Citizens Bank v. Evans

NORTONI, J. This is a suit against the guarantors on a promissory note. A jury was waived and a trial had before the court. The finding and judgment were for defendant and plaintiff prosecutes the appeal. It appears that the Flake & Neilson Company, incorporated, was engaged in a mercantile business in Winona, Mississippi. On December 4, 1902, this concern, the Flake & Neilson Company, executed its promissory note to the plaintiff bank, whereby it promised to. pay, for money borrowed from the bank, $5000 four months after date. The two defendants, E. E. Evans and J. J. Jacobs, both residents of St. Louis, Missouri, by a proper indorsement on the back of the note, made at the time, guaranteed its payment. By such indorsement, the defendant guarantors waived notice and protest and guaranteed the payment of the note “at maturity or at any time thereafter.” Interest at eight per cent from date is stipulated for in the note. It appears that the principal—that is, the Flake & Neilson Company—paid the interest .on the note from time to time during the several years, but the note itself remained unpaid on October 1, 1905. On that date, the principal obligor, the Flake & Neil-son Company, paid the interest then accrued, and there appears a credit on the back of the note therefor, as of date October 1, 1905, to the amount of $1,134.45. After having thus settled the matter of accrued interest, the plaintiff bank and the principal debtor, the Flake & Neilson Company, through its president, Mr. Flake, drew up two new notes, both of date October 1, 1905, — 710 — the first for $2550 and the second for $2566.66. By their terms the first note was payable on -the 15th day of January, 1906 and the second note on the first day of February, 1906. These notes included the interest on the principal amount until the time of payment prescribed. It is conceded that they represented the identical principal indebtedness as that for which the original $5000 note was given on December 4, 1902. Both of these notes were indorsed by Mr. Flake, the president, and Mr. Kelso, a stockholder of the Flake & Neilson Company. But these defendants—that is, Evans and Jacobs, the guarantors on the original note—were in nowise apprised of the transaction and did not consent thereto. Thereafter, on May 12, 1906, the principal debtor, the Flake & Neilson Company, through its president, Mr. Flake, took up the two notes last described,, and for the same indebted- . ness executed to plaintiff two other notes on that date for $2500( each, payable,, respectively, on , the twelfth day of February, 1907 and the twelfth day of March, ,1907. It appears the plaintiff bank required a higher rate of interest at that time, and the Flake & Neil-son Company paid the interest at ten per cent in advance on the two last mentioned notes. Both Mr. Flake, the president of the Flake & Neilson Company, and Mr. Kelso, a director therein, individually indorsed the two last, mentioned notes as well, and, as before said, those theretofore given, of date October .1,1905, were taken up. All'of these notes—that is, the two notes executed October 1, 1905 and the two executed May 12, 1906—-contained a stipulation . to the effect that they were secured “by collateral security • by note of E. E. Evans and others”—that is., according to all of the testimony, the original note here in suit, executed December 4, 1902, and on which defendants Evans and Jacobs are guarantors. It is conceded throughout that neither of the defendant guarantors consented to or were even apprised — 711 — in anywise of the transactions between the plaintiff and the principal debtor by which the fonr notes were given. The evidence for plaintiff tends, to prove that the bank did not intend to release the two defendant guarantors on the original note here sued upon, through taking the four notes last above described. Touching this matter, it is said that such new notes— that is, the two notes executed by the principal debtor to the plaintiff October 1, 1905, and those executed in liquidation of them on May 12, 1906—were intended by the plaintiff hank and Mr. Flake, who, as president, represented the principal debtor—that is, the Flake & Neilson Company—to be accommodation notes. Both the cashier of plaintiff bank and Mr. Flake testify the same concerning this matter. It is said the bank desired to borrow money from other banks-in New York and wanted “live” paper to pledge as collateral therefor. Because of this, the arrangement was entered into between the plaintiff bank and Flake, representing the principal debtor, whereby the new notes were to be executed, and the original note now in suit, on which defendants are guarantors, was to he held by-the plaintiff bank as collateral to such new accommodation notes. It is urged the court erred in the matter of giving and refusing declarations of law, but, in the view we take of the case, we regard the arguments touching this matter as wholly immaterial. It is obvious that no right of recovery appears on the original note against these guarantors, who were in nowise advised of, nor consented to, the subsequent transactions involving the same indebtedness. There can be no doubt that, when a precise and definite time is given to the principal debtor by a valid agreement which ties up the hands of the creditor from enforcing the debt, though it be for only a single day, the surety is discharged. [Johnson v. Franklin Bank, 173 Mo. 171, 73 S. W. 191.] Though it be that the taking of a new note does not in — 712 — all cases conclusively extend the time nor operate a discharge of the surety on the old note, since it is competent to show that such was not intended and may not result in every instance, as declared in Minei*s’, etc., Bank v. Rogers, 123 Mo. App. 5691, 100 S. W. 534, it is entirely clear that the transactions above stated amount in law to a discharge of the defendants. Prom • the testimony of Mr. Flake, it appears that the parties intended to execute the new notes as accommodation notes and that the plaintiff should hold the original $5000 note here in suit as collateral thereto. Moreover, this agreement was expressly written into the new notes executed by the principal debtor, the Flake & Neilson Company, on October 1, 1905 and May 12, 1906, as appears from the testimony of plaintiff’s cashier. The plaintiff’s cashier testifies concerning'' the stipulation contained in these notes, “That they were secured by collateral security of note of E. E. Evans and others.” It is entirely clear that this contract operated in law to extinguish the indebtedness represented in the old note and to revest the note in the Original makers who immediately reissued it to the plaintiff as collateral for the new notes. It is certain that the Flake & Neilson Company could not pledge the prior note as security unless they became the owners of it—-that is, first took it up and reissued it. The evidence is conclusive that such was the course pursued. The execution of the new notes for the same amount must, therefore, be regarded as extinguishing the old or prior note, in order to effectuate the pledge contract stipulated in the new notes. Considerable stress is laid in the argument on the fact that the bank at all times retained possession of the old note and -did not surrender it to the Flake & Neilson Company. Obviously this was as it should be in order to effectuate the pledge provided for in the new notes and contemplated by the parties. The principal debtor, the Flake & Neilson Company, in — 713 — executing the new notes and stipulating a pledge of the old, stood in the position as though it had taken up and was redelivering as through a reissue of the old note to the plaintiff hank. Such is constructively true. Furthermore, there can he no doubt that the execution of the new.notes, after the prior note was overdue, operated as an extension of the time of payment of the original debt for a definite and fixed period, which, together with the payment of interest in advance, afforded a sufficient consideration. Otherwise no consideration whatever obtained for the new.notes, and it is certain that plaintiff was not entitled to hold and enforce both at the same time. [See Bank v. Freund, 80 Mo. App. 657.] The right of action must have been suspended on the original note during the time, for plaintiff had received the interest in advance to forbear payment of the identical indebtedness represented in the first note evidenced likewise by the subsequent notes. [See Bank v. Leavitt, 65 Mo. 562; Ogden, Neg. Inst., sec. 227; Bank v. Freund, 80 Mo. App. 657.] The law is thus stated in Daniels, Negotiable Instruments, vol. 2 (5 Ed.), sec. 1272: “There is no doubt a negotiable bill or note given for or on account of a contemporaneous or pre-existing debt, and whether or not it be in renewal of a previous bill or note, suspends all right of action on such debt during its currency; that is until it is dishonored by nonacceptance or nonpayment. If this were not so, the creditor who took the additional security in the form of a bill or note might in consequence of its negotiable character transfer it to a bona fide holder and subject the debtor to the payment of both the original and the new debt.” [See, also, Keyser v. Hinkle, 127 Mo. App. 62, 75, 106 S. W. 98.] It is entirely clear that the defendants were discharged, through the operation of law, both by, first, — 714 — the transaction which constructively took up the original note on which they were indorsers and reissued it as a pledge to the plaintiff bank as a security for the new notes,, and, second, because the new notes together with the payment of interest in advance essentially operated an extension of time on the principal debt without their consent. The judgment should be affirmed. It is so ordered. Reynolds, P. J., and Allen, J., concur.