First National Bank v. Diehl

Opinion by Mr. Justice Elkin, There are eight joint indorsers on the note on which this suit is brought. They were all notified of nonpayment at maturity, and therefore, on their promise to pay on the single condition that the maker do not, became liable for the whole amount due and unpaid. The appellant made out a prima facie case by prolong the execution of the note, together with the indorsements, and by showing that notice of nonpayment at maturity had been given. The defendants in the court below successfully contended that they were discharged because of an agreement entered into between the bank and one of the joint indorsers, which was construed to be equivalent in legal effect to the giving of time to the maker. It is true that in the application of settled rules of law in the administration of the law merchant, the relation of principal and surety is so far recognized that an indorser may be discharged by the holder of a negotiable instrument giving time for payment to the maker. This rule is founded in reason and equity. One who becomes an accommodation indorser for another, does so without any benefit accruing to himself, and has a right to insist that the fixing of his liability shall be limited to the time named in the paper indorsed by him. His promise is to pay, if the maker do not, when the note matures. He voluntarily takes upon himself the burden of answering for another’s debt, and.hence the law says if the holder enters into an agreement with the maker whereby the time of payment is extended, or new conditions introduced, without the consent of the indorser, he is discharged from liability because the holder, having taken a new and inconsistent security, or having made a new agreement with the maker as to the time of payment, is held to have abandoned the old one. In the present case the holder of the note did not enter into an agreement with the maker to extend the time of payment, nor did it demand or accept a renewal of the protested note. The original note remained in the possession of the bank since maturity. Several partial payments were made and credited on it. This action is to recover the balance due. The agreement on which appellees rely to defeat a recovery is between the bank and Koller, one of the joint indorsers, and was entered into under the following circumstances. The bank held certain paper in [592] which. Roller, either as maker, indorser, or as furnishing collateral, or as president of the carriage company, was interested. It is quite evident that the bank, for its own protection, wanted Roller to personally assume the entire indebtedness, and in consideration of this assumption he was to have an extension of time on the notes not included in this suit. As to the note in suit it was provided that “ if the said Roller shall pay as soon as possible within sixty (60) days the said five thousand ($5,000) dollar note, described as No. 3,” then and in that event the bank would do the things agreed upon with respect to the other notes. The learned court below held that in legal effect this amounted to an extension of time to the maker for the payment of the note in controversy, and that the other indorsers were discharged from liability on this account. We cannot accept this conclusion as a correct view of the law and the facts in this case. The protesting of the note fixed the status of the parties and the liability of the indorsers. The bank could then proceed against the maker, or against the indorsers jointly. It was the right of each indorser to voluntarily pay the note after maturity and protest and then proceed against the maker for the amount due thereon, together with interest and proper costs, or against the other indorsers jointly liable with him for contribution. This was the legal situation, after maturity of the note and notice of nonpayment. The holder could not, without the consent of the indorsers, enter into any agreement with the maker whereby the time of payment was extended, or any other thing permitted to be done, the effect of which would be to deprive them of any right which they had when their liability as indorsers attached by notice of nonpayment. The arrangement with Roller was that he pay as soon as possible and at most within sixty days. There is no reason why the bank should not say to him or to the other indorsers, your liability being now fixed, you must pay as soon as possible, and if you fail to pay within sixty days we will not refrain any longer from proceeding to collect. This, in legal effect, is what the bank agreed to do, and this agreement was with an indorser not the maker. It did not deprive the other indorsers of any of their legal rights, nor did it deny to them the privilege of paying at any time and then [593] proceeding against the maker or the other indorsers. Therefore it did them no harm. The maker of the note was the Cosmos Carriage Company, and no agreement was made with this company for an extension of time. It is argued that because Koller was the president of the carriage company, his act as an individual in securing what is alleged to be an extension of time inured to the benefit of his principal, the carriage company. This position cannot be sustained. The facts agreed upon and in evidence do not warrant any such conclusion. We do not see that the carriage company had anything to do with the agreement between the bank and Koller, nor was its liability affected thereby. As a legal entity the carriage company acted in its corporate capacity entirely independent of the personal obligations of its stockholders or of the individual acts of its officers and directors. There is nothing in the evidence to show that there was any fraud, collusion or misrepresentation between the parties to this transaction, nor do we understand that bad faith or abuse of fiduciary relations is charged. We are simply asked to hold, as a matter of law, that because Koller as an individual had indorsed the note while he was president of the carriage company, any agreement made by him as an individual relating to the note will be presumed to be the act of the corporation and intended for its benefit. We are not familiar with any law to support this position. Koller as an individual had a right to enter into any kind of an agreement he chose to make with the bank, and the corporation of which he was president was in no way affected thereby. It is perfectly clear, therefore, that the agreement in question did not extend time for payment to the carriage company, the maker of the note. We quite agree with the learned counsel for appellant that the agreement did not contain any provision whereby the bank precluded itself from proceeding at any time to collect from the maker, the Cosmos Carriage Company, or from accepting payment from any of the indorsers, and immediately thereupon delivering the note for suit or any other process desired. Mere delay in enforcing the collection of the note after maturity when the liability of the indorsers had become fixed by law under the circumstances of this case will not discharge the sureties from their obliga [594] tion to pay. This case comes reasonably within, the rule of Zane v. Kennedy, 73 Pa. 182, and Schaffstall v. McDaniel, 152 Pa. 598. Judgment reversed and record remitted to the court below with instructions to enter judgment for the plaintiff non obstante veredicto.