Farmers' Bank of Amsterdam v. Blair

By the Court, Bookes, J. This is an appeal from a judgment of nonsuit. The action was brought on two promissory notes, against Patrick McFarlan and Joseph Blair as joint makers, and against Archibald McFarlan and David Blair as joint indorsers. All of the defendants interposed answers to the complaint. At this stage of the action, Joseph Blair, one of the makers, died, leaving the action to stand against, the surviving maker and the two joint indorsers. A compromise was thereupon entered into hetwen the plaintiff on the one part and the maker and one of the joint indorsers on the other, by which the plaintiff, on being paid one half the amount of the notes, exonerated and discharged the surviving maker and one of the joint indorsers from all liability upon the notes in suit. David Blair, the other joint indorser, by permission of the court, set up the compromise and discharge as a defense, by a supplemental answer; and the case came on to he tried under this state of facts. On the trial, therefore, the case stood, and may now he treated, as an action by the plaintiff as indorsee and holder against David Blair alone as indorser of the notes described in the complaint. The defense on which the defendant succeeded was, that the plaintiff had discharged the surviving maker of the notes, and that such discharge of the maker operated to discharge him as indorser. It is insisted, on -the part off the plaintiff, that the release and discharge is void because it was not under seal, and was without consideration. A seal was not necessary to render the instrument valid and effectual if the agreement and exoneration were upon [652] good and sufficient consideration. If not deemed a technical release, the arrangement would operate as an accord and satisfaction, and thus would he effectual to protect the parties intended to he discharged, in case of a sufficient consideration to give it support. It is true that the payment of a less sum than the real debt .will he no satisfaction of a larger sum, without a release hy deed; nor will such payment of a less sum constitute a sufficient consideration for a promise to cancel or discharge the debt. These principles apply to conceded or undisputed demands. In this case the claims were in dispute, and the consideration for the discharge was the compromise and part payment of the claims in controversy. The defendants had interposed defenses to the action on the notes, which if sustained, would prevent a recovery. The matters thus in dispute were compromised hy the parties. A settlement or compromise of a disputed or doubtful claim is a good consideration for a promise. (4 Denio, 189. 3 Hill, 504. 12 Wend. 381. 33 Barb. 256. 8 id. 653. 35 id. 282.) The rule is different in case the compromise is of an unfounded and palpably untenable claim; but if there be a controversy between persons, well based according to the belief and understanding of the parties, that is, a controversy real and substantial in character, a compromise entered into between them, and a settlement of the controversy, will be held valid and binding and will be deemed a good consideration to support a promise, or to uphold an agreement by way of exoneration and discharge. In this case a controversy existed in regard to the validity of the notes in suit. The defendants had interposed defenses, which if established would defeat the action. There is nothing before us indicating that the defenses were unsubstantial or fictitious. They were solemnly interposed and insisted on. The controversy was a substantial one, and the compromise was therefore binding on the parties according to its terms. In such case it is not 'admissible to go behind the settlement with a view to .determine which of the parties was right. Compromises arc [653] to be encouraged, because they promote peace, arid when there is no fraud, and the parties meet on equal terms and adjust their differences, the court will not overlook the compromise, but will hold the parties concluded by the settlement. (2 Duer, 302. 2 Sandf. 542. 4 Denio, 166. 4 Seld. 402. 35 Barb. 157.) The compromise in this case was therefore binding on the parties. By it the surviving maker of the notes was discharged from liability thereon, and it only remains to see whether the discharge of the maker by the holder of a promissory note also as matter of law discharges the indorser. On this point the authorities are full and explicit. It is a very familiar rule that a surety is relieved from liability in case of the discharge of the principal by the act or with the consent of the creditor. As between the maker and indorser of a note, their relation for most purposes is that of principal and surety. The contract of the indorser is distinct from that of the maker, and the former can not require the holder to prosecute the maker as principal debtor, but the relation of maker and indorser is that of principal and surety as regards the familiar rule, that if a creditor, by agreement with the principal debtor without the concurrence of the surety, vary the terms of the contract, the surety is discharged. If the holder, without the privity or consent of the indorser, by valid contract with the maker, extend the time of payment, the indorser is thereby discharged. (16 John. 70. 9 Cowen, 194. 5 Hill, 463. 5 Duer, 294, 304. Edwards on Bills, 567, 569.) So in case the holder discharges the maker, the indorser is also discharged. (16 Jolin. 41. 2 Sandf. 189. 3 Barb. Ch. 621.) Mr. Edwards remarks if the maker of a note pays, the indorser is discharged from his contract, in the same manner as -is a surety by the principar s paying. Indeed nothing is better settled than this, that payment of a note by the maker or by either of the prior parties liable thereon,- discharges the obligation of a subsequent indorser, and the release or discharge of the maker by the holder effects the same result. (Edwards on [654] Bills, 291. 2 Sandf. 189. 12 Wend. 115. 21 id. 108.) In the last case cited the last two indorsers set up as a defense the release by the plaintiff of the first indorser. The court held the defense to be good. Judge Nelson remarked that as between the first and subsequent indorsers the former must be regarded in the light of principal; he stands before them on the paper and is bound to take it up. And he adds: the case therefore comes within' the familiar rule that a release of the principal operates to discharge the surety. Here the surviving maker, Patrick McFarlan, who was primarily liable on the notes, was, by the act of the holder, exonerated from all liability thereon. As to such maker the notes were paid and satisfied. The plaintiff now had no right of action against him thereon. It follows that such exoneration of the maker of the notes, operated as a discharge to the indorser. It is urged that the release and discharge in this case was made and delivered pursuant to the act in relation to partners and joint debtors, and therefore did not discharge David Blair. (Sess. Laws, 1838, p. 243. Id. 1845, p. 410.) But this statute has no application to the question here under examination. Makers and indorsers of a note are not partners or joint debtors within the meaning.of that act. The contract of an indorser is independent and distinct from that of a maker, and except for the statute, they could not be sued on the note in the same action; and the act by express enactment preserves to the parties their rights as between each other. They were not thereby made joint debtors; the act only gave a joint remedy. (21 Barb. 531, 540.) It is here unnecessary to consider the question whether the execution of Patrick McFarlan discharged the estate of his deceased joint maker, Joseph Blair. They were joint debtors, and as such were within the provision of the act of 1838. It is urged that on the decease of Joseph Blair, Patrick McFarlan became primarily liable on the notes, as between himself and the estate or personal repersentatives of [655] his deceased joint debtor—hence that his discharge relieved the estate from liability to the plaintiff. (17 N. Y. Rep. 354. 30 Barb. 110. 27 N. Y. Rep. 633-636.) But as above suggested, the examination of this question is unnecessary in this case. [St. Lawrence General Term, October 4, 1865. There can be no doubt, I think, that the discharge of the sole surviving maker of the notes, operated as a discharge of the indorser David Blair. Hence the nonsuit was properly directed. True, the instrument declares that the discharge was not intended nor should it be used, to impair the rights of the plaintiff against those not thereby expressly exonerated. The surviving maker was, however, discharged from all liability on the note. Ho right of action remained against him thereon. Giving the instrument this effect, it was not in the power of the parties making the arrangement to retain the liability of the indorsers. The judgment must be affirmed with costs. Boches, James and Bosehrans, Justices.]