[suijuris]

§ 29 Altered negotiable instrument [4 Am Jur 2d ALTERATION OF INSTRUMENTS]



With respect to negotiable instruments, the traditional rule was that, except for liability to a holder in due course, any material alteration of a bill of exchange or promissory note without the consent of the parties thereto destroys the obligation of the contract and renders it unenforceable against such parties.



Under the Uniform Commercial Code, as against any person other than a subsequent holder in due course, an alteration of a negotiable instrument by the holder which is both fraudulent and material discharges any party whose contract is thereby changed, unless that party assents or is precluded from asserting the defense; and no other alteration discharges any party and the instrument may be enforced according to its original tenor.



If the debtor executes a new promissory note with a surety which the creditor accepts in satisfaction of the pre-existing debt, an action may not be maintained upon the original demand. Whitsett v Clayton, 5 Colo 476; Bullen v McGillicuddy, 32 Ky 90; Jenness v Lane, 26 Me 475; Creager v Link, 7 Md 259; Draper v Hitt, 43 Vt 439.







Uniform Commercial Code § 3-407. Alteration by a holder which is both fraudulent and material discharges any party to the instrument whose contract is thereby changed, except as against a subsequent holder in due course, unless a party consents to the alteration or is precluded from asserting the defense.







Promissory note generally does not discharge debt for which it was given, but, if it is shown that note was given and received as payment or waiver of original debt and parties agreed that note was to substitute new obligation for old, note fully discharges original debt, and nondischargeability of original debt does not affect dischargeability of obligation under note. In re West (1994, CA7 Ill) 22 F3d 775, 25 BCD 975, CCH Bankr L Rptr ¶75870







A copy of third parties' bankruptcy petition and discharge was relevant to rebut a debtor's claim that a creditor's acceptance of a promissory note and security deed from the third parties as a second mortgage was an accord and satisfaction releasing the debtor from indebtedness. Prince v Kujawa, 178 Ga App 828, 344 SE2d 680.







§ 9 Effect of creditor's acceptance of note on ability to maintain action [1 Am Jur 2d ACCOUNTS AND ACCOUNTING]

While the liquidation of an open account, by the execution of a note or other written evidence of indebtedness existing by reason of the account, destroys its character as an open account, the taking of the bill, note, or check is not payment unless it is agreed to be taken as such. In the absence of such an agreement, it is only conditional payment, dependent upon the payment of the paper; if the paper is dishonored, an action may be maintained on the original indebtedness. However, where a note has been given and accepted for the balance due upon an account, the creditor must elect between an action on the note and an action on the open account; he or she cannot bring both actions at the same time. A creditor who accepts a negotiable promissory note in liquidation of an open account cannot recover, in a suit upon the original cause of action, unless, upon the trial, the creditor produces the note or satisfactorily accounts for its absence, and transfer of notes given for a debt represented by an open account prevents an action upon the account by the original creditor. When the account becomes stated, a new cause of action arises, but it may still be possible to sue upon the original account.





The trial court was not required, as a matter of law, to abate a second suit brought by a bank to recover on a promissory note, unless the record demonstrated that the promissor's counterclaim for affirmative relief in the bank's first suit on the promissory note was a compulsory counterclaim. Smith v Caldwell (Tex App Houston (1st Dist)) 754 SW2d 692.





Acceptance and the use of a check will not operate as an accord and satisfaction where the creditor is induced to accept the check by fraudulent representations made by the debtor. Val Decker Packing Co. v Treon (Miami Co) 88 Ohio App 479, 44 Ohio Ops 205, 58 Ohio L Abs 545, 97 NE2d 696.





Where one of the parties to a joint venture told another party that the firm had lost $25,000, and asked for a promissory note for one-half that amount, which was given, the transaction did not amount to an account stated, since no account books or statement of account were presented to the defendant, and the alleged settlement did not take into consideration various assets of the parties. Pepper v Hyman, 117 Colo 365, 189 P2d 155.





Where the holder of promissory notes calculates the interest on the notes and states to the other party the amount due and the latter assents to the correctness of the amount, an account stated is not established; each party can ascertain, at any moment, just what is due, and the mere affirmation of what they both know, and are already bound to, cannot form a new contract. Jasper Trust Co. v Lampkin, 162 Ala 388, 50 So 337; Russell v Empire Storage & Ice Co., 332 Mo 707, 59 SW2d 1061.





One who receives money from the owner thereof for the express purpose of lending it out at interest and, with authority so to do, either general or limited, afterward examines the title and lends the money to another, taking therefor a promissory note payable to such owner, is to be regarded as his agent, although the borrower, at the time of executing the note, or subsequently, signs a paper purporting to constitute the person with whom he deals in the transaction his agent to obtain the loan. Clarke v Havard, 111 Ga 242, 36 SE 837, wherein it further appeared that the one delivering the money did nothing for the borrower except those acts which were directly performed in behalf of the lender.





It would seem that when money is deposited with a bank for the sole purpose of paying a promissory note soon to come due, the bank is a trustee and cannot pass that money to its assignee. Peak v Ellicott, 30 Kan 156, 1 P 499.







A draft left with a bank for the sole purpose of collection is left in trust, and the bank cannot pass it to its assignee. National Butchers' & Drovers' Bank v Hubbell, 117 NY 384, 22 NE 1031.







§ 21 Money held by debtor as factor [6 Am Jur 2d ASSIGNMENTS FOR BENEFIT OF CREDITORS]

For reasons similar to those applying in the case of trustees, there can be no assignment of property held by a debtor as factor; but here also, as in the case of trustees, if the precise property or the fund arising therefrom is not traceable, a simple debtor and creditor situation arises, and the factor's property will pass to his assignee free of any trust.







Where a note has not been negotiated to a holder in due course, it should be construed, like any contract, according to the intention of the parties. Ligran, Inc. v Medlawtel, Inc., 86 NJ 583, 432 A2d 502, 32 UCCRS 166.





It is the general rule that a promise to pay is still nothing but a promise reduced to writing and called a promissory note, and that the delivery of a promissory note is nothing more than the delivery of a promise and unenforceable for want of consideration. Hoodlett v Hoodlett (App, Athens Co) 12 Ohio L Abs 577.