Merrill v. First National Bank

Accommodation Note — Loan from Bank to Patee — Satisfaction of Loan — Extinguishment of Maker’s Obligation. —Where the payee '■ of an accommodation note borrows money upon it from a bank for its face value, and indorses the note to the bank as security for the indebtedness, the satisfaction of the indebtedness of the payee to the bank, by the transfer of property accepted by the bank in full discharge and payment of all claims against the payee for money borrowed from the bank, extinguishes the obligation of the note, and is a complete defense to an action upon the note against the apparent maker.

Id. — Judgment upon Extinguished Note —. Ignorance of Defense — Equitable, Relief. — Where, after the obligation of the accommodation note had been extinguished by the satisfaction of the loan made by the bank to the payee, an action was brought by the bank against the apparent maker and payee, in which judgment was recovered against the apparent maker, who was, without any negligence on his part, ignorant of the facts constituting his defense at the time of the rendition of the judgment against him, he may bring an equitable action to obtain relief from the judgment by having it declared satisfied as against him.

Id.—Knowledge of Bank — Obligation of Apparent Principal—Satisfaction of Note by Payee.—The fact that the bank which made the loan to the payee upon the indorsement of the accommodation note did not know at the time that the payee was the principal debtor, and looked solely to the apparent maker as the principal debtor, does not entitle the bank to recover judgment against the apparent maker, if in point of fact the note was paid or satisfied by the payee.

Id. — Release of Payee — Effect upon Apparent Maker —Right to Benefit of Payment or Security. — Although the mere release of the payee of an accommodation note who borrowed money thereupon from a bank, and indorsed the note to the bank, which did not consent* to deal with the maker otherwise than as a principal debtor, does not, of itself, operate as a release of the apparent maker, still, if, in order to secure such release, the payee paid anything upon the note, or delivered to the bank making the loan any property to secure its payment, the apparent maker is entitled to the benefit of such payment or security.

Appeal — Reversal — New Trial — Discretion.—The discretion of the appellate court will be exercised in ordering a retrial, rather than to direct the entry of a judgment in favor of the appellant upon the findings, where it is not plain from the record that the party against whom the reversal is pronounced cannot finally prevail in the suit as the result of a new trial.