Court Opinion

ID: 6409503
Source: CourtListenerOpinion
Date Created: 2022-06-25 11:51:34.347961+00
Date Added: 2024-06-11T15:51:19.560313
License: Public Domain

The opinion was delivered at the March term, 1851.
Metcalf, J.
The composition made with the acceptors would have discharged the drawers and indorsers, if there had not been inserted in the composition deed a proviso that it should not prejudice the holders’ remedies against any other parties besides the acceptors. Bayley on Bills, (2d Amer. ed.) 357, 358. The first question in the case therefore is, what is the legal effect of that proviso ?
It is settled, in England, that a discharge or giving time, by a creditor to his principal debtor, will not discharge the surety, if there be an agreement between the creditor and the principal debtor that the surety shall not be discharged. And this rule of law is applicable to parties to bills of exchange and promissory notes, who are liable only on the failure of prior parties, though they are not technically sureties of those parties. 1 Steph. N. P. 936; Montagu on Composition, 36; Burge on *546Suretyship, 210; Chit, on Bills, (10th Amer. ed.) 420; Byles on Bills, (2d Amer. ed.) 202. See also Mallet v. Thompson, 5 Esp. R. 178. The same doctrine was advanced by Messrs. Hamilton and Riker, in argument, and was recognized by the supreme court of New York, in Stewart v. Eden, 2 Caines, 121, very soon after it had been laid down by lord Eldon, in Ex parte Gifford, 6 Ves. 805. In this last case, lord Eldon said sureties would not be discharged by a discharge of the principal, if there was “ a reserve of the remedy ” against the surety, and that lord Thurlow had so admitted in a previous case not reported. He afterwards laid down this principle more authoritatively in Boultbee v. Stubbs, 18 Ves. 20, and Ex parte Carstairs, 1 Buck, 560. In Ex parte Glend,inning, 1 Buck, 517, he said, “ If a man by deed agree to give his principal debtor time, and in the deed expressly stipulate for the reservation of all his remedies against other persons, they shall still remain liable, notwithstanding the arrangement between their principal and the creditor.”
In Nichols v. Norris, 3 Barn. & Adolph. 41, the court of king’s bench decided that a composition like that in the present case, made with the indorser of a note given for bis accommodation, did not discharge the maker. It was said by the court, that such composition deeds were very common, and that the special proviso took the case out of the common rule as to the discharge of sureties by giving time to the principal.
In 1846, the case of Kearsley v. Cole, 16 Mees. & Welsb. 128, came before the court of exchequer. That was an action for money paid for the defendant, for whom the plaintiff had been surety. The defence was, that the defendant had made an assignment to his creditors, who had covenanted not to sue him. But it appeared that there was a proviso, in the deed of assignment, that any creditor might execute it without prejudice to any specific lien or security, or to any claim against any surety, and that this proviso was inserted with the knowledge and consent of the plaintiff. He was afterwards called on as surety of the defendant, and paid the claim. The question was, whether this payment was to the use of the defend*547ant, or was a voluntary payment, which gave him no right to reimbursement. The court held that the plaintiff was entitled ro recover; he not having been discharged from his suretyship oy the deed of assignment. The opinion of the court was given by Mr. Baron Parke, who fully and clearly stated the lecisions, and the principles upon which they were made, as follows: •“ The question is, what is the effect of a discharge .vith reserve of remedies consented to by the surety? We do ,iot mean to intimate any doubt as to the effect of a reserve of remedies without such consent; and the cases are numerous that it prevents the discharge of a surety, which would othérwise be the result of a composition with, or giving time to, a debtor, by a binding instrument; and the reserve of remedies has that effect upon this principle — first, that it rebuts the implication that the surety was meant to be discharged, which is one of the reasons why the surety is ordinarily exonerated by such a transaction; and, secondly, that it prevents the rights of the surety against the debtor being impaired — the injury to such rights being the other reason; for the debtor cannot complain if, the instant afterwards, the surety enforces those rights against him; and his consent that the creditor shall have recourse against the surety is, impliedly, a consent that the surety shall have recourse against him. This is the effect of what lord Eldon says in Ex parte Gifford and Boultbee v. Stubbs, as to the reserve of remedies; and the general proposition, that, with that recourse, the composition or giving time does not discharge the surety, is supported by those and the following cases: Ex parte Glendinning; Nichols v. Norris; Smith v. Winter, 4 Mees. & Welsb. 454, and others. This point must, therefore, be considered as settled. Some remarks have, indeed, been made by lord Denman, in the case of Nicholson v. Revill, 4 Adolph. & Ellis, 675, on the doctrine of lord Eldon in Ex parte Gifford, throwing doubt on its correctness, on the supposition that lord Eldon had held that a creditor could release one joint and several debtor, and hold another liable by a reserve of remedies; which would certainly be against the decision in Cheetham v. Ward, 1 Bos. & Pul. 630, unless the instrument of release could, by reason of *548the context, be construed to be a covenant not to sue, as it was in the case of Solly v. Forbes, 2 Brod. & Bing 38. But we consider it clear that lord Eldon meant only to apply the doctrine to cases where there was no release, but a composition, or giving time, not amounting to a release, which is the present case; and, with reference to it, the rule laid down by lord Eldon is not impeached by lord Denman’s remarks.” And the decision of the court was, that the surety’s consent to the creditors’ reserve of their remedy against him did not alter the law of the case in favor of the principal.
These doctrines were incidentally recognized by Mr. Justice Wilde in American Bank v. Baker, 4 Met. 175, and were adopted and applied by the court of appeals of Maryland, in Clagett v. Salmon, 5 Gill & Johns. 314.
It is very obvious, that a principal debtor may gain little oi nothing by such a composition, as this, with his creditor; inasmuch as he is left liable to the like proceedings against him by his sureties, which his creditor might have instituted, if no composition had been made. But if he pleases to subject himself to that liability, by voluntarily executing an agreement which has that effect, there is no legal reason why he should not be held to that agreement.
On these grounds, we are of opinion that the holders of the bills, in the present case, were rightly permitted by the master to prove their claims thereon against the drawers and indorsers; the latter not having been discharged by the composition made by the former with the acceptors.
The second question respects the amount which the holders were entitled to prove against the drawers and indorsers. And we are of opinion that each was entitled to prove the full sum due and unpaid, at the time of making proof, on the bill or bills held by him. This question is not settled by any provision in our insolvent laws ; and we therefore adopt the rule applied in bankruptcy. That rule is, that a bolder may prove his claim, under commissions against the drawer, acceptor, and indorser, and receive a dividend from each upon his whole claim, provided he does not receive, in the whole, more than his full due. But there is a distinction in this case, when a *549holder applies to prove his debt against one party, after having received a part of it from another, and when he applies to prove before receiving any payment or composition from another party, or before a dividend has been declared in his favor, under a commission against another party. Any sum actually received in payment, from any party to a bill, before proof made against another, must be deducted from the amount to be proved against any other party. So, as a general rule, must the amount of a dividend, declared on the estate of another party, be deducted. Cooper v. Pepys, and Ex parte Wildman, 1 Atk. 107, 109; see 5 Ves. (Perkins’s ed.) 449, note; Eden’s Bankr. Law, (2d ed.) 155; 1 Mont. & Ayrt. Pract. in Bankruptcy, 202, 203.
In the present case, we regard the composition made with the acceptors, on the 23d of December, 1846, as payment of one fifth of the amount of the bills. The acceptors then conveyed property in trust to pay one fifth, and the holders accepted that conveyance. But all the holders, except May and company, made proof of their claims against the estate of Green and Short, drawers or indorsers, before they made the composition with the acceptors, and were therefore entitled, according to the rule just stated, to prove the full amount then due on then- bills. May and company having made proof after they had executed the composition deed, by which they, in legal effect, had received part payment from the acceptors, were entitled to prove only the amount due after deducting that payment.
■ The proceedings- of the master, from which this appeal was taken, are affirmed in all things, except as to the amouni proved by May and company, which is to be reduced by deducting the sum received by them under the composition with the acceptors.