Merchants & Manufacturers' National Bank v. Cumings

Andrews, Ch. J. The facts briefly are, that on the 18th day of. March, 1893, one John L. Cumings indorsed the note of one Joseph Cumings for his accommodation, dated on that day, for the sum of $2,000, payable to the order of John L. Cumings three months after date, at the plaintiff’s bank, where it was discounted. Contemporaneously witli the indorsement, and to induce John L. Cumings tó indorse the "same, Joseph Cumings made his certain other note of the same date and amount, and payable at the same time and place as the former note, to his own order, and thereupon indorsed his own name thereon and procured it to be indorsed also by the defendant. Over the indorsement on the second note was this statement: “ This note is given to and to beheld by John L. Ciimings as collateral security for his indorsement on my note, same tenor, date and amount, favor of said John *364 L. Cumings, which I have given to said John L. Cumings to be by him indorsed and " delivered to the Merchants and Manufacturers’' National Bank of Middletown, bí. Y., for the purpose of renewing my note due at said bank Mch. 18th, 1893. Protest hereof and notice thereof hereby waived.” This second note was thereupon delivered to John L. Cumings, who then indorsed the note first mentioned. The note discounted by the bank was no.t paid at maturity and was duly protested, and is still held by the bank, and is unpaid, and so far as appears no proceedings to collect it have been taken. On May 20th, 1893, before the maturity of either note, John L. Cumings, by formal written assignment, transferred to the bank the second note with all his “ right, title and interest” therein. This note ivas also protested at maturity, and not having been paid, this action, was brought thereon against the indorsers. Ira T. Cumings alone defends. The plaintiff, among other things, relies upon the established rule in equity that a creditor is entitled to the benefit of all collateral securities or counter bonds which a principal debtor has given to a súrety or a person standing in the position of a surety for his indemnity. (Moses v. Murgatroyd, 1 Jo. Ch. 119 ; Vail v. Foster, 4 N. Y. 312.) But in our view' it is unnecessary to determine ivhether the present case is within this principle. Whatever right John L. Cumings had to the note in suit and to maintain an action thereon against the defendant, ivas acquired by the plaintiff under his assignment. If on the non-payment of the first note and the charging of John L. Cumings as indorser, the latter could have maintained an action on the second note, and have recovered the amount thereof, without having paid the first note, then we perceive no reason why he could not, by assignment of the second note to the bank which held the original note and debt, have substituted the bank in his place, and given it any right of action which he himself had or might have in case of the payment of the original note and its due protest. The character of the obligation which the defendant assumed becomes in this view a material inquiry. It turns upon the distinction between a *365 contract to indemnify against liability, and a contract to indemnify against damage resulting from a liability. If in the present- case the undertaking of the defendant was of the former class, the action can be maintained, because the liability of John L. Cumings became fixed upon the non-payment and protest of the first note, and has not been discharged. If, on the other hand, the contract into which the defendant entered was against damage which should, accrue to John L. Cumings by reason of his liability as indorser, there can be no recovery, because as yet he has suffered no legal damage. He has as yet paid nothing, and mere liability, without more, is not damage within the distinction mentioned. The distinction between the two classes is familiar, and is stated with great distinctness in Belloni v. Freeborn (63 N. Y. 390). It is not always easy to determine the nature of the indemnity into which a surety enters. In the present case we have the fact that John L. Cumings refused to assume liability as indorser on the first note until the second note was given.. There is the further fact, which appears in the statement on the back of the second note, that it was given as collateral security for his indorsement of the first note. " There is the further significant fact that the second note was payable at a day certain, which ivas coincident with the day of the maturity of the first note. John L. Cumings became indorser of the first note at the request of the defendant, for such is the legal effect of the transaction. Under the circumstances is it not a reasonable construction that the security was given to protect him against the liability which he assumed, and that as between the parties the intention was to place upon the defendant and his co-indorser the burden of looking after and providing for the payment of the first note at its maturity, and, failing to do this, to create an immediate liability to John L. Cumings, by enforcing which he could, in case the bank would defer proceeding against him on his indorsement, realize the means for the payment of the original note. In Russell v. La Roque (11 Ala. 352), a case nearly identical with this, it was held that the plaintiff, who, at the request *366 of the defendant, became surety for him on a note to a third person, receiving as his indemnity the note of the defendant payable at a day certain, may sue upon it, though he had not been compelled to pay the debt for which he became surety if his liability to pay continues. In Hapgood v. Wellington (136 Mass. 217) the plaintiff had, at the request of the defendant, indorsed his note for his accommodation and contemporaneously therewith and as collateral security against loss on account of said indorsement the defendant gave to the plaintiff his note for the same amount. The note.indorsed by the plaintiff was transferred for value and was not paid at maturity. Thereupon the plaintiff brought suit upon the note given as indemnity and the court held that the plaintiff was entitled to recover, although payment of the other note had not been enforced and it was still outstanding and unpaid. In Loosemore v. Radford (9 M. & W. 657) the plaintiff and defendant being joint makers of a promissory note, the defendant as principal and the plaintiff as surety, the defendant covenanted with the plaintiff to pay the amount to the payee of the note on a given day, but made default; held, in an action on the covenant, that the plaintiff was entitled, though he had not paid the note, to recover the full amount of it by way of damages. The question is not free from doubt and the decisions are not altogether harmonious. (See Osgood v. Osgood, 39 N. H. 209 ; Child v. Powder Works, 44 id. 354.) The contract is ambiguous, but we think that construction which treats it as one against liability is most consistent with the admitted facts. On payment of the note the liability of John L. Cumings on the original note will be discharged and the defendant by subrogation will be entitled to enforce it against the maker. The judgment should be affirmed. O’Brien, Haight and Vann, JJ., concur; Gray, Bartlett and Martin, JJ., dissent. Judgment affirmed.