* Writ of error granted. *Page 105 In a suit in a district court of Dallas county the Dallas National Bank recovered judgment in the sum of $22,672.06, being the amount due on a note in the principal sum of $20,000, against T. L. Camp, M. F. Spillers, John F. Bruce, and the Automatic Inn Company, Incorporated, on peremptory instructions by the court. Judgment was also rendered on peremptory instructions in favor of G. B. Foster and J. L. Davisson, codefendants in the suit. T. L. Camp, who will be styled appellant, has perfected an appeal from this judgment. The Dallas National Bank, hereafter styled appellee, filed and here presents cross-assignments of error as to that portion of the judgment in favor of Foster and Davisson, who will be referred to by name. The other defendants in the suit did not appeal from the judgment against them. The facts necessary to a consideration of the questions involved in a review of this case are:
The Automatic Inn Company, Incorporated, was a manufacturer of slot machines, designed to supply the consuming public with sandwiches and pies. This company desired to interest appellant, T. L. Camp, and Louis Lipsitz in its machines, and its officers had various communications with said parties, with the result that on September 30, 1926, the following contract was duly entered into between the Automatic Inn Company, Incorporated, contracting through its president, John F. Bruce, and Foster and Davisson, contracting for the benefit of Camp and Lipsitz:
"This memorandum of contract made between Automatic Inn Company, Incorporated, of Dallas, Texas, party of the first part, and G. B. Foster and J. L. Davisson, parties of the second part, witnesseth:
"The party of the first part has sold to parties of the second part one hundred (100) Automatic Inns, numbers 5146 to 5245, both inclusive, and in payment therefor parties of the second part have executed to party of the first part their promissory note in the sum of twenty thousand and no/100 ($20,000.00) dollars, due ninety days after date to be renewed in keeping with the terms of this contract.
"The party of the first part has executed to parties of the second part a bill of sale and service contract to which reference is here made.
"Now in consideration of this purchase and as an endorsement therefor, party of the first *Page 106 part obligates and binds itself that upon ten days notice from parties of the second part after all of said one hundred Automatic Inns have been installed and in operation for a period of ninety days, to the effect that they are not satisfied with their purchase, said party of the first part will within ten days after receipt of such notice sell said machines for the account of parties of the second part and refund to them their entire purchase money if said note has been paid by them or has been discounted and sold by party of the first part. If said note is in the hands of the party of the first part at said time they agree to cancel and return same to parties of the second part. If said party of the first part should fail to resell such machines within said ten days period and have negotiated or sold said note then in that event party of the first part obligates and binds itself to return to party of the second part the entire purchase money.
"During the ninety days period in which these machines are to be in operation before parties of the second part are called upon to exercise their option under this contract, the dividends paid thereon shall belong to parties of the second part."
At the same time a note in the sum of $20,000, representing the price of the machines described in the contract, was duly executed to the order of the Automatic Inn Company by Foster and Davisson, acting for appellant Camp and Lipsitz. This note was in the regular form of a negotiable promissory note, with the usual provision for attorney fees. At the time of the execution of the contract and note, Foster was the bookkeeper for Lipsitz and Davisson the bookkeeper for appellant. The former joined in the execution of these instruments at the request of Lipsitz, and the latter joined in such execution at the request of appellant. At the same time appellant prepared and delivered to the Automatic Inn Company the following instrument:
"September 30, 1926.
"The Automatic Inn Company, Dallas, Texas. Gentlemen: Referring to contract this day made between your company and G. B. Foster and J. L. Davisson, wherein Foster and Davisson have executed to you a note for twenty thousand ($20,000.00) dollars;
"This is to advise that this contract is made for the benefit of Louis Lipsitz and myself, and I hereby guarantee the payment of said note, or any renewal thereof.
"Yours truly, [Signed] T. L. Camp."
At the same time the Inn Company, through its president, executed and delivered the following instrument as a bill of sale:
"Bill of Sale. "This agreement, made and entered into this 30 day of September, 1926, by and between the Automatic Inn Company, Inc., of Dallas, Texas, as party of the first part, and G. B. Foster and J. L. Davisson, of the city of Dallas, county of Dallas, state of Texas, as party of the second part, witnesseth:
"That in consideration of twenty thousand dollars ($20,000.00) cash in hand paid, receipt of which is hereby acknowledged, the first party hereby sells to second party 100 Automatic Inn machines, numbered respectively 5146-5245 inc., in consideration whereof first party does hereby convey and sell unto second party, all of said machines above described, and further agrees that within 90 days from date hereof the same will be manufactured and delivered to the said second party at the factory of said seller in the city of Dallas, county of Dallas, state of Texas.
"In witness whereof, the said seller has caused this instrument to be executed the day and year first hereinabove written.
"Automatic Inn Company, Inc., "By J. F. Bruce, President-Secretary." At the same time a five-year "service agreement" was executed by the same parties. This agreement provided for the furnishing of the sandwiches and pies by the Inn Company to the purchasers of the machine at a named price, together with other matters not necessary to mention for this discussion. All of these instruments were executed contemporaneously and together completed the transaction between the Inn Company and appellant and Lipsitz. On October 29, 1926, the note and guaranty were duly transferred by the Automatic Inn Company to appellee, and it is the holder in due course of such instruments. A written guaranty of Spillers and Bruce, officers and main owners of the Inn Company, was delivered to the bank a few days after the purchase.
In all of the negotiations that preceded the execution of the instruments above described, neither Foster nor Davisson was consulted, and when they were each called upon to sign the various instruments it does not appear that any explanation was made to them by any of the parties, other than the statement by appellant, that the transaction was his and Lipsitz's, and that he would give his written guaranty of the payment of the note. The profits derived from the operation of the machines installed did not go to either Foster or Davisson, but to the men for whom they acted. It appeared at the trial of the case that Lipsitz was dead. Appellant's explanation of why he and Lipsitz did not execute the papers is, in effect, that Lipsitz was a financier, well known throughout a large territory, and that he (Camp) was known as a business man to a great many people, and that for this reason they did not want their names connected with the venture until the success of such venture had been fully established; that their names might be used by the Inn Company for the purpose of securing investments from others, and this they did not want done, until they *Page 107 had become fully satisfied that it would be a successful business venture.
About November 1, 1926, appellant obtained information, in reference to the character and business integrity of Bruce, president of the corporation, from which he felt that he could not afford to have a connection with any business in the management of which Bruce was connected. This information came before any of the machines purchased under the contract were installed for operation. As soon thereafter as appellant could get in communication with Bruce, he informed him of this fact, and demanded a cancellation of the contract and return of the note. This demand was not complied with by Bruce. Some of the machines were installed and appellant received the profits from them after this demand. A few days after the discovery in reference to Bruce that caused appellant to demand cancellation of the note, appellant received information that appellee was the purchaser of the note and his guaranty. This was some time about November 10, 1926, but he never informed appellee that he had repudiated the contract until December 29, 1926, two days before the maturity of the note, and after he had received appellee's notice of its maturity, at which time he informed the bank he would not pay it, because he had canceled the contract. The Automatic Inn Company made appellee its depositing bank, and on September 30, 1926, the date of the execution of the note, such company had on deposit with appellee the sum of $75,865.47; on the last day of October, $35,262.64; on the last day of November, 1926, $12,815.47; and on the day the note matured, $952.66.
By appropriate pleadings appellee sought recovery of the amount due on the note against Foster and Davisson, as makers, against appellant on the note and his written guaranty, and against the other parties on their written guaranty to appellee. Appellant defended on the ground that as his signature did not appear on the note, and that as the instrument in writing, alleged to be a guaranty of the payment of the note, was neither attached to it nor made a part thereof, under the Negotiable Instruments Law, recovery could not be had against him in a suit on the note; also because the written instrument, alleged by appellee to be a guaranty, showed by its terms that it was a special guaranty for the benefit only of the Automatic Inn Company, it could not be transferred to appellee on its purchase of the note; also on the ground that the reference in the guaranty to the contract for the purchase of the machines destroyed the negotiability of the guaranty, and the negotiability of the note, if the guaranty should be considered a part of the note; that by reason of these facts appellee was not a holder in due course, and all the defenses available to appellant against the original payee became and were valid defenses against appellee. With these allegations as a basis, appellant alleged that he was induced, to enter into the contract by reason of misrepresentations and fraud perpetrated upon him by the Automatic Inn Company, through its officers and agents, and that by reason of such fraud no valid obligation was ever created against him. These pleadings are very full, and on their face show a valid defense against appellee's suit, unless appellee is shown to be a holder in due course.
Appellee answered this pleading by supplemental petition, in which it denied all of the acts of misrepresentation and fraud pleaded by appellant, and also in which it pleaded very fully waiver and estoppel on the part of appellant to urge the defenses of fraud and misrepresentation. The pleadings of all parties in this respect are full and complete, but in the view we take of this case it is not necessary to state them specifically. Appellant tendered into court the amount received as profits on the machines installed.
Foster and Davisson defended on the ground that, while they were the apparent makers of the note, in truth and in fact the note was not their obligation, but was the obligation of appellant and Lipsitz, so understood by the parties at the time of the execution of the note, and that appellee knew this fact when it became the purchaser of the note; that before they executed the various instruments connected with this suit they were promised by appellant that he would execute the instrument of guaranty; that this instrument conclusively shows that sole responsibility for the indebtedness represented by the note was assumed by appellant, that this was recognized by the parties to the instruments, and that appellee purchased the note with full knowledge of such fact. The undisputed evidence establishes these allegations. The other guarantors do not appear to have made any defense.
As we understand the effect of appellant's assignments of error, he seeks a reversal of this case, and the rendering of a judgment in his favor, on the grounds (a) that the trial court should have given his requested peremptory instructions, on his theory that the written guaranty issued by him was a special guaranty to the Automatic Inn Company, and could not be enforced by appellee; and (b) that, the note and the guaranty being separate and distinct instruments, and appellant's signature not appearing on the note, recovery against him could not be had in a suit on the note. Appellant further urges that, if he is mistaken in his right to have this case reversed and rendered on the above grounds, then he contends that the case should be reversed and remanded because of the action of the trial court in giving peremptory instructions against him in favor of appellee, for the reason that appellant's written guaranty shows on its face that it is not negotiable, and *Page 108 therefore subject in the suit by appellee to any defense that existed in his favor against the Automatic Inn Company, the original payee; that as against the original payee he had a valid defense, because of his allegations of fraud and misrepresentations at the time he executed the guaranty, which allegations were supported by sufficient evidence to give him the right of a submission of this issue to the jury. These contentions are based on appropriate assignments of error and propositions of law.
Appellee urges its contentions, as reflected by its pleadings, in appropriate counter propositions to the effect that the court did not err in giving the peremptory instruction against appellant, because the note and the guaranty, being executed at the same time, in reference to the same subject-matter, must be construed together and given the effect as though they were one and the same instrument, and that, as the undisputed evidence shows that appellee was a holder in due course, the court did not err in giving peremptory instructions against appellant.
In reference to the issue of fraud and misrepresentations, these counter propositions contend that the evidence offered by appellant failed to establish a prima facie case on any of the grounds alleged, and that, even under appellant's theory of appellee not being a holder in due course, the court did not err in giving the peremptory instructions. On its cross-assignments of error against Foster and Davisson, appellee contends that, under the Negotiable Instruments Law (Rev.St. 1925, arts. 5932-5960), these parties were liable as the makers of the note, notwithstanding the truth of all of the defensive matters alleged and proven by them. Foster and Davisson urge upon this court, by an appropriate counter proposition, their defenses above stated.
The note executed by Foster and Davisson is a negotiable instrument. This note was purchased by appellee for a valuable consideration before maturity, without notice of the existence of any defense by the makers, and unquestionably appellee thereby became a holder in due course, with all of the rights attendant upon such holder of commercial paper, unless the instrument executed by appellant modified or restricted such right. This instrument, describing itself as a guaranty, was executed by appellant at the same time the note was executed, and contains recitations to the effect that the note was executed by Foster and Davisson as a consideration for the contract that day executed between the Automatic Inn Company, the payee, and the makers of the note. It further recites, in effect, that the contract was made for the benefit of appellant and Lipsitz, for which reason "I hereby guarantee the payment of said note, or any renewal thereof." The effect of this instrument is to make appellant at least primarily responsible to the Automatic Inn Company for the payment of this note, according to its tenor and effect.
Does the instrument allow the construction that it is merely a special guaranty, and can be enforced only by the Automatic Inn Company? We think not. It contains no such restrictions, and no words that can fairly be construed as such a restriction. It is in the regular form of a general guaranty, although addressed to the payee in the note, but as the guaranty of a negotiable instrument this fact does not even tend to convey the meaning that such payee was alone to reap the benefit of the guaranty. This instrument was executed at the same time, for the same purpose (consideration of a valid and completed contract), and in the course of the same transaction in which the note was executed. This being true, under well-settled rules of law, the note and guaranty must be considered, in effect, one instrument, and construed as one. 3 R.C.L. 870; 8 C.J. 196; and the authorities cited in each text. Applying such rule to the two instruments under consideration, it must be concluded that Foster and Davisson executed the note for the sole benefit of appellant and Lipsitz, and that appellant executed his guaranty, not only for the benefit of the makers of the note, but as a general guaranty of the note, and to show further that the obligation created by them was not that of the makers, but the obligation of himself and Lipsitz.
The reference in the guaranty to the contract, forming the basis for the execution of the note, is no such reference as would render the note, when construed with this written guaranty, a nonnegotiable instrument. When we refer to the contract itself, it shows in unmistakable language that it was contemplated at the time that the note would be negotiated, for it makes provision for any rights that might be claimed by appellant against the Automatic Inn Company, in case the note is negotiated.
We therefore hold that the written guaranty became a part of the note, and that, as there is no contention that appellee knew of the defenses of fraud and misrepresentation at the time these instruments were executed, as the transferee of the note, it is a holder in due course, and not subject to the defense that its execution was procured by fraud and misrepresentation. As this necessarily follows from a construction of the written instruments themselves, the court did not err in giving peremptory instruction in favor of appellee against appellant.
Did the court err in giving peremptory instruction in favor of Foster and Davisson, as contended by appellee in its cross-assignments of error? This must be determined by the provisions of our Negotiable Instruments Act. Section 20, art. 5932, Rev.St. 1925, being a part of such act, reads:
"Where the instrument contains or a person adds to his signature words indicating *Page 109 that he signs for or on behalf of a principal or in a representative capacity, he is not liable on the instrument if he was duly authorized; but the mere addition of words describing him as an agent, or as filling a representative character, without disclosing his principal, does not exempt him from personal liability."
Section 29 of article 5933, Rev.St. 1925, a part of such act, reads:
"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."
We have already seen that the note and guarantee must be construed together, and that in law these two instruments must be given the same effect as though they were in fact a single instrument. When given this effect, the conclusion is inevitable that the provisions of section 20, above quoted, must control when construing the rights of the parties under the Negotiable Instruments Act. It clearly and unmistakably appears that the instrument contains words indicating that Foster and Davisson signed such instruments for and on behalf of appellant and Lipsitz, who were the actual principals in the transaction with the Automatic Inn Company, which transaction brought into existence the obligation of the instruments under review. This plainly appearing in the instruments purchased by appellee, it was charged with the provisions of said section 20, and must be considered as having purchased the instruments with the knowledge that Poster and Davisson were not the responsible parties on the obligation, and that recovery could not be had against them.
To hold that section 29, above quoted, applies to this case, and that Foster and Davisson are accommodation makers within the provisions of said section 29, would be a holding that the two said sections of our Negotiable Instruments Law are in contradiction, and that section 29 destroys the functions of section 20. No such construction of different sections of the same legislative enactment can be allowed, unless such is the only construction that the enactments will permit. These two sections were intended to apply to different conditions under which negotiable instruments are signed. Section 20 clearly applies where such instrument is signed by an accommodation party, and the one for whom he signed is disclosed by the instrument, together with the facts, which show that the obligation created is not the obligation of the one so signing, but is the obligation of the real principal, whose name and responsibility the instrument discloses. We conclude that, when a negotiable instrument is signed by a party in compliance with the provisions of section 20, the instrument is thereby taken out of the provisions of section 29, and that the Legislature intended the two enactments to be so construed.
We therefore hold that the court did not err in giving peremptory instructions in favor of Foster and Davisson, and overrule appellee's cross-assignments of error.
We have carefully considered all of the other assignments of error, not herein discussed, and have found that none of them point out reversible error. For the reasons above stated, it is our opinion that this case should be affirmed.
Affirmed.