Case Name: Osborn v. Low
Court: Supreme Court of Ohio
Jurisdiction: Ohio
Decision Date: 1883-01
Citations: 40 Ohio St. 347
Docket Number: 
Parties: Osborn v. Low.
Judges: 
Reporter: Ohio State Reports, New Service
Volume: 40
Pages: 347–353

Head Matter:
Osborn v. Low.
1. A valid agreement for extension of time of payment:of a promissory note need not be express, but may be implied and made out by circumstances, in which a right to sue is not reserved.
2. The payment of usurious interest in advance, and an agreement to pay interest at the legal rate named in the note previously delivered, constitute a valid consideration, for a definite extension of time of payment. And when such agreement is made without the knowledge and consent of the surety, he is thereby discharged. Jones v. Brown, 11 Ohio St., cited and explained.
Error to the District Court of Montgomery County.
The facts are stated in the opinion.
Marshall & Gottschall, for plaintiff in error.
The payment of usurious interest in advance by the principal to the payee, without the consent of the sureties, releases the sureties.
It is a well settled principal of law, that if the creditor, by agreement with the principal debtor, or by any other act, precludes himself at law from proceeding against the- principal debtor, the surety is discharged. McGornb v. Kittridge, 14 Ohio, 348, 350.
The agreement to pay usurious interest and the payment of such interest for a definite time, constitutes a good eonsideration. Blazer v. Bundy, 15 Ohio St., 57, 64.
A promise by the principal debtor to pay usurious interest, is a sufficient consideration to support an agreement by the creditor to give further time, and operates as a discharge of the surety in the note for the original loan. Wood v. Newkirk, 15 Ohio St., 295 ; Austin v. Dorwin, 21 Vt., 38 ; Tunell v. Boynton, 23 Id., 142 ; Wheat v. Kendall, 8 N. H., 504; Vilas v. Jones, 10 Paige, 76 ; 2 Am. Lead. Cases, 420; Fawcett v. Freshwater, 31 Ohio St., 637; Daniels on Neg. Inst., § 1317; Naff v. Homer, 63 Pa. St., 327; Huff v. Cole, 45 Ind., 300 ; White v. Whitney, 51 Id., 124 ; Myers v. National Bank, 78 111., 257.
The agreement for extension need not be in writing, nor in any precise words, nor even in express language, but maybe found by the jury from circumstantial evidence of intention. Brooks v. Wright, 13 Allen (Mass.), 72.
Part payment of a note before maturity and agreement to extend the time, is a good defense and a bar to the action until such time expires. Feck v. Beckwith, 10 Ohio St., 497.
The inference of an agreement to extend the time on the payment of the two per cent, in advance, is authorized by a general proposition “ that a party receiving the consideration is bound to perform the thing for which the consideration was paid and received.” People's Bank v. Peirsons, 30 Yt., 711-715.
Young & Young and Thomas O. Lowe, for defendant in error.
I. The law is, that the contract to delay payment in order to discharge the surety must be (1) a valid one; (2) definite in its terms; (3) founded on a good consideration, such a one as the principal debtor could enforce; one which ties up the hands of the surety, prevents him from paying the debt, stepping into the creditor’s shoes and prosecuting the principal debtor himself. Such a contract (4) made without the sureties’ consent discharges him. But it must have all of these characteristics. Jenkins v. Clarkson, 7 Ohio, 75.
A controlling question is: Does the contract bind the creditor and prevent him pursuing his remedy against the principal debtor. Byers v. Hussey, 4 Col., 415.
In the first place, there was no contract binding upon the parties? The indisputable facts are that the only agreement ever made for the extension of time on these notes was made verbally, before their execution and delivery, and that the subsequent actions of the parties were pursuant to this early agreement. This being the case it had no efficacy, and all, parties were at liberty at any time to disregard it, on the familiar principle that all prior or contemporaneous negotiations are lost or merged in the written contract. Parol evidence is incompetent to show terms and conditions variant from, or in addition to, the written agreement executed by the parties, which were agreed to verbally prior to or at the time the contract was reduced to writing. Thurston v. Ludwig, 6 Ohio St., 4; Jones v. Brown, 11 Id., 601.
Part payment of a debt already due is not a sufficient consideration to support an agreement to extend the time for the payment of the residue. Turnbull v. Brock, 31 Ohio St., 649.
II. Payment of usury in advance is not a sufficient consideration for an agreement for extension of time. Hock v. Block, 29 Ohio St., 565; Good v. Sutton, Id., 587, 595; 2 Am. L. C., 420; State v. Board of JEd., 35 Ohio St., 519; Vilas v. Jones, 1 Comstock, 274; Hartman v. Daniels, 74 Pa. St., 36; Nightingale v. Meginnis, 34 N. J., 461; Hoivell r. Stein, 1 Lea (Term.), 360; Shaw v. Binherd, 10 Inch, 227; Meiswinlde v. Jung, 30 Wis., 361.
In Me Comb v. Kittredge, 14 Ohio, 348; Blazer v.- Bundy, 15 Ohio St., 57; Wood v. Kewhirh, 15 Id., 295, 299, and in all other eases where it is held that an agreement to pay- or the payment of usurious interest will be a sufficient consideration for an extension, the legal interest was included in the contract; that is to say, the contract was to pay a given rate or- amount of interest, of which part was legal, and so much as was in excess of the legal rate, usurious under our statute; ánd being a valid contract to the extent of the legal rate, was, therefore, a sufficient consideration. But here the legal rate is not included in the usurious payment, but entirely separated from it.

Opinion:
Martin, J:
The defendant in error Low, was plaintiff below. The original action was in the superior court of Montgomery county, upon a promissory note, a copy of which is as follows:
" $1,000. • Dayton, Ohio, April 1st, 1876.
" One year after date we promise to pay to the order of D. B. Low, one thousand dollars, for value received, with interest at eight per cent, per annum, payable at Citizens' Bank, Dayton, Ohio.
" Wilkinson & Evans,
"Osborn, Satcamp & Co."
Upon said note are the following endorsements :
" April 14th, 1877, received on the within note interest in full to April 1st, 1877. D. B. Low."
"April 6th, 1878, received on the within note interest in full to, April 1st, 1878. . D. B. Low."
"Received on the within note, interest up to April'lst, 1879. D. B. Low per C. M. Low."
The plaintiffs in error, Osborn, Satcamp & Co., were sureties and answered that the plaintiff by successive agreements with the principal makers in April of the years 1877, 1878 and 1879, extended the time of payment for one jmar on'each occasion, and thereby discharged the sureties.
The reply was a general denial of the averment of the answer. On the trial of this issue in the superior court, judgment was rendered against the sureties. .A motion for a new trial on the ground that the verdict was contrary to; the evidence, was overruled, and a bill of exceptions con-, taining all the testimony was allowed.
On error to the district court the judgment was affirmed.' And to reverse the .judgment of the district court this case, is here.
The material facts are not controverted, and are as fol-: lows: In April, 1876, Low loaned Wilkinson & Evans $1,000 upon a verbal .agreement that the loan should be at; the'rate of ten per cent, per annum, of which, the usuriour two per cent, was to be paid in advance, and that they were to have the money as. long as they wanted it by paying at the end of each year..the accrued interest and the usurious two per cent, in advance; and thereupon the note sued on payable one year after date with 8 per cent, interest from date was delivered, and the usury, $20, paid down.
In April, 1877, the. note having matured, the principals paid the accrued 8 per cent, interest and also $20, being the usurious two per cent, interest for' the second year.
In April, 1878, the. second year having expired, they paid the accrued 8 per cent, interest for that .year, and also the same- usurious .two per cent, interest in advance for another year. .
In April, 1879, at the end of the third year, they paid their interest due on the note for that year at the rate of 8 per cent.
The extensions and the agreements therefor were made without the knowledge .or. consent of the sureties. No express agreement for,, an extension was made after the delivery of the note.
The assignment of error relied on is that the verdict of the jury is contrary to the evidence. The burden was on the. sureties to prove that one, at least, of the extensions granted by tbe creditor was upon a definite agreement founded on a sufficient consideration. We are of opinion that the acts of the parties after the maturity of the note, fully evidence such agreements.
The repeated payments of accrued interest at the legal rate and of usury in advance for the ensuing year,' are of themselves evidence of the intention of both parties to effect extension of the time for the successive annual terms. They are acts so deliberate and precise as to exclude even a suspicion of inadvertence or mistake. And when unaccompanied by a reservation of a right to sue, they possess all the elements of a contract
Payment of the usury in advance and the agreement to pay the legal rate stipulated in the note, constitute a valid consideration. Fawcett v. Freshwater, 31 Ohio St., 637, and the Ohio cases there cited.
We thus find, independently of the parol agreement made at the inception of the loan, a valid contract for extension made by the creditor with the principal debtor without the knowledge or consent of the sureties. And this discharges them unless the implied agreement is overcome by the testimony. That such contract need not be express and may be established by circumstances admits of no doubt. The principle is stated by Parker, C. J., in Bank v. Colcord, 15 N. H., 119, as follows: " The reception of the interest in advance at several times furnished evidence of a contract to delay, and there is no evidence of a reservation of a right to sue on any of these occasions. This also would have operated to discharge the defendant if without his assent and there had been no subsequent transaction to which he was a party."
Defendant in error claims that the record shows no binding contract, and that this case is identical with Jones v. Brown, 11 Ohio St., 601. It is true the parol agreement was merged in the note. Whether in an issue like this it is competent evidence as a mere circumstance to show the intention of the subsequent acts and assist in raising a presumption of agreement we need not determine. For the sole purpose of fortifyiug the presumption already raised from tbe acts of the parties in this case it was unnecessary, and hence in a very strict sense inadmissible in chief.
The case of Jones v. Brown, supra, was substantially like the case in hand with the significant exception that the note taken by the creditor was payable immediately. There were the same parol agreement and yearly extensions, and similar annual payments of usury in advance and of accrued interest. The court held that whilst the creditor received in advance the usury for the first year he effectually reserved a right to sue by taking a note payable immediately; and as there was no express promise made at the beginning of the subsequent years, the same intent to indulge, with a right to sue reserved, obtained as in the first year.
In the case at bar the record affirmatively shows that there was no such reservation made at the time the note was given, or on any subsequent occasion.
The district court therefore erred in affirming the judgment of the superior court.
Judgment reversed.