Bank of St. Albans v. Smith

The opinion of the court was delivered by Bennett, J. The plaintiffs seek to recover on the note now in suit three hundred dollars, and the interest on it, which sum the bank advanced to Gardner G. Smith on his individual note, dated some six months after the note now in suit, and the question is whether the bank can recover on this note against the defendant upon the facts, which upon the bill of exceptions, we are to assume as established. Under the uniform course of decisions in this state it was competent to show by parol, that the defendant was but a surety on this note, and if this be known to the holder of the paper, he stands on the same ground he would have done if the defendant had affixed to his name the word “ surety.” A change made in the contract of suretyship between the creditor and debtor without the assent of the surety, whether prejudicial to him or not, discharges the surety. Bonar v. McDonald, 1 English Law and [152] Equity 1; Miller v. Stewart, 9 Wheaton 680. The first inquiry then is, what was the contract of suretyship in this case ? The note is for four hundred dollars, payable to the bank in ten days from date, and this fact raises the presumption that when it matured the principal debtor was to take care of it, and there is nothing in the case to rebut this presumption. Though it is to be taken that the principal agreed with the bank that they should hold the four hundred dollar note as a continuing guaranty to secure what they called minute loans to the principal, yet this was not by the assent of the surety. The liability of the surety upon the the face of the note is for the payment of four hundred dollars at the end of ten days. This is quite a different thing from standing as a continuing guarantor. The case of Bloxsome et al. v. Neal et al., decided in King’s Bench in 1832, cited in note to Chitty on Bills 219, 220, marginal pagings, 12th American Edition from the 9th London Edition, is strongly in point. That was a case against two signers of a note given to secure the balance of an account kept with the plaintiffs who were bankers, by a firm engaged in the lumber business, who subsequently failed. The facts were, that there being a balance due the plaintiffs of one thousand pounds, as they claimed, they refused to continue the account without security, and that consequently the note in question was given, payable in nine months. When the. note matured the balance was reduced to six hundred pounds, and the note was not presented for payment, but the plaintiffs continued to hold the the note and went on discounting bills for the lumber merchants, and receiving bills from the firm, which the plaintiffs put to their credit as cash. After this the bankers required fresh security, and one of the firm proposed that the note in question should continue as a guaranty for future advances, and Porter, one of the lumber firm testified that the note was given as a security for the one thousand pounds then due, and which were to be paid off in bills paid in upon the running account, and that when the note became due the balance was reduced and was ultimately turned in their favor. Subsequently the balance was against them, and the bankers refusing to go on, he (Porter) proposed that the note should [153] continue as a general guaranty, but without the authority of the defendants. There was some evidence in the case tending to show that the note was originally intended to be a continuing guaranty. The case was put to the jury to find whether the note was given to secure a specific balance due at that time which had been reduced by bills, provided the bills by the agreement were to be treated as cash; and secondly whether it was intended to be paid in cash or given up when due, or was to be a continuing guaranty. Lord Tenterden, in his charge to the jury, told them that the fact of the bill being made payable at nine- months, raised a presumption that it was to be paid or given up when due, and that if Porter had agreed with the bankers that the note should be a continuing guaranty, it did not appear that he had any authority from the defendants to do so, and if he had not, they would not be liable. Verdict being for the defendants, and a rule nisi for a new trial having been obtained, it was, it is true, made absolute, not upon the ground that the charge was theoretically incorrect, but simply upon the ground that it was not clear upon Porter’s own evidence that the balance was in favor of his firm, at the time the note matured. The case of Prescott v. Brinsley et al., 6 Cushing 234, proceeds upon the same principle. The note was payable to the Appleton Bank, and two of the signers were sureties and appeared as such on the face of the note, and it was held the principal could not bind the sureties by the sale of the note to some other person, without their consent, the purchaser being chargeable with notice of the suretyship, and that the note was intended to be used at the bank. The case of the Bank of Burlington v. Beach, 1 Aiken 62, has no analogy to the case at bar. There the court, from the facts in the case, considered that the bank had adopted the payment made by Wood & Co. upon the note, so that for the purposes of that suit, the acts of Wood & Co. were regarded as the acts of the bank. If John Smith is to stand as a continuing guarantor on this note, to secure the payment of minute loans, made to the principal, it is binding him to a contract which he never made. The law merchant cannot help the plaintiffs. They stand as promissees of the note, and they took it with notice that the defendant was but a surety, and to permit them without the [154] assent of the surety to turn this note into a standing guaranty would be a gross fraud upon the surety. There is no pretense that the plaintiffs ever gave notice to the defendant that they were holding this as a continuing guaranty, until some six years after the advancements were made to the principal. The cases relied upon by the plaintiffs are not like the one at bar. In Brush v. Scribner, 11 Conn. 388, the paper was negotiated to a bona fide holder for value, and without notice in the due course of commercial business. The note in the case of The Commercial Bank v. French was payable on demand and the court put the case upon that ground, and say that it was not to be presumed the note was to be discounted, or that payment was to be demanded immediately, and that as no time was fixed it could not be considered a prolongation of credit. In Atwood v. Crowdie et al. 2 Eng. Common Law 478, the defendants were accommodation acceptors, and the bill was sent to the plaintiffs on account by the indorsers, and that, Lord Ellen-borough said, meant a floating account between the indorsers and the holders of the bill, and that although the balance was in favor of the indorsers when the bill matured and might have been then reclaimed, yet, by the indorsers permitting the bill to remain in the hands of the holders, it would be subject to fresh advances made to the indorsers by the holders when the balance turned in favor of the holders. On the whole, we think the judgment below should be affirmed.