Case ID: ohio-st_24/html/0190-01.html
Source: Caselaw Access Project
Author: {"author": "\"Welch, J.", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

The National State Bank of Newark et al. v. George Davis, James Dair, and John Beggs.
    1. "Where an accommodation indorser of notes took from the principal debtor a mortgage conditioned to save the indorser harmless, and to pay him all money he might be compelled to pay, and might pay, on account of such indorsements ; and at the maturity of the notes, having been informed by the principal that he could not and would not pay the same, the indorser, in order to save the notes from going to protest, paid the same without protest: Reid, that this was a payment within the purview of the condition of the mortgage, for which the indorser was entitled to the benefit of the mortgage security.
    2. Where such principal debtor had in his hands money of the accommodation indorser, or was indebted to him, in a sum equaling the amount ' due upon the indorsed notes, and in pursuance of an agreement between them, and with the intention to preserve the indorser’s mortgage security, the money so in the hands of the principal debtor, or so due from him, was applied by him in payment of the notes, and charged to the indorser as money paid on his account, and the notes so paid delivered to him: Reid, that this was in law a payment by the indorser and not by the principal debtor.
    Motion for leave to file a petition in error to the District Court of- Hamilton county.
    The defendants in error were accommodation indorsers of David Gibson & Co., and the case below was an action brought by these indorsers to foreclose a mortgage given to them by David Gibson, to indemnify them as such indorsers. The plaintiffs in error were judgment creditors of David Gibson & Co., having liens upon the mortgaged property, and were, with other creditors having like liens, made defendants with David Gibson & Co. The condition of the mortgage was, that if the said Gibson should “save and hold said Davis, Dair, and Beggs, and each of them, harmless of and free from all loss, liability, or damage,” and should pay “them and each of them” any and all sums of money which they or either of them “ might be compelled to pay ” on account of said indorsements, or any of them, and in consequence thereof, then the mortgage should be void, otherwise in full force.
    
      The cause came into the District Court by appeal, and-was there tried. From the record, which includes a bill of exceptions setting forth all the evidence, it appears that Davis, Dair, and Beggs had been compelled to pay a large part of the several notes so indorsed by them, and had an undisputed lien therefor preferable to that of the judgment creditors; and the only questions in the case were, whether the sum of $14,548.61, the amount of the first of a series of said notes falliug due on the 24th of June, 1871, and then paid, was paid by Dair or by Gibson & Co., and if paid by Dair, whether the payment was one for which he was entitled to the mortgage indemnity. The evidence bearing upon these questions is substantially as follows:
    Gibson & Co. were commission merchants of Cincinnati, Ohio, and these notes falling due on the 24th of June, 1871, were the first of a series of notes given by them to their creditors, by way of compromise, the firm having lately failed or suspended payment. Dair was a distiller, of Harrison, Ohio, and regularly made sale-of the products of his distillery through the house of Gibson & Co., as his commission merchants, and also transacted his general money matters through that house. A few days prior to the maturity of these notes, Gibson & Co. informed Dair that they would be unable to meet them; and it was then agreed that, in order to prevent their going to protest, the money of Dair then in the hands of Gibson & Co., orwhich should come into their hands before the maturity of the notes, instead of being paid over to Dair, should be applied and used in payment of the notes. This arrangement was accordingly carried out by Gibson & Co. at the maturity of the notes, the amount of money in their hands at that time' so belonging to Dair, or due for sales made on his account, being riiore than sufficient to pay the notes. The agreement was, that “ Dair’s money should be used ” to pay these notes, and that he should “ hold the notes for it.” The .notes were payable in the Commercial Bank of Cincinnati, where Gibson & Co. kept their bank deposits, and were paid by a single check, drawn by Gibson & Co., upon the bank, covering the amount of these notes and one other note, and Dair was not present at the time of payment, nor was his name in or upon the bank-check. The payment was made after banking hours on the last day of grace, but without protest of the notes. Immediately upon payment the notes were canceled and marked “ paid,” and were by Gibson & Co. put into an envelope, indorsed with Dair’s name, and placed with other papers belonging to Dair then in the custody of Gibson &, Co., where they remained till subsequently delivered to Dair; and Dair was immediately charged on the books of Gibson & Co. with the $14,548.61, the amount of the notes.
    Upon this evidence, the District Court held that the payment of this sum of $14,548.61 was in law and in fact a payment by Dair, and that he was entitled to be protected therefor under the mortgage, in preference to the claims of the judgment creditors, and rendered a decree to that effect. In so holding, it is claimed that the District Court erred, and leave is now sought to file a petition in error to reverse their judgment.
    J, P. Murdock, for the motion :
    I. The indorsers were not liable on the notes until after the makers had refused to pay. They never did that; on the contrary, the first series were paid by the makers in the ordinary course of business before the close of banking hours, and before protest. The clause of defeasance in the Gibson mortgage was saved, and the indorsers being left harmless, were never compelled to pay them.
    Davis, Dair, and Beggs were accommodation indorsers, and only bound to pay if David Gibson & Co. did not. They can not insist on the mortgage until their liability is fixed. A discharge of the indorsers by negligence or payment is a discharge and satisfaction of the mortgage, so far as that debt was concerned, because it takes away the contingency on which alone it could be enforced. Telford v. James, Adm’r, 7 B. Mon. 337; Franklin Bank v. Pratt, 
      31 Me. 501; Bonham v. Galloway, 13 Ill. 74; Edwards on Bills, 566.
    II. This mortgage being given to indemnify indorsers,, they can only foreclose after they have paid the debt, not before — it being the specific debt on which they were indorsers. Shepherd v. Shepherd, 6 Conn. 37; Thurston v. Prentiss, Walker’s Ch. (Mich.) 529.
    III. The first series of notes having been paid by the makers, the said indorsers were fully indemnified as to them,, and the mortgage was satisfied, pro tanto, and can be enforced only as to the remainder. It can not be kept alive-because there was a book-account due James Dair. Abbott v. Upton, 19 Pick. 434; Yelverton v. Sheldon, 2 Sandf. Ch. 482; Thompson v. Van Vechten, 21 N. Y. 575; Purser v. Anderson, 4 Edw. Ch. 19; Fitch v. Cotheal, 2 Sandf. Ch. 29; Starr v. Ellis, 6 Johns. Ch. 393.
    IY. The money so paid was, in the eye of the law, that, of the makers, David Gibson & Co., even. although the* funds were borrowed from James Dair for the purpose of making the payment.
    Money so paid is always presumed to be that of the person benefited by the payment, and the debt is satisfied, not by the money of a third party, but by that of the debtors themselves. Garr v. Martin, 20 N. Y. 306; McLennon v. Pinkerton, 31 Ala. 266.
    There can be no agency here. David Gibson & Co. used their own money, and did not in any way pay the notes-with James Dair’s money or as his agent, and payment by the makers is always extinguishment.
    Y. There is no instance where a court of equity has kept an indemnity mortgage alive, to the prejudice of subsequent incumbrancers, where the debt secured against has once been paid to the creditor and extinguished.
    
      G. D. Coffin, also for the motion,
    insisted that the mortgage was given to save the mortgagees harmless from all sums they might be compelled to pay by reason of their indorsements; that the mortgage became available only when their liability became absolutely fixed. O. L. Ins. & T. Co. v. Reeder, 18 Ohio, 35-46. That Hair was not in any legal sense compelled to pay these notes or any part of them. 'The makers of the note voluntarily paid them on the day they were due, by a check drawn by Gibson & Co. upon ■Gibson & Co.’s credit in bank, and not upon Hair’s funds.
    Notwithstanding the agreement claimed to have been made a week or ten days before the maturity of the notes, Hair in fact furnished no money to Gibson & Co. to take up the notes. It was a simple agreement by Hair that Gibson & Co., if they owed him money on the 24th of June, instead of paying him, might pay the notes. But on that day Gibson & Co. owed Hair less than $5,000. The agreement was in effect that Gibson & Co. should pay the notes at maturity to the holders, and he (Hair) would aid Gibson & Co. by waiting on them for payment of the amount coming from them to him.
    
      Caldwell, Coppoek $ Caldwell, contra:
    It is not true that Gibson & Co. were not indebted to Hair on June 24, 1871, in a sum sufficient to pay off' said first series of notes.
    Havis, Hair, and Beggs indorsed these notes for the accommodation of Gibson & Co. to enable them to go on in business, and when Gibson & Co. found that they would be unable to meet them, they saw Hair, and notified him of the fact. It was important to the indorsers, for their commercial credit, that these notes should not go to protest. It was the duty of the indorsers to meet these notes at maturity, if Gibson & Co. did not do so. They had indorsed them for that purpose, and the creditors had received them because they were so indorsed. Hair did just what he ought to have done, and what it was understood and expected he would do when the notes were iudorsed. He took up the notes and held them.
    Gibson & Co., on June 24, 1871, owed the amount of these notes and interest to James Hair, and had the money In the hank. They had it there because Dair had permitted them to retain that much money arising from the sale of his whisky, for the express purpose of paying these notes.
    It was not necessary that Dair should have been there in person, and delivered the check to the bank and received the notes. It was a transaction that could be done through .an agent, and he made Gibson & Co. his agent for that purpose.
    It was not necessary for Dair to wait till the notes were protested before paying them. That would only have increased the cost, and injured the credit of the parties to the paper.
    ' The indorsers were compelled, in the sense in which the •word is used in the mortgage, to pay these notes as soon as they were notified by Gibson & Co. that they could not pay them, and it was their duty,’ as well as their right, to .save the paper from dishonor.
   "Welch, J.

We concur with the court below. We think -the payment of the $14,548.61 was in law and in fact a payment by Dair, and not by David Gibson & Co. We are of opinion also that it was a payment made within the purview of the condition of the mortgage, entitling Dair to its protection. The transaction was in legal effect precisely' what it would have been had Gibson & Co. paid the money to Dair, in discharge of their liability to him, and had Dair himself applied the money in payment of the notes. If we believe the witnesses at all, and there seems no reason to ■doubt their truth, it is evident that Gibson & Co. acted as the agents of Dair, and instead of paying the money over to him, as they otherwise, doubtless would have done, at his request and as his agents, they paid it in satisfaction of the notes and for his benefit. The fact that some part of the money thus appropriated may have been still outstanding, in the hands of parties to whom whisky had been sold by Gibson & Co. for account of Dair, does not seem to us to vary the case. If such were the fact, the arrangement between the parties had the effect to transfer these outstanding claims to Gibson & Co., if the latter were not already properly chargeable with the same. Whether they were-then chargeable with the whole of the amount so paid, seems to be a controverted fact. We deem it immaterial. But were it material, we should feel bound by the finding of the court below, which seems to have had evidence sufficient to warrant a finding that the whole amount was-chargeable to Gibson & Co.

Nor do we see any validity in the objection that the-notes were paid withput being first protested. The makers-had already declined to pay them, and had informed Bair of the fact, and of their inability to pay. A protest was therefore useless, and worse than useless. It was for the very purpose of saving them from protest that they were paid by Dair. The law never requires a useless and nugatory act. Payment to prevent an impending, and-otherwise unavoidable protest, is a compulsory payment,, equally as if made after protest.

Motion overruled.

Day, C. J., McIlvaine, Stone, and White, JJ., concurring..