Case ID: scl_16/html/0245-01.html
Source: Caselaw Access Project
Author: {"author": "\n      Mr. Justice Colcock.\n    ", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

The Union Bank, vs. George & William Hall.
    
      The holder of a promissory note, accepting a dividend of an insolvent draww’s effects and releasing him with the ‘consent of the endorsers, does not thereby discharge the endorsers.
    
    
      The firm having endorsed a note, one of the partners may, after dissolution, consent to the holder’s compounding with, and releasing the drawer, and his consent ivill bind the other partner to be answerable )or the balance due.
    
    The defendants George Hall and William Hall, trading at the time under the firm of George Hall and company, endorsed the note of one Andrew Moffett, for ‡27 0,. and it was discounted with the plaintiffs for his benefit. Before it beeame due, he stopped payment and executed an assignment of all his effects, for the benefit of such of his creditors as should, within three months, accept their proportion under the assignment and give him a full discharge. Soon after and before the note fell due, the defendants also failed, their copartnership w'as dissolved and they assigned their property' for the benefit of their creditors. The note at maturity being unpaid, was duly protested against the drawer and endorsers, and was placed in suit against the defendants, of whom William Hall w'as held to bail.
    After he had been held to hail, William Hall called at the bank and recommended to them to avail themselves of Mr. Moffett’s assignment, as the only probable means of securing aiiy part of the debt, saying that the assets of George Hall and company would not be sufficient to pay their own debts, and that if the suit against him was continued, it would only tend to his embarrassment, without any benefit accruing to the bank. No evidence was offered to shew that this application to the bank by William Hall, was with the knowledge or assent of George Hall, and the fact was denied. William Hall was not the agent of the dissolved copartnership nor authorized to wind up its affairs.
    The board of the bank, on the 13th March, 1819, adopted the following resolution:
    “ The committee on accounts having enquired into the na-' ture of Air. Aloffett’s assignment, and finding that there were no privileged creditors, and that the debts were $25,995 64, and the assets $24,965 49, they recommend that the bank should accept under the assignment;” and in conformity with this reso-r lution, the bank, by their president, within the time limited, accepted the assignment and executed a discharge to Andrew Mof-fett, the drawer of the note. The discharge was also signed by William Hall in his own name.
    For the defendants, it was insisted that the acceptance of the assignment and the execution of the discharge, by the bank to the drawer, was at law a discharge of the endorsers; that after the dissolution of the copartnership of George Hall, &. Co. William Hall could not by his acts or recommendations to the bank, affect the rights of George Hall, and that the recommendation of William Hall to the bank did not alter the legal eiiect of the discharge; and then the defendants further insisted, that it was obviously the intention of William Hall in his recommendation to the bank, to accept the assignment of the drawer, to discharge himself from all liability on the note.
    The court charged the jury that the acceptance by the” bank of the dividend of the assigned estate of the drawer, Andrew Moffett, and their final discharge to him, did not, under the circumstances of this case, discharge the endorsers, and that they, the jury, were bound to find for the plaintiffs, the amount claimed by them. The defendant moved for a new trial, on the grounds taken in the circuit court.
    1st. That the acceptance of the assignment by tlie plain« tiffs and the execution of the discharge to the drawer, operated as a discharge to the endorser.
    ■ 2nd. That the discharge of the drawer of a note, though with the consent of the endorser, discharges also the endorser, unless there be an express agreement by him to pay the balance.
    3d. That the recommendation of William Hall to the bank to accept the assignment, after the dissolution of the copartnership of George H all and company, could not operate to the pre-' judice of his copartner.
    4th. That there was no evidence that William Hall was the agent of the copartnership, and he was not in fact their agent.
    
      5th. That no assent, even by William Hal , to remain liable for the balance due on the note, could have been fairly inferred; and if such assent could have been inferred, it could not operate to the prejudice of George Hall.
    
      King, for the motion.
    The rule of law is, that where the principal is discharged, the surety is discharged also, unless there is a special undertaking to remain answerable. Potkier on oblig. (Evans’ edition) 241, 244. In such case, the principal is discharged from his liability to refund to the security who pays the debt or any7 part of it. The only exception is, where it is not a matter of choice, but the creditor is compelled to receive a dividend and discharge the insolvent. Pothier 51. In many instances, if the creditor gives the principal the indulgence of one day, he releases the surety7; and can it be supposed that he may discharge him altogether and still keep the surety bound. It is not in his power to allow the security to proceed against a principal who is discharged from liability to himself. The case ex parte Wilson, 11 Yes. 410, is precisely analagous to the present. There the holders of a bill of exchange, by direction of the assignees of the drawer, accepted a dividend of the insolvent acceptor’s effects and executed a deed of composition: this was held to discharge the drawer. William Hall intended to be discharged; he had given bail and wished to be released from it. Is there any . thing like an undertaking to be answerable for the balance?
    But the agreement, such as it was, was made by William Hall alone, and the question is whether, after dissolution, one partner can bind the other. The rule is that he cannot do so, if his engagement amounts to, a new contract. Does not the agreement to remain answerable for the balance make a new contract? If so, it binds only William Hall.
    
      Lance, contra. The general rule that the discharge of the principal operates the discharge of the surety,, will not be questioned; but we contend that if the sureties consent to the discharge, they remain liable. It does not require an express promise to pay. If the holder of a bill or note compound with the drawer or acceptor, without the consent of the endorsers. be discharges the endorsers. 1 Bao. Jib. 422, Tit. bankrupt; Chitty on bills, (late Jhner. Ed.) 385; 3 Br. Ch. Ca. 1; 3 Esp.. J\%. Pri. Rep. 146 • By the consent of the endorser, any sort of arrangement may be made with the drawer. Chit, on bills, 370, 376. In this case, the bank acted not only with the consent, but on the suggestion of William Hall; his advice was pursued throughout. In the case relied on, ex parte Wilson, there was-no such consent. The assignees of the drawer, supposing the-acceptor a bankrupt, according to the English understanding of the. term, who would be discharged by operation of law, directed the holder to receive a dividend of his effects. They au-thorised, no composition.
    Though one partner, after dissolution, cannot bind the other by a new contract, he may bind him by his admission in relation to a previous contract. 2 Bay,. 533; Chitty on bills,, 48; 1 Phil. Ev. 73. The liability of the endorsers, for which wc contend, is on the contract into which they entered, by their endorsement. The release which is claimed for them is by operation of law. The statute of limitations effects a release by operation of law; yet there is no doubt but that the acknowl-edgement of one partner, after dissolution, will take a demand. Out of the statute. 6 Johns. Re. 567; Chit, om bills, 52, n. 1\ Id, 479, n. i; 2 Phil. Er, 87; I Cons. Rep. 148.
    But if George Hall is released, William Hall, who consented to the composition, is not. Where one partner executed a bond in the partnership name, it was held the several bond of him who signed. 2 Bos. Sf Pul. 338.
   The opinion of the court was delivered by

Mr. Justice Colcock.

The doctrine of law on this subject is well settled and admits of no doubt. Where the acceptor of a bill or the maker of a note, becomes insolvent or offers to compound his debts, the holder of a bill or note who accepts such composition and discharges the the acceptor or maker, thereby discharges the posterior parties, unless they have previously consented to his executing the composition deed. 1 Bacon, 422, title Bankrupt: Chitty on Bills, (American edition) p. 383-4-5.

What is the irresistable conclusion from this language, ■“unless they have previously consented”, that where they do .consent, they are not discharged: and this follows not only from the language of the law, but from the reason on which the law is founded. Why is it that a discharge of the maker is a discharge of the endorser? Because the recourse of the endorser to the maker is thereby destroyed, and no one can deprive another of his rights without his consent; but he may give them up if heplease. If the endorser finds that the maker will never be able to pay the whole debt and he is thereby jeopardized, it is to his advantage that the debt be diminished, and he is thus led to consent; and it is certainly not less absurd to say that a man may not surrender his his rights, than to say he shall be deprived of them against will.

But it is said the rule is not of universal application; and to shew this, the case ex parte Wilson, from 11 Vesey Jun. 110, is relied on. 'On an examination of the case, I am satisfied that so far from impugning the general doctrine, the chancellor in his decision expressly recognizes it, dissenting, however, from a distinction of Lord Thurlow’s, as to the acceptor’s or drawer’s having effects; a distinction which if well founded would exclude the case before us. In the first place, the parties in that case were all acting under a mistaken view of the situation of the acceptor; they all supposed him a bankrupt. In that case, the-acceptor in Hamburg failed and., as was supposed, became -a bankrupt; afterwards the drawer became bankrupt, the bills having been previously protested. The holder applied for a dividend of the drawer’s effects, but the assignees of the drawer said, “ no, you must first apply to the acceptor’s funds; receive your dividend and then we will let you in for a dividend of the drawer’s effects.” The holder sent to Hamburg, and without enquiring into the tacts, received by his agent a portion of the acceptor’s effects, and this agent signed a composition deed. When the fact was disclosed and the holder applied for his. dividend of the drawer’s effects, he was resisted upon the general doctrine, the application of which he attempted to retort by saying, “ you sent me to receive the money;” She answer to this, however, was conclusive as to the law, “we did not consent to his discharge; Aye sent you to receive the dividend of a bankrupt’s estate, who is by law discharged; you should have looked into the facts;” so that the law turned on the Avant of consent.

It is further urged in behalf of the defendants, that the facts of the case will warrant the belief that it was the contract of the parties that the defendants should be released, as Avell as Mof-fett, and this it is said is apparent from the language of William Hall to the bank; “ if you persist in your suit, you will only embarrass me and receive no benefit yourselves, for the assets of George Hall & Co. Avill not pay their own debts.” In order to give construction to these words, lei us look to the facts. The note had been regularly protested; all the parties sued, and William Hall held to bail. The amount of Moffett’s debts were about $25,000, and *he assets $24,000. The deed of Moffett was signed by about thirty creditors; the deficiency contemplated was about $1,000, Avliieh divided among thirty creditors would make the loss of each a little more than thirty dollars. In tlie first place then, it is not unreasonable to suppose that Hall did not regard so trifling a balance; but if his object had been to be discharged, can it be believed that he would have failed to say so expressly; his letter then is only a proposition. Suppose, however, that Hall really intended that he should be discharged; does it follow that the bank agreed to this part of his arrangement. Do not the circumstances of the case show beyond all doubt, that they did not. Why was not the note given up? Why were not Flail’s bail released from their bond? Does a man pay a debt and leave tlie evidence of the debt in the hands of his creditor? Does he suffer his friend to remain bound, when he has discharged his liability? This is utterly inconsistent with the conduct of á man of business. Again, suppose it Avas Hall’s intention to be released, why should the bank comply with this part of his requisition? What was the consideration which was to induce them to release him? Not the money received from Moffett; for if they had intended to discharge Hall, they could have taken the dividend of Moffett’^ assets without the leave of Hall.

King, for motion.

Lance, contra.

On the last ground, it is only necessary to point to that clear distinction laid down by the law, between those acts which a co-partner may do after the dissolution of the copartnership, and those which he cannot do. After the dissolution of a copart-nership, one copartner cannot create any new liability, but he may keep alive an old one; one copartner may, after the dissolution of the copartnership, revive a debt barred by the statute, Simpson & Morrison, ads. Geddes, 2 Bay, 533. Here no new liability has been created, but an act done which lessens the liability which did exist. Where an act is done for the benefit of one, his assent is implied. But there is one fact in the case which to my mind is conclusive on this point. On the failure of George Hall ap¿Co. they assigned their effects-to Kiddle and M‘Neill & Co. who may then be considered as ' their agents, for the purpose of collecting and paying their debts; and they as assignees of George Hall, & Co. (so expressly styling themselves) sign the discharge of Moffett; what ground of complaint then can George Hall have?

The motion is discharged.

Bay, Gantt, &/■ Johnson Justices, concurred.