Court Opinion

ID: 9468423
Source: CourtListenerOpinion
Date Created: 2023-08-05 02:14:24.208105+00
Date Added: 2024-06-11T17:40:51.716612
License: Public Domain

MERRITT, Circuit Judge,
dissenting.
The Court holds that the surety’s payment to the creditor (Precision) of his principal’s indebtedness on the negotiable instrument extinguishes the underlying debt and restricts the surety to an action for subrogation. Thus, since the surety has paid the debt evidenced by the instrument, the assignment of the creditor’s cause of action against the bank for untimely dishonor of the instrument is a nullity. I disagree with this line of reasoning.
There is a clear split of authority on the question whether a surety who pays his principal’s note or draft is restricted to a suit for subrogation or reimbursement on the theory that the surety’s payment discharges the debt. Some courts keep the negotiable instrument alive and permit assignment, and others say it is discharged and dead. See Annots., 36 A.L.R. 553, 575-83 (1925), 77 A.L.R. 668, 672-74 (1932). It appears that Michigan is a jurisdiction that keeps the underlying instrument and indebtedness alive and permits assignment to the surety of the instrument and choses in action arising from its negotiation. See Schram v. Spivack, 68 F.Supp. 451 (E.D. Mich.1946). It seems to me that in light of these cases the fairest decision here is to permit the assignment and to reverse and remand the case to the District Court for a determination of the question whether the bank’s untimely dishonor of the instrument caused the creditor’s and hence the surety’s loss. The court’s formalistic reasoning that the underlying debt is discharged and the assignment a nullity has the effect of throwing the plaintiff out of court because he sought the wrong writ. If he had filed a bill for subrogation or a writ of indebitatus assumpsit, his action would lie but not an action for debt. The case should not be made to turn on this kind of technicality. Moreover, permitting an assignment by the creditor to the surety provides an added incentive for the surety to pay off.