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Williams v. Reed, 48 Cal.2d 57, 307 P.2d 353

Facts

The case arose from a $30,000 promissory note signed by defendants Arvidson, Carroll, and Cairns, along with Reed, who did not appeal. The note was secured by a chattel mortgage executed by Reed. After a foreclosure sale, the amount realized was significantly less than the debt owed, prompting the payee to seek a deficiency judgment. The defendants contended they were accommodation makers who received no value, while the payee argued they were liable as co-makers of the note.

Two negotiable notes, one for $30,000, bearing 5% interest, and the other for $10,000, were dated June 14, 1950, the first became due in 60 days and the second on December 14, 1950, and named all the makers as such with plaintiff as payee.

Issue

The main legal issues were whether the defendants were accommodation makers and whether the payee could recover interest given the usurious nature of the transaction.

The main defenses of defendants-makers, except Reed, were that the agreement made October 12, 1950, between Reed and his wife and plaintiff, wherein plaintiff agreed to accept and Reed to pay $35,000 on October 28, 1950, to discharge the two notes which had in effect extended the time for payment two and one-half months on the $30,000 note, and a novation a substitute for the notes, thus exonerating them; that they were accommodation makers only, having received no value, and under section 3110 of the Civil Code, were liable only as sureties.

Rule

An accommodation party is defined as one who signs an instrument without receiving value for the purpose of lending their name to another person, and such a party is liable to a holder for value. Additionally, there can be only one form of action for the recovery of any debt secured by a mortgage.

An accommodation party is one who has signed the instrument as maker, drawer, acceptor, or indorser, without receiving value therefor, and for the purpose of lending his name to some other person. Such a person is liable on the instrument to a holder for value, notwithstanding such holder at the time of taking the instrument knew him to be only an accommodation party. Civ.Code, s 3110.

Analysis

The court analyzed the evidence and determined that the defendants were not accommodation makers because they received value from the loan. The presumption of consideration applied, as they were joint makers of the note, and the court found sufficient evidence to support the conclusion that they benefited from the transaction. The court also addressed the usurious nature of the transaction, concluding that the payee could not recover interest.

The evidence is sufficient as to all the defendants. In the first place it should be observed that the defendants appear as ordinary joint makers of a negotiable note and thus ‘Every negotiable instrument is deemed prima facie to have been issued for a valuable consideration; and every person whose signature appears thereon to have become a party thereto for value.’ Civ.Code, s 3105.

Conclusion

The court reversed the judgment in part, specifically regarding the award of interest, while affirming the judgment in all other respects.

The judgment, insofar as it awards interest, is reversed; in all other respects it is affirmed.

Who won?

The prevailing party was the defendants, as the court ruled in their favor regarding the usurious nature of the transaction, preventing the payee from recovering interest.

The court found that the evidence warranted finding that defendants were not accommodation makers because they received value, particularly in view of applicability of presumption of value arising from fact that defendants signed note as comakers.

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