Patterson v. Bank of British Columbia

Opinion by Mr. Justice Wolverton. Plaintiff’s contention, tersely stated, is that he is an accommodation maker, and as such he executed his note for fifty-two hundred and eighty-one dollars and twenty-nine cents to the Portland Smelting and Refining Works, without consideration, for the purpose of giving the smelting company credit with the Bank of British Columbia; that said note having been indorsed to the bank as collateral security for advances made and to be made to the said company upon its checks and overdrafts, he had a legal right to revoke his accommodation contract by notice to the bank and the company; that he did give notice to the bank and to the said compay July eleventh, eighteen hundred and ninety-two; that the company had then over-checked or overdrawn its account with the bank in the sum of fourteen thousand three hundred and fifty-six dollars and six cents, but that subsequently, and prior to the commencement of this suit, the company had deposited divers sums with the bank aggregating seventeen thousand five hundred and thirty-four dollars and seventy-six cents; that, notwithstanding the company had at the commencement of this suit overdrawn its account with the bank in the sum of seventy-one thousand one hundred and thirty-three dollars and sixteen cents, he was entitled to have the said deposits applied in discharge of the oldest items in the account, and that the indebtedness to the bank on July eleventh, eighteen hundred and ninety-two, was extinguished thereby, and that, therefore, having duly revoked his accommodation contract, he is entitled to have his paper returned to him. — 521 — Two questions arise here, and we will consider them in their inverse order. By arrangement with the bank, advances were made upon the overchecks or overdrafts of the smelting company. At the end of every month interest was charged up by the bank at the rate of eight per cent, upon these advances. The items upon the debit side of the account were numerous, extending through a period commencing December thirty-first, eighteen hundred and ninety-one, to March twenty-seventh, eighteen hundred and ninety-three. Upon the other hand, the company from time to time had deposited with the bank divers sums of money, which were placed to the credit of the smelting works’ account as they were deposited. Twice during said time balances were struck in the account, and brought down. These transactions between the company and the bank constituted an open, running, or current account: 1 Morse on Banks and Banking, § 289. Where payments are made generally upon an open current account, and by the creditor placed to the credit of such account in the usual course of business, there being no special application made of the payment either by debtor or creditor, the rule is that the law will apply the payments to the oldest items upon the account: McDonald v. The Tom Lysle, 48 Fed. 690; Lazarus v. Friedheim (Ark.), 11 S. W. 518; Jones v. United States, 7 How. 687. Mr. Justice Story, in United States v. Kirkpatrick, 9 Wheat. 720, says: “The general doctrine is that the debtor has a right, if he pleases, to make the appropriation of payments; if he omits it, the creditor may make it; if both omit it, the law will apply the payments according to its own notions of justice. It is certainly too late for either party to claim a right to make an appropriation after the controversy has arisen, and, a fortiori, at the time of the trial. In cases like the present, of long and running accounts, where debits and — 522 — credits are perpetually occurring, and no balances are otherwise adjusted than for the mere purpose of making rests, we are of opinion that payments ought to be applied to extinguish the debts according to the priority of time: so that the credits are to be deemed payments pro tanto of the debts antecedently due.” To the same effect is Steenberger v. Gowdy, 93 Ky. 146, 19 S. W. 187. It seems to be the common-law rule that the law applies partial. payments in matters of running accounts to those items that are the most precarious; and as the first items of the account may be first barred by the statute of limitations, the partial payments must be applied to them, in the absence of an agreement or undertaking to the contrary. See also Field v. Holland, 1 Am. Lead. Cases, 358. So that in the present case the payment of the seventeen thousand five hundred and thirty-four dollars and seventy-six cents made subsequent to July eleventh, eighteen hundred and ninety-two, would by law be applied to the extinguishment of the amount due the bank upon that date. And now as to the second proposition. An accommodation maker of a promissory note, who has executed the same, without consideration, for the purpose of giving the payee credit with a third party, may, before the note is negotiated or comes into the hands of a third person for value, revoke his accommodation contract, and recall his paper. The validity of such paper is sustained upon the principle that where a person, for the accommodation of another, holds himself out to the world by his signature to be obligated to that other, he will not be heard to deny his obligation for want of consideration. By affixing his signature he loans his credit, to the extent of the note, for the benefit of the payee, without restriction. It is requisite, however, in order to give the paper vitality, that it be negotiated. Hence the accommodation party, before his paper has passed into the hands of a third person in — 523 — due course of business for value, may withdraw his liability and rescind his engagement: 2 Randolph on Commercial Paper, § 474; 1 Daniel on Negotiable Instruments, § 191; Dogan v. Dubois, 2 Rich. Eq. 85; Macy v. Kendall, 33 Mo. 164. This, however, does not comprehend the whole proposition upon which plaintiffs contention is based. His paper has been negotiated, and he is seeking now to relieve himself from his obligation or liability after it has been endued with vitality by passing into the hands of the bank for value and in the usual course of business. Whether he has relieved himself or not by notice to the bank and said company involves the examination of other propositions. The note in question, with all the other notes, passed into the hands of the bank as a pledge, as collateral security for future advances to be made from time to time to the smelting company, not exceeding the sum of one hundred thousand dollars. These notes were not pledged for any definite or certain time, nor for any definite amount, so that it did not exceed one hundred thousand dollars. The bank had a mutual running account with the smelting works, which varied from day to day, according to the transactions between them; sometimes the amount due the bank would be small, at other times large. The smelting company had a continuing credit with the bank, which was based upon and supported by the note in question, together with the other notes so pledged. The bank had notice at the time that the notes were all executed solely for the accommodation of the, smelting company, and for a specified purpose, that of securing the bank for future advances to the company. Could this continuing credit be terminated, and the liability of plaintiff fixed, by notice to the bank and the smelting company? If all the note makers were acting in unison in giving notice and demanding a cessation of credit, I can see no good reason why the — 524 — bank would not be bound to take cognizance of such notice and demand, and thereafter deal with the smelting company upon its own credit, assimulating the makers to that of guarantors under a continuing guaranty. Such a guaranty is revocable at any time by notice, but in so far as the guaranty has been acted upon the notice is without effect. “A promissory note pledged before maturity as collateral security for future advances, is good in the creditor’s hands for all advances made before he has notice of equities between the original parties; but not for advances made after such notice, unless the creditor at the time of taking the security bound himself to make advances to a definite amount”: Jones on Pledges, § 106; Brandt on Suretyship and Guaranty, § 134; Offord v. Davies, 12 C. B. (N. S.), 748; Agawam Bank v. Strever, 18 N. Y. 513. These note makers are all principals upon the face of the notes, and their engagements are several, not joint, nor joint and several; but, as between themselves, they are sureties, made so by virtue of the collateral written contract entered into by them, the material part of which is as follows: “It is mutually agreed between the undersigned that we will become responsible for and indemnify and reimburse such of the guarantors to said fund of one hundred thousand dollars, such proportion thereof, to the extent of our respective interests in said Portland Smelting and Refining Works, * * and in the event that any one of the undersigned shall be compelled to pay more than his due proportion of any of the moneys so borrowed from the Bank of British Columbia, we severally undertake and agree to reimburse him to the extent of our proportion as herein above stated.” But plaintiff, a single one of these numerous note makers, has endeavored to fix his individual liability, and to stay the credit created by his note. In considering this question the fact must not be lost sight of that this is a proceeding by plaintiff to — 525 — obtain possession of tbe note, and to terminate all liability thereon, which, if successful, would sever his relations with the bank, thereby relieving himself from liability in the first instance, and, while the right of the other note makers would probably remain to enforce contribution, should occasion arise under the contract, this is not the spirit of the agreement, and it would be inequitable and unjust to permit the correlative relationship and liability of the parties thereto to be thus changed or severed. The other note makers were at least entitled to notice of plaintiff’s intention to terminate his liability for further advances by the bank, so that they could, if desired, require an accounting at once, and a settlement of the whole business upon equal equities. It follows that the notice given, and the subsequent transactions at the bank, were not sufficient to relieve plaintiff of his liability, or to entitle him to the surrender and possession of his note. The plaintiff claims, however, that the commencement of this suit was equivalent to notice to the other note makers, and that since it is ascertained that on the twenty-sixth day of November, eighteen hundred and ninety-two, the day upon which the complaint was filed herein, there was a balance due the bank of seventy-one thousand one hundred and thirty-three dollars and sixteen cents, and that since said date and the twenty-fifth day of March, eighteen hundred and ninety-three, “the time Mr. Good gave his testimony,” the smelting company deposited the sum of ninety thousand and eighty-seven dollars and sixty cents, or eighteen thousand nine hundred and fifty-four dollars and forty-four cents more than was necessary to extinguish the amount owing to the bank at the time this suit was commenced. Were this position tenable, the amount of plaintiff’s liability and the corresponding lia. bility of the other note makers would be dependent upon the time when the testimony was rendered as to the con — 526 — dition of the account at the bank. This might be within a few days, or it might be after a year or two, so that it would be problematical whether plaintiff had or had not a cause of suit at the time of its commencement. A party’s cause of suit must be complete, and his status and that of the defendants fixed, at the time suit is instituted, and whether he has a cause of suit or not is measured by fee relation of the parties at that time. There is a class of cases wherein it is held that the commencement of an action or suit is equivalent to a demand, but we are unable to find among the authorities any case in which it is deemed equivalent to notice. Where notice is required, it is a condition precedent to the bringing of suit, and no suit or action can be maintained without it. To hold that the bringing of a suit is equivalent to notice would be to dispense entirely with the very prerequisite thereof. The decree of the court below is reversed, and the complaint dismissed. Reversed. Footnotes [1] Note.—Mr. Justice Wolveeton concurred in the decree dismissing the bill, but upon different grounds.