Farmers' Natl. Bank of Somerset v. Campbell

Court of Appeals of Kentucky (pre-1976)

Farmers' Natl. Bank of Somerset v. Campbell

39 S.W.2d 465, 239 Ky. 346, 1931 Ky. LEXIS 765

CourtCourt of Appeals of Kentucky (pre-1976)

DecidedMay 29, 1931

StatusPublished

This text of 39 S.W.2d 465 (Farmers' Natl. Bank of Somerset v. Campbell) is published on Counsel Stack Legal Research, covering Court of Appeals of Kentucky (pre-1976) primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

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Farmers' Natl. Bank of Somerset v. Campbell, 39 S.W.2d 465, 239 Ky. 346, 1931 Ky. LEXIS 765 (Ky. 1931).

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Opinion

Opinion op the Court by

Judge Dietzman

Reversing-

In October, 1925, Arthur Adams made application to the Farmers’ National Bank of Somerset, Ky., for a loan *347 of $1,200. Tbe bank was willing to make bim tbe loan provided be could procure sureties satisfactory to it. He suggested tbe names of Dan Cox and tbe appellees Campbell and Dunsmore. These names were agreeable to tbe bank. Thereupon a note dated October 7, 1925, was made out and given to Adams. He took it away and procured tbe signatures of Campbell, Dunsmore, and Cox upon it as sureties. He returned with tbe note and delivered it to tbe bank. Tbe note was renewed from time to time, Adams always taking tbe note to bis sureties for their signature. There was paid upon tbe principal from time to time small amounts, so that in November, 1927, there was a balance due on tbe note of $1,168.85. At this time Adams proposed to tbe bank to settle tbe note by turning over to it tbe note of one C. C. Cain in tbe sum of $800 and executing a note for tbe balance of $368.85. This was agreeable to tbe bank. Adams took a note for $368.85 to bis borne and sent it over by bis little boy to tbe appellees Campbell and Dunsmore, who signed tbe note and returned it to Adams. He then brought it back to tbe bank, together with tbe $800 note and turned tbe two over in payment of tbe note for $1,168.85. Tbe note for $368.85 falling due on June 7, 1928, and being unpaid, this suit was brought to recover upon it. Adams made no defense, but tbe appellees defended on tbe ground that it was understood and agreed between them and Adams that they were not to be bound as sureties on this note of $368.85 unless and until their former cosurety Cox also signed tbe note with them, and that tbe bank bad taken this note with full knowledge of this agreement and condition. This defense .was denied by tbe bank, and, by an amended petition, it sought to recover tbe balance due on tbe original obligation in tbe event tbe court was of tbe opinion that, the sureties bad never become bound on this last-mentioned note because of the failure of Cox to sign it. Tbe court submitted to tbe jury only tbe question as to whether or not tbe bank took tbe note for $368.85, with knowledge of tbe condition claimed by tbe appellees. Tbe jury found for tbe appellees, and this appeal by tbe bank results.

Tbe appellees in their brief frankly confess, as indeed under tbe evidence they must, that no actual notice of any agreement at any time between these sureties and Adams was ever brought borne to tbe bank. It is true tbe appellees testify that it was understood and agreed *348 a!t the beginning that they were not to be bound at any time unless Cox also signed the notes, but this understanding and agreement was between them and Adams. There is no testimony whatever that the bank or any of its officials ever actually knew of any such understanding. It is insisted, however, that there were enough facts proven to put the bank on notice to inquire into the situation. The only fact upon which this contention is based is that the original note and all of its renewals up until the time it was paid off by the execution of this last note and the transfer of the $800 note were signed by three sureties, whereas the last-mentioned note was signed only by two. We are of opinion that this fact alone, and that is all there is, was not sufficient to put the bank on notice or to require it to make inquiry as to why Cox had not signed. The amount of this last note was so far below the amount of the original note and its renewals as that two sureties might well have been willing to sign it, although unwilling to become obligors for so large an amount as that of the original note. As a matter of fact the additional obligation which the last note puts upon the sureties is only about $60 each more than they would have been under had Cox also signed the note. This is too small an amount to arouse any suspicions on the part of the bank. It is well settled that, where a principal procures one to sign his note by promising him not to deliver it without obtaining other sureties, and the principal passes the note to the payee who is ignorant of the promise to procure other sureties, the surety who signed his note is liable thereon to the payee, notwithstanding the fraud of the principal, as he makes the principal his agent to deliver the note, and any conditions agreed upon between the principal and the surety, but unknown to the payee, would not affect the payee’s rights. Brown’s Adm’r v. Wilson, 222 Ky. 454, 1 S. W. (2d) 767; Smither v. J. R. Watkins Co., 223 Ky. 777, 4 S. W. (2d) 707; Reynolds v. Bank of Hellier, 233 Ky. 634, 26 S. W. (2d) 538. Under the facts of this case, the court should have peremptorily instructed the jury to find for the appellant. This being true, we find it unnecessary to discuss the other questions presented by the appellant, and they are expressly not passed upon by this opinion.

Wherefore, the appeal is granted, and judgment reversed for a new trial consistent with this opinion.

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Opinion op the Court by

Judge Dietzman

Reversing-

In October, 1925, Arthur Adams made application to the Farmers’ National Bank of Somerset, Ky., for a loan *347 of $1,200. Tbe bank was willing to make bim tbe loan provided be could procure sureties satisfactory to it. He suggested tbe names of Dan Cox and tbe appellees Campbell and Dunsmore. These names were agreeable to tbe bank. Thereupon a note dated October 7, 1925, was made out and given to Adams. He took it away and procured tbe signatures of Campbell, Dunsmore, and Cox upon it as sureties. He returned with tbe note and delivered it to tbe bank. Tbe note was renewed from time to time, Adams always taking tbe note to bis sureties for their signature. There was paid upon tbe principal from time to time small amounts, so that in November, 1927, there was a balance due on tbe note of $1,168.85. At this time Adams proposed to tbe bank to settle tbe note by turning over to it tbe note of one C. C. Cain in tbe sum of $800 and executing a note for tbe balance of $368.85. This was agreeable to tbe bank. Adams took a note for $368.85 to bis borne and sent it over by bis little boy to tbe appellees Campbell and Dunsmore, who signed tbe note and returned it to Adams. He then brought it back to tbe bank, together with tbe $800 note and turned tbe two over in payment of tbe note for $1,168.85. Tbe note for $368.85 falling due on June 7, 1928, and being unpaid, this suit was brought to recover upon it. Adams made no defense, but tbe appellees defended on tbe ground that it was understood and agreed between them and Adams that they were not to be bound as sureties on this note of $368.85 unless and until their former cosurety Cox also signed tbe note with them, and that tbe bank bad taken this note with full knowledge of this agreement and condition. This defense .was denied by tbe bank, and, by an amended petition, it sought to recover tbe balance due on tbe original obligation in tbe event tbe court was of tbe opinion that, the sureties bad never become bound on this last-mentioned note because of the failure of Cox to sign it. Tbe court submitted to tbe jury only tbe question as to whether or not tbe bank took tbe note for $368.85, with knowledge of tbe condition claimed by tbe appellees. Tbe jury found for tbe appellees, and this appeal by tbe bank results.

Tbe appellees in their brief frankly confess, as indeed under tbe evidence they must, that no actual notice of any agreement at any time between these sureties and Adams was ever brought borne to tbe bank. It is true tbe appellees testify that it was understood and agreed *348 a!t the beginning that they were not to be bound at any time unless Cox also signed the notes, but this understanding and agreement was between them and Adams. There is no testimony whatever that the bank or any of its officials ever actually knew of any such understanding. It is insisted, however, that there were enough facts proven to put the bank on notice to inquire into the situation. The only fact upon which this contention is based is that the original note and all of its renewals up until the time it was paid off by the execution of this last note and the transfer of the $800 note were signed by three sureties, whereas the last-mentioned note was signed only by two. We are of opinion that this fact alone, and that is all there is, was not sufficient to put the bank on notice or to require it to make inquiry as to why Cox had not signed. The amount of this last note was so far below the amount of the original note and its renewals as that two sureties might well have been willing to sign it, although unwilling to become obligors for so large an amount as that of the original note. As a matter of fact the additional obligation which the last note puts upon the sureties is only about $60 each more than they would have been under had Cox also signed the note. This is too small an amount to arouse any suspicions on the part of the bank. It is well settled that, where a principal procures one to sign his note by promising him not to deliver it without obtaining other sureties, and the principal passes the note to the payee who is ignorant of the promise to procure other sureties, the surety who signed his note is liable thereon to the payee, notwithstanding the fraud of the principal, as he makes the principal his agent to deliver the note, and any conditions agreed upon between the principal and the surety, but unknown to the payee, would not affect the payee’s rights. Brown’s Adm’r v. Wilson, 222 Ky. 454, 1 S. W. (2d) 767; Smither v. J. R. Watkins Co., 223 Ky. 777, 4 S. W. (2d) 707; Reynolds v. Bank of Hellier, 233 Ky. 634, 26 S. W. (2d) 538. Under the facts of this case, the court should have peremptorily instructed the jury to find for the appellant. This being true, we find it unnecessary to discuss the other questions presented by the appellant, and they are expressly not passed upon by this opinion.

Wherefore, the appeal is granted, and judgment reversed for a new trial consistent with this opinion.

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39 S.W.2d 465, 239 Ky. 346, 1931 Ky. LEXIS 765, Counsel Stack Legal Research, https://law.counselstack.com/opinion/farmers-natl-bank-of-somerset-v-campbell-kyctapphigh-1931.

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