Opinion
No. 24489
Decided March 28, 1934.
Negotiable instruments — Holder's rights and remedy or maker's liability unaffected by security — Maker not released by holder extending payment to mortgagor's grantee.
1. The obligation of the maker of a negotiable promissory note is the full amount due thereon. The fact that there is security therefor takes away no right or remedy of the holder of the note, and does not affect the liability of the maker of the note.
2. The maker of a negotiable promissory note secured by mortgage is not released from liability on such note by reason of an agreement between the holder of the note and a grantee of the mortgaged premises, who assumed and agreed to pay the mortgage debt, which agreement extended the time of payment, though without the consent or knowledge of the maker of such note.
CERTIFIED by the Court of Appeals of Summit county.
The question presented in this case arises out of a foreclosure proceeding. It was presented on an agreed statement of facts, the pertinent portion of which may be stated as follows:
On October 6, 1925, Hugh E. Washer executed a note, and a mortgage on certain real estate securing same. Thereafter the mortgagee duly sold and transferred the same to one Tontar, who is now the owner and holder thereof. On the same day said note and mortgage were executed, but subsequent to that transaction Washer conveyed the premises in question to Tompkins, who thereafter conveyed the same to one Pero. Each of said grantees severally assumed and agreed to pay the mortgage and note held by Tontar. Washer at no time received any communication or notice of any character in connection with such note and mortgage, all communications pertaining thereto having been addressed to the subsequent owners of the premises. When the note became due, Tontar, the owner and holder of the note and mortgage, for a consideration, entered into an agreement with the then owners of the premises in question, extending said note for a period of three years. Washer did not know that the mortgage and note were not paid when due, and did not know that they were unpaid until about February 6, 1932, when served with summons in this case. The property on October 6, 1928, was in good condition, and was then worth more than the balance owing on the Tontar mortgage, but since that time the premises have depreciated in value. Through a cross-petition in this case Tontar sought to foreclose the mortgage, and asked judgment against Washer on the note. A deficiency judgment was rendered against Washer, which was affirmed by the Court of Appeals. That court found the judgment upon which it had agreed to be in conflict with a judgment of the Court of Appeals of the Sixth Appellate District, in the case of Northwestern Mutual Life Ins. Co. v. Menke, 45 Ohio App. 122, 186 N.E. 745, and certified the case to this court for review and final determination.
Messrs. Meade Weygandt and Messrs. Beery, Underwood, Ryder Russell, for plaintiffs in error.
Messrs. Hutchison Firestone, Messrs. Musser, Kimber Huffman and Mr. C.B. McRae, for defendants in error.
The question presented by these facts is whether Washer, who executed said note and mortgage, was discharged from liability thereon by virtue of the agreement entered into by Tontar, the owner of the note and mortgage, with the owner of the premises, whereby the time of payment of said note was extended without Washer's consent.
The contention made by plaintiffs in error is that a valid and binding agreement entered into by the holder of a note, secured by mortgage, and a subsequent grantee of the mortgaged property, extending the time of payment without the knowledge of the maker of the note, releases the maker of the note to the extent of the loss resulting from such extension.
It is pertinent at the outset to call attention to the principle that the promissory note is the primary evidence of the debt, and that the mortgage on the real estate in question is merely the security for the payment of the note. The obligation of the maker of the note is the full amount found to be due thereon. The fact that there is security therefor takes away no right or remedy of the holder of the note, nor does it affect the liability of the maker of the note. Simon v. Union Trust Co., 126 Ohio St. 346, 185 N.E. 425.
Our only question is whether the maker of the note has been released in whole or in part from liability for payment in accordance with its provisions. In consideration of that question we may disregard entirely the second syllabus in the case of Teeters v. Lamborn, 43 Ohio St. 144, 1 N.E. 513, relied upon by plaintiffs in error, for that statement was mere obiter and was emphatically disapproved by the court in the case of Denison University v. Manning, 65 Ohio St. 138, 61 N.E. 706. In the latter case the court held that facts practically the same as those presented in the instant case fall short of establishing "that the payee agreed to accept such purchasers as principal debtors and to release the makers from the obligation save as sureties." The true relationship of the parties is clearly stated by Judge Spear, when he says, at page 149: "That, as between the mortgagor and the purchaser, the general relation of surety and principal may be created by reason of their contract, can be conceded, but this falls very far short of changing the relation of a mortgagor from a principal to a surety as respects the mortgagee. The mortgagor has received the full consideration and has executed his solemn promise in writing to pay the obligation unconditionally."
Subsequent to the decisions above cited the Negotiable Instruments Act was passed, and, as held in Richards v. Market Exchange Bank Co., 81 Ohio St. 348, 90 N.E. 1000, 26 L.R.A. (N.S.), 99, on any point specifically dealt with that statute is controlling. No good purpose can therefore be served by a discussion of the law as it previously existed and by assuming that no change was intended by the enactment of the statute.
The court in the case last cited, at page 361, proceeded to apply the specific provisions of the statute and to "accord its terms controlling effect where they are inconsistent with previous legislation and judicial interpretation of the common law," and arrived at the conclusion announced in the syllabus, as follows:
"2. Section 3175 j, Revised Statutes [Sec. 8224, General Code], relating to the discharge of negotiable instruments, provides in what manner, and for what causes, such instruments may be discharged, and, by force of the rule expressio unius est exclusio alterius, sureties upon such instruments who are primarily liable thereon cannot be otherwise relieved from responsibility for their payment.
"3. The rule of the common law that any agreement between the holder of a promissory note and the principal, which varies essentially the terms of the contract by which a surety is bound without the consent of such surety will work his release from liability, is no longer in force as to one who has signed on the face of the instrument, such rule having been in effect abrogated by Section 3175 j, Revised Statutes." (Section 82124, General Code.)
In this case there is presented the mere fact of postponement of time of payment. There are not present facts essential to constitute a novation, there having been no acceptance of the assuming grantee as the principal debtor; neither can the doctrine of estoppel be applied.
Being of the opinion that the judgment of the Court of Appeals is in all respects correct, it is affirmed.
Judgment affirmed.
ALLEN, STEPHENSON, JONES and BEVIS, JJ., concur.
WEYGANDT, C.J., not participating.