Hederman v. Cox , 188 Miss. 21 ( 1940 )

DISSENTING OPINION. One of the outstanding purposes of the Negotiable Instruments Act was to promote the negotiability of commercial paper in the hands of holders in due course. The Act provides (Sec. 2716, Code of 1930) that: "A holder in due course holds the instrument free from any defect of title of prior parties, and free fromdefenses available to prior parties among themselves [italics mine], and may enforce payment of the instrument for the full amount thereof against all parties liable thereon."

A holder in due course is defined by Section 2708, as one who has taken the instrument under the conditions that it is complete and regular upon its face; that he became a holder before it was overdue, and without notice that it had been previously dishonored, if such was the fact; that he took it in good faith and for value; and that at the time it was negotiated, he had no notice of any infirmity or defect in the title of the person negotiating it.

Section 2775 of the Act provides how a negotiable instrument may be discharged; that it may be done in any one of five methods, namely, by payment in due course, by and on behalf of the principal debtor; by payment in due course by the party accommodated, where the instrument is made or accepted for accommodation; by the intentional cancellation thereof by the holder; by any other act which will discharge a simple contract for the payment of money; and when the principal debtor becomes the holder of the instrument at or after maturity in his own right.

Section 2776 of the Act provides, among other things, that where, under the terms of the instrument, one of the parties thereto is only secondarily liable, he is discharged by any agreement binding upon the holder to extend the time of payment or postpone the holder's right to enforce the instrument, unless made with the assent of such party, or unless the right of recourse against such party is expressly reserved.

I do not understand the majority opinion to mean that if Hand and Hederman had been joint makers of the note to the bank, binding themselves jointly and severally, to pay the debt, although as between them Hederman was an accommodation maker, an extension of time of payment by a binding agreement between the bank and Hand would release Hederman. Certainly, under the plain provisions of the Act, it would not. No decisions to the contrary construing the Negotiable Instruments Act are referred to, and I do not believe there are any. Furthermore, where, on the face of the instrument, the parties have become jointly and severally liable, a holder in due course has the right to rely thereon although he may know that one of them has received no part of the consideration and is only an accommodation maker. In order for an accommodation maker to be entitled to his rights as such, he must appear on the instrument in that capacity and not as a joint maker. Putting it differently. when a negotiable instrument goes out into the channels of trade and commerce, a holder in due course has the right to stand on its terms. If the signers appear to have bound themselves jointly and severally, they cannot escape liability in that capacity although the holder knows when he acquires the instrument that one of them is merely an accommodation maker.

It is true that Hand and Hederman did not execute the same note to the bank. Instead, they executed separate notes for the amount of money Hand borrowed from the bank. Hand gave his note for the amount payable directly to the bank, while Hederman gave his note payable to Hand, which he transferred to the bank. In other words, for the repayment of the loan to Hand the bank held two notes, Hand's and Hederman's, both of which were direct obligations to pay the bank. There was nothing on the face of either instrument to show that Hederman's note was only accommodation paper. Both parties were primarily liable. Now, what is the difference under the statute between two such notes and one joint note? I am unable to see any so far as the question here involved is concerned. To hold that Hederman as a joint maker of the note with Hand would not have been released by an extension of time granted the latter, but that such an extension would release Hederman from liability if their obligation to the bank was in separate notes would be irreconcilable principles of law. It is true that the facts would be different, but, under the law, they would mean the same thing.

There are no decisions of our Court construing the Negotiable Instruments Act that hold to the contrary. Gilliam v. McLemore,141 Miss. 253, 106 So. 99, 43 A.L.R. 79; and First Nat. Bank of Gulfport v. Rau, 146 Miss. 520, 112 So. 688, are not in point. On the other hand, there is ample authority, supporting this dissent. See Union Trust Company v. McGinty, 212 Mass. 205,98 N.E. 679, Ann. Cas. 1913C, 525, and cases annotated in 48 A.L.R. 715, and 65 A.L.R. 1425.