Case ID: whart_3/html/0530-01.html
Source: Caselaw Access Project
Author: {"author": "Gibson, C. J.", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

[Philadelphia, April 30, 1838.]
    LEWIS and Another against THE BANK OF PENN TOWNSHIP.
    A. deposited with the defendants for collection, certain promissory notes • payable to him. The defendants had previously discounted for A. an accommodation note, drawn by B. in his favour, and endorsed by him ; and this note falling due, and the defendants requiring another endorser, A. agreed that the defendants should hold the notes deposited, as collateral security for the payment of the note on which he was endorser. Shortly afterwards, A. made an assignment of all his property for the payment of such creditors as should execute a release of all demands, &c. The defendants executed the release, and received certain dividends under the assignment: Held, that they had a right, nevertheless, to retain the notes deposited with them, until payment of the note discounted by them.
    This was an action of trover, brought by Mordécai D. Lewis and Gleorge M. Stroud, assignees of Lynd, Backus & Co. against The Bank of Penn Township in the county of Philadelphia.
    On the trial before Kennedy, J., at a Court of Nisi Prius held in Philadelphia, on the 10th of November, 1836, the case appeared to be as follows.
    Previous to the 19th of November, 1831, Lynd, Backus & Co. had deposited with the defendants, for collection, nineteen promissory notes, of Avhich two were collected before the 18th of January, 1832, and three others before this suit was brought; and the proceeds, together with the remaining fourteen notes, were held by the defendants at the time of suit brought. The defendants had also discounted for Lynd, Backus & Co. two notes drawn by one William A. Kille, in their favour, and endorsed by them. The first *of Kille’s notes fell due on the 19th of November, 1831, and the other on the thirty-first of December, 1831. On the 18th of November, Lynd, Backus & Oo. offered for discount at the Penn Township Bank a note drawn by William A. Kille, and endorsed by them, in renewal of the note which was to fall due on the next day. The bank refused the discount, unless another endorser were given. On the 19th of November, the refusal being communicated to Lynd, Backus & Co., they offered, in lieu of another endorser, to let the bank hold the nineteen notes above-mentioned, as collateral security for the payment of the two notes drawn by Kille, and the renewals thereof. This was agreed to by the bank; and the note in renewal was thereupon discounted by them. This note was dated November 19th, Í881, at ninety days. On the 31st of December, 1831, a note was in like manner discounted for Lynd, Backus & Co. at ninety days, in renewal of Kille’s second note. The firm of Lynd, Backus & Co. consisted of Michael K. Lynd, and Frederic R. Backus, who, by indenture dated the 18th of January, 1832, assigned all their estate and effects, joint and separate, to the plaintiffs, in trust, inter alia, to pay all such of their creditors as should, before noon of the 18th day of February then next ensuing, execute and deliver to the said M. K. Lynd and F. R. Backus, a full and general release of all their respective claims and demands. On the 31st of January, 1832, the assignees filed in the office of the prothonotary of the Common Pleas, an inventory and appraisement of the effects and estate assigned, accompanied by the oath of the assignees, and including the above-mentioned notes held by the defendants as collateral security.
    On the 18th of February, 1832, the defendants executed and delivered a release, according to the terms of the assignment. The defendants afterwards received sundry dividends from the assignees, on the two notes before mentioned, drawn by Kille. The receipts were' expressed to be Avithout prejudice to either party. Demand and refusal Avere admitted.
    The plaintiffs having closed their evidence, the defendants offered in evidence the deposition of Frederic E. Backus, to which the plaintiffs objected; but the learned judge overruled the objection, and the same Avas read to the jury.
    The deposition of Backus was as follows :
    
      “ Frederic E. Backus, a witness produced, sworn and examined on behalf of the defendants in the above case, says, that he now resides in the city of NeAV York; left there on Saturday last, and expects to return in a day or íavo ; that he was a member of the late firm of Lynd, Backus & Co. Michael K. Lynd was the other member. He is since deceased. He has been dead for some time. *The firm of Lynd, Backus and Co. made a general assignment to the plaintiffs, on the 28th of January, 1832. At the time of assignment, Lynd, Backus & Co. were indebted to the defendants in the sum of $4500, the amount of tAvo notes draAvn by William H.-Kille, one for $2400, and the other for $2100. William H. Kille lent the notes for the accommodation of Lynd, Backus & Co., and received from them no value for them. Previous to the 1st of November, 1831, Lynd, Backus & Go. had lodged nineteen different notes with the defendants for collection, a list of fourteen of which, with the , names and amounts, is hereunto annexed, and in dispute in the present suit. One of the accommodation notes became due on the 20th of November, 1831. On the 19th of November we offered a renewal, and were informed by Mr. Frick, the cashier, that the note must either be reduced $500, or an additional endorser given. Instead of this, the deponent preferred handing over the said notes as a security for the payment of the notes drawn by William H. Kille, as before stated. The bank agreed to this proposal, took the notes as a collateral security, and reneAved the note. The notes thus given were to be held as security for renewals until the notes of $4500 were paid; and $500 to be taken off at each renewal from the notes altogether. The notes now exhibited to deponent, are the two notes given by Kille for the accommodation of Lynd, Backus & Co.; one is dated at Philadelphia, November 19th, 1831, payable to Lynd, Backus & Co. or order, ninety days after date, for $2400; the other is dated December 30th, 1831, Philadelphia, payable ninety days after date, to Lynd, Backus & Co. or order, for $2100: both were endorsed by Lynd, Backus & Co. Previous to making the assignment, Mr. Kille expressed to the deponent a wish to be secured in the assignment about to be made by Lynd, Backus & Co. I then showed Mr. Kille a list of the notes deposited with the bank as collateral security, and observed that they would amply secure him. I told him if he was satisfied they would secure him, they should be held by the bank for his security. He then agreed to this. Mr. Kille was not secured on account of these notes in the assignment, because he was satisfied that the notes left would pay the amount of the notes of $4500, that is, that the notes left as collateral would pay the two notes amounting to $4500. The reason of his not being included in the assignment, was owing to the conversation the deponent had with him as above stated. At the time of the assignment of Lynd, Backus & Co. and release by the defendants of them, they were indebted to the defendants on account of other notes.”
    The defendants then gave in evidence Kille’s two notes, one dated 19th of November, 1831, due 30th of February, 1832; and the other, 31st of December, 1831, due 31st of March, 1832. ^so *a s°hedule of notes deposited for collection by Lynd, Backus & Co.; and a schedule of notes discounted for Lynd, Backus & Co., and remaining unpaid at the time of the assignment. Also, a notice from W. H. Kille to the Penn Township Bank, requesting them not to deliver the notes to the assignees, dated 24th of March, 1832, and a notice from Frederic R. Backus, dated 28th of March, 1832.
    The defendants then produced Elijah Mitchell, as a witness, who testified as follows : — “ In 1832, I was a director and stockholder of the Penn Township Bank. I am neither now. I was acquainted with the firm of Lynd, Backus & Co. Lynd was my brother-in-law. I was cognisant generally of their affairs. I knew Kille. I remember their assignment. After Kille’s note was refused to be renewed by the bank, Lynd called on me, wishing my interference. I told, him the bank would not renew it without another endorser. He said he would not ask his father to become surety. I then asked him whether they had not business notes on hand ? He said they had. I advised him to offer them to the bank, in addition to Kille’s name, as security. They did so; and the note was renewed on these terms. Kille was a young man in their store. There was no responsibility or strength in his name. After this, Lynd told me they must make an assignment. I mentioned, that as they had got Kille’s notes, they ought not to let him suffer. Lynd replied, that Kille was fully secured ih the notes which, at my direction, they had before deposited as collateral security: that they were deposited for that express purpose. He said that Kille would not suffer by it all, and, therefore they would say nothing of Kille in the assignment. Kille was not present. I afterwards communicated it to Kille, and he appeared satisfied that no loss would fall upon him. This was a short time before the assignment.”
    Cross-examined. — “Lynd told me that the notes were deposited expressly for securing Kille’s note: for the security of the bank, who required additional security. Lynd never stated to me that the original terms of the deposit had been changed.”
    The defendants then produced Jacob Frick as a witness, who testified as follows: — “ I am not a stockholder in the bank. The schedule produced of notes and collaterals exhibit the truth, the whole truth, and nothing but the truth. I was cashier in 1831-2. Kille’s note which had been discounted by the bank, for Lynd, Backus & Co., became due on the 20th of November, 1831. The bank refused to renew it because they had found that Kille was a young man in their employment. Lynd, Backus & Co. offered a note in renewal. The bank refused to renew it, and required another endorser, and that $500 should be paid in reduction *of the note. Backus came to inquire whether the note had been done. On hearing of the refusal, he said that he had deposited a number of notes for collection, which might be held by the bank as collateral to be applied as collected, to reduce the two notes drawn by Kille, $500 at each renewal. This was agreed to by the bank in lieu of another endorser. The first note drawn by Kille, which became due afterwards, was on the second of January, 1832, for $2600. That was renewed for $21Q0. Lynd, Backus & Co. paid $500 in reduction of it. The notes were to be held as collateral for the payment of these two notes drawn by Kille, and no others. A few days after the assignment, Mr. Lewis came up to have the bank-book settled. This was before the release was executed. Mr. Lewis did not at that time make any claim on the collateral notes. One of the collaterals (Howard’s note) fell due the 10th of February, 1832. I called on Mr. Lewis on the subject.' I had understood that he had held one of Howard’s notes, and had settled it for- fifty per cent, in goods. He declined giving me any advice. I offered to give Lewis the note, and let him make any arrangement and account to us. He refused. He would not give me any advice on the subject. (Mr. Frick here stated some facts regarding the insolvency of the drawers of some of the collateral notes.) Mr. Lewis was consulted in regard to Davenport’s notes, who had failed. He would give no advice about them.”
    
      
      Cross-examined. — “ I called on Lewis in regard to Davenport about the 8th or 10th or 13th of March 1832. I offered in these conversations to deliver up the notes to Lewis, if the assignees would take them, and make such arrangements as they thought fit, without prejudice to the rights of either party. He declined. The note of the 19th of November, ’31, was never withdrawn from the bank, after it was first offered: it was discounted on the collaterals. Kille was not there when the arrangement was made. I saw nothing of Kille; I did not know him. Nothing was said by Lynd, Backus and Co. about securing Kille; nor was anything said by us about Kille. The object of the arrangement in regard to the collaterals, was to secure the payment of the two notes to the bank. That was the whole object of the arrangement. The original arrangement was never changed. Kille was the drawer, and of course the payer of these two notes. The bank was the holder. At the time Kille’s notes were first discounted for Lynd, Backus & Co., the bank did not know who Kille was, nor that the notes were accommodation notes. Before the 19th of November ’31, the bank had ascertained that Kille was not the man they took him for; that he was merely a young man in Lynd, Backus & Co.’s store, and that the notes were for their accommodation. That was the reason of the bank’s requiring additional security.”
    *The jury found a verdict for the plaintiffs, subject to the opinion of the Court on the evidence in the cause; with liberty to the Court to enter judgment, if they saw fit, for the defendants : the amount to be settled by counsel, or, in case of difference, by the Court.
    Mr. Meredith, for the plaintiffs,
    contended, that Lynd, Backus & Co. were the principal debtors, and were so treated by the bank: that by releasing them, the bank had discharged Kille from liability, and extinguished the debt; and consequently that they were not entitled to retain the securities. He cited The Bank of Pennsylvania v. M‘Calmont, (4 Rawle, 307); Irwin v. Tabb, (17 Serg. & Rawle, 423); Stoddart v. Allen, (1 Rawle, 258); Bank of Montgomery v. Walker, (9 Serg. & Rawle, 229); Same Case, (12 Serg. & Rawle, 382); Thomas v. Courtney, (1 Barnewall & Ald. 1); Nichols v. Norris, (3 Barnwall & Adolphus, 41; s. c. 23 English Common Law Reports, 28); 1 Vernon, 28; Catskill Bank v. Messinger, (9 Cowen, 38); Steinhauer v. Witman, (1 Serg. & Rawle, 444); Stump v. Findlay, (2 Rawle, 174); Petrie v. Clark, (11 Serg. & Rawle, 377); Varick v. James, (12 Johns. Rep. 146); M'Clean v. Perrine, (10 Johns. Rep. 471); Wentz v. Dehaven, (1 Serg. & Rawle, 312); Coe v. Hutton, (1 Serg. & Rawle, 408); Donnelly v. 
      Hays, (17 Serg. & Rawle, 400); Loyd v. Deal, (1 Strange, 94); Townsend v. Hurst, (Cro. Car. 408); 1 Selw. N. P. 43, 51, 52; 1 Comyn on Contracts, 25.
    Mr. Randall, for the defendants,
    cited Burton v. Kincaid, (2 Penn. Rep. 60); Lishy v. O’Brien, (4 Watts, 141); Moses v. Murgatroyd, (1 Johns. Rep. 129); Phillips v. Thompson, (1 Johns. Rep. 422); Perfect v. Musgrove, (6 Price, 111; s. c. 2 Eng. Exch. Rep. 403).
   The opinion of the Court was delivered by

Gibson, C. J.

The rule in Thomas v. Courtney, (1 Barnew. & Ald. 1,) that collateral securities are not to be delivered up, if there be no stipulation for it, and the debt be not extinct, comes to us with the authority of precedent, and the recommendation of good sense. Why should the creditor be held to what is not a condition of the assignment ? He professed to release the debtor’s liability, and no more. A debt extinguished, may be considered as paid ; but it is not extinguished where there is a surety liable for it: and what else is a collateral security ? It was emphatically a surety in this instance, for it was thrown in as a makeweight for the drawer’s insufficiency. It stood sponsor for a name; and if the debt stands good against either, it is the sponsor. It will not be pretended that to release an endorser, is to release.the maker. A release can embrace a party not named in it, only when there was a joint, or a joint and several liability, or the parties stood in the relation of principal and ♦surety; and the liabilities of drawer and endorser are undoubtedly several. To release the drawer would release the endorser, on the principle that the release of a joint obligor can be made good only by protecting his fellow, to whom he would otherwise be liable for contribution; and as the releasor is bound to abstain from acts that would destroy the effect of the instrument, he would not be suffered to extract the debt from the maker through an endorser. But no. such principle is requisite to give entire effect to a release of the endorser, to whom the maker is not contingently liable. The liability of the maker to the holder is not circuitous, but direct. The promise is to pay disjunctively to the payee or his substitute; and the recourse of the holder to the maker is not intercepted by cutting off the collateral liability of an endorser. It is the extinguishment of a concurrent, but several liability, and no more. But granting that this note was made for the accommodation of the endorsers, on whose part the law would undoubtedly imply a contract of indemnity which might make them liable to the maker, still the collateral securities stand in the place of a surety not entitled to indemnity, and whose exemption is not necessary to ensure the personal exemption of the endorsers. By the terms of the release, they were to be no further exempt; and as the assignment could pass only what they had power to control, the previous hypothecation of the securities could not be impaired by it.

Judgment for the defendant.

Cited hy Counsel, 1 Jones, 124.

Cited by the Court, 2 Watts & Sergeant, 490.