Williams v. Walker

California Court of Appeal Apr 23, 1924 No. Civ. No. 4577.Published

Before: Nourse

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Holding. An accommodation indorser who gives their own note to the holder of a promissory note cannot recover from the maker unless there is an express agreement that the new note operates as payment and extinguishment of the original debt.

Issues

Whether an accommodation indorser who has not paid the original note in cash, but instead provided their own note to the holder, has a right of action against the maker.
Whether the evidence supported the trial court's finding that the plaintiffs had paid the original note to the bank.

Disposition. reversed

Quotations verified verbatim against the opinion

“The rule is that there must be an express understanding or agreement to that effect before a new note of the debtor, or of a third person, operates to satisfy or extinguish the indebtedness evidenced by an earlier one.”

“The difficulty here is that there was no agreement that Williams’ note should be received in payment of the original note, and it is significant that the bank continued to hold the original note as collateral.”

NOURSE, J.

Action by accommodation indorsers against the payee and makers of a negotiable promissory note for $500, dated January 18, 1918. Judgment was rendered in favor of plaintiffs against all the defendants, from

[674]

which defendants Chan and Ah Tye appeal. Defendants Chan and Ah Tye were the makers and defendant Walker was the payee. The payee, defendant Walker, indorsed the note, and at the same time, before maturity, at Walker’s request and for his accommodation, plaintiffs also indorsed the note and guaranteed payment of the same, waiving presentation, demand, protest and notice of nonpayment. Walker immediately thereafter delivered the note to the Merchants National Bank of San Francisco and received from them $500. The complaint then alleges payment by plaintiffs to said bank, upon demand, of $550, the amount of principal and interest then due upon said note, delivery of the note to plaintiffs, and that “plaintiffs are now the owners and holders of the same.” Defendant Walker defaulted in the action. Defendants Chan and Ah Tye in their answer, admitted the execution and delivery of the note. For the purposes of this opinion it is sufficient to say that they attempted to plead, by way of defense, fraud in the procurement of the note, want of consideration and failure of consideration, the note having been given in accordance with the terms of payment of a certain lease of farming land between defendant Walker, as lessor, and defendants Chan and Ah Tye, as lessees," which lease it is claimed was obtained by false representations. Because we think the judgment must be reversed for the reasons hereinafter stated, it is unnecessary to- pass upon these defenses.

The maker of a negotiable promissory note is liable to one who, before maturity, in good faith and without notice or knowledge that there was fraud in the original consideration or a want or failure of the original consideration, indorses the note for the accommodation of the payee, and without the maker’s request, if such indorser is compelled to pay it upon default of the maker.

(Sheahan

Davis,

27 Or. 278 [50 Am. St. Rep. 722, 28 L. R. A. 476, 40 Pac. 405]; 3 R. C. L., p. 1121.) And this is so even though

Williams v. Walker

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NOURSE, J.

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