Fisher v. Marvin

Miller, J. The statute authorizing the formation of corporations for manufacturing and other purposes, (Laws of 1848, ch. 40, p. 60, § 24,) provides that “Ho stockholder shall be personally liable for the payment of any debt contracted by any company formed under this act, which is not to be paid within one year from the time the debt is contracted; nor unless a suit for the collection of such debt shall be brought against the company within one year after the debt shall become due,” &c. In the case at bar it appears that an arrangement had been made by which renewal notes were taken, from time to time, but there was no general arrangement by which the notes were to be renewed. The court decided, under the state of facts proven, that no suit was brought within a year after the debt became due. This conclusion necessarily involves the question whether the debt contracted was to be paid within one year after it was contracted. Was the last note, of $2000, for which a suit was brought and judgment obtained, a continuing or carrying out of the original contract, or was it a new debt ? I am inclined to think that the discount of a new note, [162] and the application of the proceeds realized from it to the payment of the old paper, extinguished the old debt and created a new one. The practical operation of the transaction presented by the evidence in this case would be about this : A note is due from the debtor to the bank. A new note is made, presented and discounted; the discount is paid and the proceeds delivered or credited to the debtor, and the avails of the note discounted appropriated to the payment of the old note, and the old note taken up. The discount of the new note is one, thing, and the payment of the old one, another. Each transaction is of itself separate and distinct. The whole together is not merely the substitution of one note for another. It has the aspect and appearance of, and is, in fact, a payment of the old note and a discharge of the obligation. The new note is discounted, and the' amount realized, if not applied directly to the payment of an existing debt, is placed to the credit of the debtor who makes the payment. Under such circumstances, no action could be maintained upon the old note; for not only was the time of payment extended, but the old note was surrendered and canceled. The operation was not the mere exchange of securities— the taking of a new note in the place of the old one—but a discount, and a payment of money upon the strength of the new security, by means of which the old obligation was discharged, given up and surrendered, so as to render it ineffective for any purpose. It seems to me that the contract did not relate back to the time "when the first notes were discounted, but the old notes having been paid and taken up, the debt was contracted when the new note was given. This debt being payable within one year after the debt was originally contracted, and the suit having been brought within one year after it became due, the stockholders were liable, and the plaintiff was entitled to recover. It may also be observed, that although the authorities are [163] not entirely reconcilable, as to what constitutes a payment, yet none of them hold that the discount of a note and the payment of an old one with 'the avails is not a payment and discharge of the former note. We have been referred to several cases which look decidedly favorable to the views which I have expressed, and, I think, tend to sustain them. (See The Bank of Sandusky v. Scoville, 24 Wend. 115; The Bank of Salina v. Babcock, 21 id. 499; Pratt v. Foote, 9 N. Y. Rep. 463.) [Albany General Term, March 5, 1866. The question discussed disposes of the case; and as the judge erred in his decision, a new trial must be granted, with costs to abide the event. Hogebooh, J. concurred. Ingalls, J. dissented. New trial granted. Miller, IngaUs and Hogéboom Jus? tices.]