Okla. Stat. tit. 12A § 3-419
Okla. Stat. tit. 12A, § 3-419
Oklahoma Code Comment
1. This section defines who is an accommodation party on a negotiable instrument. Essentially, an accommodation party is a person who has signed the instrument as maker, drawer, acceptor or indorser, but also as a surety or guarantor for another party to the instrument. See sub sections 3-419(a) and (b), which are consistent with prior law as expressed in Van Antwerp v. Schultz, 203 Okla. 84, 217 P.2d 1034 (1950). For example, the principal may make a note payable to a creditor and the accommodation party may indorse it. Se King v. Finnell, 603 P.2d 754 (Okla. 1979). In another case the accommodation party may sign as co-make; of a note payable to the creditor. See McDonald v. National Bank of Stigler (In re Hill), 7 Bankr. 433 (Bankr. W.D. Okla. 1980), Vinick v. Fourth Nat'l Bank of Tulsa 531 P.2d 327 (Okla. 1974). Or the accommodation party may sign as the sole maker of a note payable to the principal, who then indorses the note to the creditor. See First Arm Bank & Trust Co. v. Pullin, 720 P.2d 744 (Okla. Ct. App. 1982). An accommodation party may limit the obligation to pay in the capacity in which that party has signed by becoming a guarantor of collection. See UCC § 3-419(d); Yaffee v. Bank of Chelsea, 271 P.2d 365 (Okla 1954); Crowder State Bank v. American Powder Mills, 46 Okla. 105, 148 P. 698 (1915).
2. The rights and obligations of an accommodation party are set forth in sub section 3-419(e) and in other Sections of Article 3. See, depending on capacity, Sections 3-412(maker), 3-413(acceptor) , 3-414(drawer) and 3-415 (indorser; note that sub section 3-415(a) should be subject to sub sections 3-415(b) through (e) ) , 3-305(d) and 3-605. These rights and obligation should be carefully compared with those of sureties and guarantors as set forth in 15 O.S. §§ 321-344 (guaranty) and 371-385 (suretyship) before determining, in the context of a given transaction, whether the surety or guarantor should sign the negotiable instrument in some capacity or, alternatively, sign a separate guaranty agreement. The latter will not be a negotiable instrument under Section 3-104 except in the most unusual case. See the Oklahoma Comments to Sections 3-104 and 3-605 for further discussion. Other rights and obligations may arise under other law. For example, a consumer surety may have a right to disclosure. See 16 C.F.R. § 444.3 .
Under Article 3, an accommodation party is always a surety. who is not a party to the instrument, however, is not an accommodation party. For example, if M issues a note payable to the order of P. and S signs a separate contract in which S agrees to pay P the amount of the instrument if it is dishonored, S is a surety but is not an accommodation party. In such a case, S's rights and duties are determined under the general law of suretyship.
3. The position of sub section 3-419(b) as to consideration is consistent with prior Oklahoma law. See, e.g., Haffner v. First Nat'l Bank of Seiling 152 Okla. 169, 5 P.2d 351 (1931); Vogel Bros. & Co. v. Bastin, 84 Okla. 273, 203 P. 219 (1921); Willoughby v. Ball, 18 Okla. 535, 90 P. 1017 (1907). Previous Oklahoma law on defenses available to a surety was scattered, but is consistent with Article 3. Compare UCC § 3-305(d) with Hodgins v. Northwestern Fin Co., 46 Okla. 95, 148 P. 717 (1915); sub section 3-419(c) with Milburn v. Miners'& Citizens' Bank, 101 Okla. 281, 226 P. 42 (1924), and Douthat v. Bank of Quapaw, 96 Okla. 289, 222 P. 547 (1924); McDonald v. National Bank of Stigler (In re Hill), 7 Bankr. 433 (Bankr. W.D. Okla. 1980); sub section 3-419(e) with Price v. Central Nat'l Bank, 108 Okla. 208, 235 P. 1088 (1925); § 3-605 with Yaffe v. Bank of Chelsea, 271 P.2d 365 (Okla. 1954); Wilmot v. Central Okla. Gravel Corp., 620 P.2d 1350 (Okla. Ct. App. 1980); Beneficial Fin. Co. v. Marshall, 551 P.2d 315 (Okla. Ct. App. 1976); Vinick v. Fourth Nat'l Bank of Tulsa, 531 P.2d 327 (Okla. 1974). But compare UCC § 3-605(c) with Purcell Wholesale Grocery Co. v. Lykins, 120 Okla. 257, 250 P. 784 (1926), and Oklahoma State Bank of Sayre v. Seaton, 69 Okla. 99, 170 P. 477 (1917). Many Oklahoma cases involve the question of parol evidence in this context. Section 3-117 of Article 3 governs that issue.
A number of important aspects of suretyship law under Article 3 reside in the relationships among sections. To illustrate, sub section 3-305(d) , which affords an accommodation party most defenses of the accommodated party, must be read in conjunction with Section 3-605 , which provides rules (usually referred to as suretyship defenses) for determining when the obligation of an accommodation party is discharged, in whole or in part, because of some act or omission of a person entitled to enforce the instrument. To the extent a rule stated in Section 3-605 is inconsistent with sub section 3 305(d) , the Section 3-605 rule governs. For example, under sub section 3-605(b) , discharge of the accommodated party under Section 3-604 does not discharge the accommodation party. As explained in Official Comment 3 to Section 3605, discharge of the accommodated party is normally part of a settlement under which the holder of a note accepts partial payment from an accommodated party who is financially unable to pay the entire amount of the note. If the holder then brings an action against the accommodation party to recover the remaining unpaid amount of the note, the accommodation party cannot use sub section 3-305(d) to nullify sub section 3 605(b) by asserting the accommodated party's discharge as a defense. The accommodated party's release does not affect the right of the accommodation party to obtain reimbursement under sub section 3-419(e), or to enforce the note against the accommodated party if the accommodation party pays the note holder.
What is the effect of an extension agreement between a note holder note and the maker who is an accommodated party? The question can be illustrated as follows: A borrows money from Lender and issues a note that is payable on April 1, 1992. B signs the note for accommodation at Lender's request. B signs the note either as comaker or as an anomalous indorser. In either case, Lender subsequently makes an agreement with A extending the due date of A's obligation to pay the note to July 1, 1992, and B did not agree to the extension.
After the extension agreement, can Lender enforce the note against B if the note is not pad on April 1, 1992? A's obligation to Lender to pay the note on April 1, 1992, may be modified by the Lender's agreement. If B is an anomalous indorser, then Lender cannot enforce the note against B unless the note has been dishonored. UCC § 3-415(a). Under sub section 3-502(a)(3) , dishonor occurs if the note is not paid on the day it becomes payable. Because the agreement between A and Lender extended the due date of A's obligation to July 1, 1992, there is no dishonor because A was not obliged to pay Lender on April 1,1992. If B is a co-maker, the analysis is somewhat different. Lender has no power to amend the terms of the note without the consent of both A and B. By an agreement with A, Lender can extend the due date of A's obligation to Lender to pay the note, but B's obligation is to pay the note according to its terms at the time of issue. UCC § 3-412. However, B's obligation to pay the note is subject to a defense because B is an accommodation party. B is not obliged to pay Lender if A is not obliged to pay Lender. Under sub section 3-305(d) , B. as an accommodation party, can assert against Lender any defense of A. A has a defense based on the extension agreement. Thus, Lender could not enforce the note against B until July 1, 1992. This result is consistent with B's rights if B is an anomalous indorser.
In unusual cases, the accommodation party may prefer to pay the holder on the original due date and to immediately proceed against the accommodated party for reimbursement. In the previous situation, if B is a co-maker, B may pay the note on the April 1, 1992 due date. By agreement, Lender can modify the obligations of the accommodated co-maker, but that agreement is not binding on B unless B consents. B's obligation is to pay according to the terms of the note at the time of issue. The terms of the note are to pay on April 1, 1992. See UCC § 3-412. Although B has a defense to that obligation that may be asserted under sub section 3-305(d) , B is not obligated to assert the defense. The interests of B and the accommodated party are in conflict. The accommodated party cannot force B to accept an arrangement to which B has not agreed. If B pays, B clearly has a right of recourse under sub section 3-419(e) that includes both a right to reimbursement and a right to enforce the note. There is no defense based on the agreement with Lender. By its terms, the note is payable on April 1, 1992. B is not asserting Lender's rights and is not limited to subrogation rights. Section 3-419(e) doesn't say that B is subrogated to Lender's rights; it says B can enforce the note.
The same result should follow if B is an anomalous indorser. B is not bound by the agreement with Lender. B's obligation on the note is determined by the note's terms at the time B indorsed it. UCC § 3-415(a). Although B is not obliged to pay on April 1, 1992, B is entitled to treat the note as dishonored because it was unpaid on April 1, 1992. UCC § 3-502(a)(3). B can pay Lender on or after April 1, 1992, and assert a right of recourse under sub section 3-419(e) .
In occasional cases, the accommodation party might pay the instrument even though the accommodated party had a defense to its obligation that was available to the accommodation party under sub section 3-305(d) . In such cases, the accommodation party's right to reimbursement may conflict with the accommodated party's right to raise its defense. For example, suppose the accommodation party pays the instrument without being aware of the defense. In that case, the accommodation party should be enticed to reimbursement. Suppose the accommodation party paid the instrument with knowledge of the defense. In that case, to the extent of the defense, reimbursement ordinarily would not be justified, but under circumstances such as discussed above, reimbursement may be justified depending upon the facts of the case.
4. Subsection (e) gives the accommodation party who pays the instrument a right of recourse on the instrument and changes some previous decisions (there were none in Oklahoma) that held the accommodation party's recourse was simply money had and received. Thus, the benefits of the Article 3 rules, as opposed to the common law, are extended to the accommodation party in recovery from the accommodated party. However, sub section 3-419(e) is not the accommodation party's exclusive tight; the common law rights of a surety against the principal also are available pursuant to Section 1-103 . One of those is a right of subrogation. Thus, an accommodation party who pays a creditor of the principal acquires the creditor's rights against the principal, including the rights to any security interest or other collateral that secures payment of the instrument. See Wilmot v. Central Okla. Gravel Corp., 620 P.2d 1350 (Okla. Ct. App. 1980) (accommodation makers were entitled to have proceeds of principal's inventory and accounts applied first to note, and thus were only Gable for amount still due after application of such funds).
5. As stated in subsection (a), an indorser's obligation to pay the amount due on the instrument is generally owed not only to a person entitled to enforce the instrument but also to a subsequent indorser who paid the instrument. But this rule does not apply if the prior indorser and the subsequent indorser are both anomalous indorsers. In that case, Section 3-116 applies. Under sub section 3-116(a) , the anomalous indorsers are jointly and severally liable, and if either pays the instrument, the indorser who pays has a right of contribution against the other. UCC 6 3-116(b).