Hawks v. Hinchcliff

By the Court, Johnson, J. I do not see any ground, Upon the facts appearing in the case, on which the plaintiff’s recovery can be sustained. Because, conceding that the notes taken by the plaintiff of Milman «fe Carpenter, for the debt of the defendant and Milman, were taken expressly as collateral security, and did not in any way operate as payment or merger of the original indebtedness, still it appears that the plaintiff transferred one of the notes, upón which the holder brought his action and obtained a judgment, and that the other was prosecuted to judgment by the plaintiff himself, and that both judgments were afterwards, and before the commencement of this action, assigned by the respective plaintiffs to one Prindle. It does not appear upon what terms or conditions the first note was transferred to Clarke, and the judgment upon it assigned by Clarke to Prindle. if or upon what terms the judgement was assigned to Prindle by the plaintiff. The intendment I think upon this state of facts is, that the transfers were absolute, and without recourse to the plaintiff. — 502 — This being so, the principal debt must be regarded as satisfied to the plaintiff out of the collateral securities. The presumption, where nothing appears to the contrary, will be that they were transferred for the full amount appearing to' be due upon their face. But should it appear that the creditor sold them for less than their face, I am of opinion it would be at his own loss, and that he would be regarded as having elected to accept satisfaction out of the collaterals, and would be bound by such election, and could not be permitted afterwards to resort to the principal debt to recover any deficiency, as he could where partial satisfaction had been obtained from collateral securities by due course and process of law. The creditor holds all collateral securities as the agent oí trustee of his debtor, to be collected for the benefit of the latter, in discharge of the principal debt, and to be surrendered whenever such principal debt is paid, before resort to the securities is had. And whenever he undertakes to transfer them to third persons, without the authority of the principal debtor, the law, I think, will hold that he has elected to take them at their face, in satisfaction to that extent, of the principal debt. Whether a transfer by the creditor with a guaranty that the securities were collectible, so as to give the assignee a remedy over upon the assignor in case he failed to collect, and the assignor was compelled to respond upon his guaranty, would not affect the principal, I shall not stop to enquire, as there is nothing in the case to raise the questiom I think it may be doubted, however, whether it would, as in such a case the creditor might be regarded as pledging his personal responsibility on his own account instead of his debtor’s. It is of no consequence whatever that these judgments had been reassigned to the plaintiff. As the case stands the reassignment to him must be regarded as having been made upon some new and distinct agreement between him and the owner, which would not in any degree aid in restoring the plaintiff to his former rights. Upon this ground alone the judgment must be reversed, and a new trial ordered. As this point, however, was not much pressed by the defendant’s counsel, and the chief — 503 — stress of the argument was upon the other points, I proceed to consider them, as there may he facts in the case known to counsel, and upon the assumption of which the cause was tried, and which do not therefore appear in the case. The defendants counsel contends, that independent of the question of transfer, from the fact that the plaintiff took the notes of Milman & Carpenter for the partnership debt of the defendant and Milman, and that those notes have been prosecuted to judgment, the debt is merged in the judgment, as to Milman, and neither he nor the defendant can be prosecuted upon the original indebtedness. The principle seems to be well settled by numerous adjudications in our own state, that where a note is given in the name of the firm or by one of several parties, for a partnership debt, and a portion only of. the partners are prosecuted' upon such note and judgment obtained against them, the original debt is merged in the judgment, and the creditor cannot afterwards maintain an action either against all the members of the firm collectively or against those not included in the former action, upon the original indebtedness. And so where one of several is prosecuted to judgment on a joint undertaking. (Peters v. Sanford, 1 Denio, 224. Robertson v. Smith, 18 John. 459. Averitt v. Loucks, 6 Barb. 19. Peirce v. Kearney, 5 Hill, 82. Id. 185. Frisbie v. Larned, 21 Wend. 450.) These decisions do not proceed upon the ground that the giving of the note operates as a payment and satisfaction of the debt, but upon the ground that the original debt is merged in the judgment as to those who are made parties, and the right of action against them upon the original indebtedness gone, and that the joint liability being at an end by the act of the plaintiff, any one may avail himself of this merger or suspension of the right of action, by way of defense. But I apprehend this principle will not apply where one of several partners unites with a third person in making a note to a creditor of the firm for a partnership debt, which by the agreement is made and accepted not for the debt but as collateral security merely. In such a case a judgement upon the note would not, I think, merge or affect the original indebtedness, even as to the partner — 504 — signing the note. The agreement in such a case would control and prevent a merger. (Butler v. Miller, 1 Comst. 496.) And so when from the nature of the transaction the law would adjudge the new obligation to be merely collateral. This principle is illustrated by the case of Davis v. Anable (2 Hill, 339.) Indeed, it is clear upon principle, and has often been held, that a judgment upon a security held as collateral does not merge or extinguish the principal debt. The decision in the case of Davis v. Anable was placed upon the ground that the bond which was alleged to have been taken, and upon which judgment had been rendered, was intended as a collateral security merely. And this seems to have been inferred from the fact that debts other than those of the defendants were included, and the bond was given not to the creditor of the defendants alone, but to him and to other persons who, for aught that appears, were strangers to the defendants. I am not aware that it has ever been held, that where one of several partners gives his note for a partnership debt, such note is to be regarded in law as a collateral security merely, although it did not operate as payment. On the contrary, the cases first cited go to show that such a note is so far a part and parcel of the original debt, that a judgment upon it merges the debt as to the maker, and extinguishes the joint liability of the partners. This, I apprehend, proceeds upon the principle that such a note operates as a statement of the account, or the striking of a balance, and as a conditional payment merely, and not as a collateral security. When nothing is shown except the taking of the note for or upon the account, it is taken in judgment of law as a conditional payment. (Van Eps v. Dillaye, 6 Barb. 244. Waydell v. Luer, 3 Denio, 410.) The referee has found as a fact that the note in question was taken as a collateral security merely. Whether he finds such was actually the agreement between the parties, or whether he infers it from the other facts in the case, does not distinctly appear. I do not readily perceive upon what evidence in the case it can be regarded as established affirmatively that the note in this, case was made and accepted as collateral security merely. — 505 — The receipt shows that it was not to operate as a payment of the account until paid. But in this respect, upon the evidence furnished by the receipt, for aught that appears, it was designed to have the same force and effect as any note given by one partner for a partnership debt Where there was no agreement that it should be accepted as a payment. This is a different case from that of Davis v. Anable. In this case Carpenter purchased the interest of the defendant in the partnership stock and agreed to pay the debts. This was known to the plaintiff, who continued dealing with the new firm the same as he had with the old. In fact, the additional debt included in the notes was but a continuation of the account. For aught I am able to see, the notes were intended to cover and embrace the whole account—the old as well as the new—as the debt of the makers of the notes, but not to operate as a payment and satisfaction of any part of the account until they were paid, Upon these facts alone, I am of opinion that the law would not hold that the notes were made and accepted as collateral security, but as an adjustment and conditional payment of the account merely. Had Milman alone signed the notes, under the same circumstances, it seems clear, within the authority of the foregoing cases, that a judgment upon them against him would have discharged both Carpenter and the defendant. I confess I am unable to perceive how the fact that Carpenter, who was to all intents and purposes a party to the debt, joined with Milman in making the note, can alter the principle. It seems to me the note was not collateral in this case, any more than it would have been had Milman signed it alone. I admit that the parties could control this by their agreement at the time the note was delivered; and if there is any evidence that "such an agreement was made, the parties are bound by it, and the judgments upon the notes have not affected the original debt. Otherwise if there is no evidence in the case of any particular agreement, except the making and delivery of the notes to the plaintiff and the receipt. This view, I think, goes far toward reconciling the cases cited, upon the argument, which at first view seem directly in conflict with each other. — 506 — [Monroe General Term, March 6, 1854. Selden, Welles and Johnson., Justices.] The mere taking of the notes by the plaintiff on time did not operate to discharge the defendant. The notes, according to the finding, were taken as a collateral security, arid the right of action was not suspended, upon the account, in that view, either before or after the judgment, until satisfaction. Judgment of special term reversed. New trial ordered; costs to abide the event.