Yates v. Donaldson

Tuck, J., delivered the opinion of this court. By the agreement of 23rd June 1848, the appellee and Garland became indebted to the appellant. As between them Garland owned two-thirds of the property, and Donaldson one-third; and this was known to the appellant at the time. If either had paid the whole or more than his proportion he would have been entitled to recover from the other for such excess, Owens vs. Collinson, 3 G. & J., 25; and his right of action would have accrued on the expiration of the time at which Yates himself, could have sued upon the agreement. It appears that before the expiration of that time, and before compliance with the agreement, by the delivery to Yates of notes for the amounts, and at the times stipulated, the purchasers made an arrangement between themselves to give separate notes for their respective interests, to which Yates assented, provided they were endorsed to his satisfaction. With this agreement the appellee complied, but it does not clearly appear whether Garland did or not. He says that he did not; but Homans slates that two of his notes, (for the amount due by Garland,) were endorsed and delivered to Yates; that he expressed himself satisfied and accepted them. Garland also states that the negotiation for the sale to Homans was carried on between them alone; and between Yates, Garland and Homans, as to the acceptability of Homans’ notes, which Yates had agreed to take from Garland if they were satisfactory to him. The principle is well settled, that the acceptance of a security or undertaking of equal degree does not extinguish the former debt, unless it be received in satisfaction, or be intended as an abandonment of the remedy on the first contract. It is equally clear that these are questions for the jury. Such an arrangement, h.owever, suspends the remedy on the first contract until the notes mature. Glenn vs. Smith, 2 G. & J., 493. Hunter vs. Van Bomhorst, 1 Md. Rep., 504. It follows, from this state of the law, that the prayers offered by the appellant should have been granted, except the ■sixth, unless there be something in the case overlooked in framing the prayers, to the benefit of which the appellee was — 397 — entitled in submitting the law of the case to the jury. And as to the sixth the instruction would also have been proper, if it had not submitted to the jury, the finding of a fact of which there was no evidence whatever, to wit, that the acceptance by Yates of Homans’ notes was at the request, and for the accommodation of both the parties, Garland and Donaldson. It is contended, however, on the part of the appellee, that the knowledge by Yates at the time of the purchase, that the purchasers held separate interests, and his afterwards dealing with them separately, for the security of their respective proportions of the debt, and accepting Homans’ notes, in the manner stated in the evidence, without the knowledge of the defendant, by which time was given to Garland, have discharged the appellee from all liability on the original contract. If Donaldson had been merely surety for Garland this view of the case would be certainly correct; for time given to a principal will discharge the surety, because it places him in a new situation in reference to the principal debtor. But here both parties are principals according to the agreement, and how can it appear that a party to a joint contract is a surety for part of the debt, except by going out of the instrument? Can this be done at law where both are sued? If one be released both will be, except in a case where the remedy against the other is expressly reserved, as in Clagett vs. Salmon, 5 Gill & Johns., 354, and the cases there cited. Where the act of the creditor operates a release of the storety, there can be no difficulty in enforcing this principle, mie remedy is gone entirely. But in a case where both are principals, how are the equities between them to be adjusted in a suit at law by the creditor against both? If time given to one released the other, the discharge would avail only to the extent of that portion of the debt which was due by the party to whom time has been given. The party not indulged would, at any rate, be liable for his own proportion of the debt. Supposing that this might be easily worked out to its proper result in a case like this, where one party is liable for one-third, and the other — 398 — for two-thirds, and the verdict is to be rendered against one only, because the other has confessed a judgment, the difficulty of doing complete justice among all the parties, is apparent in a case where there are several parties to the contract, who are defendants in the cause, liable in different proportions as among themselves, though all responsible to the creditor in the first instance. It would be impossible to render a judgment upon any adjustment of these equities. The judgment at law must be for the same amount against all the defendants. It is not a sufficient answer to say that the appellee paid his share, and that therefore this difficulty could not arise. We are dealing with a principle, upon which, the party, if discharged at all, was exonerated at the moment the indulgence was given by the arrangement with Garland as to Homans’ notes. At which time the appellee’s part had not been paid, because the notes passed for his share did not^er se extinguish his liability. We have not been referred to any case at law, in which such a defence has availed, while there are some to the contrary. In Bedford vs. Deakin, 2 Barn. & Ald., 210, one of the members of a dissolved firm undertook to pay the joint debts, and this was made known to a creditor who received his notes for the amount of the joint indebtedness, which notes were subsequently renewed, and not paid, the original partners were held liable on the joint note. It is true that the creditor reserved his remedy on the first note and retained possession of it, and sued on it; but all this was unknown to the other partner. The creditor had given time, without his assent to the settling partner, and he had failed after being so indulged. The judges, Abbott, Bayley and Holroyd, agreed that the first debt was not extinguished. They notice the very argument employed in this case, the injury to the appellee by preventing his recourse on the agreement if he had paid the debt, by saying that as joint debtor, it was his duty to have seen the debt was paid; and the last judge says: “The dishonor of the bill gave a right of action against all the partners, and the circumstance of a creditor — 399 — giving time to one of three joint debtors will not discharge the others, nor even suspend his right of action against them.” In Manley vs. Boycot, 18 Eng. Law & Eq., 357, the defendant, who was one of the makers of a promissory note, to an action against/him by the payee, pleaded that he made the note as surety for another and for his accommodation, which was known at the time to the payee, and that after the note had become due the plaintiff gave time to the other maker, without the consent of the defendant. It was held, that this was no defence to the action. Lord Campbell said, “that the plea was bad in not alleging that the note was delivered by the defendant as surety for the other parly. The bona fide holder of a bill or note cannot be prejudiced in the rights which he prima facie has, according to the terms of the instrument, by knowledge subsequently acquired, or even by knowledge which he has at the lime he takes it, if there is no evidence of a special agreement at the time when he takes it to affect the rights and liabilities of the parties. If the payee of a joint and several promissory note made in the common form by two, may be placed in a situation for treating one as surety for the other, it can only be by bis express assent to do so when the note was delivered to him.” The case of Smith vs. James, same vol. 353, note, is likewise in point. Perfect vs. Musgrave, 6 Price, 111. Sprigg vs. Bank of Mount Pleasant, 10 Peters, 257. See also Rees vs. Berrington, 2 Ves., Jr., 542, and in 2 White & Tudor’s Eq. Cases, 707, (72 Law Lib., 352,) and Forsyth on Composition with Creditors, ch. 8, in 1 Lib. Law & Eq., 34, in both of which the subject is fully treated. The same principle has been often applied in the instance of accommodation notes, where the endorser is the real debtor, as between him and the maker. Although releasing the endorser does not discharge the maker, for the reason that the latter can have no claim against the former, if he should pay the debt, it being his own, yet equities between them will not vary the legal principle, and affect the operation of tire-instrument, where the party seeking to shield himself, as. — 400 — surety, appears to be a principal. He will not be allowed to-deny the character in which he appears on the paper. In Carstairs vs. Rolleston, 5 Taunt., 551, which was an action by the assignees of Kensington & Co. upon a promissory note,of which they were endorsers, and (he defendants the makers;the latter pleaded that they made the note as sureties for one Rolleston and not on their own account, and that K. & Co. had' since released R. from all their claims against him.Rolleston was an endorser; but the court held the release to him was no ground of defence, the defendant being the maker. This, however, was a case in which the slate of the business,, as between the maker and endorser, was unknown to the holder of the note, and Lhe court reserved its opinion in such a-case. But in Fentum vs. Pocock, 5 Taunt., 192, the same point was ruled without reference to knowledge on the part of the holder. Mansfield, C. J., alluding to the judgment of Lord Ellen’oorough, in Laxton vs. Peat, 2 Camp., 185, says: “We think we are bound to differ from him, and to hol'd that it is impossible for us to consider the acceptor of an accommodation bill in the light of a surety for the payment’ by the drawer, and' that we cannot, therefore, say that he is' discharged by the indulgence shown to the drawer. If the holder had known, in the clearest manner, at the time of his taking the bill that it was merely an accommodation bill, it would make no manner of difference, for he who accepts a bill, whether for value or to serve a friend, makes himself in all events liable as acceptor, and nothing can discharge him but payment or release.” And Lord Tenterden, in Yallop vs. Ebers, 1 Barn. & Adol., 698, said: Laxton vs. Peat, where it was held that an accommodation acceptor might be considered as a surety, has been long overruled.” This question came before (he Court of Appeals in Clopper vs. Union Bank, 7 H. & J., 92, and the maker of the note was held liable to the bank which discounted it, with knowledge that it was for the accommodation of the endorser, even after the bank had given time to (he endorser. In every bill of exchange the acceptor, and in every promissory note the maker, is, in law, the principal, and is first liable, and- every endorser — 401 — In tbe order in which his name appears on the bill or note. There is no difference between accommodation notes and those negotiated for value. The court will look to the relation that parties bear to each other on the instrument itself, and determine their liabdities accordingly. The cases cited on the part of the appellee show, that there must be an agreement to discharge or something that amounts io an abandonment of the remedy on the first contract, and that this must be left to the jury, except, in those cases where the nature of the evidence is such that the court must pass upon its construction and effect. In Harris vs. Lindsay, 4 Wash. C. C. Rep., 271, the court said, if it be agreed on dissolution, that one member shall pay the debts, they are yet bound as principals, so that no indulgence granted by a creditor to the paying partner, which falls short of an agreement, express or implied, to take him as (lie debtor and to discharge the other, can place them in the situation of principal and surety so as to discharge the retiring partner. To support a defence of this kind, such an agreement must be satisfactorily made out. (See also page 98.) The retiring partner in that case was discharged, because, in the opinion of the court, “the new contract amounted to an agreement to discharge Lindsay, and the intention of the parties formed no part of the question which the jury had to decide. There were no circumstances in the case other than such as grew out of written documents, the construction and legal effect of which were proper for the consideration and decision of the court.” But it. was also held, that if the agreement be a mere inference from circumstances tending to show that such was the intention of the parties, the jury were the proper judges of such intention. In this case the evidence, as is insisted, was taken in writing, as by a commission, but that is not such as Judge Washington meant when he spoke of documentary proof. The present case, however, is not as favorable to the appellee, as far as concerns the propriety of the proposed defence, as those to which we have referred. Here the defendant does not. pretend that he was surety for the whole debt; his original liability for one-third is admitted. And hence, the greater — 402 — difficulty of allowing such defences, at law, than where the party claims that he was mere surety for the whole, and that he has been altogether released by the acts of the creditor. If the law be correctly stated in the cases cited, it will apply more strongly and with greater reason to the one under consideration, where the party insisting on the benefit of this equity was at any rate liable for a part of the debts. Upon a careful consideration of the record and of numerous decisions, we are of opinion that the appellee was not discharged at law; the principle deducible from the cases being, as we think, that where the party does not appear on the instrument to have made himself liable as surety, he cannot, at law, avail himself of the equities between himself and the Other parties to the instrument, unless he was accepted by the creditor as a surety, or has been discharged by the acts of the creditor, according to the principles recognized in Glenn vs. Smith, 2 G. & J., 493. The first of the appellee’s prayers assumes that he was discharged by Yates having taken the notes of Donaldson for one-third of the original purchase money, without reference to the question of agreement to take them in satisfaction of his liability on the contract, or of intention to release him. As the case is presented on that prayer, these notes when paid amounted only to a part payment of the original debt. The second, we think, should also have been refused. If the plaintiff agreed with Garland to take Homan’s notes in satisfaction of the amount then due by Garland, provided they were satisfactory to him, and did actually accept them, in performance of that agreement, the appellee was discharged; and had the jury been left to find that the plaintiff assented to-the arrangement on that condition, that Donaldson complied on his part, and that Yates accepted Homan’s notes, as performance on Garland’s part, the prayer would have been proper. The arrangement, if complied with, would according to Judge Washington, have amounted to an agreement to discharge the parties from the first contract. But this prayer omits a fact material to be found, viz: the acceptance by Yates of Homan’s notes, in performance of Garland’s part of this new arrangement.. — 403 — The third prayer of the appellee was also erroneous. It assumed the defendant’s right to a verdict on the delivery by him to Yales of notes for his third of the purchase money, under an agreement supposed in the prayer, which the jury were left at liberty to have implied from the proof adduced, when, as we think, it was not competent for them to have found any such agreement by implication, even conceding that there was no necessity for an express agreement, in order to discharge the party. In the case of Oakeley vs. Pasheller, 10 Bligh., 548, (relied upon by the counsel for the appellee) before the House of Lords, on appeal from the lord chancellor, it was held that by arrangements between the surviving partners and the representatives of a deceased partner, the former had assumed a joint debt, and the latter had become sureties only, and that the extension of time granted this new firm, without the knowledge and assent of the representatives of the deceased partner, had discharged the latter; the creditor knowing that these arrangements had been made. We do not question this doctrine as between creditor and surety debtor, where that relation exists. That is the principle in Harris vs. Lindsay. In equity the court decides both the law and the fact; but, in cases like this, whether the relation of the parties is changed or not, depends on intention, and at law, that must be submitted to the jury. If we were sitting in equity, that case might be entitled to great weight, being an opinion of Lord Lyndhurst, affirming the master of the rolls, and the lord chancellor. We think, however, it does not contravene what we suppose to be the principles governing courts of law. Upon the remedies in equity in such cases, we express no opinion. Judgment reversed and procedendo awarded.