Court Opinion

ID: 6142903
Source: CourtListenerOpinion
Date Created: 2022-02-05 14:43:31.262254+00
Date Added: 2024-06-11T08:54:43.326424
License: Public Domain

By the Court. Woodruff, J.
The referee has found, in this case, that the plaintiff sold to the defendants the goods for the value whereof this suit was brought, and took the promisory note of N. K. Ballard, payable to the order of one of the defendants, and indorsed by both of them, in payment for the goods.
And he concludes, as matter of law, that, inasmuch as the defendants indorsed the note, the plaintiff was at liberty, after the maturity of the note, to sue the defendants for the value of the goods, and bring the note into court to be returned to the defendants; and, under that view of the law, he has reported in the plaintiff’s favor for the original demand with interest.
I understand the rule to be well settled that taking the note of the purchaser of goods sold, or the note of a debtor for a preexisting debt, is never deemed payment.
So that taking the note of a third person for a preexisting debt is not payment, unless it be expressly agreed to take the note as payment; and yet, in this latter case, even if there be no express agreement to receive the note as payment, if the creditor is guilty of neglect in not presenting the note; or, if he passes it away, it will operate as a satisfaction of the original debt.
But where the note of a third person is given for a precedent; debt, upon an express agreement that it shall be deemed payment or satisfaction, the debtor is discharged as truly and effectually as if satisfaction of the debt had been made by tlm *514delivery and acceptance of a chattel or the conveyance of land.
So on a present sale of goods, if the terms of sale assented to by the vendor are that he shall receive the note of a third person in payment, the delivery and acceptance of the note are as truly payment as if the sale was for cash and the money was paid.
It frequently becomes difficult, upon conflicting evidence, to say whether a note so received was taken • in payment or not; and then the circumstance that the debtor or purchaser continued his liability by guaranteeing the note, is of great weight if not conclusive in the vendor’s favor.
Where there is an absolute and unqualified guaranty that the note shall be paid, it seems clear that the note will not operate as payment, but only as a security extending the term of credit. Such an absolute liability is inconsistent with the idea of payment; for, the guarantor, if liable, is so in respect of the original consideration, whether sued upon his guaranty or for the goods. And where there is a sale of goods, and in consideration thereof there is an absolute undertaking for the payment of the price, the consideration may be resorted to as well as the express agreement. Familiar cases are those where one purchases goods and gives his note therefor. The vendor may sue for the goods, and bring in the note to be cancelled, or may sue on the note. So where, instead of his own note, the buyer gives an absolute guaranty of the payment, even though the form of guaranty is that the amount shall be paid upon a note made by a third person.
This is consistent with the familiar rule, that one security of the same nature does not extinguish another. And if the guaranty be absolute, it cannot be payment, for the two things are irreconcilably hostile to each other and inconsistent. One cannot in law nor in the language of reason be said to have paid for goods, the payment for which he has absolutely and without condition guaranteed.
But there are other modes of continuing the risk of the purchaser, and between a payment by the note of another and a plain continuance of the original liability there are circum*515stances to be weighed in determining whether the note in question was received as payment or only as security.
The cases warrant us in saying that, where the liability of the purchaser is continued in any form, whether absolute or qualified, it is a circumstance going very strongly to show, and perhaps in the former case conclusively showing, that whatever the terms employed were, there was no real agreement to receive the note in payment and discharge of the debt.
And, in respect to this subject, there is a difference between the alleged payment or satisfaction of a precedent debt, and a payment on a present sale. In the former case, the debt exists and is unconditional; the creditor’s right to payment is unqualified, and ought not to be and cannot be divested without the acceptance of an equivalent, and where, in such case, the debtor gives the note of a third person, it may be payment, if such is the whole agreement; but, if the debtor continues his own liability absolutely, it is a misuse of language to call it payment, although the parties use the term.
And, if the note be not paid, then the original consideration for the guaranty has not been satisfied; it was a giving of credit in fact and in law, and nothing more.
But a present sale of goods is of a different character. The vendor may sell and does sell upon any terms that please him, and his contract of sale is a single contract. If by that contract he gives his goods for half their value, he is bound. If he gives them for a note of the purchaser, he must abide its tenor. If he sells for the note of a third person, it is a mere exchange of property, he cannot look to the purchaser. If he requires a guaranty, general or conditional, he must pursue it.' If he requires the purchaser to indorse the note for which he makes the sale, he holds such purchaser’s liability as indorser, and nothing more.
In respect to the form of action or mode in which the purchaser in these cases is chargeable, the vendor is bound by his contract of sale; and why should he not be so, when it is upon the terms of that contract, and only upon those terms, that the purchaser consented to receive the goods ?
*516It is true that, even in these cases, the vendor may, when the undertaking of the purchaser is absolute, and he is in default, proceed upon the original consideration. It is in respect of the goods that the latter is liable, and the production of the undertaking would be evidence of the breach of the conditions of the sale by the purchaser, or a breach of the agreement of the latter, which entitles the vendor to treat it as at an end, proceed for the consideration.
■ But where the undertaking of the purchaser is not absolute, but conditional, it is not enough to produce the agreement to be surrendered. Here is no agreement to pay for the goods, but only in consideration of the goods an agreement to enter into a special undertaking, which may or may not result in a liability; as, for example, a purchaser offers to give the note of a third person for goods, coupled with an agreement that if the note should not be paid when due, and should be sued within ten days thereafter, and judgment entered up, and execution issued with due diligence, and should not be collected, he would then pay the amount due thereon, or one half of such amount; or a sale of goods should be made upon any such special terms, can we hesitate to say that the vendor must resort to his special contract ?
So I apprehend where a vendor sells goods and, as a part of the same contract, receives a note of a third person as payment, though indorsed by the purchaser. In truth, in such .case, the only engagement made by the so-called purchaser is that of a commercial indorser. In strictness, he never agreed to pay for the goods, but only that if the note be not paid upon due demand thereof at maturity, he, on receiving due notice, would pay the same. If the note is expressly agreed to be payment for the goods, the above is the only contract between the parties, and the vendor is bound thereby as truly .as the other party.
The case- of Booth v. Smith, 3 Wend. 66, is even a stronger .case, for in that this view is extended to the satisfaction of a precedent debt. (See case there cited.) And the case of Frisbie v. Larned, 21 Wend. 450, is to the same purport, and the *517principles above suggested are sustained by reference to numerous cases. In Waydell v. Luce, in the Court of Errors (3 Denio, 410), these cases are cited with approbation. And Talcott, Senator, says, of a case of satisfaction of a precedent debt by giving a new security, “ the creditor must rely upon his new claim in the assertion of his legal rights.” So here the vendor must rely upon just such a contract as was tendered to him, and with the conditions upon which alone the defendants became liable at all.
The cases of Tobey v. Barber, 5 Johns. 68; Butler v. Haight, 8 Wend. 535, and Vail v. Foster, 4 Coms. 312, do not conflict with these views. They show that unless the note of the third person is expressly received in payment, it will be regarded as collateral security only, or, at most, as extending a credit till the note becomes due. Monroe v. Hoff, 5 Denio, 360, shows very properly that, in considering the question of fact, whether a note was received in payment or not, the circumstance that a guaranty in terms absolute was indorsed thereon, was evidence, and I think it might have been held very strong if not conclusive evidence, that the note was not received as payment.
My conclusion is, that where, on a present sale, the negotiable promissory note of a third person is received as payment therefor, it will have that legal effect although the purchaser indorses the note, and that in such case the vendor is bound to treat the purchaser as an indorser of commercial paper, subject to the rights and liable only to the obligations of such an indorser; and, for this reason, that the judgment herein should be reversed and a new trial ordered.
It is proper to add that, although the referee has stated in his report that the note in this case was protested at maturity, there is no evidence in the case to that purport, and this was conceded by the counsel for both parties on the argument.
Judgment reversed and new trial ordered.