Walters v. Swallow

The opinion of the court was delivered by Kennedy, J. The case is very imperfectly stated in the paper book, which has been furnished of it; but as I understand it, the following questions are presented for our consideration. First, If the holder of a negotiable note, at the time it becomes payable, without the knowledge of a second endorser, calls upon the first endorser thereof for payment, who says he is unable to pay then, but wishes the holder to extend the time of payment for thirty days; and to induce him to do so, draws and delivers to him a second note, securing the payment of the amount of the interest that shall accrue or become due on the first note at the end of the thirty daj^s, which is accepted of without objection, and retained by the holder; will this amount to such an agreement, on the part of the holder, to give time to the first endorser for the payment of the first note, as will in law discharge the second endorser thereof 1 Secondly, will a pro-' mise, by an accommodation endorser to pay the, first note, made after the acceptance, by the holder of the second note, be binding upon the endorser 1 And if so, will a subsequent transfer of the first note, by the endorsement of the holder, transfer also the. right to the subsequent endorsee to recover'in his own name the amount of money mentioned in the first note, from the endorser upon his promise made as aforesaid to pay it 1 In order to decide the first question, it will be proper to take into consideration the design and object for which the second note was given and accepted. It is clear that the avowed object of the drawer, at the time of giving it, was, that he might obtain an indulgence of thirty days for the payment of the first note. It appears that this was the only reason mentioned by either of the parties then for giving the second note; and being accepted by the payee or holder of the first nóte, with a full understanding of the motive and purpose which influenced the drawer to give it, he must be considered as having agreed to give the thirty days indulgence asked for on the first. An explicit declaration'on his part, agreeing to give this indulgence, had he made it, could not be regarded as more satisfactory evidence of his assent in tips respect, than is necessarily implied in his acceptance of the second note. It is only upon the ground of his having granted the indulgence of thirty days for the payment of the first note, that his conduct, in receiving the second can be justified; for if he did not intend to allow or bind himself to [450] grant it at the time, he intended to practice an unwarrantable deception upon the drawer, which the law will not countenance or permit •him, after what he has done, to allege. Now if the agreement made after -this sort, by the holder of the first note, to grant indulgence for the payment of it to the maker, without the consent of the endorser, and more especially an accommodation endorser, as it appears was the case here, be binding upon him, it is perfectly clear, according to all the authorities oh the subject, that the endorser was thereby discharged from his liability to pay it. And why is not the agree■ment binding upon the holder of the note as well as the maker? For I presume it will not be denied that the latter was bound, and became liable to pay in discharge of the second note, the amount of the interest which otherwise would have accrued on the first note at' • the end of thirty days. The consideration for giving the second note, that is, the grant of indulgence, was clearly sufficient to support and make it binding. If then the agreement for indulgence was binding upon one of the parties to it, it must, according to the general 'rule, be so on both. It would be very inequitable and unjust if it were not so. The only reason given for its not being binding upon the holder, is that he could derive no possible advantage from it; because if he suffered the first note to lie over for the thirty days, without any agreement to do so, the maker and the endorser would both have been liable for the accruing interest.upon it, as well as-the principal. But notwithstanding this vrould have been so, yet it. must be remarked, that if the first had not been paid with its accruing interest at the end of the thirty days, but remained unpaid afterwards, no interest could have been claimed of either the maker or endorser of it upon the interest which had accrued thereon at the close of the •thirty days. But the holder by. taking the second note, thereby secured to himself the right of demanding from the maker interest on the sum mentioned therein, commencing at the expiration of the thirty days, if it remained unpaid after that time, until -paid, which was converting the interest for the thirty days on the first note into principal, and obtaining a right to demand interest upon it after-wards if it remained in arrears; that is, in other words, to demand and receive interest upon interest, which if received would have enlarged the sum that the holder would, otherwise have been entitled to. And although it would have been but small, still it would have been an advantage or benefit to him of some value; and therefore was a sufficient consideration of itself to make the agreement for indulgence binding upon him. The circumstance of the drawer’s having become insolvent, so that the agreement for indulgence is likely to iproduce a loss instead of a gain to the holder, can and ought not to have any bearing upon the .question. It wras for the holder to consider'of .that before he entered into the arrangement that he made. But having made it, he must be deemed to have elected to. take the risk of loss upon himself, which might happen to [451] arise from the maker’s becoming insolvent; and this he had an ■unquestionable right to do. There is also another view, if it were necessary, under which the acceptance of the second note might, ■perhaps, be held sufficient to bind the holder to^forbear payment of the first for the thirty days. If the maker of the first, instead of ' giving the second, had paid the amount of the interest on the first in money for the thirty days, it will scarcely be denied that the holder after receiving it would have been bound to have waited for the thirty days. But in Musgrave qui tam v. Gibbs, it was ruled, that the giving up a second note for the payment of usurious interest on the first, was equivalent to a payment of it in money, and the usury thereupon was rendered complete. We therefore are of opinion that the-District Court erred in their instruction to the jury on this question. Now as to the second question. If, as has been shown, the endorser became discharged by the agreement of the holder to give time, from his liability under his endorsement of the first note, to pay it, his subsequent promise to do so would not be binding upon him, unless it can be shown that there was a sufficient consideration for making it. It appears from the evidence that he derived no benefit from his endorsing the note to the holder, who discounted it, except that he received out of the proceeds arising from the discount, payment of a debt of about one hundred and fifty dollars, owing to him by the maker; that otherwise the note was discounted for the benefit of the maker, who recejved the residue of the proceeds, amounting to two hundred and ninety-five ■ dollars and thirty-two cents, and was to pay the whole amount of the note when it should become payable. Pie was therefor the real debtor; and the note may be considered as having been wholly discounted for his benefit alone. ‘ It cannot then be well said, under this view of the matter, after .being discharged from all liability on his endorsement, that the endorser was under any obligation, either legal, .equitable or moral, to pay the note; hence his promise to pay it afterwards, if he ever made any, must be considered purely gratuitous and without sufficient consideration to bind him. We therefore think that the District Court erred in their instruction to the jury on this point also. But if it were 'binding, can the defendant in error, who was the plaintiff in the District Court, where the action was commenced and tried, recover upon the promise? It was not a promise made by the endorser to revive' his endorsement, or former liability under it; but a separate and distinct promise to pay the amount of the note. There is therefore no pretence for claiming that the endorser can be held liable upon his endorsement: if liable at all, it must be on his subsequent promise. But this promise being merely verbal, is not assignable at' common law; nor is it made so by statute; so 'that the plaintiff below, not being a party to the promise, nor the promise made for his benefit, cannot claim to recover upon it in this [452] aetion, which is brought in his own name. This last question does not seem to have been raised in the court below; but being intimately connected with the second, it could not well be passed without a notice. The judgment is therefore reversed; and a venire de novo awarded. Judgment reversed; and a venire de novo awarded.