Bank of Montpelier v. Joyner

Aldis, J. The defendant was indebted to Joseph Poland upon notes secured by mortgage to the amount of six hundred dollars. Poland, being indebted to the Bank of Montpelier, applied to Joyner for money due from him on his notes, in order to pay the bank. Thereupon Joyner executed the note now in suit payable to the Bank of Montpelier and delivered it to Poland, for him to get discounted and to apply the avails on his mortgage notes against Joyner. He took a paper from Poland acknowledging the receipt of the note, and that when discounted Poland should apply the avails on the mortgage note, and that if not discounted the note was to be returned. It appears that the two defendants, Gleason and Whipple, signed the note as sureties, but without any knowledge of the writing which Poland gave Joyner. To them it appeared merely as a note which they signed to enable Joyner to borrow money of the Montpelier Bank. The whole object of making the note was, on the part of Joyner to raise money to apply on the mortgage note, on the part of Poland to get pay on his mortgage note to be applied in extinguishment of his debt to the bank. Instead of getting the note discounted (for the bank refused to discount it) Poland left the note with the bank as collateral security for the debt he owed them, they allowing his notes to them to remain unpaid, and he allowing his mortgage note against Joyner to remain as it was. Was this such an unauthorized act such a departure from the purpose for which the note was given, as to make the note void in the hands of the bank ? The question whether a note given to raise money and made payable to a particular bank with the expectation of there getting it discounted, is valid in the hands of a third person advancing the money on it to the principal, has been differently decided by different courts. In Maine, Massachusetts and Ohio it is held not to be a valid note as against the sureties. In New Hampshire Vermont and New York the contrary doctrine has prevailed. In a recent case in this county the whole subject was very fqljy [484] considered, and the principle as previously held here re-affirmed. The opinion of Ch. J. Redeield, in Keith v. Goodwin, in the 31st Vermont, reviews all the cases cited by the defendants’ counsel on this argument, and makes any special examination of them now superfluous, and must be considered as the law upon the subject. Is there in substance any difference between that case and this ? In that case the bank refusing to discount, the money was advanced by a third person ; here the note was received by the bank as security instead of payment upon the debt to which its avails if discounted were to apply. If Poland did not object to this, Joyner and his sureties could not, for it could make no difference with them. The liability of the signers remained the same, and the very object for which the note was given was not departed from, but was in substance secured. If Poland had taken the note to some third person and got the money on it, it would have been exactly like Keith v, Goodwin. What difference is there if he retains it in his own hands to be treated as so much cash to be applied on Joyner’s note, or by pledging it to the bank thus makes it his own and entitles Joyner to treat it as cash. It is plain that Joyner’s and his sureties’ liability is precisely the same. It is said that if not discounted it was to be returned, but as between Poland and Joyner it may be treated as discounted in substance, for Poland by using it as his own precluded himself from saying that it was not discounted, and he did in fact accomplish the very end which a discount would have effected. As to the sureties they knew nothing ot the writing that was given by Poland to the defendant, and can have no higher equitable rights than Joyner. In principle we think the rights of the parties in this aspect of the case settled by the decision in Keith v, Goodwin. Since the decision of that case, we notice a recent decision in the 38th vol. of N. II. Rep., Banh of Newbury v. Rand, which very fully examines the authorities on this point and affirms the principle as held in this State. The case of the Banh of St. Albans v. Smith, in the 30th Vt., has been pressed upon the court as inconsistent with the view here taken. But we think a careful study of the two cases will not only show that they are consistent, but will well illustrate the principles upon which the decisions are founded, and why they are different. In the Banh of St’, [485] Albans v. Smith, the principal applied the note to a new use not contemplated by the surety, and which increased and extended his liability. He pledged the note as security for future advances, and that for an indefinite period of time and beyond the time at which the note matured, and the debt sought to be recovered of the surety was for advances made long after the note matured. If Smith had pledged the note for moneys then due from him to the bank, the case would have been like the one at bar. It is obvious that that case turned upon this very distinction : that it was a use which subjected the surety to an entirely new liability, viz., that of a continuing guarantor. But in the case at bar it made no difference to the defendants whether the note was held by the bank as discounted paper and applied to Poland’s use, or held as collateral, and applied to the same use. The original purpose remained unaltered and was accomplished, whatever the form of the transaction as between Poland and the bank. And this is the important fact- which distinguishes the two cases, and illustrates the principles upon which they stand. In the one the original purpose was departed from, in the other it was pursued, and in substance attained. II. If the note was valid in the hands of the bank against Joyner it was as against the sureties, and thereby Joyner acquired the right at once to have the amount applied on the mortgage note for which it was designed. The application of it by Joyner and Poland was not the reviving of a note that had lain dormant, or that had become dead by the payment of Poland’s notes to the bank for which he had pledged it. It was but doing that with it which Poland was long before bound to do, to apply it as payment on the mortgage note. He had substituted the note now in suit with its security for the mortgage note, by the use he had made of it, the very use for which it was intended, and so doing, by the agreement of the parties, he was bound to make the application which was made of it. By this application the original agreement was performed, and the original object attained. III. There is still another view to be taken of this' cas'e'. Before the note fell due, viz., on the 15th of May, and 17th July, 1854, Poland, by his letters informed Joyner that it was not discounted [486] but left with the bank as security for the note he owed them ; that the bank would give it up if his debt to them could be paid, and asks Joyner to allow him to use the note. To this Joyner does not appear to have made any objection, but allowed the note to remain in the bank for about a year when he applied it in payment on his mortgage notes to Poland. This conduct clearly shows that he waived the restriction that it should be returned if not discounted, and that before the nóte fell due, thus ratifying the use Poland had made of the note.' The sureties knew nothing of this writing, and if Joyner saw fit to waive it, they could not complain. This suit was brought'while the note was in the hands of the bank. Their equitable interest has since passed to Poland, but it would be manifestly unjust if the court refused to allow the case to remain in the name of the bank, for the benefit of the real owner, so long as the bank makes no objection and the rights of all others are fully preserved. Judgment reversed, and judgment rendered for the plaintiffs against all the defendants for the amount of the note.