating to the subject covered by the act. In fact it purports to be so, for, it provides: "In any case not provided for in this act the rules of the law merchant shall govern." Negotiable Instruments Law § 196, Comp. Laws, 1913, § 7080. So far as I am aware, no one has ever heretofore questioned that the legislature intended that Uniform Negotiable Instruments Law should supersede all then existing statutes upon that subject. That such was the legislative intent has been recognized in every subsequent general compilation of the laws of this state. The same legislature which enacted the Uniform Negotiable Instruments Law also provided for the codification of all the laws of this state and the publication thereof as the "Revised Codes of 1899," under the general supervision of the Secretary of State. See chapter 123, Laws 1899. The statutes of this state were so compiled and published, and later, in conformity with the provisions of the Act (Laws 1899, § 5, chap. 123), proclaimed by the Governor of this state to be in full force and effect as the laws of this state.
In the preface to the Revised Codes of 1899 the secretary of state said: "In 1899 an entirely new law was enacted on the subject of negotiable instruments, which provided however, that the same should not affect instruments executed before the date of the taking effect of the new law (July 1, 1899). This necessitated the printing of the old law upon that subject as the same appears in the Codes of 1895, and also the printing of the new law enacted in 1899. It was found impracticable to incorporate in the index, under the head of negotiable instruments, references to both the old and new law and comprising the sections upon that subject of the code of 1895, and for that reason an independent index has been incorporated upon that subject, and to avoid confusion the new law has been printed at the end of the civil code and is referred to in the index by sections and pages."
In the Revised Codes of 1899 there was inserted under the chapter containing the old negotiable instruments law, i.e., the law in force in this state prior to the adoption of the Uniform Act, the following note: "The law of 1899 on negotiable instruments being Chapter 100 and inserted in the end of the civil code governs as to all negotiable instruments executed after July 1, 1899." And at the beginning of *Page 421 
the Uniform Negotiable Instruments Act this note: "Governs as to all Negotiable Instruments executed on and after July 1899."
In 1905 there was a general revision and compilation of all the statutes of this state, under legislative authority. See Revised Codes 1905. In 1913 there was another similar revision and compilation. See, Compiled Laws 1913. In both the Revised Codes of 1905, and the Compiled Laws of 1913 only the provisions of the Negotiable Instruments Law adopted in 1899 were retained, and all provisions of the former negotiable instruments law were eliminated. No one has ever asserted that any error was committed in this regard. And it seems to me there can be no doubt but that the Negotiable Instruments Law adopted in 1899 was intended to, and did, supersede in every particular the negotiable instruments law in force at the time the latter enactment was adopted. For, as was well said, by the supreme court of Massachusetts, in Bartlet v. King, 12 Mass. 545, 7 Am. Dec. 99: "A subsequent statute revising the whole subject-matter of a former one, and evidently intended as a substitute for it, although it contains no express words to that effect, must on principles of law, as well as in reason and common sense, operate to repeal the former."
And Sutherland (1 Lewis's Sutherland, Stat. Constr. 2d ed. pp. 515, 517) says: "Though a subsequent statute be not repugnant in all its provisions to a former, yet if it was clearly intended to prescribe the only rule which should govern, it repeals the former statute. Without express words of a repeal a previous statute will be held to be modified by a subsequent one, if the latter was plainly intended to cover the subject embraced by both, and to prescribe the only rules in respect to that subject that are to govern. Where a provision is amended by the form, `to read as follows,' the intention is manifest to make the provision following a substitute for the old provision and to operate exclusively in its place. Does a revision import that it shall displace the last previous form; that it is evidently intended as a substitute for it; that it is intended to prescribe the only rule to govern? In other words, will a revision repeal by implication previous statutes on the same subject, though there be no repugnance? The authorities seem to answer emphatically, Yes. The reasonable inference from a revision is that the legislature cannot be supposed to have intended *Page 422 
that there should be two distinct enactments embracing the same subject-matter in force at the same time, and that the new statute, being the most recent expression of the legislative will, must be deemed a substitute for previous enactments, and the only one which is to be regarded as having the force of law." See also 26 Am.  Eng. Enc. Law, p. 733.
The question next presented is whether, under the Negotiable Instruments Law now in force in this state, an accommodation indorser is entitled to the rights of a surety as defined by the chapter on suretyship. As indicated in the other opinions filed in this case, there is a conflict in the authorities upon the question whether an accommodation party is entitled to invoke the laws relating to suretyship, and claim exoneration by virtue thereof.
One of the courts that has taken the position that, under the Negotiable Instruments Law, an accommodation party may not invoke the surety doctrine as a defense is the supreme judicial court of Massachusetts. In Union Trust Co. v. McGinty, 212 Mass. 205, 98 N.E. 679, Ann. Cas. 1913C, 525, it gave the following reasons for so holding: "Before the enactment of the negotiable instruments act (Stat. 1898, chap. 533, Rev. Laws, Chap. 73, §§ 18-212) one who made a promissory note for the accommodation of another was as between the parties a surety. The holder, who had knowledge of the true relation of the parties, was bound to act toward such accommodation maker as toward a surety in order to preserve his rights against him. Under such circumstances an extension of time to the person ultimately liable, without the consent of the surety, that is the accommodation maker, released the latter. Guild v. Butler, 127 Mass. 386, and cases cited at 389; Jennings v. Moore, 189 Mass. 197, 75 N.E. 214. The precise point is whether this rule of law has been changed by the negotiable instruments act.
"It is matter of common knowledge that the negotiable instruments act was drafted for the purpose of codifying the law upon the subject of negotiable instruments and making it uniform throughout the country through adoption by the legislatures of the several States and by the Congress of the United States. The design was to obliterate State lines as to the law governing instrumentalities so vital to the conduct of interstate commerce as promissory notes and bills of exchange, to remove *Page 423 
the confusion or uncertainty which might arise from conflict of statutes or judicial decisions amongst the several states, and to make plain, certain and general the controlling rules of law. Diversity was to be moulded into uniformity. This act in substance has been adopted by many States. While it does not cover the whole field of negotiable instruments law, it is decisive as to all matters comprehended within its terms. It ought to be interpreted in such a way as to give effect to the beneficent design of the legislature in passing an act for the promotion of harmony upon an important branch of the law. Simplicity and clearness are ends especially to be sought. The language of the act is to be construed with reference to the object to be attained. Its words are to be given their natural and common meaning, and the prevailing principles of statutory interpretation are to be employed. Care should be taken to adhere as closely as possible to the obvious meaning of the act, without resort to that which had theretofore been the law of this Commonwealth, unless necessary to dissolve obscurity or doubt, especially in instances where there was a difference in the law in the different States.
"Approaching the act from this point of view, it is apparent that no relation of principal and surety is established or contemplated by any of its sections. It determines the liability of the various parties to the negotiable instrument on the basis of that which is written on the paper. The obligation of all makers, whether for accommodation or otherwise, is to pay to the holder for value according to the terms of the bill or note. Their obligation is primary and absolute. Sections 77, 208. The act makes no provision for the proof of another and different relation than that expressly undertaken and defined by the tenor of the instrument signed. The fact that one is an accommodation maker gives rise to a duty no less or greater or different to the holder for value than that imposed upon a maker who received value. This is expressly provided by the act, even though such holder knew at the time of making that the maker was an accommodation maker. Section 46. The act further provides in definite terms that the instrument and hence one primarily liable is discharged in one of five different ways (§ 136), that is, by payment by the principal debtor, or by the party accommodated, by cancellation, by any other act which would discharge a simple contract, and by the principal debtor becoming the owner at *Page 424 
or after maturity. There is no mention here of a discharge of an accommodation party by extension of time. But among the ways in which a party secondarily liable may be discharged is (§ 137) an agreement by the holder to extend the time of payment or to postpone his right to enforce the instrument `unless made with the assent of the party secondarily liable or unless the right of recourse against such party is expressly reserved.' Whatever force might attach to the enumeration of ways in which the instrument and consequently parties primarily liable might be discharged, if this provision stood alone, the inference arising from the omission of extension of time from such enumeration and its inclusion among the ways in which persons secondarily liable may be discharged, is almost irresistible that the legislature did not intend that persons primarily liable should be discharged in that manner. These two sections standing side by side, both dealing with the subject of discharge of liabilities of parties, the one mentioning, the other not mentioning, extension of time by the holder as a means of working discharge of liability, cannot be treated as accidental or without significance. It is strong proof of a legislative purpose to change the pre-existing law of the commonwealth. These considerations outweigh the argument adduced from the fact that the `instrument' rather than `parties primarily liable' is the language used in § 136 and from the phrase of Clause 4, to the effect that the instrument may be discharged `by any other act which will discharge a simple contract.' The act establishes a liability on the part of an accommodation maker, which is not affected by an extension of time given by the holder to any other party to the note, even though as between such party and the accommodation maker a different relation may subsist in fact from that appearing on the face of the paper. The result is to render somewhat more rigid the rights of the parties as set forth in the written instrument, and so far as the holder is concerned to establish liability to him upon a firm basis, not easily shaken by parol evidence."
The reasoning of the Massachusetts court has even more force as applied to the adoption of the Negotiable Instruments Law in this state; for, here there existed a specific statute (Rev. Codes 1899, § 4882) which provided that an accommodation indorser was entitled to "all the rights of a surety as defined by the chapter on suretyship and *Page 425 
is exonerated in like manner in respect to every one having notice of the facts, except that he is not entitled to contribution from subsequent indorsers." When the legislators of this state in 1899 decided to adopt a new law dealing with negotiable instruments, they knew that there was then in force, as a part of the then existing negotiable instruments law, a specific provision conferring upon an accommodation indorser all the rights of a surety, and making the provisions of the suretyship statute applicable to such indorser, yet they did not retain this provision or embody one of similar import in the law they adopted.
The question as to whether the statutory provisions relating to suretyship inure to the benefit of an accommodation party, and may be invoked by him as a defense, have been considered by this court, to some extent, in the following cases: Northern State Bank v. Bellamy, 19 N.D. 509, 31 L.R.A.(N.S.) 149, 125 N.W. 888; First Nat. Bank v. Meyer, 30 N.D. 288, 152 N.W. 657; Scandinavian American Bank v. Westby, 41 N.D. 276, 172 N.W. 665.
In Northern State Bank v. Bellamy, 19 N.D. 509, this court had occasion to consider the respective rights of a surety and of a guarantor under the Negotiable Instruments Law. The defendant in that case had placed his name upon the back of the note in suit, with the following words immediately above his signature: "For value received, I hereby guarantee the payment of the within note, and hereby waive presentment, demand, protest and notice of protest." The defendant pleaded as a defense that by extension of time to the principal debtor, he (defendant) was relieved from liability. "The trial court held that appellant (defendant) was in law a surety, and as such primarily liable upon the note sued upon, and was therefore not released from liability by the extension of time allowed." 19 N.D. 511. This court held that the defendant was a guarantor, and that the trial court was in error in holding him to be a surety. In the opinion in that case this court said:
"Under the law in reference to negotiable instruments in force prior to the year 1899, it is conceded by counsel for respondent that the act of plaintiff in extending the time of payment to the principal debtor without the knowledge or consent of appellant exonerated him from liability. Rev. Codes 1905, § 6092; Foster County State Bank v. Hester, 18 N.D. 135, 119 N.W. 1044. In 1899 a new law upon *Page 426 
the subject of negotiable instruments was enacted by the legislature, which, as respondent contends, contains certain provisions that alter and supersede the rules in force prior to that time governing the relation of guarantor. Section 6422, Rev. Codes 1905, which is a part of this new enactment, is as follows: `A person secondarily liable upon the instrument is discharged: . . . By any agreement binding upon the holder to extend the time of payment, or to postpone the holder's right to enforce the instrument, unless made with the assent of the party secondarily liable, or unless the right of recourse against such party is expressly reserved.' As this section provides in express termsthe means by which a party may be released from the obligation ofa negotiable instrument, its provision must be regarded asprecluding such relief to all parties not within the classdescribed. The term `secondarily liable' is defined by § 6494, also a part of the new law, in these words: `The person primarily liable on an instrument is the person who by the terms of the instrument is absolutely required to pay the same. All other parties are secondarily liable.' It seems clear that, if by theadoption of the new law a guarantor of payment can be said to beincluded in the class of parties primarily liable on theinstrument, appellant would not be released from his obligationby the extension of time given to Drayton Milling Company as suchact now operates to release only those secondarily liable."19 N.D. 512.
(Later in the opinion, however, the court indicated that the question, whether, under the Negotiable Instruments Law, the principles of suretyship apply to parties to negotiable instruments, was not decided).
In First Nat. Bank v. Meyer, 30 N.D. 288, 152 N.W. 657, an accommodation maker asserted "as a complete defense" that he was an accommodation maker, and known by the payee in the note to be such; that prior to the commencement of the action against (defendant) the accommodation maker, the payee in the note had recovered judgment against the principal maker; and, also, a judgment against a garnishee; that the (plaintiff) judgment creditor had made "a settlement" of the judgment against the garnishee for less than the amount of the judgment entered against the garnishee. There was no allegation and no contention that in the settlement the garnishee did not in fact pay every cent it owed to the defendant in that action. The trial court *Page 427 
held that the accommodation maker was not discharged from liability by reason of the compromise and release of the judgment against the garnishee, and that he could offset against the note only the amount which had actually been collected in settlement of the garnishment judgment. On appeal to this court it was asserted that "an accommodation maker on a promissory note is, in fact, a surety and entitled to all the rights of such." 30 N.D. 391. And the case was submitted to this court on the theory that this was the controlling question in the case, and apparently that was the theory on which it had been tried and decided in the court below. This court decided the case on the theory on which it was submitted to it, and held that an accommodation maker is not entitled to the rights of a surety.
The question was again alluded to (though not decided) in Scandinavian American Bank v. Westby, supra. In that case only one member (Mr. Justice Grace) of the court deemed the present question under consideration involved, and he expressed the view that the statutory provisions relating to suretyship were applicable to an accommodation maker, and that an extension of time to the principal debtor would exonerate such maker from all liability; two of the justices (Mr. Chief Justice Bruce, and the writer) stated that they disagreed with the views expressed by Mr. Justice Grace, but stated that the question was not involved in that case (41 N.D. 295, 296); one justice (Mr. Justice Birdzell) stated that he refrained from expressing any opinion upon the question at all (41 N.D. 300); and one justice (Mr. Justice Robinson) made no reference to the matter at all, but expressed the opinion that the judgment which had been rendered against the accommodation maker should be affirmed (Pratt v. Huber Mfg. Co. 41 N.D. 301, 171 N.W. 246).
In view of the suggestion that Scandinavian American Bank v. Westby, supra, is a departure from the rule announced in First Nat. Bank v. Meyer, supra, and, in effect, holds that an accommodation maker may invoke the statutory provisions relating to suretyship in exoneration of liability, I deem it desirable to state the questions presented on appeal, and the facts as disclosed by the record, in that case. I quote from my concurring opinion in that case:
"As already stated I do not believe that the rule announced in First Nat. Bank v. Meyer is at all involved in this case. It is true the *Page 428 
plaintiff in its brief argues that the defendant is primarily liable, and cites First Nat. Bank v. Meyer, in support of its argument. But the defendant does not deny this, or question the correctness of First Nat. Bank v. Meyer. Neither does the defendant contend that he is discharged from liability upon the note by reason of plaintiff's surrender of the collateral security. On the contrary, defendant concedes liability on the note, and merely asks that the damages which he has sustained byreason of plaintiff's breach of contract be offset against theamount due on the note. In his brief defendant says: `This is a suit on a promissory note and the indebtedness is admitted in theanswer, but there is a counterclaim for the value of thecollateral security which the defendant says the plaintiffconverted.' And in defendant's reply brief the same proposition is most emphatically adhered to. He says: `We did not urge that the passive negligence of Hagen (the president of the plaintiff bank) when Stafne seized the stock, and his ratification of Stafne's forcible annexation of it, in face of Westby's warning, and in disregard of his duty as a bailee . . . discharged Westby. We interposed plaintiff's conversion as a counterclaim and offset, not a defense. We did not urge that the fact that Hagen permitted Stafne to take and keep twenty shares of bank stock of which he was trustee and which he was under legal duty to preserve with "at least ordinary care," discharged Westby. . . . We urged his neglect of duty as a bailee and his presentation of the stock to another as a counterclaim. . . . It is "to the extent to which he is prejudiced" upon which the counterclaim is based.' There should be no difficulty in understanding defendant's position. It could not have been stated more clearly and unequivocally.
"The evidence shows that the original loan was made for $1,745.90. It was evidenced by a promissory note for that amount signed by J.A. Stafne, dated August 8, 1911, payable November 1, 1912. The note was secured by collateral consisting of stock in the Williston State Bank of the par value of $2,500, and stock in the Citizens State Bank of Alexander of the par value of $2,000. The certificates in the latter bank were in the name of J.A. Stafne, but the certificates in the Williston State Bank were in the name of A.J. Stafne. The two Stafnes were brothers and both interested in the Citizens State Bank of Alexander. About two years thereafter the defendant Westby acquired *Page 429 
the interest of John and Albert Stafne in the Williston State Bank stock so pledged to and held by the plaintiff as collateral. Arrangements were made whereby the plaintiff bank agreed to release the Williston State Bank stock in consideration of Westby's signing with Albert Stafne a renewal note for the amount of the principal and interest accrued on the original note. Such renewal note was executed by Westby. It bears date November 28, 1913. This latter note was renewed on March 25, 1914. It was again renewed on November 20, 1914, when the note involved in this action was executed. It is undisputed that Westby was not a party to the original transaction, and that the renewal notes included no consideration except the principal and accrued interest on the original loan. It is also clearly establishedthat Westby executed the note dated November 28, 1913, with theabsolute understanding that the $2,000 stock in the CitizensState Bank of Alexander would continue to be held by theplaintiff as collateral security, as well as with the assurancesof Mr. Hagan that such stock furnished ample security for thepayment of the indebtedness. It is also established that Westbyexecuted the renewal note involved in this action, with thecontinued understanding that the bank stock should remainsecurity as before. Thereafter the Citizens State Bank of Alexander got into financial difficulties, and the State Examiner required that John and Albert Stafne sever connections with the bank, and that $17,000 of notes of doubtful value be replaced. One Eric Stafne took the objectionable notes, and paid into the bank in place thereof $17,000 in cash. After this replacement had been made the plaintiff bank permitted the bank stock which it held as collateral security to come into the hands of Eric Stafne, and, after new certificates had been issued in his name, Stafne sold and transferred them to others. The evidence leavesno room for doubt but that it was always the understanding of theplaintiff and defendant as well as of Eric Stafne that the bankstock should remain as collateral security for the note involvedin his action."
This statement is, I think, a sufficient answer to any contention that Scandinavian American Bank v. Westby, 41 N.D. 276, 172 N.W. 665, announced any doctrine at variance with First Nat. Bank v. Meyer, supra.
In my opinion the rule announced in the instant case, viz., that an *Page 430 
accommodation indorser, who indorses a promissory note before delivery, is not entitled to invoke the provisions of § 6683, Comp. Laws, 1913, in exoneration of the liability assumed by his indorsement, is correct; and in accord with the former decisions of this court.