Reed v. Tierney

Mr. Chief Justice Alvey delivered the opinion of the Court: The principle is too well settled to admit of any question, that a valid agreement between the holder of a promissory note and the maker thereof, to extend the time of payment for a definite time, without the consent of the endorser of such note, will discharge the endorser from all liability. But if the agreement for extension of time for payment be made by the consent of all parties concerned — the holder, endorser and maker — such an agreement will leave both the maker and endorser liable to pay the note at the end of the extended time. Uniontown Bank v. Mackey, 140 U. S. 220, 224. In this case, there is no question as to the consent of the endorser, the defendant, Tierney, to the extension of the time for payment; that was given by express written agreement; and the only question is, whether that agreement was founded upon such valid consideration as to make it binding upon both the holder and the endorser’ of the note. If the agreement for extension be founded upon sufficient consideration, both the maker of the note and the endorser thereof remained liable on the note; but if the consideration be not sufficient, the agreement for the extension was not binding, and consequently the plea of the statute of limitation interposed by the defend [172] ant Tierney was a complete bar to the action as against him. The note from the beginning, as we have seen, bore interest at the rate of six per cent, per annum, payable semiannually, until paid; and at the maturity of the note it was then the right of the holder to enforce the immediate payment of the note, however inconvenient it might have been to the parties liable to make such payment; and so it was then the right of the maker or endorser to pay off and discharge the note, notwithstanding it may have been to the interest and advantage of the holder of the note to allow his money to remain invested on the terms . prescribed in the note, and by the agreement for the extension of the time for payment. It was in view of these mutual rights and advantages of the respective parties, that the agreement for the extension of time of payment was made. Was there a sufficient consideration for the agreement for this extension of time for payment? — that time being definite and fixed. It is contended on the part of the defendant that inasmuch as the note would continue to bear interest at the rate of six per cent, per annum, payable semi-annually, until paid, there was no valid or binding consideration for the agreement to extend the time of payment; as the rate of interest to be paid for the extended time was the same as that stipulated to be paid by the terms of the note. But we do not agree to this argument. We are aware that there is conflict of authority upon this question; that there are cases holding the one way, and cases holding the other way; but we are of opinion that the weight of authority is against the contention of the defendant. And as both the maker and endorser of the note have had the full benefit of the extended time, it would certainly appear not to be consistent with good faith that the agreement for the extension of time should now be allowed to be repudiated, if it can be supported by authority. In Vol. 2 Am. Lead. Cases, by Hare and Wallace, at pages [173] 308 and 309 of the third edition, and at page 419, of the fourth edition, the learned editors, in their elaborate note upon the subject as to what will discharge sureties, and those standing in a like relation of sureties, say: “Where the creditor, instead of merely promising delay so long as the debtor pays the interest, exacts from the latter a promise to pay interest for a definite period, in return for a promise of forbearance until that period expires, no doubt can exist that the rights of the parties are varied. The creditor may insist on the interest of which he might otherwise have been deprived by the immediate payment of the debt, and the debtor is.entitled to the forbearance, for which he has bound himself to make compensation in the shape of interest. All the ingredients in a valid contract for time are therefore present, and the surety is consequently discharged.” The distinction is between an agreement for an extension for a definite period, and for which interest is to:‘be paid, and an agreement for an indefinite extension of time. In the former, the agreement on the part of the debtor is to retain the money, as upon a new loan, and pay interest therefor for the certain time, and on the part of tho'ereditor to forbear his right to enforce payment during the extended time; and this constitutes a valid agreement. While, on the other hand, an agreement for an indefinite extension may be terminated at any time by either party, at 1ns mere will and option, aiul, lltóí'efoi‘0, dotó hot eohstiMo almuling oontiad. This distinction is taken and enforced in many of the cases upon this subject, and is well stated and fully sanctioned in an opinion by Mr. Justice Cox, speaking for the Supreme Court of this District, in general term, in the case of Green v. Lake, 2 Mackey, 162. In the case of McComb v. Kittridge, 14 Ohio, 348, the question was fully and ably discussed, and the agreement for extension of time for payment was held to be valid; and without reciting the facts of that case, we shall quote a passage from the opinion of the court,, to show the reasoning [174] upon which, the court proceeded in sustaining the validity of the agreement. In the opinion it is said: “If the lender of money secured by a note, after the same becomes due, contracts with the borrower that the time, of paying the same shall be extended for one year, or for any other period, upon consideration that the borrower shall pay the legal rate of interest, why is not that a binding contract? The lender, by this contract, secures to himself the interest on his money for the year, and the borrower precludes himself from getting rid of the payment of the interest by discharging the principal. It is a valuable right to have money placed at interest, and it is a valuable right to have the privilege at any time of getting rid of the payment of interest by discharging the principal. By this contract the right to interest is secured for a given period, and the right to pay off the principal and get rid of paying the interest is also relinquished for such period. Here, then, are all the elements of a binding contract. But it is said there is no consideration for the extension of time, because the law gives six per cent, after the note is due; but the law does not secure the payment of this interest for any given period, or prevent the discharge of the principal at any moment. There is precisely the same consideration for the extension of time as there was for the original loan. The consideration of the loan on the part of the borrower is the payment of interest.” In the case of Chute v. Pattee, 37 Me. 102, the question was fully considered, and the consideration of the payment of interest for the extended time, the time being definite and fixed, was held sufficient; and so in the cases of Bailey v. Adams, 10 N. H. 162, and Fowler v. Brooks, 13 N. H. 240, the same principle was fully sustained. There is also a case in 87 Texas, 578, of Benson v. Phipps, where the question was fully considered, and many of the cases referred to, and in which the same conclusion was reached and maintained, as in the cases to which we have just referred. There are many other cases sustaining the same principle, to which [175] reference might be made; but additional references to those already made are not necessary. It is true Mr. Daniel, in his well-known work on Negotiable Instruments, Yol. 2, Sec. 1317a, after stating the fact that the decisions are in conflict upon the question as to the sufficiency of the consideration for the extension of the time of payment, in a case like the present, says that his own opinion concurs with the cases holding the negative of the proposition. But we can not accede to that opinion of the learned author. He has not cited all the authorities upon the subject. It follows, both upon reason and authority, as we think, that the agreement for the extension of the time for payment was good and binding upon the parties thereto; and, consequently, the right of action upon the note, by reason of such extension of time for payment, did not accrue until the 16th of March, 1894; and as this action was commenced on the 19th of February, 1897, therefore the statute of limitations forms no bar to the right of recovery. The judgment must be reversed, and a now trial ordered; and it is so ordered by this court. Judgment reversed and cause remanded.