Homestead Bank v. Hollister

McCarthy, J. This is an appeal by the defendant from a judgment entered against him in favor of the plaintiff for $1,437.76. This action was brought to recover upon a promissory note made by defendant for $1,000, dated October 24, 1888, payable to his own order two months after date at the jSTinth Avenue Bank, and indorsed and delivered by defendant to [423] said bank. The plaintiff is the same bank, its name only having been changed. The answer admitted the making, indorsing and delivery of the note, but alleged as an affirmative defense that it was so made, indorsed and delivered at the request of plaintiff, and without consideration, simply for the accommodation of one William J. Merritt, and as collateral security for the payment of a note of said Merritt for the same amount, payable at the same time, then held by plaintiff, and that all these facts were well known to the plaintiff and its officers. That subsequent to the maturity of said Merritt’s note, and of the note sued upon, said Merritt satisfied and discharged his said note to the plaintiff, and thereby discharged the note sued upon. That the plaintiff, upon such payment by Merritt, forever released and discharged said Merritt from any and all further liability upon his said note of $1,000, as well as all other debts or causes of action, by a general release under its corporate hand and seal, thereby releasing and discharging this defendant from all liability on the note sued upon. At the trial the court ruled that the defendant held the affirmative of the case. The defendant substantially proved by himself and said Merritt the allegations of his answer, and the plaintiff offered ' no proof in answer thereto. At the close of the defendant’s case the plaintiff’s attorney "moved that the court direct the jury to render a verdict in favor of the plaintiff for the full amount of the note sued upon, with interest, upon the ground that, assuming that all the defendant’s testimony was true, and that it was Merritt’s note instead of the defendant’s which was discounted by the bank, still, that as the proceeds of the original discount were placed to the credit of the defendant and used by him, that the defendant was primarily liable to the plaintiff for its repayment, and the court so ruled. The defendant’s counsel asked to go to the jury upon the question as to whether the true construction of the transaction between the parties was not that the defendant stood in the relation of surety to Mer [424] ritt and that Merritt was the principal debtor to the plaintiff. This request of the defendant was denied and duly excepted to, and a verdict directed in favor of the plaintiff against the defendant, which direction of the court was also duly objected to, and .these objections raise all the questions to be argued on this appeal. This action must stand or fall on the note in suit (and no other) and the defenses that may be proven against it. The defenses set forth were good, and if proven the plaintiff cannot recover. Where evidence is presented by defendant tending to prove his defense, and no evidence is offered to contradict or disprove it, and a motion is thereupon made for a direction of a verdict for the plaintiff and granted, the court, on appeal, will always allow in favor of appellant a liberal construction of the facts proven. The evidence in this case then showed that on the original note for $1,500 and the renewals thereof for $1,000 Merzitt was the maker and pzincipal and this defendant the indorsei1, and that the note in question was given to the plaintiff as an accomznodation and as collateral security for the payment of a note made by Merritt and indorsed by defendant of even date. This last note of Mez-zitt’s, as well as the collatez'al, came due and were not paid. It also appears that thereafter the plaintiff, in writing, z'eleased and discharged Merritt from any and all obligations. This .release is final and complete and released and discharged Mez'ritt, the makei-, from the paymezzt of the note for which this note in suit was givezr as collateral, and, if we are correct that Merzitt was the principal and this defendant the surety, such l-elease and discharge would fully and completely absolve this defendant frozn any liability, and this judgment must be reversed. We think the evidence supports this conclusiozz. 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. [425] 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 cannot 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 the 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. So, in case the holder discharges the maker, the indorser is also discharged. If the maker of a note pays, the indorser is discharged from his contract in the same manner as is a surety by the principal’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. Farmers' Bank of Amsterdam v. Blair, 44 Barb. 641. See, also, Brown v. Williams, 4 Wend. 367, 368; Newcomb v. Raynor, 21 id. 108. Merritt remained the ultimate debtor, the person who ought to pay the debt or note in preference to and in exoneration of all the other parties to the paper, both in discharge of the obligation to the holder and in exoneration of the indorser. See Madison Square Bank v. Pierce, 51 N. Y. St. Repr. 176, 177. To the rights of the plaintiff, which were valuable and material, it was the privilege of the surety to succeed by way of subrogation whenever he, the surety, should pay the debt, and the plaintiff could not deprive him of it or impair and destroy it except at the peril of releasing him from his liability. The condition of the compromise was the release of the debtor, and the plaintiff cannot take the compromise and avoid the condition. He has by his acts discharged the defendant entirely. [426] If there was any disputed question of fact, that ought to have been submitted to the jury. From a careful examination we think the justice erred in directing a verdict, and for these reasons the judgment should be reversed and a new trial ordered, with costs to the appellant to abide the event. Van Wyok, J., concurs. Judgment reversed and new trial ordered, with costs to appellant to abide event.