Bowery Savings Bank v. Clinton — 4 N.Y. Super. Ct. 113

Majority

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The Bowery Savings Bank v. Clinton.

Headnote

A discharge in bankruptcy does not extinguish the bankrupt’s debts. It exonerates from them, his person and his future acquisitions, but it does not impair their obligation in respect of sureties.

On the bond of J. to the plaintiffs, bearing interest at 6 per cent, C. indorsed a covenant, binding himself to them for “ an additional one per centum per annum interest, making in all seven per centum per annum on the principal sum secured’’ by the bond, until the principal should be paid, the interest to be paid at the time and in the manner mentioned in the bond. Held, that C. was not bound to pay seven per cent interest, nor more than one per cent on the amount of the bond. That he was liable to pay one per cent, until the bond was paid off.

Sept. 11th;

Sept. 30th, 1848.

Case, subject to the opinion of the court.

The action was covenant on a writing under seal, indorsed upon a bond executed by James Conner to the plaintiffs. This bond of Conner was dated July 23d, 1835, and the condition was for the payment of $1500, in one year, with interest at six per cent per annum, half-yearly. The defendant’s covenant was dated July 1, 1837, and was in these words, viz. :

“ For and in consideration of one dollar to me in hand paid by The Bowery Savings Bank, obligees in the annexed bond named, the receipt whereof is hereby acknowledged, I, Charles A. Clinton, do for myself, my heirs, executors and administrators, covenant and agree to and with the said The Bowery Savings Bank, their successors or assigns, an additional one per centum per annum interest, making in all seven per centum per annum on the principal sum, secured thereby from the date hereof, until said principal sum shall be fully paid, the interest to be paid at the time and in the manner mentioned in the condition of said bond.”

The plaintiffs proved that the defendant, for some time prior to the making of this agreement, had paid the interest on Conner’s bond, at the rate of six per cent per annum, and from that time " had paid interest on the bond to the first day of August, 1846, at the rate of seven per cent per annum, on the principal sum mentioned in the bond. It

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was admitted by the plaintiffs, at the request of the defend - ant, and given in .evidence subject to the plaintiffs objection thereto, that Conner, since the making of the bond and agreement, and prior to the accruing of the plaintiffs demand against the defendant, was discharged from his debts in bankruptcy, in the district court of the United States for the southern district of New York.

A. Schell, for the plaintiffs.

W. B. Aitken, for the defendant.

One principal question presented by the case is whether the discharge of the principal debtor, Conner, from his debts, in the proceeding in bankruptcy, was a discharge of this collateral covenant executed by the defendant. It was contended that the bankrupt discharge was an extinguishment of Conner’s debt; and that consequently by the fair construction of the covenant executed by the defendant, his obligation is discharged.

It is clear that the effect of the bankrupt discharge was only to relieve the obligor from his personal liability, and to exonerate his subsequently acquired property from liability for existing debts. For all other purposes, and for many that are important, his debts remain unextinguished. Such is the law, as it is well settled. We refer to Storm v. Waddell, 2 Sandf. Ch. R. 494, 525, and the cases there cited. There is no doubt that this is the effect of a discharge in bankruptcy, and it cannot affect a collateral covenant like the one in suit.

The plaintiffs claim that by the true construction of the defendant’s covenant, he was bound to pay the whole seven per cent interest; as well the six per cent reserved in Conner’s bond, as the one per cent mentioned in his covenant; the effect of which would be to make him liable for a perpetual annuity equal to the interest on the amount of the bond, unless he should discharge the principal debt, or it should be otherwise extinguished.

As to this, we think by the' plain meaning.of the defendant’s

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covenant, it extended only to one per cent interest on the amount of the bond. The six per cent interest was secured by the bond of Conner, and the only object of the covenant was to provide for an additional one per cent. It did not make the defendant liable for the six per cent already secured. He will continue to be liable for the one per cent, until the debt be discharged.

Judgment for the plaintiffs for the amount of the one per cen interest on the bond.