East River Bank v. Kennedy — 22 N.Y. Super. Ct. 543

Majority

p. 543

The East River Bank, Plaintiffs and Appellants, v. Thomas Kennedy, Defendant and Respondent.

Headnote

1. The indorser of a promissory note which was past due, induced the holders- of it to sue- the maker; and, pending the action, and with the assent of the indorser;, the plaintiffs’ attorneys received from the maker a part payment and his note for the residue, upon a written stipulation that proceedings should be stayed, but if the new note should be unpaid at maturity judgment should be entered in the action against him; and they thereupon surrendered the original note, but nothing was said about releasing the indorser.,

p. 544

Held, in an action brought by the same plaintiffs against such indorser, that the surrender of the original note being explained by the plaintiffs’ attorney as having been inadvertently made, these facts did not constitute any agreement to discharge the indorser.

2. Upon such evidence it was error to leave it to the Jury as a question of fact whether an agreement to discharge the indorser was made.

3. An authority given to attorneys to sue the maker of a note does not empower them to release an indorser without satisfaction or the consent of their clients. *

(Before Moncrief, Robertson and Monell, J. J.)

Heard, October 6;

decided, November 29, 1862.

This action was brought to recover the amount due on ■ a promissory note of one Billings, indorsed by the defendant. The complaint stated, in the usual mode, facts upon which the plaintiffs might recover, if the note" were still in their possession. But in addition thereto it alleged that the plaintiffs’ attorneys delivered it up to the defendant by inadvertence; that no consideration was paid by him for its surrender; that it never was agreed by the plaintiffs that he should be released from his indorsement; that the attorneys received such note merely to prosecute the maker and had no power to release the indorser. It demanded both a delivery of the note and judgment for the amount due on it. It would be substantially an action for the conversion of a note, were there any allegations to that effect, or even" of a demand'and refusal.

The complaint also alleged that the plaintiffs, had previously brought an action against the maker of the note, and that he, in consideration of a stay of proceedings for sixty days in such action, paid a part of the amount due thereon in cash, and gave a, new note for the balance, and agreed that a judgment might be entered therein against him at the end of such time, in case he did not pay the new note given by him for the residue, (which was payable in the same time,) and costs.

The answer of the defendant in the present action controverted all the allegations of the complaint except the making, indorsement, and demand of payment of the note, and notice to the defendant of its non-payment. It then

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alleged a surrender of the note by the plaintiffs to the maker, and Ms destruction of it in the defendant’s presence ; the acceptance by the plaintiffs of the note of the maker and the money paid by him, as alleged in the complaint ; their ratification of their attorneys’ acts and retention of both noté and money; their failure to retain the defendant’s liability on the old note, and his disability to recover the amount of the note from the maker in consequence of its destruction.

The cause was tried on the 25th of October, before Mr. Justice White and a Jury.

The only evidence in relation to any authority of the plaintiffs’ attorneys to discharge the defendant from any liability on the original note, beyond that to be implied from their authority to prosecute it against the maker, was the testimony of one of such attorneys, who stated, “ he “ had no business to release him.” The defendant admitted, in Ms examination on the trial, that nothing was ever said by any of the parties, or introduced into any oral or written agreement, respecting his liability. The note was proved to have been delivered up to the maker in the defendant’s presence by one of the attorneys for the plaintiffs. Such áttorney testified he did it “ 6y inadvertence.''’ The plaintiffs’ cashier (Carman) testified that they sued the maker to accommodate the defendant, who wanted them to do so for Ms benefit. He saw the attorneys frequently in relation to such suit, and paid them the costs of it after being sued for them.

The only written agreement between any of the parties was a stipulation made in the suit against the maker óf the note: By that, “ in consideration of the stay of pro- •“ ceedings therein,” he stipulated, that if Ms new note then given, should not be paid when due, such stay should be vacated and the plaintiff take judgment for the amount due on the original note. Ho other written agreement was proved, but one of the attorneys for the plaintiffs, in that suit, (Banks,) testified that he° agreed with the maker of such note that if he would pay a certain, sum on

p. 546

account thereof, and give his note for the residue, with interest and costs, payable in sixty days, he would give him sixty days to pay that balance, and thereupon he took from such maker such stipulation; that the defendant authorized him to take such note and cash, and make such settlement, and was in his office when it was made. The defendant admitted on his examination that he knew of the settlement and that nothing was said by either himself or the plaintiff’s attorney, respecting his discharge; but he denied any knowledge of the stipulation.

A motion to dismiss the complaint, made after proof of the stipulation and inadvertent delivery of the note, was denied. The Court permitted the Jury to consider the permission to take judgment on the note, by the stipulation, as a circumstance to show that such note was given up inadvertently, and instructed them that, if that were so, the defendant was still liable. The defendant had testified that he “ supposed, of course, when the maker paid “that money, and gave a new note,” he (the defendant) “ was released from all liability,” and that he “knew “ nothing to the contrarythe version of that testimony, given by the Court to the Jury, was that the defendant “ understood the arrangement * * to be a full and final “ settlement of the old note and discharge of his liability.”

The Court, however, left it to the Jury to determine “ whether the defendant assented to the arrangement with “the maker of the note, with the understanding that he' “ was dischargedand instructed them that the defendant was discharged, “if it was intended to be a full settle- “ ment of the original note, which would discharge ” him, and “ if the parties intended he should beand finally declared “the whole question to be, what the parties agreed “ to do.” The plaintiffs’ counsel excepted to all such directions.

The Jury found a verdict for the defendant; a motion was made for a new trial, at Special Term, on a case, and denied; from the.judgment on such verdict, and from the order denying a new trial, the plaintiffs appealed.

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Elbert E. Anderson, for plaintiff, (appellant.)

I. It appears, from, the testimony, that the first action was virtually brought by Kennedy against Billings. It would be against good faith to allow a stipulation made in such a suit to defeat plaintiffs’ rights on the original note.

II. There was no sufficient consideration to support an agreement to discharge Kennedy. (Keeler v. Bartine, 12 Wend., 110 ; Crawford v. Millspaugh, 13 Johns., 87 .)

III. There is no evidence to support the conclusion that there was an agreement that Kennedy should be discharged from liability on the original note.

IV. The delivery of a security from obligee to obligor, and its destruction, is. only prima facie evidence of an intention to cancel. This presumption may be rebutted, and in this case is rebutted by the positive sworn testimony of Banks, and by the admission' of the defendant that nothing was said as to whether he was to be discharged or not. (Olcott v. Rathbone, 5 Wend., 490 .)

V. The taking of a note from one of several debtors, or from a third person for a pre-existing debt, is no payment, unless it is expressly agreed to as such. (Muldon v. Whitlock, 1 Cow., 306 ; Edwards on Bills, 192, 193; Kean v. Dufresne, 3 Serg. & Rawle, 233 ; Ex parte Blackburn, 10 Vesey, 206.)

J. S. Slauson, for defendant, (respondent.)

I. The controlling question in this case is, whether the parties intended and agreed to accept the money and new note of Billings in payment of the old note.

II. It is a matter of evidence to show the nature of the transaction; and it is then a question for the Jury to determine, from the facts and transactions proven, what the intention was; and the agreement need not be in express words, but may be inferred from the whole transaction, and the finding of the Jury is conclusive. (Tobey v. Barber, 5 Johns., 67 ; Arnold v. Camp, 12 Id., 409.)

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III. The charge of the Justice presented fairly before the Jury the issues for their determination.

IV. There is sufficient evidence to sustain the finding of the Jury.

V. Kennedy was an indorser, and not a joint maker nor partner; and the facts are abundantly sufficient to discharge an indorser under the strict rules by which holders and indorsers and principals and sureties are bound. (Kingsley v. Vernon, 4 Sandf., 361 ; Hart v. Hudson, 6 Duer, 294 .)

The consent to allow judgment and the payment of the costs in an action then undetermined, furnished a sufficient consideration for the discharge.

The effect of taking the new note was to extend the time of payment and discharge the indorser, and the deliv- ■ ery up and destruction of the old note certainly precluded the indorser from taking it up from the holder and resorting to the indorser. (Hart v. Hudson, 6 Duer, 294 .)

Two questions are involved in this case: first, whether any valid agreement was ever made to discharge the defendant; and, second, whether the time given to the maker of the note discharged him as indorser. The first, besides the question of fact whether any agreement was made, involves that of a sufficient consideration. The second, besides the question of fact whether the defendant assented to what was done, embraces that of his being prejudiced, even if he did not assent.

. Unless the stipulation of the maker of the note in the suit against him, and the cotemporaneous agreement to stay proceedings in connection with the manual tradition of the note to such maker constitute, operate to create, or prove, an agreement to accept the cash then paid, the note then delivered and the judgment to be entered in case it was not paid, in place of the liability of all parties on the original note, or discharge the defendant, there was no evidence of one in this case. There is not a particle of

p. 549

evidence of any additional stipulation to that effect; the defendant stated that not a word was said about his liability. He evidently relied, as he testified, upon what he considered to be a release without any express agreement, the delivery of the cash and a new note, and therefore never made any express agreement.

No parol evidence could add to or vary the terms of the written stipulation of the maker of the note, or prove a different consideration from that stated in it. It merely permits the plaintiffs to enter judgment, in case the new note is not paid in sixty days, and the sole consideration expressed, for that is the stay of proceedings. Not a word is said in it of the release of any of the parties to the note. On the contrary, to warrant the entry of the judgment, the liability of the maker at least must have been retained, otherwise it would be a judgment by confession, which requires a certain statement to be made, (Code, §§ 382, 383.) The learned Judge informed the Jury that it was merely a circumstance to prove such retention of the maker’s liability, when he should have declared it to be conclusive of it. The surrender of the note, or discharge of any of the parties to it, did not enter into the written agreement of the maker of the note, or the verbal agreement of the attorney for the plaintiffs.

It may well be doubted whether the mere delivery of the original note, indorsed as it was, to the maker by the plaintiffs, would, if unexplained, either be, or operate to create or prove an agreement to discharge any one.. But, as the learned Judge charged the Jury, when inadvertently delivered, it certainly neither creatednor proved any agreement to discharge. Upon the question of fact, the evidence of the plaintiffs’ attorney is uncontradicted, and he is fortified by the reservation of the right to enter up judgment; such being the case, the fact of delivery furnishes no warrant for any inference prejudicial to the plaintiffs. (Olcott v. Rathbone, 5 Wend., 490 .) It was error, therefore, to leave the question of an agreement to discharge the defendant to the Jury as one of fact, when the only circumstance

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to sustain it was fully explained by uncontradicted evidence.

But even beyond this there was no evidence of any authority by the plaintiffs to their attorney to discharge the defendant. Laying aside the consideration of the facts, (of which there appears to be strong evidence,) that the attorneys were in reality those of the defendant, the suit being brought by his directions, although in the plaintiffs’ name; that he frequently called about it; paid the costs and acquiesced in the arrangement with the maker of the note; the mere authority of the attorneys to bring the suit, would not sanction their discharging any of the parties without being paid the full amount. It is doubtful whether it even authorized the stay of proceedings. (Gaillard v. Smart, 6 Cow., 385 ; Shaw v. Kidder, 2 How. Pr., 244 ; Bowne v. Hyde, 6 Barb., 392 .) If the authority had been to collect the note, it might have been different. (Livingston v. Radcliff, 6 Barb., 201 .) The attorney testifies that his orders were to sue the maker of the note. Even, therefore, to discharge the maker, the authority was insufficient, unless the defendant was the real plaintiff in such'suit, and his presence and assent authorized the delay. He does not undertake to deny his presence at, knowledge of, and assent to the settlement. But to proceed against the defendant or to treat with him, the attorneys had no authority, and if, by delivering up the note they intended to discharge him, the act was extra vires.

The second question might possibly arise in the case, although not insisted upon or presented to the Jury, and hardly raised by the pleadings. The charge of the learned Judge was, that “if there was any neglect on the plaintiff’s “part, to prosecute the note, against ‘the maker,’ to which “ the defendant did not assent,” and the maker “ became “ insolvent, and by reason of such negligence the defend- “ ant could not collect the note from him,” the former was discharged. This was, however, not excepted to; but literally construed, it is far from being borne out by any case or principle. There is no obligation on the holder of

Concurrence

p. 551

a note, to prosecute a principal debtor diligently to prevent the loss of the liability of a surety, even on the request of the latter. His remedy is to discharge the obligation and proceed against the principal himself. But by the neglect in this case, he may have meant the giving time; otherwise there was no evidence of any. That was, however, done with the defendant’s assent, as appears by uncontradicted evidence, since he knew of the settlement and approved of it, and must have known of the stay of proceedings. The remark was calculated to mislead the Jury.

There appears to be some confusion in the testimony, as to the number of stipulations in the first action. The attorney of the plaintiffs testifies he gave a stay of proceedings therein, ’till the new note became due; the defendant “ had perfect knowledge of that stipulation.” The latter testifies he had no knowledge of any stipulation. The only one in evidence' does not contain a stay of proceedings, although it recites one, and was not given by the attorney for the plaintiffs.

But as the Court was bound, in the entire absence of any testimony of a distinct agreement to discharge the defendant, and with the full explanation of the only doubtful circumstance, to charge the Jury that the defendant was not discharged without such agreement, of which there was no evidence, the case should go back for a new trial.

I am of the opinion, therefore, that the judgment should be reversed, and a new trial granted, with costs to abide the event.

I concur on both grounds: First, there was no evidence of an agreement to discharge the indorser; all the witnesses testify that nothing was said on the subject, and Kennedy merely supposed he was to be discharged. It was error, therefore, to submit it to the Jury as a question of fact, for them to determine whether there was any agreement; such an agreement cannot be implied.

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Besides there was no consideration moving from Kennedy for such an agreement, if it had been proved. Second, the attorney had no power to discharge the indorser without satisfaction, or the consent of the plaintiff. ( 10 Johns., 220 ; 21 Wend., 362 .)

Ordered accordingly.